Consumer Class Action

Are You Shipping Me! Is Delivery Charging The Next Big Thing In Consumer Class Actions?

** Shipping and Handling Case Dismissed in California – Beginning of the End? **                                                                                                                                                                                                                                                                                                                                            

Lately, there’s been quite a bit of buzz over a couple of lawsuits filed in California alleging that internet retailers are charging too much for shipping and handling:  Reider v. Electrolux Home Care Products, Inc., No. 8:17-cv-00026-JLS-DFM (C.D. Cal) and McCoy v. Omaha Steaks International, Inc., No. BC 658076 (Cal. Sup. Ct, L.A. Cnt’y).  Much of the reporting on these cases focuses on the possibility that this claim may be the next big thing in consumer class actions.  How likely is that?

The answer, of course, is “Who knows?”  But a closer inspection of the lawsuits suggests that this litigation too shall pass — and perhaps quickly.  First, both lawsuits were filed by Scott J. Ferrell, the founder of Pacific Trial Attorneys, who is no stranger to consumer class actions against online retailers having brought several under California’s Automatic Renewal Statute. California Business and Professions Code §17600, et seq.  But there hasn’t yet been a break out of these shipping and handling cases.  And second, the Electrolux action is over via a joint stipulation to dismiss filed just yesterday after the District Court granted Electrolux’s motion to dismiss with the observation that any attempt to amend would likely be futile.  Dkt. No. 30, May 8, 2017.

The plaintiff in Electrolux pursued a novel theory of liability in a case where it was undisputed that he was apprised of the shipping charges prior to purchase.  Indeed, there was no way plaintiff could have missed the disclosure because he had to actually choose between shipping options with different charges at the time of purchase:  Ground Service at $7.99; Second Day Air at $15.00; and Next Day Air at $25.00.  (He judiciously chose ground service given his purchase was for a $1.99 vacuum bag.)  Faced with those facts, plaintiff honed in on the unfair prong of California Business & Profession Code § 17200, which prohibits and makes actionable “unlawful, unfair or fraudulent” business practices.

While California courts have not addressed the unfair prong in consumer lawsuits, the Ninth Circuit has – holding that for a business practice to be unfair to consumers it must either:  (1) violate a “legislatively declared” policy; or (2) fail a balancing test that weighs the benefit to the company against the harm to consumers.  Lozano v. AT&T Wireless Servs., Inc., 504 F.3d 718, 736 (9th Cir. 2007).  In Electrolux, the plaintiff argued that the guidelines of the Direct Marketing Association (“DMA”) that encourage retailers to make sure that their shipping and handling charges bear a reasonable relationship to the actual costs of shipping and handling and a 1980 FTC consent order prohibiting a car dealer from charging more than its actual costs in shipping cars to its showroom reflect a public policy against excessive shipping and handling charges and show that the balance tilts to consumers.

The District Court disagreed.  Dkt. No. 27, April 21, 2017. The “legislatively declared” policy was an easy call – neither the DMA nor the FTC are legislatures.  On the balancing test, the District Court found that there was simply no harm to the plaintiff and, therefore, nothing against which to balance Electrolux’s benefit.  Striking a blow for free markets everywhere, the court observed, “Online shoppers are aware that online merchants are in the business of making money and generating profit, and those looking for the best deals will find their way to the merchants who offer the best combination of quality, price, and service.”  In what should become known as the “Mini Bar Rule,” the court cited Searle v. Wyndham Int’l, Inc., 102 Cal. App. 4th 1327, 1330 (2002) – a case where plaintiffs unsuccessfully challenged a hotel chain’s mandatory 17% service charge:

“Perhaps the best analogy is the one made in Searle. The hotel room guest knows he could buy the $3 minibar candy for less at a neighborhood store. Perhaps he pays the high price so he can stay in his comfortable robe and enjoy the high-priced, in-room movie. In any event,“[t]he minibar patron, like the room service patron, is given both clear notice the service being offered comes at a hefty premium and the freedom to decline the service.” Searle, 102 Cal. App.4th at 1334.” (Dkt. No. 27 at 6).

The District Court in short order dispatched plaintiff’s Consumer Legal Remedies Act claim that the practice of charging inflated shipping and handling fees is deceptive because consumers believe that the charges are reasonably related to the company’s actual costs by noting that Electrolux makes no such representation.

But what of the second shipping and handling charge case —  McCoy v. Omaha Steaks International, Inc., CA Sup. Court, County of Los Angeles, Case No. BC 658076?  That case was filed in Los Angeles Superior Court on April 14, 2017 – a week before the District Court’s decision in Electrolux.  The claims are the same.  The support is the same.  We’ll have to wait and see if the superior court and the federal court agree.

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Healthy Conscious

** FDA Updating Requirements for “Healthy” Claims on Food Labeling **

One of the trending areas we have blogged about last year was “healthy” claims in food labelling becoming the new “all natural” target; see Hunter v. Nature’s Way Prod., LLC, No. 16CV532-WQH-BLM, 2016 WL 4262188, at *1 (S.D. Cal. Aug. 12, 2016) (Coconut Oil); Campbell v. Campbell Soup Co., No 3:16-cv-01005 (S.D. Cal. August 8, 2016) (Dkt 18) (Healthy Request® canned soups); Lanovaz v. Twinings N. Am., Inc., No. 5:12-CV-02646-RMW (N.D. Cal. September 6, 2016) (Twinings bagged tea).  It is a lucrative area for the plaintiff’s bar.  James Boswell et al. v. Costco Wholesale Corp., No. 8:16-cv-00278 (C.D. Cal) (recent $750,000 coconut oil settlement based on “healthy” labeling).

