class action suits

Proving a Negative

** Plaintiffs in a Putative Class Action Successfully Rely on Internet Articles on Homeopathy to Support Their Falsity Claims **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            .

Close up of the word HOMEOPATHIE in an old French dictionary. Selective focus and Canon EOS 5D Mark II with MP-E 65mm macro lens.

One of the few dependable defenses on which nutritional supplement/homeopathic drug makers facing consumer class actions can rely is that false advertising claims cannot rest on an allegation that the advertising lacks substantiation .  In the ground-breaking case of Nat’l Council Against Health Fraud, Inc. v. King Bio. Pharm., Inc., 107 Cal. App. 4th 1336 (2003), the California Court of Appeals held that it is not enough for a plaintiff to allege that the defendant’s products were ineffective because there is “no scientific basis for [their] efficacy.”  Id. at 1340-41.  In King Bio. Pharm, the plaintiff advocated that the defendant should bear the burden of proving its homeopathic remedies worked.  The California Court of Appeal disagreed, finding that — while regulatory agencies are legally authorized to demand substantiation — private parties are not, id. at 1345.  This is an eminently reasonable decision — otherwise, the plaintiffs’ bar would bring “ready, shoot, aim” lawsuits.

The question arises, of course, as to what level of “proof” is necessary for a putative class representative to sustain a claim of false advertising/labeling.  Must plaintiff’s counsel hire experts to perform double blind studies?  Or is a literature review all that is necessary?  This issue is front and center and may have reached its logical extreme in an important case in the U.S. District Court for the Southern District of California, Hammock et al. v. Nutramarks Inc. et al., case number 3:15-cv-02056 (2015) – a case that implicitly threatens the entire homeopathic medicine industry.

Homeopathy is the brain child of the German alternative physician, Samuel Hahnemann (1755-1843), who has a fabulous monument dedicated to him on Scott Circle in D.C.  Hahnemann developed the concept similia similibus curantur – or “like cures like.”  The idea is that a disease causes symptoms, and by treating patients with a substance that causes the same symptoms as the disease, the disease can be cured – like cures like.  By way of example, homeopathic medicines intended to remedy colds may include onions because onions cause watery eyes and runny noses – the precise symptoms of the common cold.

Dr. Hahnemann, however, did not want his medicines to produce the same symptoms the patient was already suffering from so he created a preparation protocol known as “extreme dilution.”  The active ingredient would be diluted with water or alcohol and the container would then be banged against an elastic surface (usually, a leather book) to the point that few of the molecules of the active ingredient remained.  In the world of homeopathic medicine, the more diluted the remedy, the  higher its potency and more effective it is.

Homeopathic medicine was heralded upon its entry into the United States in 1835, primarily because –unlike traditional medicine of the time – it didn’t kill patients (like mercury tinctures) and wasn’t gross (like leaching).  As modern medicine evolved, however, homeopathy came to be branded by the “traditional” medical industry as quackery.  Nevertheless, to this day, homeopathic drugs are treated (as opposed to nutritional supplements) by the FDA under Section 201(g)(1) of the Food, Drug and Cosmetic Act.

Which brings us back to the Nutramarks case.  In Nutramarks, the plaintiffs allegedly purchased NatraBio® Smoking Withdrawal, Leg Cramps, Restless Legs, Cold and Sinus Nasal Spray, Allergy and Sinus, Children’s Cold and Flu Relief, and Flu Relief homeopathic products.  Did the plaintiffs’ lawyers conduct any independent research to determine whether these products were effective prior to filing the lawsuit?  Of course not.  Did the plaintiffs’ lawyers cite any previously published studies about the challenged products?  Nope.  Did the plaintiffs’ lawyers cite any research on the efficacy of the ingredients in the products?  Nyet.  So what did the plaintiffs use to satisfy their plausibility burden under Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)?  Answer:  Internet articles challenging homeopathy as a whole.

