Ad Law Defense

Online Subscriptions Require an Easy Out in California

** New Requirements under California’s Auto Renewal Law Requires Online Cancellation for Online Subscribers **                                                                                                                                    

By: Brent E. Johnson 

As we blogged about in the past, in 2010, California’s Automatic Purchase Renewal Statute (“CAPRS”) became effective for businesses offering automatic renewals or continuous service offers to California consumers.  See Cal. Bus. & Prof. Code § 17602.  The stated intent of CAPRS is to “end the practice of ongoing charging of consumer credit or debit cards or third party payment accounts without the consumers’ explicit consent for ongoing shipments of a product or ongoing deliveries of service.” Cal. Bus. & Prof. Code § 17600.

Almost half of US states now have similar laws on the books – some applying to all consumer contracts – others applying only to specific businesses such as gyms or security services.  The common denominator amongst these state laws is a requirement to provide disclosure of auto renewal policies in a manner that is clear and conspicuous.  See e.g., Connecticut (Conn. Gen. Stat. § 42-126b), Florida (Fla. Stat. § 501.165), Georgia (O.C.G.A. § 13-12-3), Illinois (815 ILCS 601/10), Louisiana (La. Rev. Stat. § 9:2716), Maryland (Md. Code Com. Law § 14-12B-06), New Hampshire (N.H. Rev. Stat. § 358-I:5), New York (N.Y. Gen. Oblig. Law § 5-903), North Carolina (N.C. Gen. Stat. § 75-41), Oregon (Or. Rev. Stat. §§ 646A.293, .295), Rhode Island (R.I. Gen. Laws § 6-13-14), South Carolina (S.C. Code § 44-79-60), South Dakota (S.D. Codified Laws § 49-31-116), Tennessee (Tenn. Code §§ 62-32-325, 47-18-505) and Utah (Utah Code § 15-10-201).

California’s law is among the strictest, requiring explicit consent before charging a consumer’s account for ongoing orders.  As a remedy for violation, goods provided to a subscriber on an automatic basis without the required consent are deemed  “unconditional gift[s]” (§ 17603) – i.e., “freebies.”

Although not particularly old, California’s law recently received an update– with new provisions going live July 1, 2018.  The primary new provision is a requirement that accounts opened online must be permitted to be cancelled online.  Cal. Bus. & Prof. Code § 17602 (c) (“A consumer who accepts an automatic renewal or continuous service offer online shall be allowed to terminate the automatic renewal or continuous service exclusively online.”)  No more cumbersome phone calls to customer service agents to cancel accounts.  The makeover of California’s law also extends its application to free or discounted trial periods.  A cancellation notification must be given prior to the end of this period giving the consumer information on how to cancel prior to being charged the new or non-discounted price.  § 17602 (a)(3).

Failure to comply with auto renewals laws has exposed a wide variety of companies to class action complaints (mainly in California under CAPRS).   Vemma Nutrition; Spotify; Dropbox; Tinder; LifeLock; Birchbox; Google and Apple have all been sued.  Courts are clear that CAPRS does not have an intrinsic private right of action – but that a violation would be an “unlawful” business practice under California’s Unfair Competition Law (UCL) (Cal. Bus. & Prof. Code § 17200).  Johnson v. Pluralsight, LLC, No. 17-15374, 2018 WL 1531067 (9th Cir. Mar. 29, 2018).  And as for a remedy under the UCL, failure to honor the “free gift” provision of § 17603 was deemed to be a sufficient allegation to warrant restitution.  Id. at * 2.

Companies should take steps to comply with CAPRS and similar laws by:

  • Making sure the auto renewal terms are stated clearly and conspicuously – and making sure the terms comprehensively describe the offering, price, frequency of charges and length of minimum terms.
  • Having a process to obtain the consumer’s affirmative consent before he or she is charged and providing a mechanism to cancel online, if the subscription is created online.
  • Confirming the terms with a notice (such as by email) that includes all relevant offer terms and the cancellation policy prior to the first payment or increase in promotional prices.

 

OEHHA Flips on Coffee

** California Regulators Propose New Regulation That Excludes Coffee Makers from Acrylamide Prop 65 Warning **                                                                                                                                                                                                                                                                                                                                                              

By: Brent E. Johnson 

 

As we blogged about recently, Defendants in the blockbuster Prop 65 case, Council for Education and Research on Toxics v. Starbucks Corp. et al., No. BC435759 (Los Angeles County Superior Court), argued that although acrylamide was listed as a Prop 65 chemical – and although acrylamide was present in coffee (created as part of the roasting process) – consuming coffee, itself, has not been shown to cause cancer and, therefore, a Prop 65 warning was unwarranted.  Defendants went further, arguing that studies have actually shown that coffee reduces the risk of some cancers.  The court disagreed with Defendants analysis, holding that the relevant question was whether acrylamide causes cancer – not coffee as a whole. The court also rejected Defendants’ arguments touting the overall health benefits of coffee, which would have permitted the court to apply a “public health” exception to Prop 65 labeling.

The result: coffee sellers in California have no choice but to label their beverages with a Prop 65 warning.  With millions of coffee drinkers in California – most of them daily drinkers – the Prop 65 warning looks to become even more ubiquitous (and ignored).

But not so fast!  The California Office of Environmental Health Hazard Assessment (OEHHA) just proposed a new regulation providing that cancer warnings would not be required for coffee, stating (in effect) that the health benefits of consuming coffee outweigh the cancer risk posed by acrylamide.  OEHHA’s press release articulates that its proposed regulation is based on scientific evidence that drinking coffee has not been shown to increase the risk of cancer and may reduce the risk of some types of cancer: “In a review of more than 1,000 studies published this week, the World Health Organization’s International Agency for Research on Cancer (IARC) concluded that there is ‘inadequate evidence’ that drinking coffee causes cancer. IARC found that coffee is associated with reduced risk for cancers of the liver and uterus, and does not cause cancers of the breast, pancreas and prostate. IARC also found that coffee  “exhibits strong antioxidant effects related to reduced cancer risk.”  OEHHA’s Initial Statement of Reasons are linked here and make for interesting reading.  The proposed regulation, which would fit under § 25704 of the implementing regulations,  states: “Exposures to listed chemicals in coffee created by and inherent in the processes of roasting coffee beans or brewing coffee do not pose a significant risk of cancer.”

OEHHA’s approach to this proposed regulation is identical to that rejected by the court in the Starbucks case when it denied the coffee sellers’ request that it consider the wider science on the cancer risks/benefits of coffee rather than the limited question of harm from acrylamide.  It is also an interesting development in so far as Prop 65 (Cal. Health & Safety Code § 25249.8 (a)) requires OEHHA to list chemicals that IARC identifies as carcinogenic but does not have a mechanism for exempting those products that IARC gives a green light.

OEHHA’s proposed regulation begs the question:  What about other products that are inherently healthy but contain a Prop 65 chemical?  For example, lead appears in trace amounts in dietary supplements that are made from botanicals.  Should these supplements also get their own product-specific exemption from Prop 65 labeling?

The proposed regulation has been posted, which initiates a public comment period that will run until August 30, 2018.

Attempts to Enforce “Humane” Treatment of Poultry Fail

** Foster Farms Prevail in Dismissing Class Action **                                                                                                                                                                                            

By: Brent E. Johnson

Resolving a politically-charged case based strictly on legal precedent and the evidence is no easy task.  But as Elle Woods said (quoting Aristotle), “The law is reason free from passion.”  (Granted, Elle disagreed with Ari.)  Recently, a case involving the treatment of chicken broilers during the farming and slaughtering process posed that very dilemma to a superior court judge in Los Angeles.  Leining v. Foster Poultry Farms, Inc., Cal. Super. Ct., No. BC588004.

