Monthly Archives: September 2015

Muscling a Settlement

protein powder. Supplements for bodybuilders

**Musclepharm negotiates a pre-certification settlement of claims made in relation to claims that its Protein Powder has misleading protein spiking ingredients ** . . .                                                                                                                                                               

Musclepharm has been sued in the Central District of California alleging that its Combat Powder whey protein is misleadingly labeled.  The case centers around the phenomena of protein spiking: the allegation that because Food and Drug Administration (FDA) guidelines that measure protein use nitrogen as its baseline – a manufacturer can spike the level of the FDA protein measure by adding cheaper non-protein nitrogen sources (such as amino acids, creatine etc.)  In Bruaner v. MusclePharm Corp., No. CV148869FMOAGRX, 2015 WL 4747941, at *1 (C.D. Cal. Aug. 11, 2015), the plaintiff has taken a novel approach. It alleges not that protein spiking, itself, is misleading but that Musclepharm’s advertising is misleading because it contains a “Brand Promise” that represents that Musclepharm does not engage in the practice of protein spiking – when plaintiff’s testing allegedly suggests that it does.  On a motion to dismiss, Musclepharm argued that the FDA has primary authority over this area and FDA labeling regulations preempt state law claims.  On August 11, 2015, the district court rejected those arguments.  Bruaner v. MusclePharm Corp., No. CV148869FMOAGRX, 2015 WL 4747941, at *1 (C.D. Cal. Aug. 11, 2015).  The court agreed with plaintiff that plaintiff’s case was not challenging the FDA labeling or testing protocols per se, but rather, was challenging what Musclepharm states in its advertising about those tests.  Plaintiff did not have a complete victory, however.  The court took exception to plaintiff’s vague descriptions of advertising and websites that he claimed to have relied on in making his purchase decisions – thereby limiting the scope of plaintiff’s proposed case and class.  With both parties winning some and losing some of their arguments at the Rule 12(b)(6) stage, the matter settled.  Because the proposed settlement was pre-certification, the court did not need to review or approve the proposed – the parties filed a stipulation to that effect and the matter was dismissed on September 28, 2015.

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Google Reversed on Rule 23

**Ninth Circuit Chips Away at Individualized Damage Preclusion under Rule 23 Predominance – reversing Google’s District Court Win on Certification ** . . .                                                                                                                                                                                                        

The Ninth Circuit has held in Pulaski & Middleman, LLC v. Google, Inc., No. 12-16752, 2015 WL 5515617 (9th Cir. Sept. 21, 2015) that under California’s Unfair Competition Law (UCL) (Cal. Bus. & Prof. Code § 17200 et seq.) and Fair Advertising Laws (FAL) (Cal. Bus. & Prof. Code § 17500 et seq there is no need for a court to make individual determinations regarding entitlement to restitution.  In this case, Google was sued in the Northern District of California in relation to its ubiquitous AdWords advertising.  Plaintiff alleged that it was unfair and misleading for Google to charge AdWords users for ads that were served up on error pages and parked domains (i.e. on pages with no real content).  The district court denied certification holding that it could not simply assume that every AdWords member who had ads placed on error or parked pages derived no economic benefit from the ads.  Rather, an individualized analysis was required that precluded class treatment.  The Ninth Circuit panel disagreed.  It held that under California’s UCL and FAL, the test is whether members of the public were “likely to be deceived” – thus an individualized inquiry is not required to achieve certification.  In other words, the Ninth Circuit parsed between an entitlement to restitution (a common question) and what the restitution actually is (an individual question) and held that only the former was required at the certification stage.  As such, the circuit panel held it was legal error for the district court to focus on individualized restitution.  The court held that its ruling in Yokoyama v. Midland Nat. Life Ins. Co., 594 F.3d 1087 (9th Cir. 2010) that damage calculations alone cannot defeat certification governed.   The Ninth Circuit’s laser focus on “liability” and its warning to district courts not to  conflate restitution calculations with liability inquiries (which can be traced back to the California Supreme Court In re Tobacco II Cases, 46 Cal.4th 298 (2009)) sets a difficult course for UCL and FAL defendants to navigate.

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Made in the USA: In California

**California re-casts its labeling standards for “Made in the USA” labels – bringing it closer in line with Federal Trade Commission Regulations and the “Virtually All Standard” ** . . .                                                                                                                                                                                                                                                                                                                                                                    

The California legislature has not been shy in being the outlier in consumer protection law. It’s Made in the USA statute is no exception.  Since 1961, California has expressly prohibited the designation of products as “Made in the USA” or “Made in America” when the product or “any article, unit, or part thereof, has been entirely or substantially made, manufactured, or produced outside of the United States.” Cal. Bus. & Prof. Code § 17533.7 (emphasis added).  Accordingly, to comply with California law, companies have had to ensure that every component of their products be made domestically – “down to the last screw.”  Benson v. Kwikset Corp., 152 Cal. App. 4th 1254, 1285 (2007) (dissenting opinion).  With diversified and international supply chains the norm, complying with this standard has been problematic if not impossible.

Under Federal law, the Federal Trade Commission (FTC) has power to regulate Made in the USA labeling.  15 U.S.C. § 45a.  Notably, the FTC’s standard is not as strict as the California standard. Under FTC regulations, under the “virtually all standard” if almost all of the product is made in the United States, then it complies.  62 FR 63756-01 at pp. 63757, 63764–65.  That is, negligible or early stage components of products assembled or processed in the United States do not offend the law.  Id.  California’s law had no similar latitude, meaning a product could comply with FTC regulations but still run afoul of California law.

