The Advertising Disputes & Litigation and Consumer Protection Committees RECENT LITIGATION DEVELOPMENTS. [Cases from May 18 to June 3, 2015]

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2 The Advertising Disputes & Litigation and Consumer Protection Committees RECENT LITIGATION DEVELOPMENTS [Cases from May 18 to June 3, 2015] Prepared for the ADL and CP Committees by Dan Blynn, Dave Conway, Kristen Brown, and Shahin Rothermel of Venable LLP; Dale Giali, Andrea Weiss, and Elizabeth Crepps of Mayer Brown LLP; Sherrie Schiavetti, Katie Riley, Donnelly McDowell, and Devon Winkles of Kelley Drye & Warren LLP; Douglas Brown, Darren McCartney, and Samantha Duke of Rumberger, Kirk & Caldwell, P.A.; Lauren Valkenaar of Norton Rose Fulbright LLP; Peter Farnese of Beshada Farnese, LLP; Camille Calman of Davis Wright Tremaine LLP; Erik King of Lockheed Martin; Eugene Benick of NOVA Business Law Group, LLP; Tiffany Ge of Frost Brown Todd LLC; Mike Sherling, Judicial Law Clerk, Maryland Court of Special Appeals; and Heather Goldman of Bryan Cave LLP. RECENT DECISIONS Lanham Act and Other Competitor Actions The U.S. District Court for the Western District of Washington, in a Lanham Act suit between yarn manufacturers, grants the defendant s motion for judgment as a matter of law. Plaintiff alleged that defendant falsely stated on its website the purported results of a lab analysis on the fiber content of the plaintiff s milk yarn product. However, the court ruled that the plaintiff failed to put forth evidence at trial that its declining sales were actually linked to the defendant s website posting. Absent this evidence, the court ruled that the plaintiff failed to establish a claim for Lanham Act false advertising. (Cascade Yarns, Inc. v. Knitting Fever, Inc., No. 10-cv-861, 2015 WL (W.D. Wash. May 27, 2015)). The U.S. District Court for the Central District of California grants defendant Shannon Packaging Co. s motion for summary judgment in an action brought pursuant to the Lanham Act, and California s consumer protection statutes. This suit involves competing manufacturers of polyethylene bags and laminated products for military and electronics. Plaintiff s product is the only one approved to be used in Defense Department contracts that require a particular specification, MIL PRF Type III. Plaintiff challenged the defendant s representation that its competing product is [d]esigned to meet the performance of MIL PRF Type III as misleading because the defendant s product was not listed as an approved product, was not military grade, and, therefore, had not been subjected to the military test method or to the performance requirements of the specification. In granting the defendant s motion for summary judgment as to the false advertising claim, the court found that the mere fact that the defendant s product was not listed as a government-qualified product did not make the advertising clam literally false. In other words, [d]esigned to meet was not the same as meets the standard. Plaintiff s claims under California state law similarly were rejected because plaintiff had not proven a predicate violation. (Caltex Plastics, Inc. v. Shannon Packaging Co., 2015 WL , No. 2:13 cv (C.D. Cal. May 27, 2015)). 1

3 The U.S. District Court for the Southern District of New York denies plaintiff Procter & Gamble s ( P&G ) motion for leave to amend its complaint. Plaintiff sued defendant Hello Products, LLC, for false advertising pursuant to Section 43(a) of the Lanham Act, and deceptive acts and practices and false advertising in violation of New York statutes, based on the defendant s claim that its Hello toothpaste was 99% natural. Plaintiff alleged that these claims were false because a significant portion of the toothpaste s ingredients had been processed extensively and chemically. Defendant stipulated to a preliminary injunction barring the claim and began using the phrase naturally friendly instead. Plaintiff sought to add the new phrase as a challenged phrase in an amended complaint. The court denied the motion because the plaintiff unduly delayed, and knew of the naturally friendly phrase at least a month before the deadline to amend, but waited to file until another ten months after the deadline. The court also found that the amendment would cause prejudice because it would have to reopen fact discovery and delay expert discovery. (Procter & Gamble v. Hello Prods., LLC, No. 14-cv-649, 2015 WL (S.D.N.Y. May 20, 2015)). State Consumer Protection Laws The Florida District Court of Appeal affirms in part and reverses in part a trial court s order granting defendant Better Business Bureau s motion to dismiss plaintiff Caribbean Cruise Line, Inc. s complaint alleging defamation and violation of Florida s Deceptive and Unfair Trade Practices Act ( FDUTPA ) arising out of the plaintiff s F rating issued by the