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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.

Safe Harbor From Murky Waters in the Supply Chain

seafood

**Nestle Defends Class Action in the Central District of California with Successful Motion to Dismiss and Sets Valuable Precedent With California Transparency in Supply Chains Act Safe Harbor Defense** . . .                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

By: Brent E. Johnson                                                                                                        

The California Transparency in Supply Chains Act of 2010, requires retailers doing business in California to make specific disclosures on its website about efforts it makes to “eradicate slavery and human trafficking from its direct supply chain.” (Cal. Civ. Code § 1714.43).  In our prior post on this topic we noted the Transparency Act applies to large retailers (those with $100 million in worldwide sales).  Id.  And that the Transparency Act’s focus is on information – the retailer must disclose what efforts it takes to: verify the risks of human trafficking and slavery in its supply chain; audit its suppliers; certify its suppliers’ compliance with laws regarding slavery and human trafficking; maintain internal policies and procedures on the subject; and train its management on these policies and procedures.  Id.  Important to note, the Act does not require that a retailer actually do any of these things – the mandate is to inform the public what efforts are made.  The point of the Transparency Act is consumer empowerment – to give consumers who are concerned about the topic a point of reference  – and ultimately give the market the ability to reward or punish retailers who are (or are not) doing enough.  Nestle USA was one of the first companies to be tested by the Plaintiffs’ bar on whether the Transparency Act created more than an obligation to inform the public about its efforts to eradicate the problem – and whether there is an implied legal obligation to inform the public about the actual occurrences or risk in its supply chain of human slavery or trafficking.  See Barber v. Nestle USA, Inc., No. SACV1501364CJCAGRX, (C.D. Cal.).  The case involved Nestle USA’s branded pet food which sources seafood from Thai fisheries.  The court took judicial notice that it has been reported widely the Thai fishing industry is notorious for having widespread forced and other inhumane labor practices.  Plaintiffs alleged that they would not have purchased Nestle USA’s products if they knew of that connection and therefore that the defendant had violated California’s CLRA (Cal. Civ. Code § 1750 et seq.); FAL (Cal. Bus. & Prof. Code § 17500 et seq.; and UCL (Cal. Bus. & Prof. Code § 17200 et seq.).  However, Nestle USA cited to its compliance with the Transparency Act – to the fact that it had informed the public of its efforts – and therefore that it was squarely within a consumer law “safe harbor.”  A “safe harbor” is the concept articulated by the California Supreme Court that a defendant cannot be liable under the UCL for unlawful conduct if it is doing something that “the Legislature has permitted . . .  or considered a situation and concluded no action should lie.” Cel-Tech Comms., Inc. v. L.A. Cellular Tel. Co., 20 Cal. 4th 163, 182 (Cal. 1999.).  The doctrine has been applied widely to California consumer laws.  Alvarez v. Chevron Corp., 656 F.3d 925, 933–34 (9th Cir. 2011) (applying the safe harbor doctrine to CLRA claims); Pom Wonderful LLC v. Coca Cola Co., No. CV 08-06237 SJO(FMOx), 2013 WL 543361, at *5 (C.D. Cal. Apr. 16, 2013) (applying the safe harbor doctrine to FAL claims).  Nestle USA argued that Plaintiffs could not make an end run around the legislature by making it liable for disclosures that were fully compliant with the Transparency Act.  The district court agreed holding that Plaintiff may not “simply impose their own notions of the day as to what is fair or unfair” – that the “California Legislature considered the situation of regulating disclosure by companies with possible forced labor in their supply lines and determined that only the limited disclosure mandated by § 1714.43 is required.”  Barber v. Nestle USA, Inc., No. SACV1501364CJCAGRX, 2015 WL 9309553, at *4 (C.D. Cal. Dec. 9, 2015).  Accordingly, it granted Nestle USA’s motion to dismiss.  Id.

