The Advertising Disputes & Litigation and Consumer Protection Committees RECENT LITIGATION DEVELOPMENTS

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2 The Advertising Disputes & Litigation and Consumer Protection Committees RECENT LITIGATION DEVELOPMENTS [Cases from December 14, 2017 to January 7, 2018] Prepared for the ADL and CP Committees by Dan Blynn and Renato Pérez of Venable LLP; Dale Giali, Elizabeth Crepps, and Rebecca Johns of Mayer Brown LLP; Sherrie Schiavetti, Katie Townley, Donnelly McDowell, Jennifer Wainwright, and Lauren Myers of Kelley Drye & Warren LLP; Doug Brown and Samantha Duke of Rumberger, Kirk & Caldwell; Eugene Benick of NOVA Business Law Group LLP; Erik King of Lockheed Martin; Michael Sherling of Perkins Coie, LLP; and Will Cantrell of Cantrell, PLLC. RECENT DECISIONS Consumer Protection Laws The U.S. District Court for the Northern District of California grants the defendant s motion for summary judgment in an action where the plaintiffs alleged a breach of express warranty and violations of California s Consumers Legal Remedies Act, Unfair Competition Law, and False Advertising Law, New York s General Business Law, Florida s Deceptive and Unfair Trade Practices Act, and common law fraud. The court also denied the plaintiffs motion to strike portions of declarations from the defendant s witnesses. Plaintiffs alleged that defendant Starbucks Corporation under-fills its lattes and mochas. Specifically, the plaintiffs made three claims: (1) the maximum capacity of the cups used to serve lattes is exactly the volume for which the drinks are advertised; (2) Starbucks did not fill its cups to capacity so that it can leave room for the milk foam that does not count towards the volume of its lattes; and (3) the pitcher Starbucks baristas use to make lattes contains a Fill-To line that results in beverages that are less than advertised based on cup size. Defendant provided evidence to show that (a) the capacity of the latte cups is greater than the advertised beverage amount; (b) milk foam is a component of a latte and, thus, counts towards the beverage volume; and (c) Fill-To lines are used when baristas are pouring cold milk into pitchers, but that milk expands in volume when it is aerated and heated to serving temperature. The court first denied the plaintiffs motion to strike under Fed. R. Civ. P. 56(c)(4), finding that it was improper because the Rule does not apply to declarations; rather the plaintiffs objections are evidentiary and, therefore, should be part of their brief. In this case, they provided the motions separately, which was procedurally improper. Second, the court found that the witnesses whose declarations the plaintiffs attacked are competent to testify about the matters they discussed in their declarations. The court granted the motion for summary judgment because the plaintiffs did not identify a false or misleading representation as the basis for their claims. The defendant s evidence rebutted each of the plaintiffs claims. First, the plaintiffs were unable to show that the serving cups do not comply with the defendant s standard requirements that all of its cups have volume capacities at least 8-12% greater than the promised beverage volume. Second, the argument that milk foam should not be considered in beverage volume was unreasonable because lattes are made with milk foam, thus, foam would be expected to be a part of the beverage volume. Here, the court referenced an earlier decision involving Starbucks, Fourouzesh v. Starbucks Corp., where the Central District of California found that the defendant s 2

3 iced drinks were not under-filled because a reasonable consumer would expect the presence of ice in an iced drink. The court also took issue with the plaintiffs expert s consumer survey regarding this issue because the survey included leading and suggestive questions. Finally, in rejecting the plaintiffs claim about the Fill-To lines on the defendant s pitchers, the court asserted that the plaintiffs did not provide evidence that the total volume of the drinks after preparation was not as much as advertised. Therefore, the plaintiffs were unable to show that the lattes had less volume than the defendant advertised and the motion for summary judgment was granted as to all claims. (Strumlauf v. Starbucks Corp., No. 16-cv-01306, 2017 WL (N.D. Cal. Jan. 5, 2018)). The U.S. District Court for the Southern District of New York grants in part and denies in part defendant New York Law School s motion to dismiss an action by a former student alleging various civil rights, fraud, and other violations. Plaintiff s allegations stem mostly from the School s response to a sexual assault against her by another student on campus in Plaintiff alleges that the School represented through its marketing that discrimination would not be tolerated, but that School officials failed to act accordingly. The court dismissed the plaintiff s fraud claim