In many respects this trend was kicked off in 2015 by the Food & Drug Administration (FDA) who issued the KIND® company a not so kind letter asking the company, pursuant to 21 U.S.C. § 343(r)(1)(A) to remove any mention of the term “healthy” from its packaging and website.  See our prior blog post.  The basis for the FDA’s action is that the term “healthy” has specifically defined meanings under 21 CFR 101.65(d)(2) which includes objective measures such as saturated fat content (must be > 1 g) (see 21 CFR 101.62(c)(2)).  Later in 2016 the FDA seemingly had a change of heart – emailing Kind and stating that the company can return the “healthy” language – as long use “healthy” is used in relation to its “corporate philosophy,” not as a nutrient claim.

Notably, this sparked a wider public health debate about the meaning of “healthy” and whether the focus, for example on the type of fat rather than the total amount of fat consumed, should be reconsidered in light of evolving science on the topic.  In September 2016 the FDA issued a guidance document (Guidance for Industry: Use of the Term “Healthy” in the Labeling of Human Food Products) stating that FDA does not intend to enforce the regulatory requirements for products that use the term healthy if the food is not low in total fat, but has a fat profile makeup of predominantly mono and polyunsaturated fats.

The FDA also requested public comment on the “Use of the Term “Healthy” in the Labeling of Human Food Products” – which comment period ended this week. Comments poured in from consumers and industry stakeholders, reaching 1,100 before the period closed on April 26, 2017. The FDA has not provided a timeline as to when revisions to the definition of “healthy” might occur following these public comments – and it is not clear if President Donald Trump’s January executive order, requiring that two regulations be nixed for every new rule that is passed, will hinder the FDA’s ability to issue a rulemaking on the term “healthy” in the near future.  It is also not clear whether the FDA will combine the rulemaking with its current musing of use of the term “natural” – as the terms are sometimes used synonymously.  Industry groups (and the defense bar) are hopeful though that some clarity will come sooner rather than later.

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Sugar in Missouri

** Do we have a new “sue-me” State for Food and Class Litigators? **                                                                                                                                                                                                                                      As we blogged about in the past the Food and Drug Administration (FDA) issued guidance in 2016 that it is false or misleading to describe sweeteners made from sugar cane as “evaporated cane juice” (ECJ). Guidance for Industry: Ingredients Declared as Evaporated Cane Juice.  As anticipated this has opened the way forward for cases against companies using the ECJ term, including of course those cases where the matter had been stayed under the primary jurisdiction doctrine.  Much of this ECJ litigation continues to be focused in state and federal courts in California.

That said, plaintiffs are also filing in other venues.  Missouri for one is becoming increasingly well-known as a plaintiff-friendly jurisdiction following full throated verdicts in product liability cases, such as the $70 million talcum powder case.  And food labeling suits are increasingly being filed as well in this new “sue me” State (in particular, St. Louis City – the 22nd Judicial Circuit, has been called one of “worst places in the nation for a corporation to be sued” and the new hot spot for litigation tourists.”)  In a recent win for the Plaintiff’s bar with respect to food litigation and labeling claims, a Missouri state court of appeals recently issued an opinion rejecting defenses successful in sister courts. In Murphy v. Stonewall Kitchen, LLC, 503 S.W.3d 308, 310 (Mo. Ct. App. 2016) brought under the Missouri Merchandising Practices Act (MMPA) the plaintiff (and putative class representative) alleged Stonewall Kitchen misrepresented that its cupcake mix was “all natural” when it contained leavening agent sodium acid pyrophosphate (SAPP).  The trial court, relying on the  decision in Kelly v. Cape Cod Potato Chip Co., 81 F.Supp.3d 754 (W.D. Mo. 2015), granted the motion reasoning that because the ingredient label clearly disclosed the presence of SAPP, it was not plausible that a consumer would believe the “all natural” representation on the product including the SAPP.  The Court of Appeals reversed, expressly rejecting the ingredient list defense.

Since Murphy, at least 16 cases have recently been filed in St. Louis on the topic of evaporated cane juice alone.  The targeted defendants include manufacturers of Pacqui Corn Chips (Dominique Morrison v. Amplify Snack Brands Inc., No. 4:17-cv-00816-RWS (E.D. Mo.), Jelly Belly jelly beans(Jason Allen v. Jelly Belly Candy Company, No. 4:17-cv-00588 (E.D. Mo.), and Bakery on Main granola (Callanan v. Garden of Light, Inc., No. 4:17-cv-01377 (E.D. Mo.).  The cases do appear connected, many having the same plaintiff’s counsel.  It is likely too early to call St. Louis the new “food court” – we’ll monitor it throughout the year though to see if it is a “flash in the pan” or not.

