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In re Arizona Theranos Inc. Litigation

United States District Court, D. Arizona

June 13, 2017

In re Arizona THERANOS, INC., Litigation,

          ORDER

          H. Russel Holland United States District Judge

         Motions to Dismiss

         Defendants move to dismiss plaintiffs' first amended consolidated class action complaint.[1] The motions to dismiss are opposed.[2] Oral argument was not requested and is not deemed necessary.

         Background

         Plaintiffs are A.R.; B.B.; B.P.; D.L.; L.M.; M.P.; R.C.; R.G.; S.J.; and S.L. A.R. is alleged to be a resident of California.[3] The other plaintiffs are alleged to be residents of Arizona.[4] Defendants are Theranos, Inc. (“Theranos”); Elizabeth Holmes; Ramesh Balwani; Walgreens Boots Alliance, Inc.; and Walgreen Arizona Drug Company.[5]

         In 2003, Theranos was founded by defendant Holmes.[6] Balwani was the President and Chief Operating Officer of Theranos until he resigned in 2016.[7]

         “Theranos initially focused on development of a hand-held device that would use a tiny needle to obtain a small drop of blood for analysis.”[8] “By 2008, the project had grown into what is now known as the ‘Edison' device.”[9] “The Edison device ... was supposedly able to take a few drops of blood from a patient's finger placed into a nanotainer capsule, and reliably conduct hundreds of blood tests, all outside a lab.”[10] However, the project did not apparently get that far because the blood drawn from clients such as plaintiffs was actually tested at Theranos laboratories.

         Plaintiffs allege that defendants knew that the Theranos blood tests “were unreliable, not ready-for-market, and failed to meet even basic industry standards, ”[11] but that in 2012, “Theranos entered into a partnership agreement with Walgreens, under which Walgreens invested $140 million in Theranos ... and agreed to operate clinics, which it called ‘Wellness Centers, ' at Walgreen Pharmacies in Arizona and California.”[12] Through the Wellness Centers, “Theranos, along with Walgreens, sold blood [tests] to individuals.”[13] Plaintiffs allege that Walgreens entered into this agreement with Theranos even though “Walgreens was aware of numerous serious red flags about the tests that put it on notice about the unreliability of the tests[.]”[14]

         Plaintiffs allege that “[d]efendants intentionally concealed vital information from consumers, their doctors, and the public at large, about the tests' unreliability and about the deficient nature of the [Theranos] testing facilities and equipment.”[15] Plaintiffs allege that

[d]efendants also made pervasive misrepresentations - including in their marketing, in the stores where tests were sold, and in a steady stream of press releases and other media statements - falsely stating and asserting that Theranos tests met the highest standards of reliability, were industry-leading in quality, and had been developed under and validated under, and were compliant with, federal guidelines.[16]

         Plaintiffs allege that “[d]efendants aggressively promoted Theranos tests as being ready-for-market, and encouraged consumers and their doctors to use and rely on them in making important health and treatment decisions, including, but not limited to, ... such ... matters as cancer, HIV, diabetes, kidney disease, and heart disease.”[17]

         But, plaintiffs allege that “[i]n reality, [d]efendants knew ... Theranos tests were dangerously unreliable, had not been validated as advertised, and did not meet federal guidelines as advertised.”[18] Plaintiffs allege that “in a hurry to get the tests to market and thereby assist [d]efendants in developing their still-in-development products and services, ... [d]efendants prematurely marketed and sold the [blood] tests to consumers who were, in essence, subject to beta testing and product development research without their knowledge and consent....”[19] Plaintiffs allege that they “were misinformed about the essential purpose of [the blood tests] and thus they did not provide, and could not have provided, consent for such procedure[s] and intrusion.”[20] Plaintiffs allege that “[o]ffering blood tests to the general public enabled [d]efendants to collect blood samples from human subjects without sacrificing the time and money necessary to recruit volunteers for formal clinical trials.”[21] Plaintiffs further allege that this helped defendants “evade regulatory scrutiny....”[22]

         Plaintiffs allege that in 2016, “[a]fter the Center for Medicare and Medicaid Services cited Theranos's Newark, California lab for numerous deficiencies, ” Theranos voided the test results “from its proprietary Edison blood testing devices, which consisted of tens of thousands of test results.”[23] Plaintiffs further allege that “[n]umerous additional test results ... have now been voided or belatedly ‘corrected' by Theranos[.]”[24] Plaintiffs allege that “[a]s a result of revelations regarding problems with Theranos's technology and laboratory standards, Theranos test results have lost all credibility within the medical community.”[25]Holmes and Balwani have been banned “from owning or operating a blood-testing business for at least two years” and Theranos's license to operate a blood lab in California has been revoked.[26] Theranos is now working on developing a “miniLab” which is apparently a device that could run diagnostic tests on small amounts of blood.[27]

         In their first amended complaint, plaintiffs assert seventeen causes of action and seek damages and injunctive relief. Pursuant to Federal Rules of Civil Procedure 9(b), 12(b)(1), and 12(b)(6), defendants now move to dismiss all of plaintiffs' causes of action.