for failure to plead with particularity, including failure to allege a misrepresentation or omission by the School concerning its ability to conduct an effective investigation of the incident, and reasonable reliance on plaintiff's behalf. Plaintiff s New York General Business Law Section 349 claim centers on marketing representations made by the School regarding antidiscrimination policies and instances that the plaintiff alleged contradicted those representations. The court denied the School s motion to dismiss the Section 349 claim, finding that plaintiff adequately pleaded that the School s marketing representations were false and that the School made false assurances that gender-based harassment and anti-discrimination policies would be adequately enforced. Therefore, the court granted in part and denied in part the School's motion to dismiss. (Bailey v. New York Law School, No. 16 Civ. 4283, 2017 WL (S.D.N.Y. Dec. 27, 2017)). The U.S. District Court for the Middle District of Florida grants in part and denies in part the defendant s motion to dismiss in a case brought by a purchaser of a Bard Composix Kugel Hernia Patch manufactured by Davol, Inc. The patch is designed for the repair of ventral and inguinal hernias. The plaintiff alleged that the rigid plastic ring breaks and contended that the dangers of the product required an appropriate disclosure of the risk. Plaintiff asserted claims for negligent misrepresentation, fraud, and violation of the Florida Deceptive and Unfair Trade Practices Act ( FDUTPA ), as well as breach of an unspecified duty under Rhode Island law. The court concluded that the plaintiff complied with Fed. R. Civ. P. 9(b) s pleading standard and alleged negligent misrepresentation and fraud with sufficient particularity. The court also found that the allegations of misrepresentation and fraud were proper if both to the purchasers and physicians recommending the product. The court deferred ruling on the learned intermediary doctrine until the summary judgment stage. The court also determined that the plaintiffs FDUTPA claim failed to state a cause of action because it excludes personal injury claims. The court further concluded that the plaintiff failed to identify any applicable Rhode Island statute, and the choice of law issues should be raised if the plaintiff planned to rely upon Rhode Island law. (Hamblen v. Davol, Inc., No. 8:17-cv-1613-T-33, 2017 WL (M.D. Fla. Dec. 15, 2017)). 3

4 Consumer Class Actions The U.S. District Court for the Western District of Tennessee denies a motion to dismiss all claims in a false advertising case involving the marketing of the defendants high speed Internet. Plaintiff alleged that the defendants, who collectively operate, administer, and market Internet services, made knowing misrepresentations concerning the speed and functionality of their Internet services. Specifically, depending on the four plans available, they marketed that the plans ranged from a download speed in the range of 56 Kilobits per second ( Kbps ) to 25 Megabits per second ( Mbps ). They also advertised that the next to the fastest advertised plan, called the Turbo Internet Plan, was Great for visiting sites like Netflix, YouTube, and Hulu. Plaintiff alleged that, in fact, the Internet services provided to customers in Perry County, Tennessee and elsewhere in rural Tennessee fell well short of the advertised speeds and were too slow to support access to the advertised websites. Plaintiff also alleged that the defendants admitted to customers that their infrastructure could not support the speeds advertised, and that they were aware of the problems since at least As to damages, the plaintiff claimed she did not receive the services that were advertised and for which she paid, and was subject to other damages in the form of modem and equipment charges, set up fees, monthly service charges, and early termination fees. Plaintiff asserted claims for breach of contract, violations of the Wisconsin Deceptive Trade Practices Act ( WDTPA ), fraud, unjust enrichment, and civil conspiracy. Defendants sought to dismiss all the claims on the basis that they failed to state a cause of action. The court, however, determined that the plaintiff pled sufficient factual allegations to support each claim. Noteworthy, with respect to the civil conspiracy claim, the parties disagreed on the application of the intracorporate conspiracy immunity doctrine and the applicable pleading standard. The court held that it was premature to dismiss the defendants under the intracorporate conspiracy immunity doctrine because it was unclear from the allegations whether the defendants, in fact, were affiliated companies for purposes of the doctrine. After an extensive analysis of case law, the court also determined that the Twombley and Iqbal pleading standard applies to civil conspiracy claims. The court further clarified, however, that the underlying tort claim on which the