Herzfeld & Rubin, P.C.- Publications

Products Liability *'Atkins Diet' Alleged Harm; CAFA's Jurisdiction Demands* By Michael Hoenig - New York Law Journal - January 8, 2007	Print article

This column reports on two interesting developments in case decisions recently published in the New York Law Journal. The Gorran case involves litigation over allegedly harmful consequences of following the well-known "Atkins Diet." As will be seen, an attempt to structure the claim within products liability doctrine posed a big challenge. The Blockbuster decision answers a key question in light of new federal legislation, popularly called "CAFA" (Class Action Fairness Act of 2005) intended to enhance removal of certain class actions from state to federal courts. The question is, who has the burden of proving CAFA's jurisdictional requirements, the removing defendant trying to stay in federal court or the plaintiff trying to send the case back to state court?

If a person who goes on the "Atkins Diet," a popular, low-carbohydrate, high-fat, high-protein regimen, develops adverse consequences such as high cholesterol and a clogged coronary artery requiring surgical intervention, may he or she sue the authors and marketers of the Atkins Diet for products liability, negligent misrepresentation and deceptive conduct under a deceptive trade practice statute?

Those were the interesting questions confronting U.S. District Judge Denny Chin of the Southern District of New York whose decision in Gorran v. Atkins Nutritionals, Inc. was published in NYLJ on Dec. 18.¹ Originating in Florida, this lawsuit came to Judge Chin in New York following one defendant's filing of bankruptcy proceedings in New York, removal of the Florida action to the federal court there and, then, transfer to the New York federal court by stipulation of the parties. Although Florida law applied, Judge Chin's thoughtful opinion seems to transcend state boundaries.

Plaintiff was a 53-year-old businessman with a cholesterol level of 146 and, according to a CT scan of his heart, with a "very low risk" of heart disease. After two months on the Atkins diet, including consumption of large amounts of pastrami and cheesecake, his cholesterol level shot up to 230 but he continued on the diet since the book, "Dr. Atkins' New Diet Revolution," and the Atkins Nutritionals Inc. (ANI) Web site advised that rising cholesterol levels were not a reason to discontinue the diet. The regimen advocates a high-protein, low carbohydrate diet and promises consumers "can eat all they want, lose weight and stay healthy" so long as they resist carbohydrates. The book and Web site advised that eating high-fat foods is not a health risk. Fat, according to the book, satiates the appetite, stops carbohydrate craving and accelerates the burning of stored fat.

Heart Surgery

Originally, Dr. Atkins marketed the diet through books, nutritional supplements, herbs and minerals. ANI, a New York corporation, was later established to market the food products and supplements. Dr. Atkins passed away and his estate, with ANI, conducted advertising, promoting and marketing efforts and maintained the Web site. Despite the elevated cholesterol levels plaintiff continued with the diet for more than two years. Then he experienced chest pain. A cardiologist found some blockage of the blood vessels and directed plaintiff to undergo immediate cardiac catheterization which, in turn, found 99 percent blockage of one of the coronary arteries. Plaintiff underwent an angioplasty and insertion of a stent. He discontinued the Atkins diet and, after two months, his cholesterol levels returned to normal.

Plaintiff sued for these injuries and claimed defendants breached products liability duties by providing books, food products, nutritional supplements, minerals and herbs that were defective and unreasonably dangerous. He also claimed that defendants negligently misrepresented and minimized the risks of the diet. Finally, plaintiff claimed that Florida's deceptive trade practices statute was violated by marketing and other activities promoting the diet as safe when defendants knew that at least a substantial minority of their customers were exposed to serious risks. In addition to return of the purchase price of the two Atkins Diet books (some $40) and the cost of various products (some $25), plaintiff sought an injunction which would require warnings against low-carbohydrate diets on all books, Web sites and products.

Judge Chin analyzed each of these claims and, at the end of the day, dismissed the complaint pursuant to defendants' Rule 12(b) motion to dismiss for failure to state a claim. We now summarize briefly Judge Chin's reasons for throwing out the claims. The products liability counts were vulnerable since a food product is not "defective" because it increases the risk of heart disease. The "average consumer surely anticipated that a high-fat, high-protein diet would increase both cholesterol levels and the risk of heart disease." Relying for the foregoing on comments to the Second Restatement of Torts, §402A, and on Florida decisions dismissing products claims against alcohol manufacturers, Judge Chin also observed that plaintiff's mere consumption of $25 worth of defendants' protein bars, pancake mix and syrup was "not sufficient, as a matter of law, to have caused his arterial blockage."

The products claim was deficient also insofar as it was based on the book. The book was not a "product" for products liability purposes. The legal doctrine focuses on "the tangible world." While a defect in the tangible qualities of a book - its cover, pages and binding - could potentially give rise to a products claim, here the suit focused on the book's intangible qualities, its ideas and expressions. Imposing liability for the latter would inhibit the sharing of thoughts and theories since no author would write on a topic that could potentially result in the reader's physical injury. Prior case law supported a dismissal of this claim.

Speech Protected

Next, Judge Chin analyzed the negligent misrepresentation count. The first question here was whether defendants owed plaintiff a duty of care. None was alleged but, even if plaintiff had, such a claim would nevertheless fail. Here the First Amendment's constitutional protection of speech loomed large. The courts distinguish between regulation of commercial versus noncommercial speech. Judge Chin held the Atkins book to be noncommercial speech entitled to full First Amendment protection. The book was not an advertisement for defendants' products but, rather, "a guide to leading a controlled carbohydrate lifestyle." The fact that within its several hundred pages the book contains several references to defendants' products and services does not transform the book into commercial speech.