         Discussion

         “A suit brought by a plaintiff without Article III standing is not a ‘case or controversy, ' and an Article III federal court therefore lacks subject matter jurisdiction over the suit.” Cetacean Community v. Bush, 386 F.3d 1169, 1174 (9th Cir. 2004). “In that event, the suit should be dismissed under Rule 12(b)(1).” Id.

         “‘To survive a [Rule 12(b)(6)] motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Zixiang Li v. Kerry, 710 F.3d 995, 999 (9th Cir. 2013) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)). “A claim is facially plausible ‘when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.'” Id. (quoting Iqbal, 556 U.S. at 678). “The plausibility standard requires more than the sheer possibility or conceivability that a defendant has acted unlawfully.” Id. “‘Where a complaint pleads facts that are merely consistent with a defendant's liability, it stops short of the line between possibility and plausibility of entitlement to relief.'” Id. (quoting Iqbal, 556 U.S. at 678). “[T]he complaint must provide ‘more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.'” In re Rigel Pharmaceuticals, Inc. Securities Litig., 697 F.3d 869, 875 (9th Cir. 2012) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). “In evaluating a Rule 12(b)(6) motion, the court accepts the complaint's well-pleaded factual allegations as true and draws all reasonable inferences in the light most favorable to the plaintiff.” Adams v. U.S. Forest Srvc., 671 F.3d 1138, 1142-43 (9th Cir. 2012).

         “Rule 9(b) provides that ‘[i]n alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake.'” United States ex rel. Cafasso v. General Dynamics C4 Systems, Inc., 637 F.3d 1047, 1054-55 (9th Cir. 2011) (quoting Fed.R.Civ.P. 9(b)). “To satisfy Rule 9(b), a pleading must identify ‘the who, what, when, where, and how of the misconduct charged, as well as what is false or misleading about [the purportedly fraudulent] statement, and why it is false.'” Id. at 1055 (quoting Ebeid ex rel. United States v. Lungwitz, 616 F.3d 993, 998 (9th Cir. 2010)).

         Arizona Consumer Fraud Act and Fraud Claims[28] (First and Second Causes of Action)

         “The Arizona Consumer Fraud Act [“CFA”] is a broadly drafted remedial provision designed to eliminate unlawful practices in merchant-consumer transactions.” State ex rel. Woods v. Hameroff, 884 P.2d 266, 268 (Ariz.Ct.App. 1994). “Generally stated, claims under the CFA, like common law fraud claims, can be based on affirmative misrepresentations, concealment, or omission of material facts.” Tavilla v. Cephalon, Inc., 870 F.Supp.2d 759, 776 (D. Ariz. 2012). An affirmative “misrepresentation causes injury where the consumer actually relies on” the statement, although the consumer's reliance does not need to be justifiable. Cheatham v. ADT Corp., 161 F.Supp.3d 815, 825-26 (D. Ariz. 2016). An omission is actionable under the CFA if it “is material and ‘made with intent that a consumer rely thereon.'” Id. at 830 (quoting State ex rel. Horne v. AutoZone, Inc., 275 P.3d 1278, 1281 (Ariz. 2012)).

         Under Arizona law, to prevail on a common law fraud claim, a plaintiff must show

(1) a representation; (2) its falsity; (3) its materiality; (4) the speaker's knowledge of its falsity or ignorance of its truth; (5) his intent that it should be acted upon by and in the manner reasonably contemplated; (6) the hearer's ignorance of its falsity; (7) his reliance on the truth; (8) his right to rely thereon; and (9) his consequent and proximate injury.

Peery v. Hansen, 585 P.2d 574, 577 (Ariz.Ct.App. 1978). The “representation” may be an affirmative representation or an omission of fact that the defendant had a duty to disclose. Tavilla, 870 F.Supp.2d at 776. Under California law “‘[t]he elements of common law fraud are: (1) a misrepresentation (false representation, concealment, or nondisclosure); (2) knowledge of falsity (or scienter); (3) intent to defraud, i.e., to induce reliance; (4) justifiable reliance; and (5) resulting damage.'” Arei II Cases, 157 Cal.Rptr.3d 368, 382 (Cal.Ct.App. 2013) (quoting Robinson Helicopter Co. v. Dana Corp., 102 P.3d 268, 274 (Cal. 2004)).

         Plaintiffs have asserted both fraud by affirmative misrepresentation claims and fraud by omission claims. Defendants argue that all of plaintiffs' fraud claims are subject to dismissal for failure to comply with the heightened pleading requirements of Rule 9(b).[29]“Rule 9(b) demands that the circumstances constituting the alleged fraud ‘be specific enough to give defendants notice of the particular misconduct ... so that they can defend against the charge and not just deny that they have done anything wrong.'” Kearns v. Ford Motor Co., 567 F.3d 1120, 1124 (9th Cir. 2009) (quoting Bly-Magee v. Calif., 236 F.3d 1014, 1019 (9th Cir. 2001)) “‘Averments of fraud must be accompanied by the who, what, when, where, and how of the misconduct charged.'” Id. (quoting Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1106 (9th Cir. 2003)). However, “‘a plaintiff in a fraud-by-omission suit faces a slightly more relaxed burden, due to the fraud-by-omission plaintiff's inherent inability to specify the time, place, and specific content of an omission in quite as precise a manner.'” Schellenbach v. GoDaddy.com LLC, No. CV-16-00746-PHX-DGC, 2017 WL 192920, at *2 (D. Ariz. Jan. 18, 2017) (quoting Tait v. BSH Home Appliances Corp., No. SACV 10-00711 DOC, 2011 WL 3941387, at *2 (C.D. Cal. Aug. 31, 2011)).

