Monthly Archives: March 2016

A Poker Lesson From The Pom Wonderful v. Coca-Cola Co. Cases

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** Coca Cola Prevails in false Advertising Case Bought By Pom Wonderful – Trying to Protect its Pomegranate Juice Market – While at the Same Time Settling Class Actions **                                                                                                                                                                                                                                                            

Pom Wonderful lost its 7 1/2 year battle against Coca-Cola this week after a nine person jury in California found that Coke was not misleading consumers with its Minute Maid division’s “Pomegranate Blueberry Flavored Blend of 5 Juices” which contained only a half-percent of pomegranate and blueberry juice.  Pom Wonderful LLC v. The Coco-Cola Co., No. cv-08-06239-SJO (MJWX) (C.D. Cal. March 21, 2016) (Dkt. 732). Pom had argued that the product’s labeling, which included pictures of all five fruits with the pomegranate dominating (although the apple was pretty darn big too) and the fact that “Flavored Blend of 5 Juices” was in smaller print below “Pomegranate Blueberry” was intended to “hoodwink” consumers into believe that pomegranate and blueberry juices were significant components of the product.  In addition, Pom pointed to the color of Minute Maid’s juice in its clear plastic bottles, which resembled pomegranate juice (i.e., red).  Pom’s attorneys told the jury that Coke leached off of the hard work and money that Pom had invested in growing the pomegranate juice market by creating a cheap juice that Pom’s customers would be tricked into buying due to the cost differential and the belief that they were getting the healthy benefits of pomegranate juice.  Pom sought $77.6 million in lost profits.

Coke’s principal defense was simple — it’s label was accurate and complied with FDA guidelines.  However, it is worth noting that Coke recently settled – subject to preliminary and final court approval — a putative consumer class action, Niloofar Saeidian v. The Coca Cola Company, Case No. 09-cv-06309, which was filed in the Central District of California approximately one year after Pom filed its lawsuit and which made the same deceptive labeling allegations on behalf of a nation-wide class of consumers who purchased the juice.  Interestingly, both the Pom and Saeidian cases are before Judge S. James Otero.  The proposed class action settlement provides for full refunds to class members with proof of purchase (uncapped) and up to two vouchers for replacement products in Coke’s Minute Maid, Simply, Smartwater, Vitaminwater, Vitaminwater Zero, and Honest Tea brands (capped at 200,000 on a “first come, first served” basis).  Coke also agreed to pay the administrative costs of the settlement (est. $400,000), attorney fees and costs not to exceed $700,000, a $5,000 incentive payment to Mr. Saeidian, and to donate $300,000 in product to Feeding America.  Finally, during the pendency of the class action (and the Pom case for that matter), Coke discontinued Minute Maid’s Enhanced Pomegranate Blueberry Flavored Blend of 5 Juices and represented in the settlement that it has no plans to reintroduce it.  Niloofar Saeidian v. The Coca Cola Company, No. 09-cv-06309, (C.D. Cal. Feb. 26, 2016) (Dkt. 192).

Does Coke regret settling the class action lawsuit less than a month before its triumph in Pom?  The difference between the results highlights the stark differences between consumer class actions and Lanham Act false advertising cases.  The latter, especially those not involving negative advertising – are notoriously hard on plaintiffs.  First, surveys show that juries say they read labels – word for word – (see Persuasion Strategies National Jury Survey, 2015).  It thus an uphill battle to convince them they have been misled by a label.  Second, if a company dishes it out, it will almost surely have to take it (nobody’s ads are perfect after-all). In Pom, Pom Wonderful’s claim of misleading labeling was met by Coke asserting “unclean hands” — pointing the jury to an 2012 administrative law judge’s decision in a case brought by the FTC against Pom that Pom made unsubstantiated claims that its juice treated, prevented or reduced the risk of heart disease, prostate cancer, and erectile dysfunction (upheld by POM Wonderful, LLC v. F.T.C., 777 F.3d 478 (D.C. Cir. 2015)).  This is likely a second critical underestimate of jurors’ typical behavior that worked against Pom. Most jurors react predictably to a party’s perceived hypocrisy. Third, most advertisements aren’t blatantly (legal term: “ literally”)  false so the question of whether an ad or label is materially deceptive comes into play.  Experts are hired to present bone dry surveys of consumer behavior, markets and perceptions of the offending ad that are subject to methodology challenges and sometimes clash with jurors’ own perceptions:  “Why do we need an expert? Everybody knows what that means?”  These experts’ opinions even conflict with the company’s own beliefs from time to time.  Indeed, Coke’s counsel’s closing argument mocked Pom’s assertion that Minute Maid’s juice stole customers from Pom by quoting from some early “creative briefs” prepared by Pom’s marketing department that Pom’s target audience for certain ads was “health-conscious hypochondriacs,” juxtaposing that audience with Minute Maid’s target market — regular old families.  And fourth, even if a corporate plaintiff successfully navigates these tough proof issues, it is left with the daunting task of proving that it suffered actual injury from its competitor’s ad and the amount of that injury in dollars – no easy task in multi-competitor markets that suffer the slings and arrows of shifting consumer tastes, new market entrants, the next “new thing,” and the fluctuation of the economy as a whole.  Frequently, defense counsel in Lanham Act cases are willing to just poke holes in plaintiffs’ experts’ damage analyses through cross-examination and possibly their own experts’ critiques without proffering alternative damage calculations on the theory that offering alternative numbers is a tacit admission of liability and creates a floor.  Coke eschewed this approach and called an expert who testified that, even accepting some of Pom’s forensic accountant’s premises, Pom’s damages would only be between $886,000 and $9.8 million – not $77.6 million (see also this post on the strategy for damages anchors).  In the end, that tactical decision didn’t matter.  In less than a day of deliberations, the jury determined that Coke’s blended juice did not mislead consumers about the amount of pomegranate juice in the bottle.  Pom Wonderful LLC v. The Coco-Cola Co., No. cv-08-06239-SJO (MJWX) (C.D. Cal. March 21, 2016) (Dkt. 732).

