Monthly Archives: October 2015

Honest-ly: All Natural

**Jessica Alba’s Honest Company the Latest Target in California of the All Natural Plaintiff Class Action Bar in cocamidopropyl betaine case ** . . .                                                                                                                                                                           

Honesty and related virtues on a product box or package for instant reputation building, including sinerity, trustworthiness, honor, candor and integrity

The “All Natural” conundrum is yet to be solved.  The latest target is The Honest Co. – the celebrity driven purveyor of baby and cleaning products.  Rubin v. The Honest Company, Inc., 3:15-cv-04036-EDL (N.D. Cal. September 3, 2015).  The complaint touts a familiar trope – that defendant’s products with “natural” labeling actually have some artificial or synthetic ingredients.  In this case (inter alia) the allegedly offending ingredient is cocamidopropyl betaine.  A scary sounding ingredient – and one that sounds artificial.  In reality, it is a compound derived from coconut oil.  Courts have been consistent that scary sounding names aside, just because an ingredient is manufactured or extracted does not make it “un-natural.”  See Pelayo v. Nestle USA, Inc., 989 F. Supp. 2d 973, 978 (C.D. Cal. 2013) (holding that the “reasonable consumer is aware that Buitoni Pastas are not springing fully-formed from Ravioli trees and Tortellini bushes”); Balser v. Hain Celestial Group, Inc., CV 13–05604–R, 2013 WL 6673617 (C.D. Cal. Dec. 18, 2013) (dismissing without leave to amend a complaint involving a product line of over 30 “natural” shampoos and cosmetics, because “shampoos and lotions do not exist in nature, there are no shampoo trees, cosmetics are manufactured  . . . [t]hus Plaintiffs cannot plausibly allege they were deceived to believe shampoo was existing in or produced by nature”); Kane v. Chobani, Inc., 973 F.Supp.2d 1120, 1137 (N.D. Cal. 2014) (rejecting outright the assertion that fruit or vegetable juices were “highly processed unnatural substances far removed from the fruits or vegetables they were supposedly derived from and in fact were more akin to synthetic dyes like coal tar dyes”); see Rooney v. Cumberland Packing Corp., 2012 WL 1512106 (S.D. Cal. Apr. 16, 2012) (dismissing without leave to amend a complaint alleging that “Sugar in the Raw” was deceptive because it was actually processed and not natural sugar).  Thus ingredients with “un-natural” names like sodium bicarbonate, citric acid and glycerin have been held to be natural and thus not misleading.  See, respectively, Astiana v. Dreyer’s Grand Ice Cream, Inc., No. C-11-2910 EMC, 2012 WL 2990766, at *1 (N.D. Cal. July 20, 2012) (noting that sodium bicarbonate is a non-synthetic alkalizing agent); Ries v. Arizona Beverages USA LLC, No. 10-01139 RS, 2013 WL 1287416, at *1 (N.D. Cal. Mar. 28, 2013) (granting summary judgment to defendant on question of whether citric acid in iced tea was natural, and defendant’s expert testimony that citric acid is a natural ingredient); Brazil v. Dole Packaged Foods, LLC, No. 12-CV-01831-LHK, 2014 WL 6901867, at *5 (N.D. Cal. Dec. 8, 2014) (same); Thurston v. Bear Naked, Inc., 2013 WL 5664985, at *7–8 (N.D.Cal. July 30, 2013) (holding, at class certification stage, plaintiff not entitled to proceed with claim that reasonable consumer would “view the presence of glycerin . . . as contrary to 100% Natural statement on label”).  A number of other cosmetic companies have been hit with cocamidopropyl betaine claims – including Neutrogena (4:12-cv-00426-PJH (N.D. Cal)), Johnson & Johnson (3:13-cv-00524 (D.N.J.)).  These matters settled.