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Good Vibrations

** Class Plaintiff not Feeling Data Collection Practices of Intimate Personal Consumer Products Maker **                                                                                                                                                                                                                                                                                              _

Digital Data Privacy Protection Searching Concept

In the “You Can’t Make This Stuff Up” file is the putative class action filed on September 2, 2016 against Standard Innovation (U.S.) Corp. in the U.S. District Court for the Northern District of Illinois.  N.P. v. Standard Innovation (US) Corp. d/b/a We-Vibe, Case No. 1:16-cv-08655, (N.D. Ill. Sept. 2, 2016). According to the complaint, Standard Innovation “is a ‘sensual lifestyle products’ company that sells a high-end vibrator called the We-Vibe.”  The We-Vibe distinguishes itself from its competitors in the marketplace by its smart phone application – “We-Connect,” which can be downloaded from Apple App and Google Play stores.  Why would one care to download such an application?  According to the complaint, “With We-Connect, users can ‘pair’ their smartphone to the We-Vibe, allowing them — and their partners — remote control over the vibrator’s customizable settings and features” – bringing a whole new meaning to the phrase, “phone sex.”  For those who like to teeter on the cutting edge, this technology is referred to as “teledildonics.”  — Seriously.

The problem?  According to the complaint, “Unbeknownst to its customers . . . Defendant designed We-Connect to (i) collect and record highly intimate and sensitive data regarding consumers’ personal We-Vibe use, including the date and time of each use and the selected vibration settings, and (ii) transmit such usage data — along with the user’s personal email address—to its servers in Canada.”  While Americans may be jaded to the systematic gathering and exploitation of their personal information by internet companies for marketing purposes, this case asks the question: “Is our choice of the ‘pulse,’ ‘wave,’ ‘echo,’ ‘tide,’ ‘crest,’ ‘bounce,’ ‘surf,’ ‘peak,’ or ‘cha cha cha’ settings of our ‘sensual lifestyle products’ anybody’s business but our own (and our digital partner’s)?”

The complaint alleges causes of action for violation of the federal Wiretap Act, 18 U.S.C. § 2510, et seq.; the Illinois Eavesdropping Statute, 720 ILCS 5/14-1 et seq.; the common law tort of intrusion upon seclusion; and violation of the Illinois Consumer Fraud and Deceptive Business Practice Act,815 ILCS 505/1 et seq.  The eavesdropping claims are premised on the allegation that “Defendant designed and programmed We-Connect to continuously and contemporaneously intercept and monitor the contents of electronic communications that customers send to their We-Vibe devices from their smartphones, such as operational instructions regarding the users’ desired vibration intensity level and desired vibration ‘mode’ or pattern.”  In other words, Standard Innovation intercepts communications between a user’s cell phone and his or her vibrator.  Plaintiff’s consumer fraud claim arises from the “connect lover” feature of We-Connect that allows “partners [to] exchange text messages, engage in video chats, and . . . control a paired We-Vibe device.”  When a device user initiates a We-Connect session, the screen encourages: “Connect and share control of your We-Vibe from anywhere.  Create a secure connection between your smartphones.”  The complaint alleges that this screen lulls the user into a false sense of security and fails to disclose Standard Innovation’s data collection practices.

The collection of personal data transmitted between devices through an application and representations regarding user privacy make this a “sexy” case – and one to watch.

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Fair in Love and War?

** Popular Match Making App Tinder Loses on Second Bite To Defeat Gender-Bias Class Action **                                                                                                                                                                               

Antalya, Turkey - February 02, 2016 : A close up of an Apple iPhone 6s Plus screen showing various dating apps, including happn, Tinder, The Grade, POF, Badoo, Glint, LOVOO, eHarmony, OkCupid

The popular geo-location dating application Tinder was rebuffed in its latest attempt to have a putative California class action complaint against it dismissed.  Manapol. v. Tinder, No. BC589036, (Sup. Ct. L.A. County) (filed April 28, 2015).  The complaint alleges that Tinder illegally discriminated against Plaintiff by charging him more than a similarly situated woman (for the Tinder Plus service) and therefore violated California’s Unruh Civil Rights Act.  Id.   Earlier this year, Plaintiff’s initial complaint was dismissed without prejudice for his failure to “connect the dots” on the facts.  Id. (Order and Opinion, Feb. 17, 2016).  The court held that Plaintiff’s complaint was built on his naked (pun intended) allegation that a female friend’s Tinder Plus bill was lower than his, which, (even if were true) was merely an isolated event and, therefore, insufficient to show a pattern of price discrimination based on gender.  Plaintiff returned with an amended complaint alleging that the disparate pricing he experienced was not a one-off occurrence – but embedded in the algorithms at the heart of the functionality of Tinder Plus.

Superior Court Judge William F. Highberger rejected Tinder’s demurrer to this amended complaint, holding that Plaintiff’s allegations were adequately pled.  Id. (Order and Opinion, July 21, 2016).  In an oral argument (which we would have paid money to attend), the parties went back and forth with Judge Highberger over whether Tinder engages in gender discrimination with Tinder offering the declaration of a company employee that Tinder does not discriminate in its pricing for Tinder Plus or the number of free swipes a user gets on Tinder – and Plaintiff asserting he has his own contrary facts and will be able to obtain more evidence from Tinder.  Clearly, a fight is brewing over the discoverability of Tinder’s trade secret algorithms.