This dismissal sets an important precedent for the defense bar: Costco has been sued in the Northern District of California under similar circumstances with respect to its sale of seafood sourced from Thailand.  Sud. v. Costco Wholesale Corp., No. 3:15-cv-03783 (N.D. Cal).  Costco’s Motion to Dismiss is currently pending.  Chocolate manufacturers have faced similar lawsuits with respect to slave and child labor in the cocoa supply chain: Mars has been sued in the Central District of California (Wirth v. Mars, Inc., No. 8:15-cv-1470 (C.D. Cal September 10, 2015) and in the Northern District (Hodson v. Mars, Inc., No. 4:15-cv-04450-DMR (N.D. Cal. September 28, 2015).  Hershey’s has also been sued in the Northern District of California (Dana v. The Hershey Company, No. 3:15-cv-04453 (N.D. Cal. September 28, 2015).  Mars’ Motion to Dismiss has been filed in its cases and a decision is currently pending.

 

 

False Advertising to the Dogs

**Record Payout By Blue Buffalo in Multi District Pet Food Class Settlement sparked by Nestle Purina Competitor Law Suit** . . .                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

By: Brent E. Johnson                                                                                                                                       

Competitor lawsuits give class action plaintiffs a helpful leg-up.  See Prior post.  The Blue Buffalo matter is a good case in point.  Blue Buffalo makes pet food which was advertised, amongst other things, as not containing animal by-products or grain.  According to Blue Buffalo’s main competitor Nestle Purina that advertising claim is not true.  Nestlé Purina PetCare Company v. Blue Buffalo Company Ltd., Civil Case No. 4:14-cv-008590 (E.D. Mo. May 6, 2014) Compl. ECF No. 2, see also First Amended Compl. (Nov. 13, 2014) ECF No. 104.  Nestle Purina’s claim was that its own lab testing of the Blue Buffalo’s products found – contrary to the advertising – both poultry by-products and grain.  And indeed, during discovery, Nestle Purina claims that it found smoking gun emails between Blue Buffalo’s suppliers and brokers about by-products in the supply chain (and unfortunately for Blue Buffalo the emails literally used the phrase “smoking gun”).  See 4:14-cv-00859-RWS, Doc. #. 77-1 (E.D. Mo. Oct. 10, 2014).  The inevitable consumer led class actions ensued (using the Nestle Purina claims and findings as their model)–: Fisher et al v. The Blue Buffalo Company, Ltd. et al, Case No. 14-cv-5937 (C.D. Cal.); Teperson et al v. The Blue Buffalo Company, Ltd et al, Case No. 14-cv-1682, (S.D. Cal.); Delre et al v. Blue Buffalo Co., Ltd, Case No. 14-cv-768, (D. Ct.); Renna et al v. Blue Buffalo Co., Ltd., Case No. 14-cv-833, (D. Ct.); Mackenzie et al v. The Blue Buffalo Company, Ltd., Inc., Case No. 14-cv-80634, (S.D. Fl.); Stone et al v. Blue Buffalo Company Ltd., Case No. 14-cv-520, (S.D. Ill.); Keil et al v. Blue Buffalo Company, Ltd., Case No. 14-cv-880, (E.D. Mo.); Hutchison et al v. Blue Buffalo Company, Ltd., Case No. 14-cv-1070, (E.D. Mo.); Andacky et al v. The Blue Buffalo Company, Ltd., Case No. 14-cv-2938, (E.D. N.Y.).  Blue Buffalo in turn counterclaimed against Nestle Purina asking for an injunction to stop Nestle Purina from its advertising attacking Blue Buffalo’s practices.  And when the “smoking gun” appeared, Blue Buffalo sued the third party companies who allegedly supplied it with by-product material.  The various class complaints were transferred after a Multi District Litigation Panel hearing to federal court in Missouri.  In re Blue Buffalo Co., Ltd. Marketing and Sales Practice Litigation Case No. 4:14-md-02562-RWS (E.D. Mo.).   On December 9, 2015 class settlement and class certification approval was filed.  ECF No. 159.  The court, preliminarily approved the certification and settlement a week later.  ECF No. 164.  The fairness hearing is set for May 19, 2016.  Nestle Purina is trumpeting the $32 million settlement as the “largest pet food class action settlement in history.” Interestingly, Blue Buffalo fought most of the litigation at the same time as listing its IPO.  The class action’s impact on the IPO is unclear – the shares gained 38 percent on the issue’s first full day of trading on the Nasdaq in July 2015.  That said, pursuant to the settlement Blue Buffalo will take a charge against Q4 2015 earnings of $32 million. In the third quarter, the company’s net profit totaled $27 million.