civil conspiracy was based fraud must itself satisfy the heightened pleading standard. (Carroll v. TDS Telecomms. Corp., No. 17cv1127, 2017 WL (W.D. Tenn. Dec. 29, 2017)). The U.S. District Court for the Central District of California denies defendant, Kroger Co. s, motion to dismiss the plaintiff s second amended complaint. Plaintiff alleged that Kroger s use of the statement No Sugar Added on certain of its apple juice products does not comply with FDA regulations, which, in turn, violated California s Unfair Competition Law, False Advertising Law, and Consumer Legal Remedies Act. Kroger moved to dismiss the plaintiff s complaint for failure to state a claim. The court first took judicial notice of several documents, including product labels and nutrition facts panels. It found that the plaintiff plausibly alleged that a reasonable consumer could be deceived by the challenged statement because the plaintiff alleged that certain of the defendant s competitors did not use the No Sugar Added label. Specifically, the plaintiff alleged that she observed two different competitors labels (Martinelli s and Langers), which did not include such a labeling claim. The court next determined that the plaintiff had standing. Although the Martinelli s and Langers juices were more expensive than the one that the plaintiff purchased, the plaintiff claimed that, if Kroger s label did not include the No Sugar Added label, she would not have purchased it, or would have paid less for it, which the court found satisfied the economic injury standing requirement. Finally, the court rejected Kroger s argument to dismiss the 4

5 Consumers Legal Remedies Act count based on the No Sugar Added claim being literally true. (Perez v. Kroger Co., Case No. 2:17-cv-2448, 2017 WL (D.C. Cal. Dec. 22, 2017)). The U.S. District Court for the Northern District of California grants in part and denies in part defendant Macy s Inc. s motion to dismiss the plaintiffs amended consolidated complaint in a putative consumer class action challenging Macy s pricing practices. Specifically, the plaintiffs alleged that Macy s violated California s Unfair Competition Law, False Advertising Law, and Consumer Legal Remedies Act by advertising regular prices, which purportedly misled consumers regarding the prices they paid for merchandise that was represented as being on sale. The court first analyzed the defendant s motion to dismiss due to lack of standing, finding that its evidence challenging the existence of some of the plaintiffs transactions or that some of the plaintiffs received refunds for the merchandise at issue was insufficient to prove that the plaintiffs suffered no injury-in-fact. The court also found that multiple plaintiffs former employment at Macy s was insufficient to demonstrate knowledge of the alleged pricing practices. Next, the court considered the defendant s motion to dismiss for failure to state a claim, finding that one plaintiff s claims should be dismissed because she failed to provide sufficient information about the merchandise that she purchased. The court denied the motion on the basis that the receipts provided by the other plaintiffs were sufficient to identify their purchases, and that the exemplary evidence in the complaint was sufficient at this stage in the litigation to sustain claims of misleading statements and/or falsity by Macy s. Finally, the court rejected the defendant s claim that the prevailing market price provision of the False Advertising Law is void for vagueness. (Haley v. Macy s Inc., 15-cv-06033, 2017 WL (N.D. Cal. Dec. 21, 2017)). The U.S. District Court for the District of New Jersey grants in part and denies in part a motion to dismiss a putative class action complaint against defendants Ambit Energy Holding, LLC and Ambit Northeast, LLC. Plaintiffs alleged that the defendants, energy supply companies providing electricity and gas service to New Jersey residents, engaged in unconscionable and deceptive commercial practices in violation of the New Jersey Consumer Fraud Act. According to the complaint, when a customer terminates the defendants service, the customer receives a final bill identified as a budget settlement, where the customer is billed for the difference between he budget bill amount and the actual usage and actual rates. The difference can be substantial. The court found that the plaintiffs sufficiently supported all claims except for unconscionability, which the court found was not applicable to the facts and dismissed accordingly. (Little v. Ambit Energy Holdings, LLC, No. 16-CV-8800, 2017 WL (D.N.J. Dec. 21, 2017)). The U.S. District Court for the District of New Mexico grants in part and denies in part the defendants motion to dismiss the plaintiffs class action complaint based in part on cigarette label descriptors natural, organic, and additive-free. Defendants sought to dismiss the unfair and deceptive practice act claims on the basis that the statements do not mislead a reasonable consumer. The court held that the reasonable consumer standard governed the claims and that it was plausible that such a reasonable consumer would erroneously believe that the cigarettes were safer or healthier than other cigarettes after seeing the terms organic, natural, and additive free. In making its ruling, the court held that a disclosure on the packaging would not cure the deception to the reasonable consumer. (In re Santa Fe Nat. Tobacco Co. Mktg. & Sales Practices & Prod. Liab. Litig., No. MDL , 2017 WL (D.N.M. Dec. 21, 2017)). 5