This has been a significant irritant for consumer companies, requiring them to create multiple sets of labels – or more commonly – having to apply the higher California standard across all of their U.S. marketing and labeling.  California courts have not been particularly sympathetic to this dissonance finding that at least hypothetically it is possible to comply with both laws simultaneously and, therefore, there is no federal preemption.  See Clark v. Citizens of Humanity, LLC, No. 14-CV-1404 JLS WVG, 2015 WL 1600679, at *5 (S.D. Cal. Apr. 8, 2015).  A bill currently before Congress, S. 1518., the “Reinforcing American-Made Products Act of 2015” proposes to clarify the impasse by specifically articulating that the federal government has complete control over country-of-origin labels and would specifically preempt all conflicting state standards.

California legislators have spoken first.  Taking effect January 1, 2016, Senate Bill 633, will allow manufacturers to label a product as “Made in the USA” if the foreign made parts do not constitute more than 5% of the final value of the product (or 10% if the foreign parts are not available from a domestic source).  Senate Bill 633, introduced by Senator Jerry Hill, a San Mateo Democrat, was signed into law on September 1, 2015.  This change shifts California from its unique position on labeling and more closely aligns it with the labeling standards used by the Federal Trade Commission (“FTC”).  There is not perfect alignment, however, and marketers selling products in California will still have to deal with different standards.  Nevertheless, the California bright line test provides some welcome clarity.

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Craft, Draft or Daft?

 

**Plaintiffs’ Lawyers Failing to Get Traction in Craft Beer and Spirit False Advertising Claims That “Handmade” or “Craft” is a Misleading Term in the Context of Alcohol Labels ** . . .                                                                                                                                                                             

Plaintiff lawyers have recently set their site on beer and spirits manufacturers claiming that terms used in advertising such as “handcrafted”, “handmade” or the imprimatur of “craft beer” are being used misleadingly by mass producers.  Several defendants have been successful to date in having the cases dismissed on the pleadings.  In Nowrouzi v. Maker’s Mark Distillery, Inc., No. 14CV2885 JAH NHS, 2015 WL 4523551, at *1 (S.D. Cal. July 27, 2015), plaintiffs allege that they purchased Maker’s Mark Bourbon because its label contained the statement that it was “handmade,” which allegedly led plaintiffs to believe the spirit “was of superior quality” than other bourbon (thus justifying spending more for defendant’s product than other bourbons).  Unsurprisingly, Maker’s Mark bourbon is made with machines.  In a similar action (bought by the same Plaintiff firm) In Welk v. Beam Suntory Imp. Co., No. 15CV328-LAB JMA, 2015 WL 5022527, at *1 (S.D. Cal. Aug. 21, 2015). plaintiffs allege they were misled by the word “handcrafted” on Jim Beam Bourbon bottle labels.  In each case plaintiffs sued under the usual tripartite in California: the CLRA (Cal. Civ. Code § 1750 et seq.); FAL (Cal. Bus. & Prof. Code § 17500 et seq.; and UCL (Cal. Bus. & Prof. Code § 17200 et seq.).  In both cases the district court dismissed with prejudice finding that the use of the impugned terms “handmade” and “handcrafted” were non-actionable puffery.  Those terms were generalized, vague, statements and it was unreasonable to imbue in them that the product literally was created by hand without any involvement of equipment or automated process.  This reasoning follows a Florida case with respect to Jim Beam where the court dismissing with prejudice held that “no reasonable person would understand ‘handmade’ in this context to mean literally by hand. No reasonable person would understand ‘handmade’ in this context to mean substantial equipment was not used.”  Salters v. Beam Suntory, Inc., 2015 WL 2124939 (N.D.Fla. May 1, 2015).

That said, not all Defendants have been so lucky – a few plaintiffs have navigated their way out of the pleading stage.  In Aliano v. Louisville Distilling Co., LLC, No. 15 C 00794, 2015 WL 4429202 (N.D. Ill. July 20, 2015), plaintiffs argued that Angel’s Envy Rye Whiskey, which is described in advertising as “hand crafted” and “small batch” was mass-produced and thus deceptive.  The court permitted the Illinois Consumer Fraud and Deceptive Trade Practices Act case to proceed.  It distinguished Salters noting that Angel’s Envy was a much smaller brand and a consumer could reasonably believe the phrase “hand crafted” on the finished whiskey label meant it was not mass-produced.  In Hofmann v. Fifth Generation, Inc., No. 14-CV-2569 JM JLB, 2015 WL 5440330, at *8 (S.D. Cal. Mar. 18, 2015), the court deferred on this same question refusing to dismiss the complaint against the makers of Tito’s Handmade Vodka, stating that as a matter of law it could not make the determination that the reasonable consumer would not be misled.

A couple of similar cases in this area are currently pending.  In Parent v. MillerCoors LLC., No. 15-cv-01204-GPC-WVG (S.D. Cal.), MillerCoors is being sued on an allegation that its Blue Moon beer misleads consumers into believing it is a “microbrew” or “craft” beer” by using those terms in its advertising and by withholding the name “MillerCoors” from its label.  Plaintiff claims that the definition of “craft beer” set forth by the Brewer’s Association, a not-for-profit trade association, governs.  While it is undisputed that MillerCoors does not qualify as a “Craft Brewer” pursuant to those guidelines, Miller has moved to dismiss on the basis that such guidelines are not controlling.  Miller has also moved on the basis that the use of the words “craft” and “crafted” in their advertising are colorful and vague – i.e. mere puffery – and not actionable.

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