The origins of this putative class action were both public and explosive.  On June 17, 2015, reporters gathered at the Millennium Biltmore Hotel in downtown Los Angeles to view three minutes of video footage of animal cruelty perpetrated by Foster Poultry Farms, Inc. employees at two facilities in Fresno during the preceding two months.  None other than noted animal welfare activist, vegetarian and retired “The Price Is Right” host, Bob Barker, narrated the video and spoke to the assembled reporters.

The video was shot by two undercover investigators from Mercy For Animals, a non-profit organization dedicated to advocating for animals generally and the prevention of farm animal cruelty specifically.  The investigators applied for and obtained jobs with Foster Farms in order to surreptitiously record the footage.  One of the investigators allegedly reported the animal abuse to his superior as well as phoned Foster Farms’ hotline to no avail.

Foster Farms was not the only party in Mercy For Animals’ crosshairs.  Part of the focus of the presentation – and, in particular, Mr. Barker’s remarks – was the American Humane Association (“American Humane”), a non-profit whose website declares “is committed to ensuring the safety, welfare and well-being of animals.”  American Humane pioneered, among other things, Hollywood’s animal welfare program, “No Animals Were Harmed.”  In the case of farm animals, American Humane operates a voluntary certification program where farms can earn the American Humane Certified™ label through annual facility audits that demonstrate the farms’ compliance with American Humane’s animal welfare standards.  Foster Farms had been Humane Certified™ for the two years preceding the May/June 2015 videotaped incidents.  Mr. Barker informed the reporters that he had in years past been an advocate for American Humane until “I was suddenly made aware of what [American Humane] really [is], and I have absolutely no respect for [them].  I think they have failed miserably in their efforts to protect animals in the movie industry, and obviously they have failed miserably in any protection for animals in the food industry.”  Mr. Barker went so far as to remark that American Humane once had been a beneficiary of his will — but given that he appears to be immortal, the loss of this status may not be a matter of consequence.

After the exposé at the Biltmore, Mercy For Animals filed a complaint with the Federal Trade Commission against both Foster Farms and American Humane claiming that the two entities had engaged in unfair and deceptive practices in connection with the advertising of Foster Farms chicken products under the Humane Certified™ label when the video footage showed that chickens were not being raised or slaughtered humanely.  A week later, Foster Farms was sued for false advertising in a putative class action in Los Angeles County Superior Court.  Leining v. Foster Poultry Farms, Inc., American Humane Association, BC588004 (LA Sup. Court, July 13, 2015).  American Humane was added as a defendant by way of Plaintiff’s first amended complaint.

Foster Farms’ reaction to the publication of the video was swift.  It suspended (and ultimately terminated) five employees allegedly involved in the animal cruelty and cooperated with the Fresno County Sheriff’s Department’s Agricultural Crimes Task Force.  (At least one former employee was prosecuted.)  In addition, Foster Farms reinforced “animal welfare training companywide and in its plants.”  Finally, the Company implemented a state-of-the-art video monitoring system at its facilities that allowed auditors to review daily footage to assure employee compliance with Foster Farm’s animal welfare policies and procedures.

American Humane’s initial response to the Mercy For Animals video was surprise. Organization officials immediately met with Foster Farms to discuss the matter.  After the meeting, American Humane’s spokesperson, Mark Stubis, stated, “Foster Farms has worked very hard to create a culture of humane treatment . . . .  In the three years that we’ve been working with them, they have never failed an audit. This is an extremely rare situation for us.”  Mr. Stubis continued, “The certification program can’t stop one or two employees who break those rules . . . .  We certainly expect any certified farm to take immediate corrective action against anyone who abuses animals.”  American Humane subsequently conducted unannounced inspections of Foster Farm’s poultry facilities and they passed.  Foster Farms retained its status as Humane Certified™.

The FTC resolved the complaint filed by Mercy For Animals on April 28, 2016.  In the FTC’s eyes, the issue revolved around its Guides Concerning the Use of Testimonials and Endorsements in Advertisements (“Endorsement Guides”).  16 C.F.R. § 255.4  “Because [American Humane] holds itself out as a bona fide independent certification organization, the [Humane Certified™] label on Foster Farms products arguably constitutes an endorsement, as defined by the FTC Guides Concerning the Use of Testimonials and Endorsements in Advertisements.”  But despite its reference to the Endorsement Guides and its recitation of the general parameters of American Humane’s certification program, the FTC passed on the issue of whether or not the program resulted in a certification that “conveyed any express or implied representation that would be deceptive if made directly by the advertiser.”  In the end, the FTC simply concluded that because Foster Farms took immediate remedial actions after learning of the video (suspending/terminating the involved employees, cooperating with law enforcement, and installing an expensive camera system) and passed American Humane’s inspections of the affected facilities, it would not recommend enforcement action “[d]espite concerns about the [American Humane] certification in light of the documented animal abuse . . . .”

Despite the FTC’s decision, the class action in Los Angeles raged on.  The putative class was represented by Drinker Biddle & Reath, LLP (“DrinkerBiddle”) — a firm noted for its defense of consumer class actions.  Perhaps not coincidentally, DrinkerBiddle represented the producers of The Price Is Right in past employment lawsuits brought by former Price is Right models.

The class action complaint did not place much emphasis on the Mercy For Animals video.  Rather, the complaint’s gravamen was that American Humane’s certification standards were woefully inadequate and far from what a reasonable consumer would believe is the humane treatment of chickens – even chickens whose destiny is dinner.  In Plaintiff’s graphic words, “(a) the chickens were hatched from eggs taken from facilities that are allowed to engage in forced-molting[1], maceration[2], beak-trimming[3], de-combing[4], toe amputation[5], food and water deprivation[6], and Noz Bonz practices[7]; (b) the chickens are shackled upside down by their feet for 90 seconds prior to slaughter as they are conveyed through processing facilities, electrically shocked before being rendered effectively unconscious, if they are at all, by such electric ‘stunning,’ and are then drowned and scalded, after having their necks cut, while they are, in at least some cases, still conscious; (c) the chickens suffer bruises and broken wings and bones; and (d) that the chickens spend their entire lives in chronic pain due to joint and leg deformities resulting from selective breeding for rapid growth, and live exclusively indoors in overcrowded poultry barns with high ammonia concentrations, many suffering from foot diseases, and unable to walk more than 5 feet without severe pain.”  According to Plaintiff, because American Humane’s certification purportedly permitted these practices, the Humane Certified™ label was objectively false and misleading.  [Editors’ Note:  If Plaintiff’s allegation that some of the chickens were “drowned” – i.e., still breathing when they were placed in the scalding tank to remove their feathers – this would be a violation of United States Department of Agriculture regulations that would have presumably been discovered during Food Safety and Inspection Service inspections.  The opinion does not reference any such evidence being presented to the court.]

On August 11, 2017, Foster Farms and American Humane filed for summary judgment Two weeks ago, the Honorable John Shepard Wiley, Jr. granted the defendants’ motion and dismissed the case. Judge Wiley’s opinion is an interesting and important read.  It starts with the premise that American Humane’s certification is subjective.  “The undisputed evidence in this record is that the word ‘humane’ is very vague.”  Judge Wiley then moves to the controlling California authority, Hanberry v. Hearst Corp. (1969) 276 Cal.App.2d 680, a case where the plaintiff claimed that a pair of shoes bearing the “Good Housekeeping Seal of Approval” was slippery on vinyl flooring, which slipperiness caused her injury.  The Hanberry Court concluded, according to Judge Wiley, that for a subjective product endorsement to be non-negligent, it must meet three requirements:  (1) the endorser must be independent; (2) the endorser must take reasonable steps in conducting its evaluation; and (3) the evaluation must involve some degree of expertise.  Id. at 686.

Judge Wiley dispatched with these requirements in short order.  American Humane was independent from Foster Farms despite the fact that the Company allegedly pays American Humane $375,000 for its certification, which Plaintiff contended was “unusually high” (without evidentiary support such as comparisons to other similar organizations).  As for Plaintiff’s assertion that American Humane was not independent because every certification program participant passed the organization’s audits, the court observed that the program is voluntary and, therefore, only those poultry farms that will pass the audits apply for the certification.  “When the applicant pool is highly non-random, one cannot expect certification results to vary randomly.”