         Defendants argue that plaintiffs' fraud by affirmative misrepresentation claims have not been pled with the required particularity because plaintiffs have failed to delineate the alleged fraudulent conduct of each defendant. “In the context of a fraud suit involving multiple defendants, a plaintiff must, at a minimum, ‘identif[y] the role of [each] defendant[] in the alleged fraudulent scheme.'” Swartz v. KPMG LLP, 476 F.3d 756, 765 (9th Cir. 2007) (quoting Moore v. Kayport Package Express, Inc., 885 F.2d 531, 541 (9th Cir. 1989)). “‘Rule 9(b) is not satisfied where the complaint vaguely attributes the alleged fraudulent statements to “defendants.”'” United States v. Aurora Las Encinas, LLC, Case No. LA CV10-01031 JAK (RZx), 2011 WL 13137312, at *2 (C.D. Cal. Sept, 8, 2011) (quoting Mills v. Polar Molecular Corp., 12 F.3d 1170, 1175 (2d Cir. 1993)). Defendants argue that plaintiffs repeatedly refer to alleged misrepresentations made by “defendants” without attributing those statements to any particular defendant. For example, plaintiffs allege that 1) “[d]efendants' representations were false and misleading[, ]”[30] 2) “[d]efendants' representations were pervasive”, [31] 3) “[d]efendants' advertisements for Theranos were rampant, ”[32] 4) “[d]efendants designed their representations and marketing to give [a] false impression”, [33] 5)”[d]efendants advertised that Theranos testing was of ‘the highest levels of accuracy, '”[34] and 6) “[d]efendants made material misrepresentations [and] false promises ...regarding Theranos testing services[.]”[35]

         There are a few instances in the amended complaint where plaintiffs have alleged that a certain defendant made an alleged misrepresentation. For example, in the section of their amended complaint titled “Defendants Falsely Promoted Theranos Testing as Reliable”, plaintiffs allege that specific statements were on Walgreens' website, Theranos's website, in advertising at the Wellness Centers in Walgreens stores, in Theranos's marketing materials, in the Theranos direct testing order form, and in the Theranos guide to direct testing.[36] Plaintiffs have also alleged that on September 8, 2013, “Holmes boasted that Theranos was able to ‘run any combination of tests, including sets of follow-on tests' quickly from a single tiny blood sample”[37] and later stated that

“[w]e spent many years redeveloping every test that is recognized by Medicare ... to be able to run it on a tiny sample” ... “we focused a great deal on these tests and validated and verified them over the years, building an infrastructure that was highly automated and standardized such that the quality of data that we generate could be used in an actionable manner.”[38]

         Plaintiffs have also alleged that on March 12, 2014, “Balwani stated that Theranos was ‘able to provide a majority of the testing from only two or three drops of bloods' and ... ‘most likely patients will prefer a simple finger stick, and we are able to do that.'”[39] Plaintiffs also allege that in a joint press release in September 2013, Theranos and Walgreens stated that Theranos's labs were “CLIA-certified” and that Theranos's “‘proprietary laboratory infrastructure minimizes human error through extensive automation to produce high quality results.'”[40] And, plaintiffs allege that Holmes stated that “Theranos ‘ha[s] data that show you can get a perfect correlation between a finger stick and a venipuncture for every test that we run.'”[41] These allegations indicate that plaintiffs have attempted to meet Rule 9(b) requirements in terms of attributing specific misrepresentations to specific defendants, but plaintiffs' amended complaint is still replete with allegations that “defendants” (with no delineation as to which defendant) made the misrepresentation in question. Each defendant must be in a position to defend its particular conduct and as currently pled, plaintiffs' fraud by affirmative misrepresentation claims inadequately delineate the conduct attributed to each defendant. Thus, plaintiffs' fraud by affirmative misrepresentation claims are dismissed.

         Defendants argue that plaintiffs should not be given leave to amend these claims because plaintiffs have already amended their complaint once. But, plaintiffs' amended consolidated action complaint was filed by stipulation of the parties, [42] after defendants filed their first motions to dismiss and before the court had ruled on those motions. Because the court has not previously ruled on the sufficiency of plaintiffs' allegation and because of the nature of this case, the court will exercise its discretion and grant plaintiffs leave to amend with respect to their fraud by affirmative misrepresentation claims in the First and Second Causes of Action.

         Because plaintiffs are being given leave to amend, the court addresses the three other arguments raised by defendants as to plaintiffs' fraud by affirmative misrepresentation claims. First, defendants argue that plaintiffs have failed to identify the alleged misrepresentations to which each plaintiff was exposed, when they each allegedly viewed or heard the misrepresentations, and which misrepresentations each plaintiff considered material to his or her decision to purchase Theranos testing services. To comply with Rule 9(b), a plaintiff “must state the time, place, and specific content of the false representations as well as the identities of the parties to the misrepresentation.” Schreiber Distrib. Co. v. Serv-Well Furniture Co., 806 F.2d 1393, 1400 (9th Cir. 1986).