defendant. Defendant s motion sought dismissal based on First Amendment protections for pure opinion and on the theory that FDUTPA does not allow actions for damages by non-consumers. The court affirmed dismissal of the defamation count but reversed the dismissal of the FDUTPA count, finding that the FDUTPA allegations were not protected by the First Amendment and that the defendant did not have to be a consumer to seek relief under FDUTPA. Instead, the Court held that any person, consumer or not, could bring an action for damages for deception or unfairness under FDUTPA after the 2001 amendments to the statute. Those amendments specifically removed the word consumer from the section of the Act providing for a private right of action, and added the broader word person in its place. (Caribbean Cruise Line, Inc. v. Better Bus. Bureau of Palm Beach Cnty., Inc., No. 4D , 2015 WL (Fla. 4th DCA June 3, 2015)). The California Court of Appeal affirms the trial court s order sustaining, without leave to amend, the defendants demurrers and entering a judgment of dismissal. Plaintiff filed a putative class action complaint alleging violations of the California Unfair Competition Law and False Advertising Law, and common law fraudulent concealment. Plaintiff s claims were based on the premise that, although the defendants do not fall within the literal definition of a health care service plan as defined in the California Health & Safety Code due to the level of risk they assumed, they effectively operated as a health care service plan without obtaining the license required by the California Knox-Keene Health Care Service Plan Act of 1975 ( Knox-Keene Act ), and without meeting the regulatory mandates required of health care service plans. The trial court, relying on the doctrine of judicial abstention, sustained without leave to amend the demurrers filed by the defendants and entered a judgment of dismissal. Plaintiff appealed from the judgment, which included an order awarding the defendants costs, and argued that defendants were required to have a license under the Knox-Keene Act because they accepted a level of global risk that transforms them from a medical risk-bearing organization to a health care service plan under the act. The appellate court affirmed the trial court s decision, noting that neither the Knox-Keene Act nor the regulations adopted by the California Department of Managed Health Care ( DMHC ) defines the 2

4 level of risk that would cause a medical entity like the defendants to become a de facto health care service plan. The appellate court agreed with the trial judge that the determination of an acceptable risk level is a regulatory decision involving complex economic policy considerations that should be made by the DMHC, the regulatory agency tasked with interpreting and enforcing the Knox-Keene Act, and, therefore, the trial court acted within its discretion in invoking the abstention doctrine as to the statutory causes of action, but not as to the plaintiff s common law cause of action for fraudulent concealment. However, the appellate court found that the plaintiff failed to plead a claim for fraudulent concealment and failed to demonstrate how the complaint could be amended to cure the defects. As such, the court affirmed the judgment of dismissal, including the order awarding costs to defendants. (Hambrick v. Healthcare Partners Med. Grp., Inc., 2015 WL ) (Cal. App. June 1, 2015)). Consumer Class Actions The U.S. District Court for the Northern District of California grants in part and denies in part the plaintiffs motion for partial summary judgment in a false advertising case against defendant The Hain Celestial Group, Inc. Plaintiff alleged that the defendant mis-labeled 167 of its cosmetics products as organic when the products did not contain at least 70% organic ingredients as required by the California Organic Products Act ( COPA ). The court previously had certified plaintiff classes for each of the two product lines being challenged. Plaintiffs moved for partial summary judgment with respect to whether the products were subject to COPA as cosmetics. The court agreed with the plaintiffs based primarily on the defendant s responses to discovery that the challenged products were cosmetics under California s Sherman Food, Drug and Cosmetic law. Defendant argued that the products are soaps and, therefore, not within the definition of cosmetics. Applying the FDCA s definition of soap (in the absence of a Sherman Law definition), the court rejected the defendant s asserted definition of soap (products that foam and cleanse ) and ruled that the vast majority of the challenged products are not soap, and are not outside COPA s cosmetics provisions. In making the ruling, the court, again, held the defendant to its discovery responses, i.e., the deposition testimony of its Fed. R. Civ. P. 