On the issue of reasonable steps, Judge Wiley dismissed Plaintiff’s assertion that conducting audits – as opposed to annual visits to each poultry facility – was required.  “The Hanberry case condoned sampling, as is rational.”  And the fact that American Humane gave poultry producers between seven and fourteen days’ notice of the audit did not create a “Potemkin Village” because “[n]otice was necessary to ensure there were actually chickens at that facility.”

Reading the opinion as a whole, though, it is clear that Plaintiff’s case ground ashore on the rocks of expert opinion.  American Humane’s primary witness and Scientific Advisory Committee member was Dr. Joy Mench, who the Court described as “a leading expert on poultry who sits on virtually every scientific advisory board in the industry.”  She was a professor at the University of Maryland and, later, the University of California Davis.  Dr. Mench authored the only textbook in the field of poultry behavior and welfare.  Most significant to Judge Wiley, Dr. Mench’s advisory committee work (including her work with American Humane) was truly independent – as it was without compensation other than travel expenses.

Pitted against Dr. Mench was Plaintiff’s expert, Leah Garces, USA Director for Compassion in World Farming and a member of the Board of Directors for Global Animal Partnership (https://www.compassioninfoodbusiness.com/our-work/meet-the-team/leah-garces/) whose testimony the Court struck in its entirety.  Garces opined that American Humane’s standards are not “the best,” which Judge Wiley found irrelevant because American Humane does not represent that its standards are the best.  Most tellingly, the Court characterized Plaintiff’s expert as follows:  “Garces is a partisan advocate. . . . Garces is not a scholar or researcher.  She has done no research and published no peer-reviewed articles or books.  She has no scholarly or academic appointments or affiliations.”  The Court’s final blow:  “Garces’ method is ipse dixit:  ‘I say it.  Believe it.’ . . .  Garces includes three vague sentences about her supposed professional experience, but nothing concrete distinguishes her from an opinionated but insubstantial dilettante.”  Let’s face it, it’s hard to prevail when your expert’s testimony is dismissed as coming from a “dilettante” and excluded in its entirety.

What can we learn from the Foster Farms case?  First, hire an expert with solid credentials.  But putting aside the obvious, this case is interesting for what Defendants did not argue and what Plaintiff failed to argue.  Although Dr. Mench testified that the word “humane” as it applies to the treatment of broiler chickens is “subjective” and the Court agreed, Defendants did not assert that the Humane Certified™ label was “puffery,” i.e., a claim that expresses subjective rather than objective views that no reasonable person would take literally.  Newcal Indus., Inc. v. IKON Office Solutions, 513 F.3d 1038, 1053 (9th Cir. 2008).  First, American Humane’s certification is an actual label that obviously has value or it wouldn’t exist.  And second, consumers care that the animals they eat were treated humanely – even if their view of what “humane” means differs.  For Plaintiff’s part, the question is:  Where was the survey evidence demonstrating that, no matter how divergent consumer definitions of “humane” may be, American Humane’s standards do not meet their expectations?  Granted, divergent views on the meaning of “humane” could prove challenging to class certification.  But Plaintiff’s reliance on expert testimony regarding the expert’s personal definition of the term was unpersuasive – particularly when compared to the Defendants’ expert whose entire career has been focused on animal behavior and the humane treatment of same.

In the end, it appears that Plaintiff and her counsel relied on the “Parade of Horribles.”  It didn’t work.  The court analyzed the evidence that was before it and controlling California authority on commercial endorsements and determined that Plaintiff failed to meet her burden of showing a triable issue of fact that an independent, non-profit’s standard for the humane treatment of poultry, which was developed by members with expertise on the behavior of  chickens and enforced through a reasonable auditing process, was somehow divergent from the reasonable consumer’s subjective view of the humane treatment of chickens.

Perhaps that is for the best.  Consumer class actions are poor vehicles for recognizing and enforcing important substantive rights – including the rights of animals to humane treatment.  Plaintiff’s complaint alleged that “the price of Foster Farms American Humane® Certified labeled chicken was $5.99/lb. whereas other chicken labeled ‘all natural’ but without the American Humane® Certified label was $2.99/lb. and other chicken labeled as ‘hatched, raised, harvested in the U.S.’ was $3.99/lb.”  But would an advertising injunction and a $2-$3 refund per pound of chicken (up to ten pounds with receipt/5 pounds without) really have meant anything?  The forum for such issues is not the Los Angeles County Superior Court, but Congress, the United States Department of Agriculture and state agriculture departments.  Congress long ago enacted laws for the humane slaughter of livestock, 48 U.S.C. § 1901 et seq., and FSIS has promulgated detailed regulations under that law.  But those regulations do not apply to poultry.  With regard to chickens and other domestic fowl, FSIS regulations and inspections are directed to “good commercial practices,” rather than humane practices.  Whether that changes as consumers demand and expect humane treatment of all animals raised for meat remains to be seen – but it’s certainly likely.

[1] Forced molting is the practice of forcing feather loss and regrowth, which increases egg production in mature hens.  It is accomplished by withholding food (and sometimes water) from chickens for an extended period of time.

[2] Grinding up day-old male chicks because they will not lay eggs and are not suitable for meat production.

[3] Prevents chickens from injuriously pecking each other or themselves.

[4] De-combing is the removal of the chicken’s comb to limit the damage caused by frostbite or other injuries, to prevent the chicken’s head from becoming so heavy it interferes with eating or causes the head to sink into the chest, and to prevent injuries from other chickens or enclosures.

[5] Toe amputation occurs when a chicken’s toes are infected or suffer injury, such as frostbite.

[6] See footnote 1 on forced molting.

[7] According to the complaint, “the practice of piercing the nasal septum of young breeding roosters with a plastic stick to prevent them from accessing females’ food.”

California Court Does Not Side With Coffee

** Starbucks and other Coffee Makers Lose Latest Phase of Prop 65 Acrylamide Warning Case **                                                                                                                                                                                                                                                                                          

By: Brent E. Johnson                                                                                                                                                                                                                        

Background: Acrylamide is a chemical compound first isolated in laboratories in the 1950’s.  Since its discovery, it has been used in many industrial applications, such as in the manufacture of polymers, in papermaking, ore processing, oil recovery, and in the manufacture of permanent press fabrics.

Acrylamide was listed by OEHHA as a chemical known to the State of California to cause cancer in 1990 based on studies that showed it produced cancer in laboratory rats and mice.  In 2011, it was added to the reproductive and developmental harm list following studies of laboratory animals that showed effects on the growth of offspring exposed in utero as well as genetic damage.

Apart from its industrial uses, in 2002 acrylamide was discovered in foods – in particular starchy, carbohydrate rich plant based foods.  The chemical appears to be created when these foods are roasted or fried at temperatures higher than 248 °F – but not in food that had been boiled or steamed.  Further, acrylamide levels seem to rise as food is heated for longer periods of time, although researchers are still unsure of the precise mechanisms by which acrylamide is formed.  It has been detected irrespective of whether the food is cooked at home, by a restaurant or by commercial food processors and manufacturers.  All the good stuff is implicated – french fries, potato chips, other fried and baked snack foods, coffee, roasted nuts, breakfast cereals, crackers, cookies and breads.  At present the Prop 65 No Significant Risk Level (NSRL)  for acrylamide is 0.2 µg/day.  Cal. Code Regs. tit. 27, § 25705 (c)(2).