One can assume that Pom went into this Lanham Act lawsuit against Coke with eyes wide open.  Clearly Pom is sincere in its view that its hard work and research funding created the explosive growth in consumer demand for pomegranate juice and its market should not be hijacked by impostors.  Pom had previously been to trial against Ocean Spray and Welch’s making similar Lanham Act claims to the ones asserted against Coke.  In the Ocean Spray case, a two-week trial in the Central District of California at the end of 2011 resulted in a jury verdict that Ocean Spray did not deceptively advertise its “100% Juice Cranberry and Pomegranate” juice after two hours of deliberation.   Pom Wonderful LLC v. Ocean’s Spray Inc., No. 2:09-cv-00565-DDP-R2 (C.D. Cal. Dec. 2, 2011) (Dkt. 552). The Welch’s case proved a pyrrhic victory for Pom – the Central District of California jury found in 2010 that Welch’s labeling of its juice as “100% Juice White Grape Pomegranate” was literally true but nevertheless deceptive yet concluded that Pom was unable to prove any injury.  Interestingly, Welch’s – like Coke – settled two consolidated consumer class action lawsuits making the same claims as Pom five months after its victory over Pom. Pom Wonderful LLC v. Welch Foods Inc., No. 2:09-cv-00567-AHM-AGR (C.D. Cal. Sept. 13, 2010) (Dkt. 374).

In the end, the problem with Pom’s Lanham Act lawsuits – like many such cases – may be the plaintiff.  Jurors are asked to find that the defendant deceived consumers, but then give the money to a competitor – not a particularly satisfying result.  This is obviously not a problem in consumer class actions.  In a Lanham Act case, if the advertising is negative and directly pointed at the competitor or if the advertisement is particularly naughty – for example, Blue Buffalo’s trumpeting that its premium priced dog food contained no byproducts when the company knew that it did (lesson: don’t mess with man’s best friend) – a jury will likely find liability and damages.  But in the more common “literally true but deceptive” case, Lanham claims are a hard sell.  In the triad of Pom cases, the only one in which actual consumers testified as to deception was Welch’s, which might have had something to do with the jury’s finding of deception.                                                                                                                                                                                                             

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Here’s Something You Don’t See Every Day: Poliitcal Support for the Primacy of State Law

                                                                                                                                                                              


** Federal Agencies and Legislators Attempt an Assault on the Enforceability of Class Action Waivers and Mandatory Arbitration Contract Provisions **                                                                                                                                                                                                                                                                                                                                                                                                                                                         

x93vP26g_400x400We’ve recently posted regarding the pushback state high courts have been giving the Supreme Court’s recent decisions regarding the primacy of the Federal Arbitration Act over state laws that restrict private arbitration agreements.  These state court cases arise in circumstances (such as in consumer cases) where the high cost/low recovery dynamic makes the class action attractive versus the consumer pursuing an individual claim in arbitration.  The concern over the increased use of mandatory arbitration agreements – particularly those providing class waivers – extends beyond state courts and to the federal government itself.  But unlike the states, who must accept federal pre-emption of state law, the feds can work around it – and they are (trying, at least).  For example, the Department of Education has just released a proposal to amend the federal regulations governing colleges’ participation in the Direct Loan Program.  The proposed amendments would prevent colleges participating in the lucrative program from requiring students to arbitrate unless they consent after the claim arises; and from prohibiting students from asserting their claims “in cases filed in a court on behalf of a class.”  Department of Education, Issue Paper 5 Session 3: March 16-18, 2016.  These proposed regulations stem in part from a citizen petition filed by a consumer group, Public Citizen, Inc and comes in the wake of some high profile for-profit college failings, especially the infamous 2014 bankruptcy of Corinthian Colleges, one of the largest for-profit, post-secondary school operators in the country (housing Bryman College, National Institute of Technology, etc.)  The Department of Education is justifiably concerned that taxpayers are on the hook for Direct Loans made to students who attended Corinthian Colleges’ campuses from 2010-2015 (to the tune of $3.5 billion according to Public Citizen).