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That Settling Feeling – Private Settlement of Auto-Renewal Cases in California

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**Many high profile companies have had California Bus. & Prof. Code § 17600 Auto Renewal cases bought against them recently – from Spotify to Tinder – the trend among these companies has been to settle – and settle privately**                                                                                                                                                                                        

In December 2010, California entered into effect its Auto-Renewal Law (“ARL”) (California Bus. & Prof. Code § 17600 et seq) intended to protect consumers from unwanted charges for ongoing subscription fees, i.e. such as those used by online subscription services.  The law does not outlaw the practice of auto-renewal altogether, however it creates an onus on subscription services to present auto-renew terms in a “clear and conspicuous manner”; to obtain affirmative consent to payment terms; and to provide an easy-to-use mechanism for cancelation.  See § 17602.  The ARL creates a novel (and as yet judicially untested): if the consumer doesn’t give the affirmative consent required by the statute, the “the goods, wares, merchandise, or products shall for all purposes be deemed an unconditional gift . . . .” See § 17603.  With the popularity of the subscription service business model in the new economy, it was probably inevitable that Plaintiff lawyers would pick up on this law as a basis for purported consumer class action suits.  As listed below, most of the big name online subscription companies – in media, data, shopping and dating – have been targeted.  The majority response to date, has been to settle – quickly and privately.

  • In Vemma Nutrition’s case (D. Cal Case No. 3:13CV02731) the ARL complaint was filed 11/14/2013 and on 5/20/2014 a joint motion to dismiss under Rule 41 ended the case.
  • As to Spotify the case against it initially bought in the Superior Court, San Francisco County CGC-13-535309 was removed to Federal Court. (N.D. Cal) 3:13-cv-05653-CRB on 12/6/2013 and on 7/16/2014 a joint motion to dismiss under Rule 41 was filed.
  • With Dropbox the case filed Superior Court, San Francisco County, No. CGC-14-537731 was removed to Federal Court. (N.D. Cal) 3:14-cv-01453-CRB on 3/28/2015 and on 6/27/2014 a stipulated dismissal
  • In the case filed against Tinder (C. D. Cal. Case No. 2:15-cv-03175) in response to the Complaint filed 4/28/2015, the matter was voluntarily dismissed on 7/21/15
  • For Defendants American Automobile Association (D. Cal. Case No. 3:15-cv-00246) with respect to the complaint filed 2/6/2015 the matter was voluntarily dismissed on 3/23/15.
  • LifeLock’s case filed 2/2/2015 (D. Cal. Case No. 3:15-cv-00220) was voluntarily dismissed 5/11/15.
  • As to Blizzard Entertainment (D. Cal. Case No. 3:15-cv-00230) the complaint filed 2/5/2015 was voluntarily dismissed on 8/3/2015
  • The Birchbox case (S.D. Cal. Case No. 3:15-cv-00498) is currently stayed pending mediation.

The trend here is, first, get out of state court!  California state rules mandate judicial approval (and thus public disclosure) of the private settlement of a purported class action – even in its pre-certification infancy.  Cal. Rules of Court S  3.770; see Cal. Prac. Guide Civ. Pro. Ch. 14-C, Cal. Civ. Prac. Procedure § 32:18, see discussion Pirjada v. Superior Court, 134 Cal. Rptr. 3d 74, 81-82 (Cal. Ct. App. 2011).  This generally prevents a truly confidential settlement.  However, in Federal Court, only a certified class settlement needs court approval.  See Rule 23(e); Eckert v. Equitable Life Assurance Soc’y, 227 F.R.D. 60, 62 (E.D.N.Y. 2005); see also Wasserman, Secret Class Action Settlements, 31 Rev. Litig. 889, 901 (2012).  And if the parties can agree prior to an Answer being filed – all the better – the dismissal itself does not need court approval.  Rule 41(a)(1)(A)(i); Commercial Space Mgmt. Co., Inc. v. Boeing Co., Inc., 193 F.3d 1074, 1077 (9th Cir. 1999); Bailey v. Shell W. E&P, Inc., 609 F.3d 710, 719 (5th Cir. 2010). The second trend here is obvious – early – private settlement.