Hitting Back at Class Settlement Objectors

**Plaintiff Class Counsel Seek Sanctions Against Alleged “Lawyer-Driven” Objections to its Becks Beer Settlement**

By: Brent E. Johnson

Plaintiff’s Class Counsel have been successfully using the threat of sanctions to ward off late game class objectors.  See prior post.  Another recent case has highlighted the issue.  In 2013 Beck’s Beer was sued under the theory that it’s packaging claims such as “originated in Germany” with “German quality” and “export bier” implied that the beer was a German import.  And certainly while that was true at one time, after 2008 the Beck’s Beer label was sold to the Belgian brewer Interbrew which later merged with American giant Anheuser Busch – and production of the beer moved to the U.S (in fact Beck’s Beer is brewed in the same facility as the synonymous American: Budweiser).  Plaintiff’s sued on allegations of false advertising and a class settlement was reached in June 2015: the settlement allowed a maximum award of $50 per household (less for those consumers without proof of purchase).  Marty v. Anheuser-Busch Companies, 1:13-cv-23656-JJO (S.D. Fl. June 18, 2015) ECF No. 149.  The class settlement was capped at $20 million and the attorneys’ fees were set at $3.5 million.  Id.  Class member Rene Muller (through his counsel Stephen Field) filed a settlement objection – claiming, generally, that the settlement terms were inflated and that attorney fees were too high.  Id. at ECF No. 161 (September 29, 2015).  The Court considered the objection, held a fairness hearing and overruled the objections.  Id. at ECF No. 171 (October 22, 2015).  It then granted final settlement approval.  Id. at ECF No. 172 (October 22, 2015).  Class counsel however were not satisfied – they took the deposition of Muller who (class counsel alleges) revealed that he generally knew nothing about the case, or the settlement, or his objection and was interested merely in a payoff (similar to a payoff he had received in a previous class action objection).  Id. at ECF No. 174 (November 12, 2015).  As such – class counsel sought sanctions against Muller’s attorney Stephen Field under 28 U.S.C. § 1927 which provides that: “[a]ny attorney . . . who so multiplies the proceedings in any case unreasonably and vexatiously may be required by the court to satisfy personally the excess costs, expenses, and attorneys’ fees reasonably incurred because of such conduct.”  Id.  Essentially, class counsel has argued that the only rational explanation for the objectors threadbare knowledge of his objection – was that the attorney Stephen Field put him up to it – in hope of a hefty settlement.  Id.  Field has opposed the Motion for Sanctions, amongst other things, noting the inherent irony of Plaintiff’s class counsel (who seek to get paid to settle suits) asking for sanctions against him for doing inherently the same thing.  Id. at ECF No. 177 (November 30, 2015).  The matter of sanctions is currently under advisement.