         Some plaintiffs allege that they “relied on the representations in [d]efendants' materials regarding the reliability of [d]efendants' services[.]”[43] One plaintiff alleges that she “relied on representations in [d]efendants' materials (including on Theranos and Walgreens websites, and in press releases) regarding the reliability of [d]efendants' services.”[44] Some allege that they “relied on representations in [d]efendants' materials (including at the Walgreens store) regarding the reliability of [d]efendants' services.”[45] One alleges that he “relied on representations in [d]efendants' materials (including at the Walgreens store and the information he viewed on the Theranos website) regarding the reliability of [d]efendants' services.”[46] One alleges that “he relied on representations in [d]efendants' materials (including a billboard) regarding the reliability of [d]efendants' services.”[47] And one alleges that “he relied on representations in [d]efendants' materials (including on Theranos website and in advertisements) regarding the reliability of [d]efendants' services.”[48] Defendants argue that these allegations do not satisfy Rule 9(b) requirements because they do not identify any specific misrepresentation or even when plaintiffs viewed any of the press releases, billboards, or advertisements.

         In general, plaintiffs allege that they saw misrepresentations that were part of defendants' advertising campaign. In cases,

where a fraud claim is based upon numerous misrepresentations, such as an advertising campaign that is alleged to be misleading, plaintiffs need not allege the specific advertisements the individual plaintiffs relied upon; it is sufficient for the plaintiff to provide a representative selection of the advertisements or other statements to indicate the language upon which the implied misrepresentations are based.

Morgan v. AT & T Wireless Servs., Inc., 99 Cal.Rptr. 768, 790 (Cal.Ct.App. 2009).

         Plaintiffs have done this here.[49]

         This is not a case where there were one-on-one communications between a plaintiff and a defendant. Rather, in this case, the advertising done by Theranos and Walgreens was addressed to the public at large. In such cases, where the plaintiffs rely upon broadside advertising, as opposed to personalized representations, some latitude in pleading should be allowed since one can reasonably infer that the defendants intended that the public at large would respond to the ads. Plaintiffs are those who, in this case, responded. That said, assuming that plaintiffs elect to replead their fraud by affirmative misrepresentation claims, plaintiffs would do well to include some factual allegations as to when each plaintiff viewed defendants' advertising.

         Defendants next argue that many of the statements in the advertising campaign on which plaintiffs allegedly relied are non-actionable “puffery.” “[T]he determination of whether an alleged misrepresentation ‘is a statement of fact' or is instead ‘mere puffery' is a legal question that may be resolved on a Rule 12(b)(6) motion.” Newcal Industries, Inc. v. Ikon Office Solution, 513 F.3d 1038, 1053 (9th Cir. 2008) (quoting Cook, Perkiss, & Liehe v. N. Calif. Collection Service, Inc., 911 F.2d 242, 245 (9th Cir. 1990)). “A statement is considered puffery if the claim is extremely unlikely to induce consumer reliance.” Id. “[A] statement that is quantifiable, that makes a claim as to the ‘specific or absolute characteristics of a product, ' may be an actionable statement of fact while a general, subjective claim about a product is non-actionable puffery.” Id. (quoting Cook, Perkiss, & Liehem, 911 F.2d at 245). “While product superiority claims that are vague or highly subjective often amount to nonactionable puffery, ‘misdescriptions of specific or absolute characteristics of a product are actionable.'” Southland Sod Farms v. Stover Seed Co., 108 F.3d 1134, 1145 (9th Cir. 1997) (quoting Cook, Perkiss & Liehem, 911 F.2d at 246)).

         Plaintiffs allege that defendants misrepresented that the “Theranos tests were reliable”, that “Theranos's testing facilities were industry leading in quality”, that “Theranos's testing services ... were quicker that traditional tests;” and that “Theranos's laboratory infrastructure ... produce[d] high quality results[.]”[50] Defendants argue that these types of statements, that a product is “reliable”, “accurate”, “quicker”, and “industry leading”, are exactly the types of statements that courts have found to be non-actionable puffery. See, e.g., Shields v. Alere Home Monitoring, Inc., Case No. C15-2580 CRB, 2015 WL 7272672, at *10 (N.D. Cal. Nov. 18, 2015) (holding that representations that a blood-testing device was “accurate and reliable” and a “convenient alternative to traditional lab tests” were non-actionable puffery).

         Plaintiffs aptly point out that at least some of the alleged affirmative misrepresentations are not puffery. For example, plaintiffs allege that in the Wellness Centers, defendants “advertised that Theranos's ‘CLIA-certified laboratory can perform your tests quickly and accurately using tiny samples.'”[51] Plaintiffs also allege that defendants advertised that “‘[a]ll tests are developed and validated under and to the CLSI, FDA, Centers for Disease Control and World Health Organization guidelines.'”[52] Plaintiffs allege that Theranos's marketing materials “stated that ‘[w]e continuously conduct proficiency testing and participate in multiple proficiency testing programs[.]'”[53] Such types of statements are not puffery.