The most surprising thing about this lawsuit for those who are unversed in California’s Unruh Civil Rights Act is that, even accepting the allegations as true, the complaint states a claim.  Long before Ronald Bell of Kool & the Gang penned his immortal 1979 ballad (best performed by Jon Lovitz in the Wedding Singer), of the same name, “Ladies Night” was a ubiquitous part of American nightlife.  But ironically, at about the same time the song reached its zenith at #8 on the Billboard Hot 100, a gentleman by the name of Dennis Koire was visiting Orange County car washes asking for the advertised “Ladies’ Day” discount and the Jezebel Nightclub in Anaheim demanding the “Ladies’ Night” reduced admission, all to no avail.  The lawsuit he filed made it to the California Supreme Court in 1985, where the Court put the kibosh on Ladies Night in Koire v. Metro Car Wash, 40 Cal.3d 24 (1985), holding that such discounts violate the Unruh Act’s requirement that “[a]ll persons within the jurisdiction of this state are free and equal, and no matter what their sex . . .  are entitled to the full and equal accommodations, advantages, facilities, privileges, or services in all business establishments of every kind whatsoever . . . .”  Cal. Civil Code §51.  Jezebel’s owner argued that the “social policy” exception applied in other Unruh Act cases was warranted in his case because “’Ladies Night’ encourages more women to attend the bar, thereby promoting more interaction between the sexes.”  Koire, 40 Cal.3d at 33.  The Court found this argument “not sufficiently compelling.”  Id.   Although such an argument is not likely to assist Tinder — if in fact it does gender discriminate as Plaintiff alleges — the California Supreme Court might want to reconsider its rejection of Jezebel’s social policy argument.  In a world of millennials (and seniors!) looking for love on their laptop screens, there may be social utility in encouraging live interaction between Californians.

 

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MillerCoors Over the Moon

** Brewer prevails against Blue Moon “Craft Beer” false advertising suit **

Craft beers in different bottles.

We’ve blogged in the past about the raft of consumer class actions hitting beer and spirits makers – particularly lawsuits targeting manufacturers with claims that terms such as “handcrafted” or “handmade” are misleading if used by companies employing typical mass-production methods.  For example in Parent v. MillerCoors LLC., No. 15-cv-01204-GPC-WVG (S.D. Cal. May 30, 2015), MillerCoors – maker of that campus staple, Keystone Light (among a host of other brews) — was sued based on the premise that it’s Blue Moon beer misleads consumers into believing it is a “microbrew” or “craft beer” by using those terms in its advertising and by withholding the name “MillerCoors” from its label.

On October 26, 2015, the court granted MillerCoor’s  first motion to dismiss.  Dkt No. 17.

The court found that a reasonable consumer was not likely to be deceived by Defendant’s representations because MillerCoors’ use of the “Artfully Crafted” trademark was mere puffery.  Id. at 12–16.  The court also rejected Plaintiff’s argument that Blue Moon’s “placement among other craft beers” in retail stores was deceptive because Plaintiff did not allege, and provided no factual allegations from which the court could reasonably infer, that MillerCoors had any control over where retailers place Blue Moon on their shelves.  Id.  Plaintiff was given leave to amend, however, which he did, focusing his amended argument on the definition of “craft beer” set forth by the Brewer’s Association (and in various common dictionaries) providing that a “craft beer” connotes a beer made by traditional or non-mechanized means.  Dkt No. 19.  Plaintiff also alleged that the price differential between Blue Moon and comparable non-craft beers was, itself, a representation that the beer was superior.

The court rejected these arguments and dismissed the second amended complaint — this time with prejudice.  Parent v. Millercoors LLC, No. 3:15-CV-1204-GPC-WVG, 2016 WL 3348818, at *6 (S.D. Cal. June 16, 2016).  Again, the court considered MillerCoors’ Blue Moon advertising, as far as it pertains to representations about “craft beer,” as non-actionable puffery.  Id. ([T]he “advertisements contain ‘generalized, vague, and unspecified assertions’ that amount to ‘mere puffery upon which a reasonable consumer could not rely.’”)  Further, the court rejected Plaintiff’s argument that the price of a product can constitute a representation or statement of product quality.  Id. (citing Boris v. Wal-Mart Stores, Inc., 35 F. Supp. 3d 1163, 1169 (C.D. Cal. 2014) (finding that the price of a migraine medication did not constitute a representation or statement about the product that could support consumer claims against a retailer under the UCL, CLRA, or FAL)).

Our takeaway:  Drink what you like.  Beer snobbery will get you nowhere.

 

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Turning Tide on the Whole Nation as a Viable Class?

** Is the All State Nationwide Class Back for False Advertising Plaintiffs?**                                                                                                                                                                                                                                     

Abstract map of the United States of America covered by a social network composed of blue people symbols connected together at various sizes and depths on a white background with pixelated borders. Futuristic north american computer and social network background.

Class defense counsel, faced with a false advertising law suit seeking to certify a class of consumers across multiple states, often rely on Mazza v. Am. Honda Motor Co., 666 F.3d 581 (9th Cir. 2012) as impenetrable authority for the proposition that material differences between various state consumer protection laws preclude one single court from certifying a nationwide consumer class.  Mazza was a defining “stay in your lane” case for consumer class actions – but are chinks in the armor showing?