6 The U.S. District Court for the Southern District of California denies a motion to dismiss filed by defendants Annie s Homegrown, Inc. and General Mills Inc, in a case where the defendants allegedly misleadingly marketed Annie s Naturals products as natural. Contrary to the natural representation, Annie's Naturals products purportedly contain synthetic and highly chemically processed ingredients, such as xanthan gum. The plaintiffs asserted eleven causes of action, including violation of numerous state consumer protection laws. The court denied the defendants motion to dismiss to the extent the defendants sought to dismiss the entire action. (Campbell v. Annie s Homegrown, Inc., No. 17-CV-1736, 2017 WL (S.D. Cal. Dec. 15, 2017)). RECENT FILINGS Consumer Class Actions Putative Indiana-only class action complaint filed against Intel Corporation in the U.S. District Court for the Southern District of Indiana, alleging violation of the Indiana Deceptive Consumer Sales Act. Plaintiff claims that Intel committed unfair and deceptive acts by representing that its core processors were secure, when, in fact, the computers suffer from a security defect. (Jones v. Intel Corp., No. 1:18-cv-29 (S.D. Ind. complaint filed on Jan. 4, 2018)). Putative nationwide class action filed in the U.S. District Court for the Southern District of Indiana against Apple Inc., alleging violations of Indiana s Deceptive Consumer Sales Act. According to the complaint, the defendant unlawfully failed to inform consumers that updating certain iphone models with new software would dramatically and artificially reduce the performance of the device. Plaintiff further alleges that the defendant failed to inform consumers that replacing the battery on affected devices would fix performance issues by up to 70% and, instead, encouraged consumers to purchase new iphones at far greater cost. (Schroeder v. Apple, Inc., No. 17-cv (S.D. Ind. complaint filed on Dec. 28, 2017)). Putative class action complaint filed against Danone North America, LLC and the WhiteWave Foods Company in the U.S. District Court for the Northern District of California, alleging violation of California s Unfair Competition Law and Consumer Legal Remedies Act. Plaintiff claims that the defendants falsely advertise their Horizon Organic Milk Plus DHA Omega-3 products as certified organic, when certified organic food products may not contain the DHA additive included in the products. (Brown v. Danone N.A., LLC et al., No. 4:17-cv-7325 (N.D. Cal. complaint filed on Dec. 27, 2017)). Putative nationwide class action, with multi-state and Illinois-only subclasses, filed against PhD Fitness, LLC in the U.S. District Court for the Northern District of Illinois, alleging claims for violation of state consumer fraud laws and breach of express warranty. Plaintiff asserts that the defendant s Pre-JYM sport supplement is misleadingly and falsely advertised. According to plaintiff, the defendant s claim that its product contains proper dosing of key ingredients that improve exercise performance are false because scientific studies show at least seven of the advertised ingredients do not have the claimed effect or are not present in the product in sufficient amount to provide that effect. Plaintiff further claims that tests on the product have shown no 6

7 improvement in performance compared to subjects given a placebo. (Bohr v. PhD Fitness, LLC, No. 1:17-cv (N.D. Ill. complaint filed on Dec. 21, 2017)). Putative nationwide class action filed in the U.S. District Court for the Eastern District of Pennsylvania against Fred Bean Motors of Doylestown, Inc. alleging violations of the Pennsylvania Unfair Trade Practices and Consumer Protection Law, the Truth in Lending Act, and the Fair Credit Reporting Act ( FCRA ). According to the complaint, the defendant misrepresented the costs of finance charges in retail installment sales contracts for the purchase of new and used automobiles. Plaintiff alleges that the defendant misrepresented the annual percentage rate of the finance charge for such contracts and failed to adequately disclose certain fees. Plaintiff further alleges that the defendant continued to pull consumer reports without a permissible purpose in violation of FCRA and plaintiffs privacy rights. (Brogan v. Fred Beans Motors of Doylestown, No. 17-cv (E.D. Pa. complaint filed on Dec. 15, 2017)). 7