         As for defendants' alleged misrepresentations about Theranos testing being accurate and reliable, it is at least plausible that these statements may not be puffery. Evidence may demonstrate that the reliability of a blood test can be measured and quantified. See Cheatham, 161 F.Supp.3d at 828 (claims that a wireless security system provided “reliable security protection” not puffery because “[a]t least in some circumstances, the reliability and efficacy of a security system are facts that can be measured and quantified”).

         Finally, defendants argue that at the very least plaintiffs have failed to comply with Rule 9(b) as to any alleged misrepresentations about the use of finger sticks to perform Theranos blood tests. Although plaintiffs include numerous allegations in the amended complaint about the Edison device and the Theranos finger-stick technology, only three plaintiffs allege that these are the representations that they saw. Plaintiff B.B. alleges that “[w]hen she purchased Theranos tests, one or more vials of blood were drawn from a vein in [her] arm” and that “”[t]his was different from the less invasive test that she had expected based on the representations from [d]efendants that she saw.”[54] Plaintiffs L.M. and S.L. make identical allegations.[55] But defendants argue that these plaintiffs cannot possibly ever show that they relied on the finger-stick representations because they would have known before their blood was drawn that they were not purchasing a finger-stick blood test.

         Reliance is an essential element of both a CFA claim and a common law fraud claim. No plaintiff could plausibly allege that he or she relied on misrepresentations about finger-stick blood tests, given that he or she must have known that the blood test actually being performed was not a finger-stick blood test. Many of the misrepresentations that are attributed to a specific defendant, which are set out above, have to do with the finger-stick technology. If a plaintiff could not have possibly relied on these representations, then a fraud by affirmative misrepresentation claim based on these representations would not be plausible.

         Turning then to plaintiffs' fraud by omission claims,

to plead the circumstances of omission with specificity, [a] plaintiff must describe the content of the omission and where the omitted information should or could have been revealed, as well as provide representative samples of advertisements, offers, or other representations that [the] plaintiff relied on to make her purchase and that failed to include the allegedly omitted information.

Marolda v. Symantec Corp., 672 F.Supp.2d 992, 1002 (N.D. Cal. 2009). “Reliance can be proved ... by establishing that had the omitted information been disclosed, [the plaintiff] would have been aware of it and behaved differently.” Hoffman v. 162 N. Wolfe LLC, 175 Cal.Rptr.3d 820, 833 (Cal.Ct.App. 2014) (citation omitted).

         In the amended complaint, plaintiffs allege a litany of information that was concealed or omitted from defendants' advertising and other material.[56] They have also provided representative samples of websites, press releases, statements to the press, direct order forms, and other marketing materials that could have included the omitted or concealed information.[57] Plaintiffs have alleged that they would not have purchased Theranos blood tests if they had known that defendants were using their blood samples for research and product development.[58] Because the Rule 9(b) standard is somewhat relaxed for fraud by omission claims, the court concludes that plaintiffs have pled their fraud by omission claims with the required particularity.

         Battery and Medical Battery Claims (Third and Sixteenth Causes of Action)

         Plaintiffs allege that they “submitted to blood draws performed by [d]efendants which involved [d]efendants penetrating their skin and tissue to draw blood[.]”[59] Plaintiffs allege that

“[d]efendants induced [them] to submit to blood draws ... through fraud, concealment, and substantial misrepresentations, and without informing them about the essential purpose of the procedures.”[60] More specifically, plaintiffs allege that [d]efendants misrepresented and concealed ... the essential purpose of the blood draws and procedures to which they submitted.... Defendants led [p]laintiffs ... to believe that Theranos testing was ready-for-market and that the purpose of the blood draws and procedures submitted to was to provide [p]laintiffs ... [with] reliable information that they could and should rely upon in making health treatment decisions. In fact, not disclosed by [d]efendants, [d]efendants had prematurely rushed Theranos testing services to market, the procedures [p]laintiffs ... submitted to were experimental in nature and being used by [d]efendants for research and development, and the essential purpose of the blood draws and procedures ... was to aid in [d]efendants' research and product development.[61]

         Plaintiffs allege that they believed that they were submitting to blood tests for legitimate treatment purposes, [62] that they did not consent to have their blood drawn for research and product development purposes, [63] and that defendants intended to and did use their blood samples and test results for product development purposes.[64] Thus, plaintiffs allege that any consent that they gave for the blood draws was not effective.[65]

         Battery and medical battery occur in “situations in which the patient is mistaken about the nature of the invasion and the mistake is induced by a health care provider's misrepresentation.” Duncan v. Scottsdale Medical Imaging, Ltd., 70 P.3d 435, 441 (Ariz. 2003). As Section 892B of the Restatement (Second) of Torts, to which both courts in Arizona and California look, explains,

[i]f the person consenting to the conduct of another is induced to consent by a substantial mistake concerning the nature of the invasion of his interests or the extent of the harm to be expected from it and the mistake is known to the other or is induced by the other's misrepresentation, the consent is not effective for the unexpected invasion or harm.

         But, this rule “is limited to substantial mistakes, known to the actor, concerning the nature of the invasion or the extent of the harm that is to be expected. If the consent is induced by mistake concerning other matters, the rule does not apply.”[66] In other words, if the mistake or misrepresentation goes to a “collateral matter”, consent is not vitiated.[67] But if a patient is not fully aware of “the particular character of the contact[, ]” then any consent given by the patient is ineffective. Duncan, 70 P.3d at 441.