Nutramarks pushed back on the complaint asserting in a motion to dismiss that relying on internet articles that did not involve its products or the constituents of its products was not enough, citing Murray v. Elations Co., No. 13-CV-02357-BAS WVG, 2014 WL 3849911, at *7 (S.D. Cal. Aug. 4, 2014) (studies “must have a bearing on the truthfulness of the actual representations made by Defendants”).  Nutramarks also argued that, because some experts believe that homeopathic remedies are effective, the action must be dismissed under In re GNC Corp., 789 F.3d 505, 516 (4th Cir. 2015), in which the court held that “[i]n order to state a false advertising claim on a theory that representations have been proven to be false, plaintiffs must allege that all reasonable experts in the field agree that the representations are false.”

In Nutramarks, Chief Judge Moskowitz rejected these arguments and denied the motion to dismiss as it pertained to the products’ effectiveness.  (The Court dismissed plaintiffs’ claims for injunctive relief and breach of implied warranty.)  Judge Moskowitz saw nothing deficient in the plaintiffs’ failure to cite studies relating to defendants’ products or the ingredients in its products: “Although the Complaint only concerns the effectiveness of Defendants’ Products, Plaintiffs are alleging that homeopathy in general is ineffective.  Should Plaintiffs prove this allegation later on, Defendants’ Products would likewise be proven to be ineffective.”  As to Nutramarks’ “all reasonable experts” argument, the Court distinguished the Fourth Circuit’s opinion in In re GNC Corp. on the basis that In re GNC Corp dealt with false advertising and Nutramarks concerns alleged false labeling.  This latter holding is a stretch.  Indeed, the plaintiffs didn’t make the argument for it in their opposition — although they cited the same language from In re GNC Corp that Judge Moskowitz relied on.

The language from In re GNC Corp reads, “Our holding today should not be interpreted as insulating manufacturers of nutritional supplements from liability for consumer fraud.  A manufacturer may not hold out the opinion of a minority of scientists as if it reflected broad scientific consensus.  Nevertheless, we need not decide today whether any of the representations made on the Companies’ products are misleading, because Plaintiffs chose not to include such allegations in the [complaint].”  The most important sentence in this dicta is the second because it highlights the precise representation – be it on a print advertisement or on the bottle, itself — that the Fourth Circuit didn’t want its opinion to absolve — a manufacturer falsely claiming that  there is broad consensus supporting its health claim when it is really only the opinion of a minority of scientists.  This claim appears nowhere on any of Nutramarks’ packaging challenged by the plaintiffs.

In the end, it is clear from the Fourth Circuit’s opinion in In re GNC Corp that the panel was convinced that there really would be an impermissible “battle of the experts” as to the efficacy of glucosamine and chondroitin for joint health if the case were to proceed past the motion to dismiss.  The label of one of the challenged products referenced a private study showing the effectiveness of the ingredients.  In a footnote, the Court stated (with just a bit of sarcasm), “Although Plaintiffs were free to allege that the study cannot have been conducted in a reasonable or reliable way (because all reasonable experts support the opposite conclusion), they failed to do so.  We decline to speculate as to why, if the evidence is as clear and unequivocal as they claim, Plaintiffs exhibited such hesitation.”

Of course, all is not lost for Nutramark or the homeopathic medicine industry in general.  Just last year, a California jury returned a verdict in favor of a manufacturer of homeopathic products for, among other things, allergies, leg cramps, migraine headaches and sleeplessness finding that the plaintiffs could not sustain their burden of showing lack of efficacy.  Allen et al. v. Hyland’s Inc. et al., 2:12-cv-01150 (Central District).

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No Pay, No Play

** District Court Rejects Settlement Deal That Extracts a Broad Release of Claims But Provides No Money to Class Members **

Pay writing on Keyboard

It is not common for judges to reject class settlements, usually because lawyers for the opposing sides — putting aside their adversary roles — are savvy enough not to give the judge cause.  That was not the case recently, however, in a long running homeopathic product false advertising case in the Southern District of California.  Allen v. Similasan Corp., No. 12-CV-376-BAS-JLB, 2016 WL 4249914, at *1 (S.D. Cal. Aug. 9, 2016).