In 2005, California attorney general Bill Lockyer filed a Prop 65 lawsuit against four makers of French fries and potato chips – H.J. Heinz Co., Frito-Lay, Kettle Foods Inc., and Lance Inc..  People of the State of California v. Frito-Lay, Inc. et al., Case No. BC338956 (Cal. Super. Ct. 2005).  The lawsuit was settled in 2008, with the food producers agreeing to reformulate, cutting acrylamide levels to 275 parts per billion (thereby avoiding a Prop 65 warning label).  The companies also agreed to pay a combined $3 million in civil penalties.

It was not until 2010 that a private attorney general filed a Prop 65 complaint against the major coffee sellers in California.  A number of similar cases were filed and ultimately consolidated in Los Angeles County Superior Court – Council for Education and Research on Toxics v. Starbucks Corp. et al., No. BC435759, and Council for Education and Research on Toxics v. Brad Barry Co. Ltd. et al., No. BC461182.  In all, the consolidated litigation involves more than 70 companies including grocery stores, coffee companies, food manufacturers and big-box retailers, such as Whole Foods Market, Trader Joe’s Co., Peet’s Coffee & Tea Inc., Nestle USA Inc., Costco Wholesale Inc. and Wal-Mart Stores.

The first phase of the trial took place in 2014, with a bench trial on several affirmative defenses, including whether acrylamide posed “no significant risk.” Judge Berle ruled in favor of Plaintiff at this phase, rejecting Defendants’ arguments that the level of acrylamide in their coffee products posed no significant risk because a multitude of studies show that coffee consumption does not increase the risk of cancer.  The court ruled that the studies assessed the effects of coffee generally, as opposed to the presence of acrylamide in the coffee and were therefore not persuasive.  Defendants’ argument that requiring them to post a Prop 65 warning amounted to unconstitutional forced speech was also rejected.

The second phase of the bench trial was held in September of 2017.  Several of the defendants settled on the eve of trial, among them were BP, which operates gas stations and convenience stores ($675,000 + warning label); Yum Yum Donuts Inc. ($250,000+ warning label) and 7-Eleven stores ($900,000 + warning label).  Starbucks did not settle, although it did begin posting Prop 65 notices in its stores, presumably to limit civil penalties were it unsuccessful at trial.

At the September 2017 trial, Defendants focused their trial strategy on:

  • Code Regs. tit. 27, § 25703 (b)(1), which exempts from the normal risk level circumstance where the “chemicals in food are produced by cooking necessary to render the food palatable or to avoid microbiological contamination.” At trial, experts for the defendants testified that there is no commercially viable way to reduce acrylamide in coffee by some other cooking method.
  • If § 25703 (b)(1) applies, the statute allows for a higher “alternative risk level” (i.e. not the NSRL of 0.2 µg/day) to apply to chemicals produced in the process of cooking foods if “sound considerations of public health” justify it. As to the appropriate risk level posed by drinking coffee, Defendants’ experts pegged it at up to 19 µg/day of acrylamide in coffee over a lifetime, and otherwise testified that the average person’s exposure to acrylamide in coffee is ten times less.  Defendants’ experts also testified that studies found no increased risk of cancer for coffee drinkers, and to the contrary, evidence suggested that moderate coffee consumption is associated with a reduced risk of certain chronic diseases, including certain cancers.

On March 28, 2018, Judge Berle issued a statement of decision under Rule 632 (akin to a preliminary ruling) rejecting the coffee makers’ arguments.  Council for Education and Research on Toxics v. Starbucks Corp. et al., No. BC435759 (Cal. Super. Ct. L.A. County March 28, 2018).  Judge Berle noted that Prop 65 contemplated an alternative risk level if “public health” justified it.  Id. ¶¶ at 75 – 81.  But he found that the expert evidence did not persuade him that drinking coffee was strictly speaking a “public health” concern, i.e. that coffee confers a particular benefit to human health.  On that basis, the alternative significant risk level defense failed as a threshold matter.  Under California procedure, the Defendants can object to these preliminary findings, but it is uncommon for a statement of decision to not ultimately be entered as the judgment.  The judge can now set another phase of trial to consider potential civil penalties – up to $2,500 per person exposed each day.  In the abstract, that could calculate out to be an astronomical sum, although this preliminary decision may push the parties to the settlement table.  We will see who the next target is – acrylamide is after all not just in coffee – but in many cooked and processed foods.

Round Up – Round One

** Monsanto Gets its First Victory in the Battle over Herbicide Prop 65 Listing **                                                                                                                                                                                                                                                                                                   

By: Brent E. Johnson

Background: Glyphosate is a molecule that inhibits a biological process only found in plants (not humans and animals).  The compound was discovered by a Monsanto chemist in 1970, then patented and brought to market in 1974 as “Round Up.”  Initially, the product was only used on a small scale, because, while it is toxic to most weeds, it also kills most crops.  However, when Monsanto developed and began introducing genetically modified crops engineered to be resistant to the herbicide (“Roundup Ready” crops), the chemical was able to be used on a broad scale.  As a result, the chemical’s use skyrocketed — at the same time that overall herbicide use dropped.  In 1987, only 11 million pounds of Round Up were used on U.S. farms – now nearly 300 million pounds are applied each year.  A study published in 2015 in the journal Environmental Sciences Europe found that Americans have applied 1.8 million tons of glyphosate since its introduction in 1974.  Worldwide, the number is 9.4 million tons.  That is  enough to spray nearly half a pound of Roundup on every cultivated acre of land in the world.  Round Up and Round Up Ready products are worth many billions of dollars.

California’s Office of Environment Health Hazard Assessment (OEHHA) announced a proposed listing of glyphosate as a Prop 65 chemical on September 4, 2015.  The effect of glyphosate’s listing under Prop 65, cannot be underestimated as there are detectable levels of glyphosate in virtually every part of the food chain.  Monsanto is famously vigilant in protecting its rights – for example in protecting its crop patents.  So when OEHHA proposed the listing, it was inevitable that litigation would follow.

On January 21, 2016, Monsanto struck.  It filed a petition in Superior Court in Fresno County seeking injunctive and declaratory relief to enjoin OEHHA from listing glyphosate as a Prop 65 chemical.  It did so on the basis of its allegation that the listing mechanism violated the California and United States Constitutions.  See Monsanto Co. v. Office of Environmental Health Hazard Assessment, No. 16-CE CG 00183, (Sup. Cal.)  That is, primarily, Monsanto complained about how its product came to be added to the list.

Under Cal. Health & Safety Code § 25249.8 (b), which cites to Cal. Lab. Code § 6382 (b)(1), “at a minimum” the Prop 65 list must include those “[s]ubstances listed as human or animal carcinogens by the International Agency for Research on Cancer (IARC).”  IARC, based in Lyon, France, is an intergovernmental agency, part of the World Health Organization.  In March 2015, IARC issued a report labeling the weed killer glyphosate as a “probable carcinogen.”  Glyphosate Monograph, Vol. 112, IARC Monographs Series (IARC, 2015b).  That report is not without controversy — for example, the EPA has more recently issued its draft human health risk assessment which concludes that glyphosate is not likely to be carcinogenic to humans.  Nevertheless, OEHHA has interpreted § 25249.8 (b) to provide that once IARC lists a chemical, it is mandatory for them to do so also.  OEHHA duly noticed its intent to list, prompting the lawsuit.

Monsanto raised four arguments, all ultimately rejected by the trial court.

