SALEM, Ore. (Legal Newsline) - Oregon must pay the manufacturer of 5-Hour Energy’s legal fees after the state Attorney General’s Office lost a lawsuit accusing the company of misleading consumers, a state appeals court ruled.
Oregon sued Living Essentials LLC in 2014 after rejecting the company’s offer to settle consumer-fraud claims for $250,000 and a pledge not to make material misstatements in its advertising. After a lengthy bench trial, the judge dismissed all of the state’s claims but rejected Living Essentials’ request for $2.2 million in fees, agreeing with the Oregon Attorney General’s office that the company’s settlement offer wasn’t “satisfactory” under state law, partly because it only covered “material” misstatements.
On appeal, the Oregon Court of Appeals upheld the dismissal of the state’s case but also awarded Living Essentials legal fees, to be determined in a future proceeding. The July 15 decision also established a materiality condition under Oregon’s consumer protection statute, ruling that a company’s statements must be so misleading that they cause consumers to buy a product they otherwise would avoid.
The victory in Oregon contrasts with a loss in neighboring Washington, where the AG won a $4.3 million verdict against Living Essentials in 2017 over similar claims.
The AGs in Oregon and Washington accused Living Essentials of misleading consumers about its 5-HE product, then selling about 9 million bottles a week nationwide, by claiming it was “better than caffeine” because it contained amino acids and Vitamin B that made users more alert and aware. Oregon said 5-HE was really only “a caffeine delivery device, and in its Decaf formulation, it is not even that.” The state also accused Living Essentials of misleading consumers into thinking its products were recommended by doctors.
Before suing, the Oregon Attorney General served Living Essentials with an “assurance of voluntary compliance” as required under the law. Living Essentials offered to pay Oregon $250,000 and refrain from any false or misleading advertising, but the state rejected the deal as inadequate and sued instead.
After a lengthy bench trial, the judge dismissed two of Oregon’s counts after the state presented its case and dismissed the rest at the end of trial. The judge allowed Living Essentials to recover some of its costs from the state but not attorneys’ fees, and rejected the state’s objections to the verdict.
On appeal, Oregon argued the trial judge erred by finding a “materiality” requirement in the state consumer protection statute, in other words requiring the state to prove the company’s claims were material to a consumer’s decision to buy the product.
The trial court rejected these arguments, and the appeals court agreed. While the Oregon statute doesn’t contain the word “materiality,” it outlaws advertising that will “cause likelihood of confusion or of misunderstanding” about a product. To “cause” means “the unlawful conduct necessarily must be material to the consumer’s decision to buy the product,” the appeals court concluded. “There is no need to provide a remedy for misrepresentations that are irrelevant to consumers’ purchasing decisions to accomplish the goal of protecting consumers.”
On the question of whether referring to amino acids and B-vitamins was misleading because the main active ingredient was caffeine, the appeals court agreed Oregon failed to prove the statements were false. Only one case of decaf 5-HE was shipped into the state, the evidence showed, and while the scientific evidence was mixed about whether consumers would feel more alert from the amino acids or the caffeine in the other versions, the judge was correct to rule the advertising wasn’t completely false.
Oregon is also liable for fees under the consumer protection statute, which awards fees to companies if they win at trial after the state rejects their pre-suit settlement offer. Given the fact 5-HE was a “small-scale consumable product” and it would be difficult or impossible to track down actual consumers who bought it, the court said, “we fail to see how defendants’ promise to pay the sum of $250,000, for the state to use for restitution,” was unsatisfactory.