That’s not to say that Defendants are not coming out swinging.  One litigation trend is for Defendants to use the arbitration provision in their terms and conditions to force the case out of court.  In this vein Guthy-Renker’s case in Superior Court, Los Angeles County BC499558, the defense has moved to compel arbitration – a hearing on the motion to compel is 10/19/2015.  In the case of Hulu,  Superior Court, Los Angeles County BC540053 on 8/11/2015 the court entered an order to compel arbitration – this is currently under appeal.

Not surprisingly behemoths Google and Apple have also both been sued under the ARL.  Neither seem content to settle and are both actively defending the cases.  See Mayron v. Google, Inc., Superior Court, Santa Clara County 1-15-CV-275940 demurrer filed 7/20/2015, hearing scheduled for December 4, 2015; see also Siciano v. Apple, Superior Court, Santa Clara County 1-13-CV-257676 on 4/20/2015 the Court overruled Apple’s demurrer and the case is set for case management conference on November 13, 2015.

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Phantom Discounts Hurting Retailers

**Momentum Building Against Retailers and Department Stores Sued by Purported Class Representatives Alleging that Advertised “Sales Price” Marketing and Labels are Misleading Consumers** . . .                                                                                                                                                                                                                                                                                                                                         

 

On October 9, 2015 Nordstom failed in its attempt to have the district court in its 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) purported class action case dismiss under Rule 12Branca v. Nordstrom, Inc., S.D. Cal., No. 3:14-cv-02062, Order, ECF No. 30, October 9,  2015.  Plaintiff bought his case alleging that the companies outlet Nordstrom Rack stores used tags with two prices on it: a “Compare At” price and below that the “Actual Price” – the latter a steep discount on the former.  Plaintiff alleges he believed the Compare At price was the price for the item at Nordstrom’s mainline stores, or at least the prevailing market price in department stores.  Accordingly, when he found out that his purchased items were never sold at mainline stores – he alleges that his perceived “discount” was illusory and that he was misled.  Judge Michael M. Anello of the U.S. District Court for the Southern District of California disagreed with Nordstrom’s motion to dismiss, holding that Plaintiff’s theory of being misled was robust enough to pass the reasonable consumer test at the crux of California consumer law.  Equally problematic for Nordstrom, Judge Anello ruled that Plaintiff could represent a class of consumers wider that those who could identify with respect to the exact item he purchased.  The district court here considered cases such as Anderson v. Jamba Juice Co., 888 F. Supp. 2d 1000 (N.D. Cal. 2012) and Astiana v. Dreyer’s Grand Ice Cream, Inc., Nos. C-11-2910 EMC, C-28 11-3164 EMC, 2012 WL 2990766 (N.D. Cal. July 20, 2012) – where courts found that Plaintiffs had standing with respect to items not identical – but substantially similar to the product to which Plaintiff purchased (i.e. a different flavor in the same range) – as analogous and persuasive.  Here the court found that the “Compare At” labels were identically used across the store, even though the products which they might have been affixed to differed.  This has the potential to create a class of consumers who purchased hundreds, if not thousands of items, not just the limited class of people who purchased the exact sweatshirt and cargo shorts that Plaintiff Branca in this case alleged that he bought.

This marks another notch in the belt of Plaintiffs’ lawyers against major department stores.  In a similar case, JCPenny were sued in relation to its use of “Discounted Price” and “Sales Rack” pricing – and the retailer lost on its motion for summary judgment.  Spann v. J.C. Penney Corp., No. SA CV 12-0215 FMO, 2015 WL 1526559, at *2 (C.D. Cal. Mar. 23, 2015).  It subsequently also lost on it opposition to class certification.  Spann v. J.C. Penney Corp., 307 F.R.D. 508 (C.D. Cal. 2015).  In Gattinella v. Michael Kors, No. 14-cv-5731, 2014 WL 7722027 (S.D.N.Y.), a similar “outlet” discount case was litigated and ultimately settled for $4,900,000. See 32 NY. J.V.R.A. 6:8.  Similar cases are pending against TJ Maxx (Chester v. The TJZ Companies., 5:15-cv-01437-DDP-DTB (C.D. Cal.)) Kohl’s (Chowning v Kohl’s Department Stores, Inc., 3:15-cv-01624-JAH-WVG (S.D. Cal.)).