  • First, Monsanto argued that OEHHA unconstitutionally delegated its authority to the IRAC by relying on its assessment that glyphosate is a probable human carcinogen. The doctrine of nondelegation is the rather esoteric theory that one branch of government must not authorize another entity to exercise the power or function that it is constitutionally authorized to exercise, itself.  Under California law, this doctrine is not offended if the legislature determines the overarching legislative policy and leaves to others the role of filling in the details.  Monsanto Co. v. Office of Environmental Health Hazard Assessment, 2017 WL 3784247 (Cal.Super.) citing Kugler v. Yocum, 69 Cal.2d 371, 375-376 (Cal. 1968).  On that point, the court stated that the Prop 65 listing mechanism does not constitute an unconstitutional delegation of authority to an outside agency, since the voters and the Legislature have established the basic legislative scheme and policy and it was permitted to leave the “highly-technical, fact-finding” to the IARC (and other authoritative bodies referred to in the Act).
  • Second, the court rejected Monsanto’s due process claims. It held that due processrights are only triggered by judicial or adjudicatory actions.  California Gillnetters Assn. v. Department of Fish & Game, 39 Cal.App.4th 1145, 1160 (Cal. 1995).  The court stated the Prop 65 listing was not adjudicative, but a “quasi-legislative act.”
  • Third, the court rejected Monsanto’s arguments that the listing process violated California’s Article II, Section 12, which prohibits private corporations from holding office or performing legislative functions. It found that there are no facts that would tend to indicate that the IARC is a “private corporation,” or that IARC has an pecuniary interest in being given the power to name certain chemicals on its list of possible carcinogens.
  • Fourth, the court gave short shrift to Monsanto’s claim that listing glyphosate would violate its right to free speech under the California and Federal constitutions, in particular the inherent protections for commercial speech from unwarranted governmental regulation. The court held that the First Amendment claim was not ripe for adjudication because the mere listing of glyphosate does not in and of itself require Monsanto to provide a warning and it may never be required to give a warning.

Monsanto appealed this ruling.  It also sought a stay of the trial court’s decision pending its appeal,  The appellate court and the California Supreme Court rejected these requests for a stay in June 2017.  OEHHA wasted no time after the Supreme Court’s decision adding glyphosate to the list on July 7, 2017.  After this ruling, subject to the substantive appeal of the trial court decision, July 7, 2018 was to be the date by which companies must comply with the Prop 65 requirements for glyphosate.

Not content to wait idly by, Monsanto moved the battle to Federal Court,  On November 15, 2017, it filed a complaint for declaratory and injunctive relief in the Eastern District of California (No. 2:17-cv-02401-WBS-EFB) together with the National Association of Wheat Growers, National Corn Growers Association, United States Durum Growers Association, Western Plant Health Association, Missouri Farm Bureau, Iowa Soybean Association, South Dakota Agri-Business Association, North Dakota Grain Growers Association, Missouri Chamber of Commerce and Industry, Associated Industries of Missouri and the Agribusiness Association of Iowa.  So far, the following have also signed on as amicus – the State of Wisconsin, South Dakota, North Dakota, Oklahoma, Michigan, Kansas, Louisiana, Iowa, Indiana, Idaho and Missouri.

The complaint starts by attacking the IARC listing, noting that a dozen other global regulatory and scientific agencies have found no link between glyphosate and cancer.  The allegedly “false” warning under Prop 65, plaintiffs argue, compels speech violating Plaintiff’s First Amendment rights.  Plaintiffs also argue that the listing and warning requirement conflict with, and are preempted by Federal legislation,notably the United States Food, Drug, and Cosmetic Act (FDCA) and Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA).  The complaint also raises the issue rejected by the state court that the listing process violates the Due Process Clause of the Fourteenth Amendment.  Plaintiffs filed a Motion for Preliminary Injunction on December 6, 2017, which was heard on February 20, 2018.  On February 26, 2018, U.S. District Court Judge William B. Shubb ruled in favor of Monsanto and the other named plaintiffs.  No. CV 2:17-2401 WBS EFB, 2018 WL 1071168, at *1 (E.D. Cal. Feb. 26, 2018).  The order declined to go so far as to remove glyphosate from the Proposition 65 list, but at least for now, bars the State of California from imposing the corresponding warning requirement while the case challenging its listing proceeds on the merits.

The court primarily relied on Monsanto’s First Amendment argument in issuing the injunction.  Judge Shubb concluded that, to the extent Prop 65 necessitates warnings for glyphosate, California is in essence compelling commercial speech.  The court held that the government may only require commercial speakers to disclose “purely factual and uncontroversial information” about commercial products or services, as long as the “disclosure requirements are reasonably related” to a substantial government interest and are neither “unjustified [n]or unduly burdensome.”  Id. at * 5 citing Zauderer v. Office of Disciplinary Counsel of Supreme Court of Ohio, 471 U.S. 626, 651 (1985); CTIA-The Wireless Ass’n v. City of Berkeley, 854 F.3d 1105, 1118 (9th Cir. 2017).

In this case, the court held that the link between cancer and glyphosate was not uncontroverted – particularly where “only one health organization had found that the substance in question causes cancer and virtually all other government agencies and health organizations that have reviewed studies on the chemical had found there was no evidence that it caused cancer.”  Id. at *6.  The court went further stating, “[u]nder these facts, the message that glyphosate is known to cause cancer is misleading at best.”  Id.  Accordingly, it was determined that the balancing of interests involved weighed in favor of restraining the enforcement of the warning requirement for glyphosate while the remainder of the case was decided.

The court enjoined “defendants” (i.e. OEHHA and the California Attorney General) and “their agents and employees, all persons or entities in privity with them, and anyone acting in concert with them.” Id. at *8.  We will see if private Prop 65 bounty hunters consider themselves bound by this injunction.

One area the dispute will also move to is the No Significant Risk Levels (NSRLs) for glyphosate.  If the NSRL is set at a particularly high level (perhaps based on the factual controversies referred to above), then the issue over listing may be mooted.  Again, however, a sky high NSRL still may not dissuade Prop 65 bounty hunters.

Playing Chicken with the USDA

** Consumer Groups allege Chicken was laced with “Special K” in False Advertising Case  **                                                                                                                                                                                                 

By: Brent E. Johnson

The “Food Court” (aka the Northern District of California) has seen many unique lawsuits over the years, some of which we have reported on.  Currently pending before the court is a must-watch dispute between Sanderson Farms Inc. (the #3 poultry producer in the U.S.) and three consumer and environmental non-profits — not only because of the bitter feud between the parties, but because of the fascinating intersection between a relatively unknown USDA program and its overseers and consumer expectations of what “100% Natural” means in the advertisement of meat products.

The battle began on June 22, 2017, when Organic Consumers Association, Friends of the Earth, and Center for Food Safety filed suit, on behalf of themselves and the general public, against Sanderson claiming that testing conducted by the Food Safety and Inspection Service (“FSIS”) of the United States Department of Agriculture (“USDA”) in 2015 and 2016 under the National Residue Program showed that Sanderson’s chicken “contain[s] residues of antibiotics important for human medicine, residues of veterinary antibiotics, and other pharmaceuticals, as well as residues of hormones, steroids, and pesticides.”  Organic Consumers Association et al v. Sanderson Farms, Inc., No. 3:17-cv-03592-RS (N.D. Cal. June 22, 2017) Dkt. No. 1 at ¶ 2.  The consumer watchdogs alleged that these chemicals are “not natural.”  Id. at ¶ 5.  Moreover, the alleged presence of the chemicals in Sanderson’s chicken meat “strongly indicate[s] that the birds are raised in intensive-confinement, agro-industrial conditions where cruelty is inherent,” which runs counter to consumer expectations that “All Natural” includes the concept that the chickens are “humanely raised.”  Id. at ¶ 71.

Plaintiffs did not simply file a lawsuit, however.  They launched a public opinion campaign against Sanderson.  This effort included approaching large commercial purchasers of Sanderson’ poultry (Darden Restaurants, Olive Garden) to educate them concerning the company’s alleged practices in an effort to dissuade them from purchasing chicken raised with antibiotics.