In Mazza, defendant Honda on appeal from the lower court, which certified a class of Acura RL buyers who complained of a faulty collision-mitigation braking system, successfully argued at the Ninth Circuit that several material differences between California consumer-protection laws and those of other jurisdictions at issue precluded certification of a nationwide class.  666 F.3d at 591.  Some states, for example, require plaintiffs to demonstrate scienter and/or reliance, while others do not.  Id. Similarly, some state’s consumer laws have no private right of action.  Id.  And significant differences exist in the remedies available to plaintiffs under the various state laws.  Id.  Because prevailing choice-of-law analysis required that home-state law should govern each class member’s claim, the court vacated the class-certification order.  Id.

Many trial courts – not just those in the Ninth Circuit – have followed the Mazza court’s reasoning and denied nationwide class certification where material differences in state laws were identified – even at the pleading stage. Gianino v. Alacer Corp., 846 F. Supp. 2d 1096 (C.D. Cal. 2012); Frezza v. Google Inc., 2013 WL 1736788 (N.D. Cal. Apr. 22, 2013) (precluding North Carolina plaintiffs from asserting claims under California law, given that the transaction at issue took place in North Carolina); Ralston v. Mortgage Investors Group, Inc., 2012 WL 1094633 (N.D. Cal. Mar. 30, 2012) (out of state adjustable-rate mortgage holders could not rely on California UCL); Maniscalo v. Brother International (USA) Corp., 709 F.3d 202 (3d Cir. 2013) (New Jersey law does not apply to South Carolina consumers); Garland v. Servicelink L.P., No. GLR–13–1472, 2013 WL 5428716 (D. Md. 2013) (Pennsylvania Unfair Trade Practices and Consumer Protection Law (UTPCPL) does not apply to Maryland residents);  In re Celexa & Lexapro Mktg. & Sales Practices Litig., 291 F.R.D. 13 (D. Mass. 2013) (nationwide class of prescription anti-depressant drugs buyers could not be certified); Harris v. CVS Pharm., Inc., CV 13–02329 AB (AGRx), 2015 WL 4694047, at *4–5 (C.D. Cal. Aug. 6, 2015) (California plaintiff who purchased products in California lacked standing to bring a claim under a Rhode Island statute); Davison v. Kia Motors Am., Inc., No. SACV 15-00239-CJC, 2015 WL 3970502, at *2 (C.D. Cal. June 29, 2015) (denying nationwide certification on behalf of Kia Optima owners whose vehicle had allegedly defective electronic door locks).

But more recently, judges are taking a second look at Mazza.  Judge Gillan in the Northern District of California recently stated that reading a “bright line rule” into Mazza “significantly overreads” the case.  Valencia v. Volkswagen Grp. of Am. Inc., No. 15-CV-00887-HSG, 2015 WL 4760707, at *1 (N.D. Cal. Aug. 11, 2015).  Rather, he stated, Mazza’s application should be limited to its choice-of-law analysis and its determination that California law should not be applied to non-California residents, rather than a wholesale edict that nationwide classes are, as a matter of law, un-certifiable.  Id. citing Forcellati v. Hyland’s Inc., 876 F.Supp.2d 1155, 1159 (C.D.Cal.2012).  And rather than the choice of law analysis being performed at the pleading stage on a motion to dismiss, Judge Gillan held that this factual inquiry is more appropriately addressed at the class certification stage.  Id. citing In re Clorox Consumer Litigation, 894 F.Supp.2d 1224, 1237 (N.D.Cal.2012) (“Since the parties have yet to develop a factual record, it is unclear whether applying different state consumer protection statutes could have a material impact on the viability of Plaintiffs’ claims”).

Last week, the court in Kaatz v Hyland’s Inc., No. 7:16-cv-00237-VB, (S.D.N.Y July 6, 2016) (Dkt. No. 29) similarly found it premature to deal with concerns about standing to represent consumers in all 50 states at the pleading stage. Judge Briccetti stated he was part of a “growing consensus” of federal district judges who believe standing issues that go to putative class members’ commonality and typicality are better addressed at the class certification stage, rather than on a motion to dismiss.  Dkt. No. 29 at 7 – 8, citing In re DDAVP Indirect Purchaser Antitrust Litig., 903 F. Supp. 2d 198, 214 (S.D.N.Y. 2012).  The Kaatz case, itself, dealt with two New York residents who claimed they were misled by the marketing and labeling for Hyland’s homeopathic baby products such as Baby Teething Gel and Baby Nighttime Tiny Cold Syrup.  The allegations followed the familiar trope of “natural” claims being misleading, as the product/s allegedly contained synthetic ingredients such as sodium benzoate and potassium sorbate, which are used as food preservatives.  They accused Hyland of violating all 50 states’ consumer protection laws and sought to certify a nationwide class.  Plaintiffs argued that even though they were all New York residents, the questions of common issues and manageability of the proposed nationwide class were better left for the class certification stage.  Judge Briccetti agreed, holding that Hyland’s arguments were “premature” at the motion to dismiss stage – finding that “class certification is logically antecedent to standing when, as here, class certification is the source of the potential standing problems.”  Id.