         Plaintiffs argue that they were not aware of the true “character of the contact” because defendants concealed the true purpose of the blood tests. Plaintiffs argue that defendants were engaged in research and development, not legitimate blood testing; that this true purpose was not known to plaintiffs, and that this true purpose was not a collateral matter.

         Plaintiffs cannot plausibly allege that they were not aware of the character of the contact at issue here. Plaintiffs were fully aware that they were consenting to blood draws. They were fully aware of the nature of the invasion. The blood tests to which plaintiffs consented were intended to result in, and plaintiffs received, reports of what were to have been accurate analyses of the blood samples that were drawn. On a Rule 12(b)(6) motion to dismiss, the court must accept plaintiffs' allegations that defendants were using plaintiffs' blood samples and test results for research and development purposes as true. But, any use by defendants of plaintiffs' blood samples or test results to evaluate the Edison device or for other research and development purposes was collateral to the blood testing for which plaintiffs plainly gave their consent.

         Nothing in Rains v. Superior Court, 198 Cal.Rptr. 249 (Cal.Ct.App. 1984), the primary case relied on plaintiffs, is to the contrary. In Rains, the plaintiffs consented to “the use of physical violence ... as a therapeutic[68] treatment....” Id. at 251. In asserting a battery claim against the defendants, the plaintiffs argued that their consent had been vitiated by defendants' “alleged misrepresentation as to the therapeutic purpose[.]” Id. at 252. The defendants moved to dismiss the plaintiffs' battery claim. Id. at 251. The court held that “the therapeutic versus nontherapeutic purpose of touching by a psychiatrist goes to the ‘essential character of the act itself' and thus vitiates consent obtained by fraud as to that character.” Id. at 254. The plaintiffs' battery claims were thus not subject to dismissal. Id. The court explained that when “a physician intends to perform treatment for a nontherapeutic purpose when consent was given only for a therapeutic purpose, ” the physician has deviated from the consent that was given and the consent cannot be considered effective. Id. at 255.

         Plaintiffs argue that similarly here, the therapeutic versus nontherapeutic purpose of the blood draws goes to the “essential character of the act itself” and is not a collateral matter. Plaintiffs insist that they have plausibly alleged that defendants intentionally deviated from the consent that was given and thus they have plausibly alleged that their consent was not effective.

         Plaintiffs' reliance on Rains is misplaced because Rains centered on there being no therapeutic purpose for the violent therapy to which the Rains plaintiffs had consented. But here, plaintiffs have alleged that either they or their health care providers ordered the blood tests and that Theranos actually conducted the blood tests and delivered results to either plaintiffs or their health care providers. Although these results may not have been accurate, it is implausible for plaintiffs to contend that there was no therapeutic purpose for their blood tests, particularly in light of some of the allegations in plaintiffs' amended complaint. Plaintiffs allege that Theranos did 90 percent of the blood testing at its Scottsdale lab, which did not use the Edison device and “only performed analysis on venipuncture tests” and that Theranos “outsourced certain ‘highly complex' tests to third-party, university-affiliated labs[.]”[69] These allegations contradict plaintiffs' contention that there was no therapeutic purpose for the blood tests to which they consented. It is clear from plaintiffs' allegations, which the court accepts as true on a Rule 12(b)(6) motion, that there were dual purposes attributed to defendants: giving people test results (which plaintiffs in fact got, although those results may not have been accurate), and research and development (which is a collateral matter).

         In sum, plaintiffs have failed to plead plausible battery and medical battery claims. Plaintiffs' contention that they were not aware of the character of the conduct to which they consented is implausible, even if, as plaintiffs allege, defendants were using plaintiffs' blood samples and test results for research and development purposes. It is not plausible that plaintiffs were not aware of the nature of the invasion to which they consented. Because plaintiffs' battery claims are not plausible, these claims are dismissed. Plaintiffs are not given leave to amend as to these claims as amendment would be futile because, in light of the consent that was given, plaintiffs could never state plausible battery and medical battery claims.

         Negligence Claim (Fourth Cause of Action)

         Under Arizona law, “[t]o establish a claim for negligence, a plaintiff must prove four elements: (1) a duty requiring the defendant to conform to a certain standard of care; (2) a breach by the defendant of that standard; (3) a causal connection between the defendant's conduct and the resulting injury; and (4) actual damages.” Gipson v. Kasey, 150 P.3d 228, 230 (Ariz. 2007). Under California law, “[a]ctionable negligence involves a legal duty to use due care, a breach of such legal duty, and the breach as the proximate or legal cause of the resulting injury.” United States Liab. Ins. Co. v. Haidinger-Hayes, Inc., 463 P.2d 770, 774 (Cal. 1970).