The allegations in this case, which are similar to those of other recent homeopathy cases (see e.g., Nat’l Council Against Health Fraud v. King Bio Pharms., 107 Cal. App. 4th 1336, 1348 (2003); Herazo v. Whole Foods Mkt., Inc., No. 14-61909-CIV, 2015 WL 4514510, at *1 (S.D. Fla. July 24, 2015); Conrad v. Boiron, Inc., No. 13 C 7903, 2015 WL 7008136, at *1 (N.D. Ill. Nov. 12, 2015)) complain that Similasan engaged in false advertising by omission by not including on its products’ labels statements to the effect that (i) the product was not FDA approved as medically effective and (ii) the active ingredients were diluted.  Notably, neither of those disclaimers is required on homeopathic products – but even so, many companies voluntarily include them.

In Similasan, after four years of hard fought litigation  the Defendant had successfully narrowed the claims by summary judgment [Dkt. No. 142] and Plaintiffs had certified  a class [Dkt. No. 143].  Similasan, however, filed a motion to decertify, arguing that Plaintiffs would not be able to prove materiality or falsity with their expert witnesses’ survey evidence [Dkt. No. 164].  With the motion to decertify pending, the parties settled and sought judicial approval of their agreement [Dkt. No. 196].  But the settlement was not a cure the district court could swallow.  Judge Bashant noted her role in the fairness hearing was to look for “subtle signs that class counsel have allowed pursuit of their own self-interests and that of certain class members to infect the negotiations.” (2016 WL 4249914, at *3 citing In re Bluetooth Headset Prods. Liab. Litig., 654 F.3d 935, 947 (9th Cir.2011)).  In this case, the signs were not subtle, and it was not a close call for the Court to deny approval.

In particular, Judge Bashant took exception to the following features of the proposed agreement:

  • The remedy for the unnamed class was injunctive relief only. While the company agreed to add the disclaimers that Plaintiffs’ counsel had complained were omitted, Similasan was not required to compensate class members;
  • The only money went to the class representatives who would pocket $2,500.00 each and Plaintiff’s counsel who secured a clear-sailing agreement which would permit an award of fees in excess of $550,000.00;
  • In exchange for injunctive relief, class members released Similasan from all claims identified in the complaint;
  • The release covered a nationwide class even though the Court had certified a California class only.

These settlement terms were not good enough for the Court.  The class was being asked to give up the right to sue but receiving nothing in return.  Indeed, to the extent the remedy was an injunction, a class member who opted out would receive the same benefit without forfeiting any rights.  Tellingly, eight State Attorneys General (Arizona, Arkansas, Louisiana, Michigan, Nebraska, Nevada, Texas and Wyoming) filed an amicus curiae brief urging the Court to reject the proposed settlement. [Dkt. No. 219].

The Court also discussed the role that notice (or lack thereof) played in its decision making.  The Court observed that the proposed class would have been in the tens of thousands [Dkt. No. 216], but the settlement notice prompted only 136 views of the settlement information website and 21 phone calls to the settlement hotline.  The Court attributed this lackluster response to the weakness of the notice, which consisted of a single ad in USA Today and some incidental online placements.  But the reality is the paucity of the economic return (i.e. zero) likely resulted in mass indifference.

 

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A Lodestar Off Our Mind!

** The California Supreme Court endorses the Percentage of Common Fund Approach for Class Action Settlements **                                                                                                                                                                                        

4427950_HiResIn a decision that consumer class action lawyers have been on pins and needles awaiting, the California Supreme Court just issued its opinion in Lafitte v. Robert Half Int’l Inc, Cal., No. S222996 (Aug. 11, 2016) regarding the proper way to determine attorney fee awards in common fund cases.  The Court concluded that the percentage of the fund method favored by plaintiffs’ class action lawyers (and, frankly, defense attorneys who settle consumer class actions by agreeing to a common fund) is alive and well.

For the past several years, objectors to class action settlements in California have become increasingly vocal with their criticism of this prevalent class action settlement device that creates a fund to compensate class members and pay class counsel (and sometimes claims administration costs as well).  In consumer fraud actions, after compensation to the class has been negotiated, additional money is placed in the common fund to compensate class counsel for their work on the case – typically 25% of the entire fund amount. Critics of the percentage of the common fund approach argue that it incentivizes plaintiffs’ counsel to put their interests ahead of class members (see e.g., Smith, Adam, The Wealth of Nations (1776)) and settle cases quickly in an amount that may not fully compensate class members in order to avoid otherwise needless effort in obtaining their fee.