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Long Term Effects of Tobacco II

** A Return to the Limits of In Re Tobacco II?  Courts Find That Not Every Advertisement is Part of a “Long-Term Campaign” **                                                                                                                                                                                              

London, England - May 20, 2016: Packets of Various Old Cigarette Boxes from the 1970's

We normally don’t blog about unpublished decisions because . . . lack of precedential value and all that . . . .  and that may turn out to be the case with the recent California Court of Appeal’s opinion in Santamarina v. Sears Roebuck & Co., B246705, 2016 WL 1714226, at *1 (Cal. Ct. App. Apr. 26, 2016) and the Ninth Circuit’s memorandum decision in Haskins v. Symantec Corp., No. 14-16141 (9th Cir. June 20, 2016).  But these decisions are simply too good for us to pass up the opportunity to post about them  – particularly for those who represent clients being sued under California’s CLRA or UCL based on foggy claims of consumer fraud.  Invariably, a defendant bringing a Rule 9(b) motion to dismiss or opposing class certification based on the putative class representative’s inability to identify the false advertisements she relied on will be met with the plaintiff’s invocation of the “long-term advertising campaign” language in In re Tobacco II Cases (Tobacco II), 46 Cal. 4th 298 (2009) – the salve that heals all reliance deficiencies.

Of course, Tobacco II dealt with a class representatives’ allegations of “a decades-long campaign of deceptive advertising and misleading statements about the addictive nature of nicotine and the relationship between tobacco use and disease.”  46 Cal. 4th at 306 (emphasis added.)  Which is no exaggeration, Joe Camel was R.J. Reynolds’ pitchman for a decade — although it seemed much longer — and the Marlboro Man rode shotgun for Philip Morris for almost half a century.  Based on that allegation, the California Supreme Court held, “[W]here . . . a plaintiff alleges exposure to a long-term advertising campaign, the plaintiff is not required to plead with an unrealistic degree of specificity that the plaintiff relied on particular advertisements or statements.”  Id. at 328.  Despite the limited nature of this ruling, plaintiffs who have no idea what advertisements they may have seen frequently claim that the defendant engaged in a “long-term [false] advertising campaign.” Id.

Courts have shown varying degrees of willingness to go along with this class representative claim, particularly at the pleading and class certification stages.  Those that do, often quote this language from Tobacco II:  “The substantive right extended to the public by the UCL is the right to protection from fraud, deceit and unlawful conduct, and the focus of the statute is on the defendant’s conduct.” 46 Cal 4th at 324.  Courts accepting the “long-term advertising campaign” excuse for the plaintiff’s inability to identify the advertisements he relied on tend to read Tobacco II as a judicial declaration that the UCL and CLRA are primarily punish-the-defendant statutes and only secondarily consumer protection laws.

But in Santamarina – a case involving “Made in the USA” advertising by Sears for its Craftsman® tools – the California Court of Appeal scaled back the expansive readings of Tobacco II by other California courts.  In Santamarina, the putative class representatives were able to identify the specific advertising and labeling on which they relied so standing was not at issue as it was in Tobacco II.  In addition, falsity and materiality were not in dispute given California law on “Made in the USA” claims.  Moreover, discovery in the case apparently showed that Sears understood that “Made in the USA” was a valuable sales claim and internal marketing studies demonstrated that a significant percentage of consumers believed Craftsman® tools were made in the United States.

Despite the above, the Court of Appeal concluded that plaintiffs could not establish commonality or that the proposed class was ascertainable.  Notably, the plaintiffs defined the class as “All persons who purchased, in the State of California from January 6, 2001 through the present, any Craftsman branded tool or product where any unit or part thereof was entirely or substantially made, manufactured, or produced outside of the United States.”  The Court of Appeal agreed with the superior court that this definition doomed the proposed class under commonality and ascertainability requirements because the proposed class included consumers who never saw any Craftsman® “Made in the USA” advertising or labeling.  The Court of Appeal responded to plaintiffs’ incantation of Tobacco II by holding, “Given that the time period at issue was several years, and only some Sears advertising and marketing could potentially be found to be false or misleading, substantial evidence supported the trial court’s finding that the advertising at issue here is not equivalent to the decades-long campaign in Tobacco II.”  Particularly important are these words:  “In contrast to the evidence here, Tobacco II ‘involved identical misrepresentations and/or nondisclosures by the defendants made to the entire class.’” Santamarina, 2016 WL 1714226, at *10 (citing  Kaldenbach v. Mutual of Omaha Life Ins. Co. (2009) 178 Cal.App.4th 830, 849.

For being designated as an unpublished opinion, the California Court of Appeal’s decision in Santamarina is unusually expansive in its analysis – covering 34 pages.  In contrast, Haskins v. Symantec is the soul of wit.  In a mere two paragraphs, the Ninth Circuit upheld the district court’s dismissal of a putative class action complaint alleging that Symantec failed to warn consumers that hackers had compromised the 2006 version of its ubiquitous Norton antivirus software.  The plaintiff claimed, among other things, that she relied on Symantec’s advertising that its software was secure (when it allegedly wasn’t) in buying it – without identifying the specific advertising.  The Ninth Circuit affirmed the district court’s dismissal under Rule 9(b) “[b]ecause Haskins’s complaint did not allege that she read and relied on a specific misrepresentation by Symantec.”  In response to the plaintiff’s predictable invocation of Tobacco II, the Ninth Circuit found that the plaintiff “failed to establish that the Tobacco II standard is applicable to her pleadings because the misrepresentations at issue here were not part of an extensive and long-term advertising campaign like the decades-long campaign engaging in saturation advertising targeting adolescents in Tobacco II.”