Sanderson struck back with a motion to dismiss asserting that Plaintiffs lacked standing and their complaint was pre-empted by the Poultry Products Inspection Act (“PPIA”) and Federal Meat Inspection Act (“FMIA”).  Dkt. No. 23 (August 2, 2017); Dkt. No. 32 (September 13, 2017).  On February 9, 2018, the district court denied the motion.  It dispatched with Sanderson’s standing argument, holding that the diversion of Plaintiffs’ resources from their core public interest mission [i.e., to protect consumers’ right to safe, pollutant free food] to combating the alleged misrepresentations by Sanderson was sufficient injury to confer organizational standing.  Dkt. No. 48 at 6 – 7.  On pre-emption, the court ruled that there was no express pre-emption and implied pre-emption was not mandated because “[a]llowing plaintiffs to proceed with their advertising claims in no way undermines the PPIA’s [and FMIA’s] objectives of ensuring that poultry products are ‘wholesome, not adulterated, and properly marked, labeled, and packaged.’”  Id. at 9.  When Sanderson pointed out that the “100% Natural” wording on its label was specifically approved by USDA (as is true with the labels for all meat, poultry, and fish in the U.S.), the court responded that “common sense suggests even ‘language that is technically and scientifically accurate on a label can be manipulated in an advertisement to create a message that is false and misleading to the consumer.’”  Id.

It’s at this point that things got nasty.  A quick bit of background: the Plaintiff non-profits obtained the testing data upon which they based their complaint from USDA via multiple Freedom of Information Act (“FOIA”) requests.  According to the complaint, the test data revealed that FSIS conducted 69 inspections of Sanderson’s products in 2015-2016, and in 49 cases residue of synthetic drugs, antibiotics (including antibiotics for human use), and pesticides were found.  Dkt. No. 1 at ¶ 2.  The chemicals in some of the poultry tested were revelatory; for example, Ketamine – a Schedule III anesthetic used legally to induce a trance-like state at the beginning of general anesthesia and illegally (as “Special K,” “Cat Valium,” and “Jet”) as an hallucinogenic and date rape drug.  There is, of course, no sane reason for poultry producers to slip Special K into their chickens’ water troughs.  Plaintiffs produced this FSIS test results to Sanderson at the time they filed their successful opposition to the Company’s motion to dismiss.  According to Sanderson, the results showed negative levels of residue for some 40 chemicals tested – an obvious impossibility.  As for chemicals with positive test results, the levels were below the FSIS’s detection limits or Minimum Levels of Applicability (“MLA”).  For example, at least some poultry tested positive for Ketoprofen (an NSAID) – but at a level (less than one part per billion) far below the minimum levels of detection established by USDA in its own testing protocol —20 parts per billion (for poultry kidney screening) or 5 parts per billion (for muscle screening).  Dkt. No. 49 at 8.

Sanderson was surprised that the FSIS test results were the basis of Plaintiffs’ allegations because “Sanderson has consistently passed FSIS residue testing, which has shown no antibiotic residue or other contaminants in its chicken products, including on the very test dates and locations identified by Plaintiffs in their Complaint.”  Dkt. No. 49 at 12.  Sanderson’s surprise turned to apoplexy when it discovered that Plaintiffs communicated extensively with USDA and FSIS regarding the test results prior to filing the complaint and were told by the agency that the test results did not reflect the presence of the identified chemicals, but were “preliminary screening data” that had not been confirmed.  Id. at 5.

Based on these facts, Sanderson filed a motion for Rule 11 sanctions against Plaintiffs stating that “[t]he problem with Plaintiffs’ storyline is that [its] allegations are entirely false—and Plaintiffs and their attorneys know it.”  Id. at 5.  In a rare move, USDA’s Office of General Counsel approved Sanderson submitting the declarations of two FSIS officials, Dr. J. Emilio Esteban, Executive Associate for Laboratory Services, and Mark R. Brook, a Government Information Specialist for FSIS, in support of Sanderson’s sanctions motion.  Dr. Esteban’s declaration stated that in a teleconference with Plaintiffs’ attorneys, he explained that, in addition to the test results being “preliminary screening data,” “all of the findings in the screening tests . . . were ultimately confirmed as ‘non-detected.’”  Dkt. No. 49, Ex. 1.  Mr. Brooks swore in his declaration that, upon learning of the filing of the complaint, he spoke with a deputy director at FSIS who participated in conference calls with Plaintiffs and she opined that Plaintiffs’ “seemingly intentionally ignored the explanations of the FOIA data that the USDA/FSIS scientists had provided on the recent conference calls.” Dkt. No. 49, Ex. 2.

Plaintiffs’ opposition to the sanctions motion spends a significant portion of its page limit suggesting some sort of “undue influence” by Sanderson Farms over USDA.  (“Sanderson has admitted to contacting USDA in autumn 2017, and perplexing events began to occur around the same time.”)  Dkt. No. 55 at 6 – 7.  That argument (if it is an argument) is likely to go nowhere.  On the merits, Plaintiffs argue that Sanderson “conflat[es] regulatory standards with scientific standards” (which is a bit frightening, if one thinks about it).  Id. at 13 – 14.  Relatedly, Plaintiffs contend that the issue of the interpretation of the data it received from FSIS is a question for experts — not one to be resolved by the district court on a motion for sanctions.  Id. at 15 – 16.  Finally, Plaintiffs assert that Sanderson’s admitted use of antibiotics belies any notion that its poultry is “100% Natural” and suggests that its chickens “are not raised as portrayed in Sanderson advertising and referenced in the [complaint].”  Id. at 16.

What is it about the living conditions that Plaintiffs argue runs contrary to Sanderson’s USDA approved “100% Natural” label?  For Sanderson’s answer, one can consult Bob and Dale, the Sanderson spokesmen in their “The Truth About Chicken” advertising campaign”.  What Bob and Dale want you to know is that FDA has never approved the use of steroids or hormones in chickens and USDA does not allow poultry meat to be sold if it is not clear of antibiotics.  Therefore, any company that labels its poultry products as “hormone free” or “antibiotic free” in the United States is akin to Ford advertising that its cars and trucks have wheels.  It’s a redundancy.  While Plaintiffs argue that these advertisements are false and misleading — and assuming that Sanderson and the FSIS officials who submitted declarations are correct that the company’s poultry meat does not contain the chemicals alleged in the complaint — the case seems to boil down to the claim that, for a chicken to be “100% Natural,” a veterinarian can never have administered antibiotics to it (irrespective of whether the antibiotics are present at the time of sale).

The hearing on Sanderson’s motion for sanctions is set for April 5, 2018.  Rule 11 motions are notoriously difficult to win.  But in this case, Plaintiffs will be arguing that not only should the USDA’s approval of the Company’s “100% Natural” label be disregarded (as the court has already determined), but the USDA’s interpretation of its own test data as well.  It will be interesting to see if USDA has anything further to say on those issues.

2018: Food Litigation Trends – Diet Claims

** Part I in our Series on the New Year of Food Litigation **                                                                                                                                                                                                                                                     

 

 

                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

 By: Brent E. Johnson                                        

“Diet” advertising claims are a potential new target of consumer class actions that companies should be on the lookout for in 2018.  A trio of cases filed in late 2017 against three of the largest “diet” branded beverage companies — The Coca-Cola Co., Pepsi-Cola Co. and Dr Pepper Snapple Group Inc. — highlight the risk.  The complaints in these cases accuse the soda companies of violating the Food, Drug and Cosmetic Act, which prohibits the labeling of food that is “false or misleading in any particular.” 21 U.S.C. § 343(a).  The cases were all filed in the U.S. District Court for the Southern District of New York: Excevarria v. Dr Pepper Snapple Group Inc. et al., 1:17-cv-07957 (S.D.N.Y, Oct. 16, 2017); Geffner. v. The Coca-Cola Co., 1:17-cv-07952 (S.D.N.Y, Oct. 16, 2017); and Manuel v. Pepsi-Cola Co., 1:17-cv-07955 (S.D.N.Y, Oct. 16, 2017).

Plaintiffs claim that inherent in “diet” branding is a promise that the product will assist with weight loss.  The complaints allege that this promise is unfulfilled with diet sodas because the artificial sweeteners used in the defendants’ products cause weight gain, not weight loss.

