## Facts

- Patients bought Theranos blood tests primarily through Theranos “wellness centers” inside Walgreens stores in Arizona (and some in California).
- Theranos, led by Elizabeth Holmes and Ramesh “Sunny” Balwani, marketed blood testing as accurate and innovative, claiming many tests could be run on a finger-stick sample using the “Edison” device.
- Plaintiffs alleged Theranos’s tests were unreliable and not market-ready, and that much testing was performed on conventional analyzers rather than on the Edison device.
- Plaintiffs alleged Theranos and Walgreens misrepresented test reliability and concealed technology limitations and quality-control problems, inducing consumers to purchase tests and consent to blood draws.
- Plaintiffs claimed they would not have purchased the tests or consented to testing had they known the true reliability and purpose of the testing.
- After public and regulatory scrutiny, the Arizona Attorney General obtained a consent decree requiring restitution for Arizona consumers who purchased the tests.
- Consolidated plaintiffs filed a Second Amended Consolidated Class Action Complaint asserting multiple tort, consumer-fraud, and civil RICO claims against Theranos, Holmes, Balwani, and Walgreens.
- Defendants moved to dismiss under Rules 12(b)(6) and 9(b), and argued the Arizona consent decree mooted or barred Arizona plaintiffs’ claims.

## Issues

1. Whether fraud-based claims were pleaded with sufficient particularity under Rule 9(b).
2. Whether negligence and battery-type claims based on allegedly misinformed consent to blood testing were adequately pleaded.
3. Whether civil RICO claims adequately pleaded predicate acts (mail and wire fraud), a pattern of racketeering activity, and causation under Rules 12(b)(6) and 9(b).
4. Whether the Arizona Attorney General consent decree and restitution program mooted or otherwise barred private claims by Arizona consumers.

## Decision

- The court granted in part and denied in part the motions to dismiss.
- The court dismissed portions of fraud and negligent-misrepresentation theories that lacked Rule 9(b) specificity.
- The court allowed negligence and battery-type claims to proceed based on allegations that consent to blood draws and testing was obtained through material misrepresentations about the nature and reliability of the testing.
- The court permitted certain aiding-and-abetting theories to proceed against Walgreens based on allegations it continued marketing and selling tests despite warning signs.
- The court dismissed certain RICO theories, particularly those predicated on mail fraud, for insufficiently particularized allegations.
- The court allowed certain RICO theories predicated on wire fraud to proceed where plaintiffs pleaded more specific electronic marketing or communications supporting plausible fraud predicates.
- The court held the Arizona Attorney General consent decree did not moot or extinguish private claims because it did not release them and did not provide all requested remedies (including punitive damages or disgorgement).

## Legal Principles

- Rule 12(b)(6) requires factual allegations sufficient to state a plausible claim for relief.
- Rule 9(b) requires fraud-based claims and fraud-based RICO predicates to plead the “who, what, when, where, and how” of alleged misrepresentations and reliance.
- A patient’s consent to a medical procedure may be treated as ineffective for battery-type pleading purposes when obtained through material misrepresentations about the essential nature or purpose of the procedure.
- Civil RICO claims premised on mail or wire fraud must plead predicate acts with particularity; generalized allegations that fail to tie specific communications to fraud are insufficient.
- Government restitution arrangements do not automatically moot private civil claims absent an express release, especially where plaintiffs seek remedies beyond restitution.

## Conclusion

The court narrowed the case by dismissing inadequately particularized fraud and certain RICO theories, but allowed core negligence, battery-type, aiding-and-abetting, and some wire-fraud-based RICO claims to proceed, and held that the state restitution consent decree did not bar or moot private actions seeking additional relief.


In re Arizona Theranos, Inc. Litigation, 308 F. Supp. 3d 1026 (D. Ariz. 2018)