Two cases do not a trend make — especially when California law is involved.  But it is encouraging to see courts – even in unpublished decisions – return Tobacco II to its stated limits rather than assuming that any and every advertisement is part of a long-term campaign.

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Is the Primary Jurisdiction Doctrine Alive Again for “Natural” Defendants?

 ** Ninth Circuit Stays Natural Case In “Food Court” **
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The doctrine of primary jurisdiction is a prudential means to stay or dismiss a party’s claims if the claims are better adjudicated or answered by an administrative agency – it “is concerned with promoting proper relationships between the courts and administrative agencies charged with particular regulatory duties.” Ellis v. Tribune Television Co., 443 F.3d 71, 81 (2d Cir.2006). It is properly applied “whenever enforcement of the claim requires the resolution of issues which, under a regulatory scheme, have been placed within the special competence of an administrative body.” Id. When applicable, “a court defers to the agency for advisory findings and either stays the pending action or dismisses it without prejudice” Johnson v. Nyack Hosp., 86 F.3d 8, 11 (2d Cir.1996).

Courts must make a case-by-case determination when considering primary jurisdiction.   In doing so, they generally focus on: (1) whether the question at issue is within the conventional experience of judges or whether it involves technical or policy considerations within the agency’s particular field of expertise; (2) whether the question at issue is particularly within the agency’s discretion; (3) whether there exists a substantial danger of inconsistent rulings; and (4) whether a prior application to the agency has been made. Nat’l Commc’ns Ass’n v. AT & T, 46 F.3d 220, 222 (2d Cir.1995).

There was a time when “primary jurisdiction” was in vogue for “all natural” defendants because of the perception that the FDA was the proper administrative body to answer the question of what sort of ingredients and products qualify as “natural.”  The leading case was Astiana v. Hain Celestial Grp., Inc., 905 F. Supp. 2d 1013 (N.D. Cal. 2012). This case involved Hain Celestial’s cosmetics products with labels including “All Natural,” “Pure Natural,” or “Pure, Natural & Organic.” In this case, the putative nationwide class representatives alleged that they had been duped into purchasing Hain’s cosmetics that allegedly contained synthetic and artificial ingredients such as benzyl alcohol.  As is typical in such cases, the plaintiffs sought damages and injunctive relief under a variety of theories including statutory violations under the California’s Consumer Legal Remedies Act. The district court dismissed the case, applying primary jurisdiction, holding that “[in] the absence of any FDA rules or regulations (or even informal policy statements) regarding the use of the word “natural” on cosmetics labels, the court declines to make any independent determination of whether defendants’ use of “natural” was false or misleading. Doing so would “risk undercutting the FDA’s expert judgments and authority.” Other district courts invoked the agency’s primary jurisdiction to wait and see if the FDA intended to offer  regulations regarding the use of the term “natural” (in particular in GMO food cases). In re Gen. Mills, Inc. Kix Cereal Litig., No. CIV–A–12–249 KM, 2013 WL 5943972 (D.N.J. Nov. 1, 2013), Barnes v. Campbell Soup Co., No. C12–05185 JSW, 2013 WL 5530017 (N.D.Cal. July 25, 2013) (GMO food case), Cox v. Gruma Corp., No. 12–CV–6502 YGR, 2013 WL 3828800 (N.D.Cal. July 11, 2013) (GMO case).

Undeterred by the district court’s dismissal, the Plaintiffs in Astiana went on a two pronged attack. They went directly to the FDA seeking guidance on the definition of “natural.”  The FDA responded by letter stating – “cosmetic public health and safety matters are currently fully occupying the resources that FDA has available for proceedings on cosmetics matters” and “proceedings to define ‘natural’ do not fit within [the agency’s] current health and safety priorities.” Plaintiffs also appealed to the Ninth Circuit.  Astiana v. Hain Celestial Grp., Inc., 783 F.3d 753, 759 (9th Cir. 2015). The Ninth Circuit held that — while the district’s court primary jurisdiction doctrine decision was not wrong — it should have stayed the matter awaiting an FDA response. Upon remand, the district court revisited the primary jurisdiction argument and, recognizing that the recent FDA letter demonstrated that the FDA has no interest in the subject matter and, therefore,  referral to the FDA would be futile, the court denied defendant’s motion to stay on primary jurisdiction grounds. Astiana v. Hain Celestial Grp., Inc., No. 4:11-cv-06342-PJH (N.D. Cal. October 9, 2015) (Dkt. No. 114).