         Plaintiffs allege that defendants had a duty to disclose all material facts regarding Theranos blood testing, that defendants breached this duty by making material misrepresentations and omissions and by selling unreliable tests, and that they were injured as a result of relying on these misrepresentations and omissions.[70] For the most part, these are allegations that would support a negligent misrepresentation claim, as opposed to an ordinary negligence claim which is what plaintiffs appear to be trying to assert in their Fourth Cause of Action. Because most of the allegations in plaintiffs' Fourth Cause of Action concern misrepresentations and omissions, it is difficult to determine the basis for plaintiffs' ordinary negligence claim. Plaintiffs' negligence claim is dismissed for failure to comply with Rule 8, which “requires that each claim in a pleading be supported by ‘a short and plain statement of the claim showing that the pleader is entitled to relief....'” Landers v. Quality Commc'ns, Inc., 771 F.3d 638, 640 (9th Cir. 2014) (quoting Fed.R.Civ.P. 8(a)(2)). Plaintiffs are given leave to amend their negligence claim but this claim must not based on allegations of misrepresentations and omissions, which are more appropriately addressed in a negligent misrepresentation claim. The court would also note that because plaintiffs' negligence claim must be based on something other than misrepresentations and omissions, this claim need not be pled with the particularity required by Rule 9(b).

         Negligent Misrepresentation Claim (Fifth Cause of Action)

         Under Arizona law,

[t]he elements of negligent misrepresentation are: (1) the defendant provided false information in a business transaction; (2) the defendant intended for the plaintiff to rely on the incorrect information or knew that it reasonably would rely; (3) the defendant failed to exercise reasonable care in obtaining or communicating the information; (4) the plaintiff justifiably relied on the incorrect information; and (5) resulting damage.

KB Home Tucson, Inc. v. Charter Oak Fire Ins. Co., 340 P.3d 405, 412 n.7 (Ariz.Ct.App. 2014). The elements are the same under California law. Goonewardene v. ADP, LLC, 209 Cal.Rptr.3d 722, 741 (Cal.Ct.App. 2016). Under Arizona law, “[a] claim for negligent misrepresentation must meet the particularity requirements of Rule 9(b).” Howard v. JPMorgan Chase Bank, N.A., No. CV12- 0952-PHX-DGC, 2012 WL 6589330, at *2 (D. Ariz. Dec. 17, 2012); And, “[u]nder California law, negligent misrepresentation is a species of actual fraud.” Lorenz v. Sauer, 807 F.2d 1509, 1511-12 (9th Cir. 1987).

         Plaintiffs allege that defendants misrepresented material facts that defendants knew were false and misleading, that defendants knew consumers were likely to rely on these facts, that plaintiffs did rely on this misinformation, and that they were damaged as result.[71] These allegations suffer from the same problem as plaintiffs' fraud by affirmative misrepresentation allegations in the First and Second Causes of Action, which are discussed above, namely that plaintiffs have failed to delineate which defendant made which alleged misrepresentations. Plaintiffs' negligent misrepresentation claim is dismissed for failure to plead with the particularity required by Rule 9(b). Plaintiffs are, however, given leave to amend this claim.

         Breach of Contract Claim (Sixth Cause of Action)

         Under Arizona law, “‘[t]o bring an action for ... breach of ... contract, the plaintiff has the burden of proving the existence of the contract, its breach and the resulting damages.'” Thomas v. Montelucia Villas, LLC, 302 P.3d 617, 621 (Ariz. 2013) (quoting Graham v. Asbury, 540 P.2d 656, 657 (Ariz. 1975)). Under California law, “the elements of a cause of action for breach of contract are (1) the existence of the contract, (2) plaintiff's performance or excuse for nonperformance, (3) defendant's breach, and (4) the resulting damages to the plaintiff.” Oasis West Realty, LLC v. Goldman, 250 P.3d 1115, 1121 (Cal. 2011).

         Plaintiffs allege that “[d]efendants offered to provide reliable, ready-for-market testing services using proprietary Theranos technology, in exchange for submission to blood draws ... and payment of financial compensation....”[72] Plaintiffs allege that they accepted this offer by submitting to blood draws and paying money for the Theranos test results.[73]Plaintiffs allege that defendants breached their contracts with plaintiffs by failing to deliver reliable, ready-for-market testing services, by conducting blood tests using traditional methodologies instead of the promised minimally invasive methodology, by using equipment that did not meet quality standards, by not tendering services with reasonable care and workmanlike effort, and by failing to timely notify them that their tests results were not accurate.[74]

         Defendants argue that plaintiffs have not alleged that there was an enforceable contract between plaintiffs and Walgreens and/or Theranos. While plaintiffs have generally alleged that there was “an offer, an acceptance, [and] consideration, ” for there to be an enforceable contract, there must also be “sufficient specification of terms so that the obligations involved can be ascertained.” Rogus v. Lords, 804 P.2d 133, 135 (Ariz.Ct.App. 1991). Plaintiffs allege that the terms of their contracts “were set forth, in among other places, the Theranos direct testing order forms ..., the Theranos guide to direct testing ..., and in marketing materials and other statements by [d]efendants regarding Theranos's testing services....”[75] Defendants argue that none of these sources provide the basis for an enforceable contract.

         As for the “direct testing order forms”, although plaintiffs allege that “the consumer needed to complete a one-page ‘Theranos direct testing order form[, ]”[76] no plaintiff alleges that he or she actually completed such a form. Moreover, several of plaintiffs would not have needed to complete the direct testing order form because they allege that they received their testing pursuant to a healthcare provider's order.[77] The direct testing form provides that it is “[f]or use only by guests in Arizona who are ordering tests without a physician's orders.”[78] Similarly, the guide to direct testing would have only been given to persons who were ordering a test “without a lab order.”[79] It is not plausible that the direct testing materials provided the terms of the alleged contracts.