30(b)(6) witness that the products are not soap, even though the witness later submitted a declaration opposing the partial summary judgment motion, and clarifying and changing his position on the soap issue. Defendant further argued that 25 of the products were also drugs and, therefore, should be excluded from COPA s cosmetics rules based on preemption flowing from the FDCA s regulation of drugs. The court disagreed, citing the Ninth Circuit s recent decision in Astiana v. Hain Celestial: under Astiana, the FDCA does not preempt the plaintiffs California-law claims as they relate to Hain s cosmetic products that are also federally registered drugs. The court concluded that a product can be simultaneously regulated under California law as both a drug and a cosmetic; a drug is not ipso facto exempt from COPA s organic-labeling rules. Based on the answers to these issues, the court entered partial summary judgment for the plaintiffs that 147 of the challenged products are cosmetics, regardless of whether they are also drugs. The court further issued partial summary judgment for the plaintiffs that none of the disputed products is a soap. (Brown v. Hain Celestial Group, Inc., No. 3:11cv3082, 2015 WL (N.D. Cal. May 30, 2015)). The U.S. District Court for the Eastern District of Pennsylvania grants defendant Volvo Car UK Limited s ( VCUK ) motion to dismiss the for lack of personal jurisdiction. Plaintiff brought a putative class action against Volvo Car Corporation ( VCC ) and two of its subsidiaries, Volvo Cars 3

5 of North America, Inc. and VCUK, alleging violations of the Pennsylvania Unfair Trade Practices and Consumer Protection Law, breach of warranties, and other similar claims. Plaintiff s claims were based on her allegation that Volvo marketed certain vehicles as having a type of safety equipment on all passenger doors, when, in fact, they did not. VCUK stated in a declaration that the court did not have personal jurisdiction over it because, among other reasons, VCUK only distributes vehicles in the United Kingdom, does not own property or engage in business in the United States, and does not target its website to Pennsylvania or U.S. residents. Plaintiff amended her complaint, the court set a timeline for the defendants to respond, and the court later stayed the case pending the result of a related state court action. Plaintiff, then, argued that VCUK waived its jurisdictional challenge because it failed to renew its motion based on a deadline set before the court ruled on the motion to stay. The court, however, found that VCUK was not required to file a redundant motion to dismiss after plaintiff filed her amended complaint which did not contain any new allegations concerning personal jurisdiction. The court held that the plaintiff failed to contradict VCUK s declaration regarding its lack of contacts with Pennsylvania. Furthermore, the court found that the parent VCC s contacts with Pennsylvania could not be imputed to VCUK through an alter ego theory because, even though VCUK is wholly owned by, shares a common brand with, and appears to share some management employees and act as a marketing arm for VCC, no evidence existed that VCC exercised more than a normal degree of control over VCUK. The court, therefore, granted VCUK s motion to dismiss for lack of personal jurisdiction, with prejudice. (Webb v. Volvo Cars of N.A., LLC, No. 13-CV-02394, 2015 WL (E.D. Pa. May 29, 2015)). The U.S. District Court for the District of New Jersey grants defendant Brother International Corp. s motion for summary judgment in a putative class action suit. The suit alleged that Brother designed its printers and color ink cartridges in such a way that all color cartridges would signal toner life end nearly simultaneously, even though only one cartridge may be exhausted and the others could print additional pages. The court analyzed plaintiffs claims under the consumer protection statutes of their respective states the New Jersey Consumer Fraud Act ( NJCFA ); the Indiana Deceptive Consumer Sales Act ( IDCSA ); the Illinois Consumer Fraud and Deceptive Business Practices Act ( ILCFA ); and the Florida Deceptive and Unfair Trade Practices Act ( FDUTPA ). Each plaintiff stated that he or she had incurred additional costs by purchasing replacement color toner cartridges before the used cartridges had printed their advertised page counts. In its summary judgment motion, Brother asserted that the plaintiffs lacked standing under Article III and the various state statutes because they failed to allege an ascertainable loss or concrete injury. The court considered Article III standing and the state claims in the same analysis. To attempt to show an injury, each plaintiff relied on printer diagnostic reports that purported to show the average coverage for each of the four toner cartridges currently installed in the printer