Lafitte was a wage and hour case against Robert Half, the well-known staffing company.  The parties preliminarily settled the lawsuit by establishing a $19 million settlement fund that included a “clear sailing” provision for attorney fees of $6,333,333 – 33% of the common fund.  (Because courts must rule on the reasonableness of fees, a plaintiff and defendant settling a class action cannot agree on the plaintiff’s attorney’s fee award.  Instead, the defendant will sometimes agree that it will not oppose a specific fee award – giving plaintiff’s counsel “clear sailing” toward their requested fee.)

One of the class members in Lafitte thought the $6+ million award was a bit rich and believed it was not sufficiently justified or substantiated by class counsel, who relied primarily on the fact that 33% was within the range of typical class action settlement awards (20%-50%).  The class member filed an objection to that effect citing Serrano v. Priest (1977) 20 Cal.3d 25 (“Serrano III”) for the proposition that fee awards must be calculated on the basis of time spent by the attorneys on the case plus a multiplier.  The Los Angeles Superior Court denied the class member’s objection determining that a percentage of the common fund was the correct approach but double-checking it against the reasonable fee class counsel would have charged if it was a billable hour case – the “lodestar.”  The court analyzed plaintiff’s counsel’s billing records and concluded that the lodestar was between $2,968,620 and $3,118,620.  The gap between the lodestar amount and the $6,333,333 percentage fee was closed by applying a multiplier of between 2.03 and 2.13.  Why apply a multiplier?   To compensate class counsel “for the novelty and difficulty of the questions involved, (2) the skill displayed in presenting them, (3) the extent to which the nature of the litigation precluded other employment by the attorneys, (4) the contingent nature of the fee award.”  Ketchum v. Moses, 24 Cal.4th 1122, 1132 (2001) (citing Serrano III).

Viewing the “double check” methodology with Pope’s “jaundiced eye,” one might conclude that – because the multiplier is completely subjective – a court can always engineer a proposed percentage fee award in a class action settlement with the lodestar analysis.  This is precisely what the objector argued.  Any student of algebra can solve this simple equation where the contingent fee award and lodestar fee are known:

contingent fee award = lodestar fee x multiplier

In Lafitte, the California Supreme Court charted the birth, death and resurrection of the common fund percentage approach for attorney fee awards throughout legal history — at least from 1966 when Federal Rule of Civil Procedure 23 was amended so as to usher in the modern class action.  The Court also carefully analyzed the pros and cons of each approach.  For those keeping score:  Lodestar MethodPros:  (1) better accountability from class counsel for case handling, (2) encourages class counsel to pursue marginal increases in class recovery; Cons:  (1)  discourages early settlement, (2) consumes judicial resources in reviewing class counsel’s timesheets; Percentage MethodPros:  (1) easy to calculate, (2) creates reasonable expectations for class counsel in terms of recovery, (3) encourages early settlement; Cons:  (1) encourages class counsel to settle too early for a reduced amount, (2) may create a windfall when the common fund is very large.  After this detailed analysis, the Court concluded, “[W]e clarify today that use of the percentage method to calculate a fee in a common fund case, where the award serves to spread the attorney fee among all the beneficiaries of the fund, does not in itself constitute an abuse of discretion.”  Moreover, “[T]rial courts have discretion to conduct a lodestar cross-check on a percentage fee . . . [but]; they also retain the discretion to forgo a lodestar cross-check and use other means to evaluate the reasonableness of a requested percentage fee.”  The Lafitte Court acknowledged that Serrano III may have caused confusion on the issue, but limited Serrano III’s lodestar requirement to cases involving enforcement of statutes with fee-shifting provisions – for example, where prosecution of the case “has resulted in the enforcement of an important right affecting the public interest.”  Cal. Code Civ. Proc. §1021.5.