Defendants' Web site, on the other hand, contained both commercial and noncommercial speech in that it prominently displayed the "Atkins Advantage" brand name and offered products for purchase. Yet, the Web site also offered much information on how to follow the diet and optimize health and nutrition. The Web site menu provided not only information on the diet but also general guidance on weight loss and healthy living. Although plaintiff claimed that defendants misrepresented the safety of following the diet, he did not premise liability on any commercial transaction proposed on the Web site. The attack, rather, was on the general advice pertaining to the diet, a noncommercial aspect of the Web site which was protected by the First Amendment.

The Florida statute, like many throughout the United States, prohibited deceptive acts or practices. Plaintiff claimed the statute was violated because defendants knew that at least a substantial minority of their customers were being exposed to serious health risks. Defendants' promotional claims that the diet was "fool-proof" and a "guaranteed success" plus defendants' failure to warn customers as to adverse effects, according to plaintiff, constituted deception within the meaning of the statute. This cause of action asked for an injunction imposing an obligation to warn the public.

The statute, however, required three elements: (1) a deceptive act or unfair practice; (2) causation; and (3) actual damages. The statute does not apply to personal injury or damage to property (other than the property which is the subject of the transaction). Here, for the reasons expressed above, defendants' conduct was not unfair or deceptive. The diet advice and ideas were protected by the First Amendment. Moreover, while plaintiff claimed damages for the costs he incurred in buying the books and a few of the products, the thrust of the complaint was the claim for personal injuries, i.e., had plaintiff not been misled, he would not have followed the diet, nor suffered the cardiac blockage, the pain and emotional distress that followed. Since the statute did not apply to personal injury claims and damages were limited to the market value diminution caused by the deceptive act, the plaintiff's claim here failed because there was no allegation that the deceptive acts caused a diminution in the value of the products plaintiff purchased.

Removing Class Actions

When Congress passed CAFA, it expanded the availability of diversity jurisdiction for class action lawsuits commenced on or after Feb. 18, 2005. CAFA amended the diversity of citizenship statute by adding a new 28 USC §1332(d) which confers original federal jurisdiction over any class action involving (1) 100 or more class members, (2) an aggregate amount in controversy of at least $5 million, and (3) a minimal amount of diversity, where at least one plaintiff and one defendant are citizens of different states.

CAFA, via §1453, also enhanced a class action defendant's ability to remove a class action from state to federal court by permitting removal even if a codefendant is a citizen of the state in which the class action was filed and even if other defendants do not consent to removal. 28 USC §1453(b) incorporates by reference the general removal procedures of 28 USC §1446, except that the one-year limitation under 61446(b) does not apply.

Thus, when a class action is removed to federal court under CAFA but a plaintiff believes the CAFA jurisdictional requirements have not been met, he or she may move the federal judge to remand, i.e., to send the class action back to state court.

There's a nice question on this issue. Who has the burden of proof on demonstrating the requisite federal jurisdiction, plaintiff or defendant?

The traditional rule on removal to federal court is that the party asserting federal jurisdiction has the burden of establishing it. Did CAFA change that approach? That's exactly what the defendant argued in Blockbuster, Inc. v. Galeno,² a Dec. 27 U.S. Court of Appeals for the Second Circuit decision printed in NYLJ on Jan. 2, 2007.

Blockbuster was sued in a class action over a "No Late Fee" program in which a customer who held a video beyond its due date was charged without notice for a sale of the item or, if the video were returned, was charged with a so-called "restocking fee." A lawsuit on such conduct had been filed by most of the states' attorneys general. That lawsuit was settled and the "No Late Fee" program was scrapped. Here the plaintiff's putative class action alleged a deceptive business practice under New York law for a limited period. CAFA's effective date preceded plaintiff's filing in state court by a week. Blockbuster removed the case to federal court asserting both the general diversity provision [28 USC §1332(a)] and CAFA [28 USC §1332(d)]. Plaintiff promptly moved to remand arguing that Blockbuster could not satisfy CAFA's $5 million amount-in-controversy requirement. Defendant then filed under seal an affidavit by a corporate official describing the total amount of restocking fees and converted sales incurred by New York customers in the affected period. The district court denied the motion to remand. Plaintiff appealed.

Defendant's Burden

Blockbuster argued that CAFA changed the burden of proving federal jurisdiction from defendant to the plaintiff. In support of the contention, it pointed to a Senate Committee Report which stated that "the named plaintiff(s) should bear the burden of demonstrating that the removal was improvident (i.e., that the applicable jurisdictional requirements are not satisfied)." The Senate Judiciary Committee issued this report 10 days after CAFA's enactment into law. Was this statement dispositive? "No," said the court.

The Second Circuit ruled that the burden of proof remains on the removing defendant. Because the Senate Report was issued 10 days following CAFA's enactment, "its probative value for divining legislative intent is minimal." In the absence of a "clear textual directive" to alter the long-established principle of federal jurisdiction, the panel declined to do so. The court assumed the drafters of CAFA were "well aware of the statutory language necessary to express an intent to shift the burden of proof to the plaintiff." Furthermore, the court noted that every circuit court considering this issue has reached the same conclusion.

In sum, CAFA did not change the traditional rule on burden of proof and Blockbuster had to show to a "reasonable probability" that the aggregate claims of the plaintiff class exceed $5 million. The matter was remanded to the district court to assess the jurisdictional proof.

Michael Hoenig is a member of Herzfeld & Rubin.

Endnotes:
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[1.] No. 05 Civ. 10679 (SDNY 2006), published in New York Law Journal, Dec. 18, 2006, pp. 27-28.
[2.] No. 05-8019-cv (2d Cir. 2006), published in NYLJ, Jan. 2, 2007, pp. 25-26.