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All Eyes on the Supreme Court for Consumer Class Action Lawyers

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**The Supreme Court’s 2015 Term Opens With a Series of Cases Important for Consumer Class Action Defendants: Campbell-Ewald v Gomez, Spokeo v Robins and Tyson Foods v Bouaphakeo** . . .                                                                                                                                                                                                                                                          

In recent years, the Supreme Court has handed down victories to the class action defense bar.  In Wal-Mart v. Dukes, 564 U.S. ___ (2011), the Court reversed a California district court certification of a gender discrimination class – raising the bar on commonality questions for plaintiffs.  In Comcast v. Behrend, 569 U.S. __ (2013), the Court again reversed a district court certification – heightening scrutiny on plaintiffs’ methods for alleging class wide damages.  As the 2015 term opens this week, defense counsel around the country eye further potential victories in three key cases.

The first case up is Campbell-Ewald Co. v. Gomez (No. 14-857) on appeal from the Ninth Circuit where the Court will deal with two frequently litigated questions as yet unresolved by the circuits.  Namely, does a Rule 68 offer of complete relief to a plaintiff moot his or her claim and, if so, does it also moot the resulting class claim under Rule 23?  The underlying case concerns unsolicited text messages prohibited by the Telephone Consumer Protection Act (TCPA) 47 U.S.C. § 227.  The TCPA contains a statutory remedy and defendants argued that, to the extent they had offered Plaintiff  the full amount of the statutory remedy (per Rule 68) as relief,  the plaintiff suffered no cognizable Article III damages.  Thus, defendants argue that because the plaintiff suffered no injury,  he has no right to represent a class of people who may have been damaged.  From a practical perspective, the case addresses the question:  Can a defendant “pick off” would be class representatives through Rule 68 offers of judgment thereby destroying the foundation of the class action claim?  As anyone who has defended corporations receiving required pre-litigation notices under consumer protection statutes has observed, plaintiff law firms have become increasingly reticent to disclose the identity of their clients at the notice stage in order to forestall Rule 68 offers of judgment until the putative class action lawsuit has been filed.

The second case is Spokeo Inc. v. Robins, (No. 13-1339) also on appeal from the Ninth Circuit.  This case involves a related question of Article III standing for class representatives.  Spokeo concerns the  Fair Credit Reporting Act, 15 U.S.C. § 1681 (FCRA), which requires consumer credit agencies to take reasonable steps to ensure the accuracy of their published reports.  Plaintiff in a putative class action argued in the Central District of California that results for his name on the Spokeo website contained inaccurate information about plaintiff’s education and professional experience – and that this inaccuracy harmed his employment prospects.   The District Court dismissed, finding that the alleged damages – based on hypothetical impact on his employment – were too speculative to satisfy Article III standing.  The Ninth Circuit reversed, holding that the statutory violation implicitly creates a private cause of action to enforce and that this violation of a statutory right was an “injury” sufficient to confer standing.  The Ninth Circuit Spokeo decision was the latest in a circuit split – on one side the Second and Fourth circuits, which have rejected standing arguments from plaintiffs who alleged bare statutory violations that did not result in any actual harm (Kendall v. Emps. Ret. Plan of Avon Prods., 561 F.3d 112 (2d Cir. 2009); David v. Alphin, 704 F.3d 327 (4th Cir. 2013)); and the Ninth Circuit joining the Sixth and Seventh Circuits, which have come out on the side of recognizing “damages” for private plaintiffs with respect to minor statutory violations.  Beaudry v. TeleCheck Servs, 579 F.3d 702 (6th Cir. 2009); Murray v. GMAC Mortg. Corp., 434 F.3d 948 (7th Cir, 2006).  If the Supreme Court recognizes damages irrespective of actual harm, the impact could be felt more broadly than FCRA – there are numerous similar statutory schemes, including truth-in-lending legislation (15 U.S.C. § 1640(a)); debt collection statutes, (15 U.S.C. § 1692k(a)); as well as various privacy laws (18 U.S.C. § 2710(c)(1); 47 U.S.C. § 551(f)(1)-(2)).