Before California consumer class action lawyers fire up their calculators, however, a few words of warning are in order.  First and foremost, the Lafitte Court did not dispense with the fundamental requirement that the fee award be reasonable.  While the Court’s opinion does not require a lodestar double check, it does mandate that the trial court use some means to evaluate the reasonableness of the fee.  Interestingly, the Court shied away from endorsing the “sliding scale” approach sometimes employed in class action settlements to promote reasonableness where the fee percentage decreases as the settlement increases in amount:  “[W]e do not mean to endorse the use of a sliding percentage scale. That issue is not before us and is not without controversy.” In addition, the California Supreme Court made clear that its ruling does not inform whether and how a contingent fee can be applied where there is no common fund – i.e., where class counsel argues for a “’constructive common fund’ created by the defendant‘s agreement to pay claims made by class members and, separately, to  pay class counsel a reasonable fee as determined by the court.”

Most importantly for counsel who settle consumer class actions, the Court stated that its decision does not apply to a case where “a settlement agreement establishes a fund but provides that portions not distributed in claims revert to the defendant or be distributed to a third party or the state, making the fund‘s value to the class depend on how many claims are made and allowed.”   Because it is often the case that the common fund settlement amount in a consumer class action includes more money (even minus class counsel fees and administration costs) than is needed to compensate class members’ claims, such settlements often include cy pres provisions requiring that left-over money not claimed by class members (or eaten up by fees and costs) be donated to a specific charity.  Cy pres provisions are employed to:  (1) convince the court deciding whether to approve the settlement that the amount is “real” in that the defendant isn’t getting any of it back; and (2) establish a concrete settlement number on which to apply the attorney fee percentage.  The Lafitte Court grounded its decision to approve the percentage of fund method on the basis that “the percentage of the fund method more accurately reflects the results achieved.”  But if cash in the settlement fund ends up going to a charity – no matter how worthy the cause – does this amount “reflect the results achieved” for the class?  No doubt, given the ever-increasing use of cy pres provisions in consumer class actions, we will almost certainly learn the answer to this question in the very near future.

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Sugar By Any Other Name Not Just As Sweet – Says FDA

** FDA concludes its study on “Evaporated Cane Juice” – issues guidance that it is a misleading description for mere Sugar **                                                                                                                                                                                                                

Candy shop at local bazaar in Barcelona, Spain.

On May 25, 2016, the Food and Drug Administration (FDA) issued guidance that it is false or misleading to describe sweeteners made from sugar cane as “evaporated cane juice.” Guidance for Industry: Ingredients Declared as Evaporated Cane Juice.

The FDA promised guidance before the end of 2016 – so they under-promised and over-delivered.  The FDA’s guidance reasoned that the term “cane juice”— as opposed to cane syrup or cane sugar—calls to mind vegetable or fruit juice, see 21 CFR 120.1(a), which the FDA said is misleading as sugar cane is not typically eaten as a fruit or vegetable.  See U.S. Department of Agriculture, Center for Nutrition Policy and Promotion. “Added Sugars.”  As such, the FDA concluded that the term “evaporated cane juice” fails to disclose that the ingredient’s “basic nature” is sugar. Guidance, Section III.  As support, the FDA cited the Codex Alimentarius Commission — a source for international food standards sponsored by the World Health Organization and the United Nations — which defines “raw cane sugar” in the same way as “evaporated cane juice.” Codex 212-1999.1.  The FDA therefore advised that “‘evaporated cane juice’ is not the common name of any type of sweetener and should be declared on food labels as ‘sugar,’ preceded by one or more truthful, non-misleading descriptors if the manufacturer so chooses.” Guidance, Section III.  The FDA’s decision comes after a 2009 draft guidance advising against using the term “evaporated cane juice” and a host of lawsuits against food companies that ignored the guidance.  Draft Guidance for Industry: Ingredients Declared as Evaporated Cane Juice (2009).