The Department of Education’s proposal comes on the heels of the Consumer Fraud Protection Bureau’s announcement in October that it is considering proposed rules to eliminate mandatory arbitration provisions in consumer finance agreements.   Dodd-Frank tasked the CFPB with conducting a study of arbitration agreements in consumer finance contracts, which was completed in March 2015.  Among the study’s insights was that, based on a sampling of consumer finance agreements,  53% of those involving credit cards, 44% of debit cards, 92% of prepaid cards, and 99% of payday loans and wireless contracts contained mandatory arbitration clauses.  The study also disclosed that, while “a relatively small number of individual cases against their financial service providers [were filed] either in arbitration or in court” in the aftermath of Concepcion, prior to that Supreme Court decision, “at least 32 million class members per year were eligible for relief pursuant to class settlements approved by federal courts between 2008 and 2012” resulting in settlements of “$540 million per year in cash, in-kind relief and attorneys’ fees and expenses . . . .”  The CFPB concluded that the dramatic decline in consumer finance disputes was the direct result of the rise of mandatory arbitration agreements – the individual harm is too small for a consumers to bring a claim, lawyers won’t take on such small cases, and “in some cases consumers may not know that they have suffered harm” (presumably because a lawyer hasn’t informed them).

But the biggest challenge to mandatory pre-dispute arbitration agreements in consumer contracts comes from Congress, itself.  In what some readers might view as an ironic title for federal legislation — “The Restoring Statutory Rights and Interests of the States Act of 2016” was introduced by Senators Leahy (D. VT) and Franken (D. MN) on February 4th.  This bill would effectively “overrule” Concepcion (specifically referenced in the text) and its progeny by decreeing that FAA preemption does not apply to claims brought by an individual or “small business concern” – including class actions – arising from a Federal or state statute . . . or a constitution of a State.”  Not satisfied with merely protecting state statutory claims (e.g., California’s Consumer Legal Remedies Act) from pre-dispute arbitration agreements, the proposed legislation goes further by providing that state statutory or common law on unconscionability, contract formation, and public policy trumps the FAA as well.  Senator Leahy and Franken’s 2016 legislation appears aimed at garnering Republican support by specifically referencing state rights.  In 2015, Senator Franken along with Representative Hank Johnson reintroduced their prior bill, “The Arbitration Fairness Act” that was a full federal frontal assault on arbitration agreements, eliminating them in employment, consumer, civil rights and antitrust cases.  The Arbitration Fairness Act was referred to the House and Senate Judiciary Committees from whence it is unlikely to emerge.  The Restoring Statutory Rights and Interests of the States Act is unlikely to fare much better, but it is an election year and worth a watch.

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Shocked, shocked to find that [Yogurt] is going on in here!

** Purported Class Representative Loses Second Bite at Yoghurt Certification After Court Accuses Him of “Manufacturing” Standing **                                                                                                                                                                                                                                                                                                                                                                    

“I Will Never Buy It Again” . . . “Just Kidding.”  We’ve posted about a recent trend in consumer class action litigation: denying standing for injunctive relief to putative class representatives who claim false advertising due to the fact that these would-be class representatives are now unlikely to be misled in a similar way in the future. In Torrent v. Yakult USA, Plaintiff Nicolas Torrent claimed he bought Yakult’s probiotic yogurt drink due to beneficial digestion claims – which he claims was misleading.  Torrent confirmed his utter disdain for Yakult’s yogurt in interrogatory responses: as a result, on January 7, 2016, the District Court for the Central District of California denied class certification, in part, due to Torrent’s lack of standing for injunctive relief.  Torrent v Yakult U.S.A. Inc., No 8:15-cv-00124-CJC-JCG (C.D. Cal Jan. 27, 2015) (Dkt 52).  “Because Torrent has not even alleged that he intends to buy Yakult in the future, let alone submitted evidence to that effect, the Court concludes that he lacks Article III standing to pursue injunctive relief here.” Id. Ten days later, Torrent bought a couple of bottles of Yakult  and shortly thereafter filed a renewed motion for class certification.  Id. at Dkt. 53.  If brevity is the soul of wit, the motion is Louis C.K.  “Plaintiff intends to purchase Yakult in California in the future.”  The Court was having none of it, observing that Torrent either knew he intended to buy Yakult when he filed his initial motion for certification (but told the court the contrary) or his subsequent purchase of the yogurt and declaration he intended to buy even more (never mind the allegedly false advertising) “appears to be an effort to manufacture standing in direct response to this Court’s prior ruling.”  Id. (March 7, 2015) (Dkt. 65).  Torrent’s claims for injunctive relief – based on his “manufactured” evidence – akin to Captain Renault in Casablanca claiming to be “shocked, shocked to find that gambling is going on in here!” (while the croupier hands him a pile of money] – fell on deaf ears.

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