The third case is Tyson Foods v. Bouaphakeo (No. 14-1146) – a challenge to a $5.8 million wage-and-hour judgment in favor of a class of employees at Tyson’s meat packing plant in Iowa.  Tyson’s petition seeks a reversal of the district court and Eight Circuit’s decision to permit liability and damages verdicts to be based – not on an individual analysis of each purported class member – but by extrapolating a statistical average across the board based on the discrepancies observed in a sample class of workers’ hours and pay.  Tyson further appeals on the lack of ascertainability of the class itself – that is, that the certified group (even according to the Plaintiffs’ own expert) included a significant number of people who weren’t underpaid at all.  If successful, the Tyson case will build upon the Court’s disapproval in Wal-Mart of “trial by formula” and provide a significant bulwark against plaintiffs in putative class actions glossing over differences amongst their claimed class in order to achieve certification.

Not surprisingly, this trifecta of cases has generated a significant amount of interest, amicus briefing, and optimistic thinking from the defense bar that momentum is on its side.  The implications are not insubstantial if defendants prevail:  the type of de facto strict liability for statutory compliance created by such class actions will diminish, there will be new avenues to derail cases pre-certification, and the barrier of ascertainable and reliable class wide damages that plaintiff s must hurdle will be reinforced.

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Safe Harbor for Vodka

**District Court Applies Federal Alcohol Administration Act to State Consumer Law Safe Harbor to Dismiss “Handmade” False Advertising Claims Against Vodka Maker in Florida** . . .                                                                                                                                                                                                                                                                                                                                              

Recently there has been a raft of purported class actions targeting beer and spirits makers.  See prior post.  Generally, defendants have been successful on motions to dismiss on their argument that puffery such as “handmade” or “craft” are not actionable terms.  Defendants generally have not been successful in asserting an absolute defense based on state law safe harbors.  The safe harbor defense is not complicated –  a state consumer law action cannot be asserted against labels authorized by federal law – and in that alcohol labels must be approved by the Alcohol and Tobacco Tax and Trade Bureau (TTB), then alcohol makers have an absolute defense.  Courts have been reticent to accept this argument at the pleading stage.  In a recent Florida district court case, common sense on this point has prevailed.  In Pye v. Fifth Generation, Inc., No. 4:14CV493-RH/CAS, 2015 WL 5634600, at *1 (N.D. Fla. Sept. 23, 2015), defendants – the makers of Tito’s Handmade Vodka – were sued (inter alia) under Florida’s Deceptive and Unfair Trade Practices Act, Florida Statutes§§ 501.201-501.213 (DUTPA) on the allegation that “handmade” and “old fashioned” claims were misleading.  DUPTA includes a safe-harbor provision: it “does not apply to … an act or practice required or specifically permitted by federal or state law.” § 501.212(1).  The safe harbor has been successfully used by pharmaceutical companies (i.e. whose products are heavily regulated by the FDA) in relation to their labeling.  See, e.g., State of Fla., Office of Atty. Gen., Dept. of Legal Affairs v. Tenet Healthcare Corp., 420 F. Supp. 2d 1288, 1310 (S.D. Fla. 2005); Prohias v. AstraZeneca Pharm., L.P., 958 So. 2d 1054, 1056 (Fla. 3d DCA 2007).  The Federal Alcohol Administration Act (FAA) regulates the distribution of distilled spirits, including labeling and packaging. See 27 U.S.C. § 205(e); 27 C.F.R. § 5.42(a).  The TTB enforces these provisions in a number of ways, chiefly through requiring alcohol labels to have a valid Certificate of Label Approval (“COLA”).  Before issuing a COLA, the TTB evaluates and preapproves the alcohol label to ensure it contains all mandatory information and contains no prohibited or misleading information.  The court noted in Pye that the TTB had expressly approved Defendant’s label and, therefore, it was specifically permitted by federal law within the meaning of Florida Statutes (§ 501.212.)  On that basis, plaintiff’s Florida consumer protection claims were dismissed with prejudice.

 

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