In November 2019, a three-judge panel of the U.S. Court of Appeals for the Eleventh Circuit held that class plaintiffs had standing to sue when they purchased supplements that were not approved by the U.S. Food and Drug Administration (FDA), and were thus “worthless,” depriving plaintiffs of the benefit of the bargain. Debernardis v. IQ Formulations, LLC, 942 F.3d 1076 (11th Cir. 2019). Interestingly, plaintiffs did not allege that the supplements did not work, that they paid a premium, or that the supplements caused adverse health effects. Plaintiffs pled only economic loss consisting of the entire purchase price of supplements they alleged were adulterated and their sale prohibited by the Dietary Supplement Health and Education Act (DSHEA), Pub. L. No. 103-417, 108 Stat. 4325 (1994).
At first glance, the Eleventh Circuit’s decision could prove problematic for any defendant in a products liability class action. However, the procedural posture of the case, its unique facts, and the statutory regime at issue likely narrow the scope and applicability of the Eleventh Circuit’s holding.
Plaintiffs in Debernardis brought a putative class action against IQ Formulations and Europa Sports Products, alleging that they were injured after they purchased Synedrex, which contains an ingredient not approved by the FDA, MethylPentane.
Defendants moved to dismiss, arguing that plaintiffs lacked standing to sue because they failed to allege “that the supplements failed to perform as advertised, that the supplements caused any adverse health effects, or that plaintiffs paid a premium for the supplements.” Essentially, defendants argued that plaintiffs failed to allege that there was an injury in fact, which is a prerequisite to standing.
Relying on a benefit-of-the-bargain theory, plaintiffs argued that they suffered an economic injury consisting of the entire purchase price because Synedrex was worthless. According to plaintiffs, because Synedrex contained a substance that was not approved by the FDA, it is deemed unsafe for human consumption, is illegal to sell, and had no value as a dietary supplement (i.e., is worthless). Thus, plaintiffs alleged they were deprived of the benefit of the bargain and demanded return of the entire purchase price.
The district court rejected plaintiffs’ theory and agreed with defendants, finding that plaintiffs failed to allege what might be thought of as the traditional forms of injury in a products liability action—that the product did not work, that plaintiffs purchased a defective product, or that the product had an adverse health effect on plaintiffs.
The Eleventh Circuit reversed, finding that plaintiffs’ injuries were sufficient to establish standing at the motion to dismiss stage. The Eleventh Circuit first found that plaintiffs sufficiently pled that Synedrex is an adulterated product and is illegal to sell. Pursuant to DSHEA and the Federal Food, Drug, and Cosmetic Act (FDCA), 21 U.S.C. § 301 et seq., the FDA has authority to regulate and approve for sale dietary supplements, such as Synedrex. The DSHEA and the FDA expressly prohibit the sale of “adulterated products,” because they are presumed unsafe for human consumption. Products may be deemed adulterated for numerous reasons, but as relevant here, a product is deemed adulterated if it contains a “new dietary ingredient,” meaning an ingredient not marketed in the United States before October 15, 1994. The Eleventh Circuit then found that plaintiffs did not receive the benefit of the bargain when they purchased Synedrex. Normally, “[a] plaintiff’s damages under a benefit of the bargain theory are calculated based on the difference in the market value of the product or service in the condition in which it was delivered and its market value in the condition in which it should have been delivered according to the contract of the parties.” Because products can often retain some value despite the alleged defect, the entire purchase price is not often recovered as damages. However, there are exceptions to this rule.
According to the Eleventh Circuit, Congress, through the FDCA, deemed adulterated substances unsafe for human consumption. Because Congress deemed adulterated products unsafe for human consumption, a “purchaser of [an adulterated] supplement received a defective product with no value.” This is because supplements are inherently made for human consumption, so if it is unsafe to consume a supplement, it follows that the supplement is worthless. Therefore, the Eleventh Circuit held that—at the motion to dismiss stage—plaintiffs sufficiently pled that their economic damages consisted of the entire purchase price of Synedrex.
Two things should be noted when reading the Debernardis opinion. First, it was decided at the motion to dismiss stage. Second, the court was presented with a unique statutory scheme in which Congress deemed certain single-use products worthless if they could not legally be sold and used.
At the motion to dismiss stage, all allegations in a complaint must be taken as true. Indeed, in order for plaintiffs’ theory to succeed, they had to allege that they would not have purchased Synedrex had they known IQ Formulations failed to comply with federal law. Beyond the motion to dismiss stage, plaintiffs must establish facts showing that there is an entire class who purchased Synedrex because the FDA approved it for consumption. As Judge Sutton discusses in his concurrence, “the discovery process may unearth facts that undermine [plaintiffs’] standing to bring this claim.” Each claimant will need to put forth evidence, for example, that the product was worthless to them, how it did not perform as expected, and that they did not use the product after they found out about the labeling deficiency.
Aside from the standing issue, if it turns out plaintiffs purchased the supplements for reasons other than compliance with federal law, not only could that undermine plaintiffs’ damages theory, but it could undermine their ability to certify a class because it could necessitate individual trials for each plaintiff to determine the reason for purchase. This could lead to manageability and predominance issues that could undercut class certification.
Further, Debernardis involved a unique statutory scheme. The Eleventh Circuit was clear that the particular nature of the FDA regime limited the scope of its holding: “We caution that our decision is limited to the specific facts alleged in this case—that plaintiffs purchased dietary supplements that Congress, through the FDCA and the DSHEA, had banned from sale with the purpose of preventing consumers from ingesting an unsafe product.” Its holding does not reach different products, even those that may be allegedly prohibited for sale under different regulatory regimes. For example, the Eleventh Circuit held that its holding does not apply to products that could be sold lawfully but lack adequate warnings or products that are lawful when purchased but that subsequently become unlawful to sell.
Also, implicit in the Eleventh Circuit’s opinion is the fact that dietary supplements are single-use products intended for human consumption. They do not serve any other purpose. If a product that is intended only for human consumption is actually unsafe for human consumption, its entire purpose is frustrated, and it is valueless when measured by its intended use.
The Eleventh Circuit’s Debernardis opinion must be read in the unique context of that case. It involved a statutory regime that regulates supplements, which have only one use, human consumption. At the motion to dismiss stage, the Eleventh Circuit was bound by plaintiffs’ assertion that they purchased Synedrex because they thought it complied with federal law.