 

 

“Virtually All” Made in The USA Guidance

made-in-usa-2

**Federal Trade Commission Staff Provide Guidance on Regulations Proscribing the “All or Virtually All” Standard for Made in the USA labeling** . . .                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

By: Brent E. Johnson                                                                                                                                                                           

The Federal Trade Commission (FTC) has a role in regulating “Made in the USA” labeling.  15 U.S.C. § 45aSee prior post.  Under FTC regulation if “virtually all” of a product is made in the United States, then it is permissible to use the Made in the USA label.  62 FR 63756-01 at pp. 63757, 63764–65.  Unfortunately, this “virtually all standard” is vague – and the FTC has declined to come up with a bright line test for manufacturers.  Id.  The FTC’s Enforcement Policy Statement informs that in making a “virtually all” determination, the FTC will look at factors such as:  (1) the portion of manufacturing costs attributable to foreign parts and processing; (2) whether the foreign parts and processing are significant to the final product; and (3) how far back in the manufacturing process the foreign content is.  Even with this broad guidance, a case by case analysis is needed on “Made in the USA” labeling.

Fortunately, when the FTC closes an enforcement proceeding on a case, it often provides a closing letter to the target.  Such a closing letter may contain an explanation of the findings of the investigation and the rationale for why the case was closed.  A number of these FTC Closing Letters are available on the FTC website: https://www.ftc.gov/enforcement/cases-proceedings/closing-letters-and-other-public-statements/staff-closing-letters.  Recent  FTC Closing Letters regarding “Made in the USA” labeling have highlighted the importance of the second factor (see above) — whether foreign parts and processing are significant to the final product.  With respect to Loctite glue made by the German multinational Henkel, the FTC looked at the cost and function of cyanoacrylate (an ingredient imported and added to the U.S. manufacturing of the glue).  Because both the cost and function of cyanoacrylate were significant in the glue, the FTC decided that it was inappropriate for Henkel to use an unqualified “Made in the USA” label.  A similar finding was made with respect to Gorilla Glue earlier this year.  In another recent closing letter concerning the product Spray Pal (a cloth diaper cleaning device) that included a foreign-made clip used to fasten the diaper to the device, the FTC determined that, while the cost of the clip may be small relative to overall manufacturing costs, it nevertheless was essential to the function of the product.  As such, an unqualified claim of “Made in USA” was not permissible.  Companies need to be mindful that the FTC is not looking merely at the cost factor.  If an inexpensive foreign component is integral to the design and function of the product, it may be significant enough to  negate a claim of “Made in the USA.”

 

FDA Seeks All Natural Comments

Green apple with stethoscope

**Are we a step closer to solving the All Natural problem?**

By: Brent E. Johnson

There are problems faced by “All Natural” or “100% Natural” defendants.  See prior post. A specific problem for defendants is the inability to rely on any definitive Food and Drug Administration (FDA) guidance.  The FDA’s position has been clear – it “has not promulgated a formal definition of the term ‘natural’ with respect to foods.”  See Letter Leslie Kux, Assistant Commissioner for Policy, Food and Drug Administration, to the United States District Court, Northern District of California, dated January 7, 2014.  To date the FDA has created only an “informal policy statement.” Janney v. Mills, 944 F. Supp. 2d 806, 812 (N.D. Cal. 2013) (citing 58 Fed. Reg. 2302–01).  If there was federal regulation – defendants would have clarity in their positions – and state law claim would likely be pre-empted, see e.g., Lam v. General Mills, Inc., 859 F.Supp.2d 1097, 1102–03 (N.D.Cal.2012). In the absence of regulation, the question of what “natural” means and whether a product’s labeling violates the law is currently governed by an unwieldy “reasonable consumer standard”.  Williams v. Gerber Prods. Co., 552 F.3d 934, 938 (9th Cir.2008) citing Freeman v. Time, Inc., 68 F.3d 285, 289 (9th Cir.1995)). This lack of objective standards is one of the reasons why the litigation has been able to take hold – at the same time as “natural” labeled food has boomed (the Washington Post reports that nearly $40.7 billion worth of food items in the U.S. has some labeling of this type). Fortunatley, the FDA has changed tack – responding, inter alia, to requests from Federal Courts and a citizen petition from the Grocery Manufacturers Association it has published a Federal Register notice asking for information and comments on the use of the term “natural” in food labeling. Specifically, the FDA asks for information and public comment on questions such as: whether it is appropriate to define the term “natural,”; if so, how the agency should define “natural,”; and how the agency should determine appropriate use of the term on food labels.  Notably, the FDA notes that it may be looking to expand its policy on natural foods to include – not only the synthetic/artificial divide, but also questions of whether pesticide free and manufacturing processes should be part of the equation.  The FDA is accepting public comments beginning on November 12, 2015 and finishing February 10, 2016.  Comments may be submitted electronically (under FDA-2014-N-1207).