and the number of color pages printed. Brother materials stated that each cartridge could print 1,500 pages at 5% print coverage. Plaintiffs asserted that they were able to extrapolate whether the cartridges achieved their advertised page counts at a known average coverage from the diagnostic data. Fatal to the plaintiffs claims, however, was the uncontroverted evidence that showed that the average coverage number resets to zero when a new cartridge is inserted. Plaintiffs provided average coverage data for the current cartridge but did not have historical average coverage data. Thus, the plaintiffs could not rely on the average coverage data to show that their used cartridges did not meet the advertised page counts. This precluded a precise estimate of loss, which, in turn, resulted in summary judgment against the plaintiffs under the statutes. There were several secondary holdings as well. First, the court determined that the ILCFA, the IDCSA, and the FDUTPA presented conflicts with the NJCFA. 4

6 Looking to New Jersey s choice-of-law rules and the Restatement (Second) of Conflict of Laws 148, the court found that the out-of-state plaintiffs claims were governed by their respective states laws because their states had the most significant relationship to the claims. The court observed that little weight attached to the place where the deceptive statements were made (New Jersey) and the fact that Brother s website requires users to submit to New Jersey law. In analyzing, the Indiana plaintiff s claims under the IDCSA, the court s analysis differed slightly from that discussed above, due to the more stringent requirements of the Indiana act. The IDCSA requires a plaintiff to give notice of an uncured deceptive act to a defendant prior to suit, unless the defendant committed an incurable deceptive act, that is, a deceptive act done by a supplier as part of a scheme, artifice, or device with intent to defraud or mislead. Additionally, omissions and failures to disclose known material facts are not deceptive acts under the IDCSA. Because the Indiana plaintiff did not provide notice to Brother, she was required to show that Brother intended to mislead consumers. Not only was the record devoid of manifestations of intent, the only intent alleged in the complaint was Brother s alleged intent to conceal facts a nonactionable claim under the IDCSA. Because summary judgment was granted against the individual plaintiffs, their motion for class certification was not considered. (Dicuio v. Brother Int l Corp., No. CIV. A , 2015 WL (D.N.J. May 27, 2015)). The U.S. District Court for the Central District of California grants in part defendant PH Beauty Labs Inc. s motion to dismiss. Plaintiff bought claims under California s consumer protection statutes against the manufacturer of a skin care line, claiming the products failed to provide the advertised benefits of regenerating skin cells and decreasing wrinkles. Defendant moved to dismiss the claims brought under California s False Advertising Law and Consumer Legal Remedies Act, arguing that the plaintiff purchased the product outside the limitations period. The court agreed, finding that limitations period ran from the first, not last, date of purchase, and the continuing violation doctrine did not apply when the harm would have been apparent after the first purchase. Defendant also succeeded in getting the court to dismiss the California Unfair Competition Law claims, arguing that California does not allow substantiation claims to be brought by private consumers. (Marshall v. PH Beauty Labs, Inc., No. CV , 2015 WL (C.D. Cal. May 27, 2015)). The U.S. District Court for the Central District of California grants the plaintiff s motion for class certification. Plaintiff brought a class action lawsuit against defendant J.C. Penny Corp., alleging false advertisement of prices and asserting violations of California s Unfair Competition Law, False Advertising Law, and Consumers legal Remedies Act. The court, first, rejected the defendant s objection to the plaintiff s expert and held that this is not a dispute that must be resolved at this time to determine whether there was a common pattern and practice that could affect the class as a whole. The court, then, evaluated the Fed. R. Civ. P. 23 requirements and certified a class of [a]ll persons who, while in the State of California and between November 5, 2010 and January 31, 2012 purchased from JCPenney one or more private or exclusive branded items of apparel or accessories advertised at a discount of at least 30% off of the stated original or regular price... (Spann v. J.C. Penny Corp., No. SA CV , 2015 WL (C.D. Cal. May 18, 2015)). The U.S. District Court for the Northern District of Illinois grants in part and denies in part the defendants motion to dismiss. Plaintiffs brought a class action lawsuit alleging that the defendants engaged in fraudulent and deceptive trade practices in connection with the marketing and advertising of their rye whiskey. Plaintiffs alleged that the defendants marketed their brand of whiskey as an 5