The FDA’s decision does not bode well for pending cases on this point.  As we have blogged about recently, many evaporated cane juice lawsuits are currently stayed awaiting the outcome of the FDA’s guidance, see, e.g., Gitson, et al. v. Clover-Stornetta Farms, Inc., Case No. 3:13-cv-01517-EDL (N.D. Cal. Jan. 7, 2016); Swearingen v. Amazon Preservation Partners, Inc., Case No. 13-cv-04402-WHO (N.D. Cal. Jan. 11, 2016).  And some have been revived on appeal – just in time – see Kane v. Chobani, LLC, No. 14-15670, 2016 WL 1161782, at *1 (9th Cir. Mar. 24, 2016) (overturning 2014 order from Northern District of California dismissing case).  These suits (and others) are now set to proceed in the wake of the FDA’s guidance.  Bear in mind, the guidance is not binding on courts and, in of itself, does not create a private right of action.  21 U.S.C. § 337(a) (“[A]ll such proceedings for the enforcement, or to restrain violations, of [the FDCA] shall be by and in the name of the United States”); see POM Wonderful LLC v. Coca-Cola Co., 573 U.S. ___ (2014); Buckman Co. v. Pls.’ Legal Comm., 531 U.S. 341, 349 n.4 (2001); Turek v. Gen. Mills, Inc., 662 F.3d 423, 426 (7th Cir. 2011); see also Smith v. U.S. Dep’t of Agric., 888 F. Supp. 2d 945, 955 (S.D. Iowa 2012) (holding that there is no private right of action regarding USDA statute).

In most false advertising cases, the governing test is what consumers, themselves, think – not what the FDA does.  For example, in Mason v. Coca-Cola Co., plaintiffs alleged that “Diet Coke Plus” was misleading because the word “Plus” implied the product was “healthy” under FDA regulations.  774 F. Supp. 2d 699 (D.N.J. 2011).  The court begged to differ: “At its core, the complaint is an attempt to capitalize on an apparent and somewhat arcane violation of FDA food labeling regulations . . .  not every regulatory violation amounts to an act of consumer fraud . . . . It is simply not plausible that consumers would be aware of [the] FDA regulations [plaintiff relies on].”  Id. at 705 n.4; see also Polk v. KV Pharm. Co., No. 4:09-CV-00588 SNLJ, 2011 WL 6257466, at *7 (E.D. Mo. Dec. 15, 2011);  In re Frito-Lay N. Am., Inc. All Natural Litig., No. 12-MD-2413 RRM RLM, 2013 WL 4647512, at *15 (E.D.N.Y. Aug. 29, 2013) (“[T]he Court [cannot] conclude that a reasonable consumer, or any consumer, is aware of and understands the various federal agencies’ views on the term natural.”)  Defendants in evaporated cane juice cases often assert that “evaporated cane juice” is a more accurate term than sugar to describe a type of sweetener that is made from sugar cane but undergoes less processing than white sugar.  See e.g., Morgan v Wallaby Yogurt Company, No. CV 13-0296-CW, 2013 WL 11231160 (N.D. Cal, April 8, 2013) (Mot. to Dismiss).  Those issues aside, many commentators believe the guidance will spur settlements – and they may be right.  The guidance may also spur a round of label changes for those who have not already abandoned the controversial term.

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Ice Ice (Baby)

** Purported Class Action Attempts to Sink Starbucks with claims over allegedly misleadingly frozen water **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

danger thin ice - warning sign by a lake

Last week, a disgruntled Starbucks patron in Chicago filed a putative class action against the coffee icon in the Northern District of Illinois claiming that consumers like her have been defrauded over the past ten years by big plastic cups of ice.  Pincus v. Starbucks Corporation, 1:16-cv-04705 (N.D. Ill. April 27, 2016) (Dkt. No. 1).  Granted, all of the drinks that are part of the lawsuit are called “Iced Something-Or-Other,” but according to the Plaintiff that doesn’t justify Starbucks putting ice in the beverages.  Okay, that’s overstating it a bit.