The science referenced in the complaints (while still developing) is intriguing.  We all know that reducing caloric intake is one of the foundations of weight loss. Starting in the 1960’s, beverage makers removed natural sugars (high in calories) from products, replacing them with newly discovered “low calorie” sweeteners such as aspartame and sucralose.  These sweeteners have been rigorously tested and are generally regarded as safe by FDA. See 46 FR 38283, 48 FR 31376; see also Chobani, LLC v. Dannon Co., Inc., 157 F. Supp. 3d 190 (N.D.N.Y. 2016).  More recently, though, these sweeteners have been tested for their efficacy in weight loss.  In particular, a recent Yale study suggests that the caloric value of artificial sweeteners is immaterial – it is the sweetness of the products that matters.  According to the study, a sweetness “mismatch” – where an intensely sweet product does not have the expected caloric load — causes the body to shut down metabolism.  This lower metabolism in many cases causes weight gain.

But what does that mean for “diet” products containing artificial sweeteners?  Is the simple use of the term “diet” (particularly where it is only in the brand name, i.e., Diet Coke, or Diet Pepsi) an affirmative representation that the soda is a weight-loss product?  As with any false advertising lawsuit, “context is crucial.”  Fink v. Time Warner Cable, 714 F.3d 739 (2d Cir. 2013). Is Diet Coke actually sold as a weight loss supplement? Does any reasonable consumer believe that soda (sugar free or not) will make them lose weight?  Is “diet” in these contexts a relative term – i.e., as compared to a regular soda.  And is “diet” (or similar terms such as “lite” or “low-cal”) too ambiguous and idiosyncratic to attach an absolute meaning as plaintiffs attempt to in these lawsuits?  Is it the equivalent of suing McDonald’s because the Happy Meal does not actually make you “happy”?

The diet soda giants have one significant advantage in this debate.  The use of the term “diet” in the brand name of soft drinks is grandfathered under the Nutrition Labeling and Education Act of 1990 (“NLEA”).  Under the NLEA, the word “diet” is specifically approved as a brand name for a soda on the market in 1989 as long as the soda is under 40 calories per serving.  21 U.S.C. § 343(r)(2)(D) (requiring compliance with 21 C.F.R. § 105.66).  And the NLEA does not mandate that the use of the word “diet” meet some “weight loss” requirement.  FDA is otherwise silent, except for  noting that “diet” branding must not be otherwise false and misleading.  21 C.F.R. § 101.13(q)(2).  Arguably, the express grandfathering under the NLEA preempts or otherwise forecloses on an accusation that certain sodas cannot properly be branded “diet.”

How courts treat the “diet” claims will be an important issue to watch in 2018.  If this concept of artificial-sweetener-as-diet-killer takes hold, it could be a rocky year for foods that make similar claims.  We will be watching the “diet” wars with interest . . . and coming in Part II of our multi-part series – xantham gum as the basis of new “natural” class actions.

Actual Injury Required for Biometric Suits

** Biometric Plaintiffs Face Significant Setback in Illinois **                                                                                                                                                                                                             

By: Brent E. Johnson

In a growing number of states, biometric information has become a new type of protected data.  This form of information has been of particular concern to legislators spurred by its adoption in everyday uses — for example, in fingerprint scanners and facial recognition technology in smart phones — and its increasing use by employers tracking and verifying their employees’ hours.  The use of biometric information poses unique privacy and security challenges, not the least of which is that — unlike other types of personal identifiers (like a PIN or Social Security Number) — biometric information is permanent and cannot be changed if it falls into the wrong hands.

Background: Illinois was the first state to enact biometric data protections.  Its Biometric Information Privacy Act (740 ILCS 14) (BIPA) passed in 2008, created a “notice and consent” regime wherein: (i) private entities may collect, use or store biometric information only after obtaining a written release by the persons whose biometric information is sought; (ii) private entities are required to notice persons in writing about the specific purposes for and the length of time during which their biometric information will be collected, used or stored; and (iii) private entities must follow notice and consent requirements before disclosing a person’s biometric information to a third party.  Under BIPA, individuals have the right to sue private party violators and recover a minimum of $1,000 for a negligent violation and $5,000 for each violation recklessly or intentionally committed. Plaintiffs may also collect attorneys’ fees and costs.  Texas passed a similar law in 2009 (Capture or Use of Biometric Identifier Act) (Bus & Com § 503.001), and in 2017, Washington state passed a biometric law (H.B. 1493).  During the 2017 legislative session, bills dealing with biometric notice and consent regimes similar to BIPA were introduced in several states, including Alaska (H.B. 72), Arizona, Connecticut (H.B. 5522), Massachusetts (H.B. 1985 ), Montana (H.B. 518), Missouri, New Hampshire (H.B. 523) and New York – but all failed to pass.  The Washington and Texas statutes only allow for enforcement by the attorney general’s office.  Accordingly, Illinois remains the only state with a biometric statute that includes a private right of action – and it is thus the only state that has so far caught the attention of the class action bar.

While the Illinois statute has been in force since 2008, it received little attention until the last two years.  In 2016 and 2017, BIPA actions were brought against companies that use facial-recognition technology, such as FacebookShutterflyGoogleSnapchat, and others, as well as companies that use fingerprint scans, such as L.A. Tan.  Employee suits have also become popular, stemming from the use of biometric information in the workplace, such as fingerprint-operated time clocks.  Hotel chain InterContinental Hotels Group, broadband company Zayo Group, and convenience store chain Speedway LLC have all been the subject of employee lawsuits under BIPA.

For the defense bar dealing with BIPA claims, two major questions have been: (i) Can a company be sued for technical violations of the Act where no damages were sustained by the plaintiffs’ class? and (ii) Does BIPA have extraterritorial application?

The first question recently received attention by the Illinois Court of Appeals.  In Rosenbach v. Six Flags Entm’t Corp., 2017 WL 6523910 (Il. Ct. App., Dec. 21, 2017), Stacy Rosenbach, whose son’s thumbprint was taken by Six Flags after he purchased a season pass for one of its Great America theme parks, sued the company for violating BIPA based on her allegation that it failed to properly obtain written consent or disclose Six Flag’s plan for the collection, storage, use or destruction of her son’s biometric identifiers or information.  Six Flags moved to dismiss, arguing that under Section 20 of BIPA any right of action is limited to a “person aggrieved,” which excludes Plaintiff because she failed to allege any actual injury.  The lower court denied the theme park company’s motion to dismiss, but later certified to the appellate court two questions relating to whether individuals “aggrieved by a violation of the act” can rely solely on alleged violations of the notice and consent requirements or whether they must allege some actual harm.  In answering these questions, the Court of Appeals held that in order to meet the definition of an aggrieved person under the statute, plaintiffs must claim some actual harm. The Court noted, “if the Illinois legislature intended to allow for a private cause of action for every technical violation of the Act, it could have omitted the word ‘aggrieved’ and stated that every violation was actionable.  A determination that a technical violation of the statute is actionable would render the word ‘aggrieved’ superfluous. Therefore, a plaintiff who alleges only a technical violation of the statute without alleging some injury or adverse effect is not an aggrieved person under section 20 of the Act.”  2017 WL 6523910 at ¶ 23. The court rejected Plaintiff’s argument that biometric privacy, itself, is a right that is injured by violation of the statute.  Id. at ¶ 20.  This decision has the potential to foreclose on scores of current BIPA class actions – specifically those that have recently been filed and are seeking statutory penalties for naked violations of BIPA without a clear nexus to any consequential harm or injury.

