In a somewhat mixed decision for cannabis company defendants, a false advertising class action lawsuit will proceed in the Southern District of Florida – and not be halted while waiting for guidance from the FDA – although some of the claims relating to products not purchased by the plaintiff were dismissed.
The case, Potter v. PotNetwork Holdings Inc. et al., case number 1:19-cv-24017 (S.D. Florida), was one of more than 10 mislabeling class action lawsuits filed in late 2019 against various cannabis companies. The lawsuits all contended, in a similar fashion, that certain purchased products did not contain the claimed amount of CBD listed on their labels, as demonstrated through laboratory testing. Many of the cases have proceeded to the motion to the dismiss stage, with courts rendering decisions on whether the lawsuits should go forward.
In Potter, the plaintiff filed the class action against Diamond CBD (and its parent company PotNetwork Holdings Inc.), claiming that she purchased oil, gummies and watermelon slices products from the Diamond CBD website, with product labels listing the amount of CBD in each product. According to the lawsuit, the products actually contained less CBD than what the labels showed. The plaintiff contended that if she had known that the products contained less CBD than advertised, she would not have purchased them or would not have paid as much as she did.
No Standing to Sue Relative to Products Not Purchased
On the motion to dismiss, Judge Robert N. Scola, Jr. recently ruled that the plaintiff could not bring claims relating to products that she did not buy, in agreeing with Diamond CBD that she lacks standing to sue on behalf of consumers who purchased other allegedly “mislabeled” products that she did not purchase. The court reasoned that although Diamond CBD sells a variety of CBD oils, edibles, capsules, drinks and other cosmetic products, the products are clearly not “essentially the same” in a manner that would allow the plaintiff to pursue claims on behalf of other purchasers who bought different products.
Court Denies Stay Pending FDA Review of CBD
However, the court denied Diamond CBD’s motion to dismiss pertaining to the argument that the plaintiff failed to state a claim under Florida’s consumer protection statute. The court determined that the plaintiff had sufficiently alleged that she incurred actual damages, as “products with less CBD are almost certainly less valuable than those with higher levels of CBD.” Diamond CBD asserted that its labeling followed national uniform standards which permit the quantity of CBD in the product to contain at least 80 percent of the amount written on the label, but the court found that the safe harbor cannot apply without additional facts showing that the products purchased were Class II nutrients subject to the safe harbor standard.
Diamond CBD sought a stay of the case until the FDA puts forth regulations regarding CBD oil products, but the court held that the case should proceed. The court reasoned that while forthcoming FDA guidance could address several aspects of CBD products, the disclosure requirements for nutrients or additives likely would not be among the findings. Thus, the court denied Diamond CBD’s bid to stay the case, finding that any new FDA regulations would not change the factors at issue in the pending lawsuit.
Divergence From Prior Cases
The court’s decision to deny the stay stands in sharp contrast to a more promising ruling for cannabis company defendants facing class action litigation over the alleged misbranding of products containing CBD. As we previously detailed here in January, a different court in the Southern District of Florida stayed the case of Snyder v. Green Roads of Florida, Case No. 0:19-cv-62342-UU (S.D. Fla.) pursuant to the primary jurisdiction doctrine.
There, the court determined that because the FDA is exercising regulatory authority over the labeling of CBD products, litigation claiming that the CBD content listed on a product label and packaging did not match laboratory certificates of analysis of the CBD content must be halted until the FDA completes its rulemaking. The Snyder court accepted the defendant’s argument that the primary jurisdiction doctrine should apply where a case implicates a federal agency’s expertise with a regulated product, and that the doctrine enables a court to take advantage of an agency’s special expertise while promoting uniformity.
The divergence in decisions between Potter and Snyder underscores that while the primary jurisdiction doctrine represents an interesting approach for cannabis companies to consider while seeking to pause litigation pending federal rulemaking, it is not a panacea. Courts can – and do – conduct their own analysis, and cannabis companies facing mislabeling class action lawsuits should be prepared to defend claims.