The lawsuit hinges on Starbucks’ use of the acronym for fluid ounce (“fl. oz.”) on its menus and in other advertising.  Plaintiff contends that “fl. oz.” means just that – an ounce of fluid – and the actual fluid ounces in Starbucks iced drinks are less than those claimed in its advertising.  It is only by putting pre-measured scoops of ice in the drinks that the nefarious Starbucks baristas are able to completely fill those ubiquitous transparent cups.  Starbucks, of course, is behind the whole scheme supplying the baristas with beverage cups with fill-lines printed on them (product/water or lemonade/ice) as well as different size ice scoopers (Tall/Grande/Venti).  Plaintiff claims that she, and millions of other Starbucks aficionados across the United States, relied on the Company’s representations about the number of fluid ounces in their drinks and “Plaintiff would not have paid as much, if anything for the Cold Drinks had she known that it [sic] contained less, and in many cases, nearly half as many, fluid ounces than claimed by Starbucks.”

“Ounce” is Middle English from the Anglo-French “unce” and is a unit of mass equal to 1/16 of an avoirdupois pound and 1/12 of the troy pound favored by precious metal dealers.  More importantly, an ounce is 0.666682 of a jigger of Jim Beam.  Accordingly, any class certified in this case must certainly exclude gold investors and may need to be limited to hard core drinkers who know what an ounce looks (and feels) like.  But while the public may have some difficulty visually identifying an ounce, they certainly know the difference between a Grande and a Venti, which is, after all, what they’re buying.

Plaintiff’s class definition is “[a]ll persons in the United States of America who purchased one or more of Defendant’s Cold Drinks at any time between April 27, 2006 and the present.”  “Cold Drinks”  include, but are not limited to, “iced coffee, shaken iced tea, shaken iced tea lemonade, Refreshers®, and Fizzio™ handcrafted sodas” (which, as an aside, are sadly not available at all Starbucks locations – but for those in the right locale, our pro tip is the Golden Ginger Ale).  Although both cold and a drink, the Frappuccino® is not included.  And that’s the whole problem with this case, isn’t it?

The Frappuccino® contains plenty of ice.  But because the ice is blended with the flavored ingredients, it apparently qualifies as a liquid even though it’s really tiny shards of ice.  Which raises the questions:  If the ice melts in a Starbucks Iced Coffee before the purchaser finishes drinking it, is the purchaser getting the advertised number of fluid ounces?  What if the purchaser is an ice chomper?  Plaintiff’s complaint shrewdly anticipates these defenses.  First, Starbucks uses “large pieces of ice” that “take up more space and thus when melted, will yield fewer measured ‘fluid’ ounces of coffee or tea . . . .”  (Starbucks is skimping on the water!)  More broadly, Plaintiff declares that “a reasonable consumer does not wait for the ice in a Cold Drink to melt before consuming the Cold Drink.”  This point, of course, will require survey evidence to establish — or perhaps the class can be limited to purchasers of Starbucks Cold Beverages who are not sippers or chompers.  (Ascertainability might be a problem here.)

Starbucks suffers from its transparency (which is the opposite of the problem it faced in a now dismissed slack fill case against it filed in New York).  Anyone who purchases an iced beverage for the first time – particularly a shaken iced tea, a Refresher® or a Fizzio™  – is startled when the barista pours such a small amount of the flavored stuff in the bottom of one of those big plastic cups and then tops it off with water (or lemonade) and finally, a huge mound of ice.  A Diet Coke from the McDonald’s drive-thru window retains its mystery.  How much syrup?  How much ice?  But for those who love Starbucks, the beverages are consistently great – a treat to be savored slowly . . . while the triple-filtered ice melts.

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Class Actions And Taxes in New Jersey