The second question remains unsettled. To be sure, courts appear clear that an Illinois “statute is without extraterritorial effect unless a clear intent in this respect appears from the express provisions of the statute” (Avery v. State Farm Mut. Auto. Ins. Co., 835 N.E.2d 801, 852 (2005)) and recognize that none of BIPA’s express provisions indicate that the statute was intended to have extraterritorial effect (see Monroy v. Shutterfly, Inc., No. 16 C 10984, 2017 WL 4099846, at *5 (N.D. Ill. Sept. 15, 2017) (finding that BIPA does not apply extraterritorially). But what does that mean in the internet age?  For example, in Monroy, Plaintiff was acknowledged to be a resident of Florida and Defendant Shutterfly was acknowledged to be a Delaware Corporation – but the allegations of the Complaint were that Plaintiff’s friend, located in Illinois, uploaded his photo to Shutterfly’s servers triggering the alleged biometric violation.  In those circumstances, was the Florida resident entitled to the protections of BIPA?  The federal district court could not decide, noting that it was unclear where the actual scan of plaintiff’s face geometry took place, where the scan was stored once it was obtained, and, when stored in cyberspace, how physical location is to be determined – thus finding that the ultimate answer to the extraterritorial question raised a question of fact not suited for dismissal under Rule 12.

No Stopping Web eAccess Consumer Suits

** Web Accessibility Lawsuits Continue to Surge **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

By: Brent E. Johnson                                                             

We blogged last year about the rash of lawsuits surrounding accessibility of websites for the visually impaired – specifically suits bought under Title III’s requirement to provide “auxiliary aids and services” (42 U.S.C. § 12182(b)(2)(A)(iii); 28 C.F.R. § 36.303) for the disabled.  The litigation has not abated in 2017 — if anything reports have shown an up-tick: more ADA specific lawsuits have been filed in 2017 than 2016 and 2015 combined.

Witt the upswing in litigation, there are three questions we hear most often from website owners:

  1. Does my Website Need to be ADA Compliant?

It depends on what type of operation your website supports and where you operate (and therefore can be sued). As we blogged about in the past, the ADA applies to privates companies operating certain enumerated types of businesses deemed to be “public accommodations” (42 U.S.C. § 12181(7)).  When the ADA was enacted in the pre-internet world of 1990, the descriptions given were understandably to analog, brick-and-mortar establishments.  The Third, Fifth, Sixth, Ninth and Eleventh Circuit courts, therefore, apply the ADA only to websites that are the online version of one of these enumerated offline brick-and-mortar spaces.  The First, Second and Seventh Circuit courts apply the ADA more broadly – concluding that Title III is not intended to be stuck in time, and, therefore, a website need not have a nexus to a physical space to be a public accommodation.  So for example, Netflix, not liable for ADA compliance in one jurisdiction (Cullen v. Netflix, Inc., 600 F. App’x 508, 509 (9th Cir. 2015)), is in another (Nat’l Assoc. of the Deaf v. Netflix, Inc., 869 F. Supp. 2d 196 (D. Mass. 2012)) (see our prior post for other notable cases).  This circuit split has not yet made it to the Supreme Court for resolution.  The issue came close recently – the Supreme Court denied certiorari in Magee v. Coca-Cola Refreshments USA, Inc., 833 F.3d 530 (5th Cir. 2016).  See No. 16-668, 2017 WL 4339924 (U.S. Oct. 2, 2017).  This case concerned whether a Coca-Cola vending machine was a “sales establishment” under 42 U.S.C. § 12181.  The trial court and the Fifth Circuit Court of Appeals held that “establishment” denotes a “physical space” and that under the Act only the owner, lessor or operator of the physical space is liable.  Because Coca-Cola did not own, lease or operate the space, it was not liable.  While not directly dealing with an online seller, had certiorari been granted, the Supreme Court would have been required to weigh in on  the “physical space” issue that underlies the circuit split on the applicability of the ADA to websites.  That did not happen, and so the uncertainty remains.  Notably, Congressional action to amend the ADA to deal with this conflict is not on the radar.  Therefore, given the circuit split,, there is a risk of inaction.  While certain business in certain jurisdictions may be safe, the nature of borderless online commerce means those boundaries are porous.

  1. What Does my Website Need to do to be ADA Compliant?

Because there are no specific regulations on point, businesses with websites have the worst of both worlds: mandates without rules.

There are industry groups that offer some guidance.  For example, the World Wide Web Consortium (W3C) is an international body that develops open standards and guidelines for web developers – it outlines design options to make a website accessible such as providing links to definitions, removing time limits for activities, providing spoken word versions of text, and ensuring keyboard control for all website functions. W3C’s most recent standard is published as the Web Content Accessibility Guidelines (WCAG) 2.1 level AA Guidelines (WCAG 2.1).  In a recent case, these industry guidelines were adopted as a de facto standard.  In this case (which we believe to be the first to go to trial on these ADA web issues), the court looked at the lack of accessibility of supermarket chain Winn-Dixie’s website, finding the company violated the ADA.  Gil v. Winn-Dixie Stores, Inc., 257 F. Supp. 3d 1340, 1350 (S.D. Fla. 2017).  The court did not have difficulty determining whether Winn-Dixie’s website passed muster – because Winn-Dixie had not implemented any particular disability modifications.  (To be fair, it had set aside hundreds of thousands of dollars to make its website accessible – but the project had not been completed).  What is notable about the court’s decision was its willingness to adopt the WCAG guidelines. Indeed, in its order on injunctive relief, the court required that Winn-Dixie “adopt and implement a Web Accessibility Policy which ensures that its website conforms with the WCAG 2.0 criteria.”  257 F. Supp. 3d 1340, 1351.  A website owner can take some comfort that, at least in the eyes of one district court, complying with WCAG presents a defensible case that its site is ADA compliant – even absent a specific regulatory scheme.

  1. Should I wait for the DOJ to Issue Guidance Before Acting?

To quote the noted legal commentator, Dirty Harry, “You could ask yourself a question: ‘Do I feel lucky?’”  As we observed in the past, the Department of Justice issued an Advanced Notice of Proposed Rulemaking (“ANPRM”) on Accessibility of Web Information and Services of State and Local Government Entities and Public Accommodations that presumably would articulate specific requirements and technical standards for website accessibility.  75 Fed. Reg. 43,460 (July 26, 2010).  DOJ has yet to finalize this guidance, however. Instead, on May 9, 2016, DOJ issued a lengthy Supplemental ANPRM (SANPRM) for state and local government websites, and then extended the comment period.  It now appears that any rulemaking has been pushed to the backburner – web accessibility guidelines now being relegated to the Office of Information and Regulatory Affairs’ dreaded “inactive list.”

What to do in the absence of regulatory guidance? Some courts have taken from the fact that the regulatory process has begun (albeit stalled) as a signal that the primary jurisdiction doctrine prevents them from proceeding with a civil ADA web accessibility case.  Robles v. Dominos Pizza LLC, No. CV1606599SJOSPX, 2017 WL 1330216, at *8 (C.D. Cal. Mar. 20, 2017) (dismissing case).  However, more often courts have found the opposite.  In Access Now, Inc., v. Blue Apron, LLC, for example, the court found that there was no reason to believe DOJ would issue rules any time soon, and therefore, a dismissal or stay based on the primary jurisdiction doctrine was not appropriate.  No. 17-CV-116-JL, 2017 WL 5186354, at *9 (D.N.H. Nov. 8, 2017) citing Andrews v. Blick Art Materials, LLC, No. 17-CV-767, 2017 WL 3278898 (E.D.N.Y. Aug. 1, 2017) (“The court will not delay in adjudicating [plaintiff’s] claim on the off-chance the DOJ promptly issues regulations it has contemplated issuing for seven years but has yet to make significant progress on.”); see also Gorecki v. Hobby Lobby Stores, Inc., No. CV 17-1131-JFW(SKX), 2017 WL 2957736, at *1 (C.D. Cal. June 15, 2017) (denying motion to dismiss); Gorecki v. Dave & Buster’s, Inc., No. CV 17-1138 PSG (AGRx), (C.D. Cal. Oct. 10, 2017) (denying motion to dismiss).  It would be risky, indeed, to rely on the primary jurisdiction doctrine.  As we have blogged about in the past, the doctrine is inconsistently applied and often elusive.