 

Natural Tobacco?

**Class Action Bid in Florida Against “Natural” Tobacco Maker Accused of Falsely Advertising the Natural Benefits of its Products** . . .                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

By: Brent E. Johnson                                                                                                                

Past “All Natural” class action suits, see prior post, cover various products but the plaintiffs’ allegations are the same – the consumers were allegedly duped because they believed the products labeled “natural” were healthier for them.  Surely, this logic cannot apply to cigarettes — a product consumers have known for decades to have very little, if any, redeeming health qualities?  Hence, can plaintiff’s counsel allege with a straight face that his client bought Santa Fe Natural Tobacco Company cigarettes for their health and safety?  That is the question raised by the complaint bought in the United States District Court, Southern District of Florida in Sproule v. Santa Fe Natural Tobacco Co., No. 0:15-cv-62064-JAL (October 14, 2015).  Certainly a case to watch.

 

Stop the Press – Lawyers Fighting Over Fees

**Plaintiffs’ Counsel for Class of Student Athletes Seeks Sanctions Against Late-in-the-Game Class Objectors’ Bid to Derail Settlement in Landmark NCAA College Football Case in the Northern District of California** . . .                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

By: Brent E. Johnson                                                                                                                                                                

One of the blockbuster class actions cases of the last few years appeared to be settled in August of this year when Judge Wilken approved the settlement motion between Electronic Arts Inc., the National Collegiate Athletic Association and a class of former players whose names and likenesses were “licensed” (without compensation to the players) for use in video games.  O’Bannon v. National Collegiate Athletic Association, 4:09-cv-03329-CW, ECF No. 429 (N.D. Cal. Aug. 19, 2015).  Plaintiff’s counsel sued on the basis that the players’ “right of publicity” was unlawfully expropriated – and after 6 years of litigation – a $60 million settlement was agreed.  Id.  (This settlement should not be confused with the bifurcated issues of anti-trust violations by the NCAA also bought in this suit – which has recently been affirmed in part by the Ninth Circuit in favor of the athletes.)  Of the $60 million settlement in this “right of publicity” suit – the named class representatives (including name lead Plaintiff UCLA great Ed O’Bannon) will get incentive awards ranging from $5,000 to $15,000 and the balance split amongst approximately 20,000 college athletes who made claims.  Of course that is after attorney fees which were set at $17.8 million.  But not so fast.  Plaintiff counsel still had to deal with objectors who filed an appeal to the approval with the Ninth Circuit.  O’Bannon v. National Collegiate Athletic Association, No. 15-16860 (9th Cir. October 10, 2015).  On October 28, 2015, Plaintiff’s counsel made a pre-emptive strike: filing a scathing motion for sanctions.  Id. at ECF No. 9. The sanction motion makes a number of allegations against Objectors’ counsel – leaving little to the imagination – (and is worth the read).  Interestingly, Plaintiff counsel did not just seek dismissal of the appeal – they sought an award of sanctions – and engaged an expert to measure the “cost” of the delay in distributing the $60 million caused by objectors’ appeal.  The expert came up with this cost – $55,109.00.  Unsurprisingly, a week after Class counsels’ motion for sanctions Objectors stipulated to withdraw their appeal.

Honest-ly: All Natural

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

By: Brent E. Johnson                                                                                                                                                                   

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

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

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

payment

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

By: Brent E. Johnson                                                                                                

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

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

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

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

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