** “In this world nothing can be said to be certain, except class actions and taxes.” – (paraphrasing) Ben Franklin **

HiResWhile tax season is now behind most of us, things are just starting to heat up for Intuit, Inc., owner of one of the largest online tax preparation systems – TurboTax.  On April 12, 2016, Intuit was sued in a putative class action in the U.S. District Court for the District of New Jersey over warranty and damage limitations in TurboTax’s Terms of ServiceRubin v. Intuit Inc., Case No. 3:16-CV-02029 (Dist. N.J. April 12, 2016) (Dkt. No. 1).  The claim is made under New Jersey’s  Truth in Consumer Contract, Warranty and Notice Act (“TCCWNA”), N.J.S.A 56:12-14 et seq.  Due, perhaps, to its difficult-to-remember acronym, the TCCWNA gathered dust on the shelves of plaintiff consumer lawyers for the first thirty years of its existence.  This is surprising given that the TCCWNA has two significant advantages over New Jersey’  other consumer statute, The Consumer Fraud Act (“CFA”), N.J.S.A. 56:8-1 et seq.:  (1) The TCCWNA provides for a minimum of $100 statutory damages per consumer (N.J.S.A. 56:12-17) and (2)  The TCCWNA doesn’t require putative class members to have actually purchased anything.  N.J.S.A. 56:12-15 (TCCWNA applies to “consumer[s] or prospective consumer[s]”).  .

Which brings us to TurboTax.  Intuit has a fairly standard Terms of Service page on its website that users must agree to – terms of service that are particularly apropos for a company whose principal service results in the filing of income tax returns under penalty of perjury by consumers who tend to wait until the last minute to perform this painful task with varying degrees of care.  These terms include an acknowledgement by the user that “THE SITE IS PROVIDED ‘AS IS,’ WITHOUT ANY WARRANTY OF ANY KIND, EITHER EXPRESS OR IMPLIED” as well as an agreement that “DIRECT, INDIRECT, INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES” are prohibited.  Of course, TurboTax’s terms also provide that, where the laws of particular states do not permit Intuit to limit its liability in certain ways, those limitations do not apply to users in those states, but otherwise, “THE . . . LIABILITY OF INTUIT . . . IS LIMITED TO THE GREATEST EXTENT PERMITTED BY SUCH STATE LAW.”

How can such common provisions in website terms of use result in liability under New Jersey law?  Enter the TCCWNA, which provides, “No seller . . . shall in the course of his business offer to any consumer or prospective consumer or enter into any written consumer contract or give or display any written consumer warranty, notice or sign . . . which includes any provision that violates any clearly established legal right of a consumer . . . established by State or Federal law.”  N.J.S.A 56:12-15.  In Rubin, the plaintiffs contend that Intuit’s standard warranty limitations violate New Jersey common law and State and Federal statutes, including New Jersey’s Products Liability Act, its Punitive Damages Act, and the Uniform Commercial Code.

“But wait!” you say.  What about Intuit’s statement in the TurboTax Terms of Service that the damages limitations are void where prohibited?  Ironically, according to the plaintiffs, that provision is not only not exculpatory – it’s actually a separate violation of the TCCWNA.  The New Jersey statute provides, “No consumer contract, notice or sign shall state that any of its provisions is or may be void, unenforceable or inapplicable in some jurisdictions without specifying which provisions are or are not void, unenforceable or inapplicable within the State of New Jersey; provided, however, that this shall not apply to warranties.”  N.J.S.A. 56:12-16.  Even when a company tries to comply with state statutes, it may be violating New Jersey’s TCCWNA.

It will be interesting to see whether the U.S. Supreme Court’s anticipated decision in Spokeo, Inc. v. Robbins, No. 13-1339, cert. granted (U.S. April 27, 2015) will have an impact on the progress of TCCWNA cases.  In Spokeo, the Supreme Court is mulling over whether a plaintiff/class representative has standing to assert claims based upon the violation of federal statutes – in that case the Fair Credit Reporting Act – where the plaintiff has not been injured.  If the Court determines that there is no standing if there is no injury, that reasoning may have some applicability to the TCCWNA, which does not require the plaintiff to have even used the service or purchased the product.  In addition, it’s an open question as to whether “prospective consumers” can be included in a putative TCCWNA — at least in federal court in the Third Circuit — under the circuit’s ascertainability requirement:  Can there be “a reliable and administratively feasible mechanism for determining whether putative class members fall within the class definition” [Carrera v. Bayer Corp., 727 F.3d 300, 355 (3d Cir. 2013)],where the class consists of anybody who laid eyes on a website’s terms of use?  But for the forseeable future, ecommerce companies should closely review their terms of use to ensure that they do not run afoul of the TCCWNA.

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Natural Tobacco?

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

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.

 

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

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

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

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

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

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

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

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