         As for the “marketing materials”, it may be plausible that the promises that defendants made in their advertising could be considered terms of the parties' contracts. See Tasion Commc'ns, Inc. v. Ubiquiti Networks, Inc., No. C-13-1803 EMC, 2013 WL 4530470, at *11 (N.D. Cal. Aug. 26, 2013) (finding that alleged misrepresentations contained in advertisements that were seen by the plaintiffs “became a part of the sales contract”). It may also be plausible that some of the terms of the parties' contracts can be implied and that an implied term would include that the services provided by defendants were market-ready testing services. See Gherna v. Ford Motor Co., 55 Cal.Rptr. 94, 103 (Cal.Ct.App. 1966) (“when a manufacturer engages in advertising in order to bring his goods and their quality to the attention of the public and thus to create a consumer demand, the representations made constitute an express warranty running directly to a buyer who purchases in reliance thereon”).

         Plaintiffs' amended complaint describes a usual sale-and-purchase of services arrangement. Plaintiffs went to Walgreens, asked for blood tests that defendants had promised would be reliable, and were given blood tests for a fee. Plaintiffs allege that the blood tests they received were not reliable, which is a plausible breach of the sale-and-purchase agreement But, the problem with plaintiffs' breach of contract claim is that plaintiffs have failed to adequately allege which defendants were parties to the alleged contracts. Rather, plaintiffs have generally alleged that “[d]efendants had express and/or implied contracts with [p]laintiffs[, ]”[80] which is insufficient. See Howard, 2012 WL 6589330, at *2 (dismissing breach of contract claim, in part, because the plaintiffs had failed to identify which defendants were parties to the contract). It is implausible that plaintiffs contracted with each defendant.

         Plaintiffs' breach of contract claim is dismissed. Plaintiffs are, however, given leave to amend this claim.

         Unjust Enrichment Claim (Seventh Cause of Action)

         Under Arizona law, “in order to prevail upon a theory of unjust enrichment, a plaintiff must establish that, (1) plaintiff conferred a benefit upon the defendant; (2) defendant's benefit is at plaintiff's expense; and (3) it would be unjust to allow defendant to keep the benefit.” USLife Title Co. of Arizona v. Gutkin, 732 P.2d 579, 584 (Ariz.Ct.App. 1986). Under California law, “the elements for a claim of unjust enrichment [are] receipt of a benefit and unjust retention of the benefit at the expense of another.” Elder v. Pacific Bell Telephone Co., 141 Cal.Rptr.3d 48, 61 (Cal.Ct.App. 2012) (citation omitted).

         Plaintiffs allege that they “lost money as a result of [d]efendants' conduct alleged herein”, that Walgreens and Theranos received revenue, that Holmes and Balwani “personally received at least millions of dollars”, and that “[i]t would be inequitable and unjust for [d]efendants to retain the money that they have received by their conduct.”[81]

         First, defendants argue that plaintiffs were required to plead their unjust enrichment claim with particularity because it is grounded in fraud. Defendants argue that the only conduct plaintiffs can be referring to when they refer to “defendants' conduct herein” is defendants' alleged affirmative misrepresentations about the reliability of the Theranos blood tests and defendants' alleged concealment of the true purpose of the tests.

         The court concludes that plaintiffs' unjust enrichment claim must be pled with particularity. As to the portion of plaintiffs' unjust enrichment claim which is based on defendants' alleged affirmative misrepresentations, plaintiffs have failed to plead this claim with the required particularity for the same reasons discussed above in connection with plaintiffs' fraud by affirmative misrepresentation claims in the First and Second Causes of Action. The portion of plaintiffs' unjust enrichment claim which is based on defendants' alleged affirmative misrepresentations is dismissed. Plaintiffs are, however, given leave to amend this portion of their unjust enrichment claim.

         The portion of plaintiffs' unjust enrichment claim that is based on defendants' alleged concealment of the true purpose of the blood tests has been pled with the required particularity. But, Holmes and Balwani argue that this claim should still be dismissed as to them because such a claim against them is implausible. Although plaintiffs' allegations that Holmes and Balwani received millions of dollars in compensation is based on “information and belief”, “‘[t]he Twombly plausibility standard ... does not prevent a plaintiff from pleading facts alleged upon information and belief where the facts are peculiarly within the possession and control of the defendant....” Soo Park v. Thompson, 851 F.3d 910, 928 (9th Cir. 2017) (quoting Arista Records, LLC v. Doe 3, 604 F.3d 110, 120 (2d Cir. 2010)). The particular facts about Holmes' and Balwani's compensation, including how the compensation they received as executives of Theranos is tied the alleged concealment, would be in Holmes' and Balwani's possession and control. While it is the court's perception that any unjust enrichment claim plaintiffs might assert is potentially very weak (especially under California law), the court cannot conclude, at this time, that such a claim would be implausible as to Holmes and Balwani.

         Aiding and Abetting Fraud Claim against Walgreens ...


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