7 artisanal, craft whiskey produced on a small farm in Vermont from certified organic rye grown on site, when, in reality, neither the product nor the ingredients used in making the product are from the Vermont farm. Plaintiffs asserted violations of the Vermont Consumer Fraud Act, the Illinois Consumer Fraud and Deceptive Trade Practices Act ( ICFA ), and the Illinois Uniform Deceptive Trade Practices Act ( IDTPA ). In opposition to the defendants motion to dismiss, the plaintiffs conceded that their claim under the Vermont Consumer Fraud Act must be dismissed for lack of standing because they are Illinois residents who purchased the products in Illinois. The court, thus, dismissed that claim. The court also dismissed the IDTPA claim and held that the only remedy under IDTPA is injunctive relief and plaintiffs failed to allege facts showing that they will suffer future harm. The court denied the motion to dismiss as to the ICFA claim, finding that the plaintiffs alleged sufficient facts regarding an actual deception. (Aliano v. WhistlePig, LLC, No. 14 C 10148, 2015 WL (N.D. Ill. May 18, 2015). RECENT FILINGS Lanham Act and Other Competitor Actions Lanham Act action filed in the U.S. District Court for the Central District of California by Musclepharm Corporation ( MPC ) against PhD Fitness LLC d/b/a JYM Supplement Science, alleging that the defendant falsely maligned MPC and MPC s products by describing MPC as unscrupulous, and alleging that it engages in protein spiking. The complaint further alleges that the defendant published videos on YouTube and content on social media that deceives consumers into thinking that MPC s products are inferior to the defendants or of inadequate value. (Musclepharm Corp. v. Stoppani, et al., No. 15-cv (C.D. Cal. complaint filed on May 28, 2015)). Consumer Class Actions Putative nationwide class filed in the U.S. District Court for the Southern District of New York against Blue Diamond Growers and WWF Operating Company, alleging fraud, unjust enrichment, and violations of New York s General Business Law and other similar state laws. Plaintiffs claim that the defendants falsely label their products to imply that the products are primarily made of almonds, rather than being made with various types of thickening agents, such as locust bean gum, gellan gum, xanthan gum, and carrageenan, and contain only 2% almonds. (Albert, et al. v. Blue Diamond Growers, et al., No. 1:15-cv-4087 (S.D.N.Y. complaint filed on May 28, 2015)). Putative nationwide class action, with California and Oklahoma subclasses, filed against The Jewelry Channel, Inc. USA d/b/a/ Liquidation Channel in the U.S. District Court for the Central District of California, alleging intentional and negligent misrepresentation, unjust enrichment, and violation of the Oklahoma Consumer Protection Act and the California False Advertising Law, Consumers Legal Remedies Act, and Unfair Competition Law. Plaintiffs claim that the defendant misleadingly advertises its products by comparing the price it charges with an artificially inflated estimated retail value. Specifically, the plaintiffs allege that the defendant fabricates a high estimated retail value that does not reflect the price at which the products are sold in any market and then uses that number to create the impression that the defendant is selling the product at a highly 6

8 discounted rate to deceive consumers. (Kabbash, et al. v. The Jewelry Channel, Inc. USA d/b/a Liquidation Channel, No. 2:15-CV (C.D. Cal. complaint filed May 28, 2015)). Putative nationwide class action filed against Target Corporation in the U.S. District Court for the Central District of California, alleging unjust enrichment and violation of the California s False Advertising Law, Unfair Competition Law, and Consumers Legal Remedies Act. According to the complaint, the defendant s Ginkgo Biloba herbal supplement product is mislabeled because testing by the New York Attorney General s Office using DNA barcoding revealed that the product did not include the named herb and, in some cases, contained additional ingredients not disclosed on the label. Plaintiff further alleges that the product is falsely labeled because scientific evidence does not support claims that the herb provides benefits related to cognitive function as claimed on the label. (Gomez, et al. v. Target Corp., No. 2:15-CV (C.D. Cal. complaint filed on May 27, 2015)). Putative California class filed in the U.S. District Court for the Southern District of New York against Kind, LLC, alleging, among other things, intentional misrepresentation, negligent misrepresentation, and violations of the California