Courts in other jurisdictions have followed this same rejection of the primary jurisdiction doctrine argument made by cosmetic company defendants in “natural” cases. Goldemberg v. Johnson & Johnson Consumer Companies, Inc., 8 F. Supp. 3d 467, 476 (S.D.N.Y. 2014) (“the FDA has not begun to promulgate a rule concerning the term natural in cosmetics . . [i]nstead, it recently declined to make such a determination . . . [t]hus, as the agency is not simultaneously contemplating the same issue . . . this factor weighs against applying the primary jurisdiction doctrine”); Paulino v. Conopco, Inc., No. 14-CV-5145 JG RML, 2015 WL 4895234, at *1 (E.D.N.Y. Aug. 17, 2015); Langan v. Johnson & Johnson Consumer Companies, Inc., 95 F. Supp. 3d 284, 290 (D. Conn. 2015); Fagan v. Neutrogena Corp., No. 5:13-CV-01316-SVW-OP, 2014 WL 92255, at *1 (C.D. Cal. Jan. 8, 2014) (“Plaintiffs’ claims are not barred by the doctrine of primary jurisdiction . . . [as the] FDA has affirmed that proceedings to define the term natural in the context of cosmetics do not fit within its current health and safety priorities.”); see also Reid v. GMC Skin Care USA Inc., No. 815CV277BKSCFH, 2016 WL 403497, at *1 (N.D.N.Y. Jan. 15, 2016) (rejecting primary jurisdiction in case alleging that face cream with “DNA repair effect” statements was misleading); Randolph v. J.M. Smucker Co., No. 13-80581-CIV, 2014 WL 1018007, at *6 (S.D. Fla. Mar. 14, 2014).

At the same time that the primary jurisdiction doctrine was being buried with respect to “natural” claims, it remained viable in various food cases, particularly those presenting discrete technical questions, i.e. Backus v. Gen. Mills, Inc., 122 F. Supp. 3d 909, 933 (N.D. Cal. 2015) (primary jurisdiction invoked on question of the amount of trans fat in baked goods that is safe); Saubers v. Kashi Co., 39 F. Supp. 3d 1108 (S.D. Cal. 2014) (primary jurisdiction invoked with respect to “evaporated cane juice” labels) (collecting cases). The basis for primary jurisdiction in particular in the ECJ cases is that that FDA has indicated that it WILL issue regulatory guidance on evaporated cane juice – but not until the end of 2016. See also Draft Guidance for Industry on Ingredients Declared as Evaporated Cane Juice; Reopening of Comment Period; Request for Comments, Data, and Information, 79 Fed.Reg. 12,507 (Mar. 5, 2014).  Most evaporated cane juice cases are currently stayed (or dismissed) see, e.g., Gitson, et al. v. Clover-Stornetta Farms, Inc., Case No. 3:13-cv-01517-EDL (N.D. Cal. Jan. 7, 2016) (extending ECJ stay for an additional 180 days, until August 2016) (Laporte, J.); Swearingen v. Amazon Preservation Partners, Inc., Case No. 13-cv-04402-WHO (N.D. Cal. Jan. 11, 2016) (Orrick, J.) (extending ECJ stay and continuing case management conference until July 2016). A few judges have lifted the ECJ stay (impatient at the FDA’s movement) but they appear to be out-liers. See Figy v. Lifeway Foods, Inc., No. 3:13-cv-4828-TEH (N.D. Cal. Jan. 4, 2016), Dkt. No. 57; Swearingen v. Pacific Foods of Oregon, Inc., No. 13-cv-04157 (N.D. Cal. Jan. 5, 2015), Dkt. No. 61.

But we digress.  Back to “natural” and a significant development.  In November 2015, the FDA issued a request for comments regarding the use of the term “natural” in connection with food product labeling. See Use of the Term “Natural” in the Labeling of Human Food Products; Request for Information and Comments, 80 Fed. Reg. 69,905 (Nov. 12, 2015)See our previous blog post.  While noteworthy in and of itself, the FDA’s requests for comments also raised the secondary issue of whether the FDA’s new-found interest in potentially defining “natural” with respect to foods  triggers the primary jurisdiction doctrine?   Last week, the Ninth Circuit answered – Yes. In Kane v. Chobani, LLC, No. 14-15670, 2016 WL 1161782, at *1 (9th Cir. Mar. 24, 2016), the circuit court dealt with an appeal from the Northern District of California where buyers of Chobani fruit flavored Greek yogurt filed suit against  the company alleging that its labels and advertising violated California law because the “all natural” yogurt included fruit juice and turmeric.  Before the district court, the plaintiffs had a difficult time articulating why it was plausible to allege that fruit juice and turmeric are unnatural vacillating between the argument that it is unnatural to use these ingredients to color yogurt and the argument that the fruit juices at issue were so heavily processed that they are no longer natural.  Ultimately the district court found that the case warranted dismissal on Rule 9(b) and 12(b)(6) grounds. Kane v. Chobani, LLC, 973 F. Supp. 2d 1120, 1138 (N.D. Cal. 2014).  Plaintiffs appealed on the basis that under primary jurisdiction their case should have been stayed – not dismissed. And the Ninth Circuit agreed,  vacating the dismissal and remanding to the district court under a stay pending resolution of the FDA’s “natural” proceedings. So a win for the plaintiffs in Chobani – but one that defendants will take careful note of – in the Ninth Circuit and beyond.

 

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

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

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

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

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

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

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

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