Consumer Legal Remedies Act, Unfair Competition Law, and the False Advertising Law. Plaintiff claims that Kind represents its bar products as healthy or all natural even though those products do not comply with federal requirements for use of the nutrient content claim healthy on a food label or contain artificial ingredients or synthetic substances, including but not limited to one or more of the following ingredients: Natural (Fruit) Flavor, Glucose or Glucose Syrup, Palm Kernel Oil, Soy Lecithin, Soy Protein Isolate, and Vegetable Glycerin. (Cavanagh, et al. v. Kind, LLC, No. 1:15-cv-4064 (S.D.N.Y. complaint filed on May 27, 2015)). Putative class action seeking certification of nationwide, New York-only, and California-only classes filed against Inko s Tea, LLC and Wholesome Tea Company, LLC, alleging violations of the New York General Business Law, California s Consumer Legal Remedies Act, Unfair Competition Law, and False Advertising Law, the Florida Deceptive and Unfair Trade Practices Act, the New Jersey Consumer Fraud Act, the Illinois Consumer Fraud and Deceptive Business Practices Act, and the Michigan Consumer Protection Act. Plaintiffs claim that the defendants falsely advertise Inko s White Tea ready-to-drink tea products as 100% Natural and 100% All Natural, when, in reality, the products contain ascorbic acid a non-natural and chemically processed ingredient. (Collazo, et al. v. Inko s Tea, LLC, et al., No. 1:15-cv-3070 (E.D.N.Y. complaint filed on May 27, 2015)). Putative class action filed against Spark Energy, LLC in the U.S. District Court for the Northern District of California, alleging violations of California s Unfair Competition Law and False Advertising Law, common law fraud, and negligent misrepresentation. Plaintiffs claim that the defendant engages in fraudulent and deceptive bait-and-switch sales practices in connection with its electric and gas supply offerings. More specifically, the plaintiffs claim that the defendant, through its sales representatives, falsely represents to potential customers (who are often low-income earners, the elderly, and non-english speaking persons) that, if they switched to Spark from their local, regulated utilities or other energy suppliers, they would receive a low introductory rate on their energy bills, followed by competitive, market-based rates and savings on their energy bills. In reality, the plaintiffs claim that after customers switch to Spark, Spark unilaterally and without justification raises their rates, which, the plaintiffs claim, constitutes a misleading and deceptive bait- 7

9 and-switch scheme. The plaintiffs also claim that Spark s sales representatives use high pressure, strong-arm tactics and make every effort to confuse, mislead, and dupe vulnerable consumers. According to the plaintiffs, Spark s misleading sales tactics include representing to customers that their regulated utility is going out of business and they must switch, representing they are employees of the regulated utility trying to help customers get cheaper rates, and/or showing potential customers false and deceptive price-comparison charts depicting the regulated utility rates versus Spark rates. (Smith, et al. v. Spark Energy, LLC, No. 3:15-CV (N.D. Cal. complaint filed on May 22, 2015)). Putative class action filed against Aqua Lung America, Inc. in the U.S. District Court for the Southern District of California, alleging violations of California s Unfair Competition Law and False Advertising Law. According to the plaintiffs, the defendant markets, distributes, and repairs Suunto -branded dive computers, which are used by scuba divers to provide information critical to the diver s safety, including information about the depth of the dive, the dive time, water temperature, safety stops, stop depths and time for required decompression, air tank pressure, and estimated remaining air time ( Dive Computers ). Plaintiffs purchased the Dive Computers expecting them to function properly and display accurate information; however, the plaintiffs claim that the Dive Computers software and/or hardware is defective and often malfunctions. The plaintiffs further claim that the defendant, as an authorized repair facility for the Dive Computers, is aware of the defective software and/or hardware in the Dive Computers, yet it does not warn consumers or even the Consumer Product Safety Commission of the alleged defects. Instead, according to the plaintiffs, the defendant continues to expressly and impliedly represent that the Dive Computers are well-designed, properly manufactured, and safe for their intended use. The plaintiffs claim that the defendant s omissions resulted in the plaintiffs purchasing a product that is dangerous and does not function as advertised. (Huntzinger, et al. v. Aqua Lung America, Inc., No. 3:15-CV (S.D. Cal. complaint filed on May 21, 2015)). 8