The Private Advertising Litigation and Consumer Protection Committees RECENT LITIGATION DEVELOPMENTS. [Cases from November 13 and 25, 2013]

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2 The Private Advertising Litigation and Consumer Protection Committees RECENT LITIGATION DEVELOPMENTS [Cases from November 13 and 25, 2013] Prepared for the PAL and CP Committees by Dan Blynn and Katie Riley of Kelley Drye & Warren LLP; Dale Giali of Mayer Brown LLP; Dave Conway of Venable LLP; Scott Dupree of Shook, Hardy & Bacon LLP; Douglas Brown, Darren McCartney, and Samantha Duke of Rumberger, Kirk & Caldwell, P.A.; Shahin Rothermel and Heather Goldman of Bryan Cave LLP; Valeriya Sherman (J.D., George Washington University Law); Jamillia Ferris of Hunton & Williams LLP; Lauren Aronson of Manatt, Phelps & Phillips, LLP; and Linda Bean and Hal Hodes of the National Advertising Division. RECENT DECISIONS State Consumer Protection Law The U.S. District Court for the Central District of California denies motions to dismiss a lawsuit brought by TRC & Associates ( TRC ) against NuScience and Lumina. TRC, a nutritional supplement retailer, purchased approximately $700,000 of the nutritional supplement CELLFOOD manufactured by NuScience and Lumina. TRC alleged that NuScience and Lumina concealed that a key ingredient in CELLFOOD poses a severe health hazard and misrepresented compliance with federal regulations. TRC asserted four claims: fraud, violations of California s Unfair Competition Law and False Advertising Law, and violation of the federal Racketeer Influenced and Corrupt Organizations Act. The court refused to dismiss the action, finding that the plaintiff had standing under Article III to bring the action and adequately pled all four counts. (TRC & Assocs. v. Nuscience Corp., No. 2:13-cv-6903, 2013 WL (C.D. Cal. Nov. 18, 2013)). Consumer Class Actions The U.S. District Court for the District of New Jersey, in a class action lawsuit brought by a New Jersey attorney on behalf of himself and a proposed class under the New Jersey Consumer Fraud Act, denies the plaintiff s motion to remand the action to the Superior Court of New Jersey for failure to satisfy the Class Action Fairness Act s ( CAFA ) jurisdictional requirements. More specifically, despite the fact that the plaintiff affirmatively pled that the amount in controversy did not satisfy CAFA s $5 million threshold, the court ruled that at least $5 million was in controversy in light of evidence submitted by the defendant reflecting the price and number of products sold during the proposed class period. (Hoffman v. Country Life, LLC, No. 13-cv-5565, 2013 WL (D.N.J. Nov. 20, 2013)). The U.S. District Court for the Southern District of Illinois grants the defendant s motion for summary judgment where each plaintiff could not show that he or she was deceived or suffered some injury because of the defendant s allegedly misleading product packaging. Plaintiffs sued the defendant on behalf of a class under various state false advertising statutes alleging that the packaging of the defendant s individual coffee cartridges falsely suggested that the coffee was 1

3 ground, not instant. The court, first, denied the plaintiff s motion for class certification because the issue of liability required individualized investigation of each class member s claims. The court, then, marched through each of the named plaintiff s claims reciting why that plaintiff either was not deceived or did not rely on some allegedly deceptive practice by the defendant for their purchasing decisions: one bought for the price; another for the pretty packaging; a third for variety. The court noted that each plaintiff does indeed need to show reliance on a misrepresentation or an omission, and causation to survive summary judgment s put up or shut up evidentiary standard. (Suchanek v. Strum Foods, Inc., No , 2013 U.S. Dist. LEXIS (S.D. Ill. Nov. 20, 2013)). The U.S. District Court for the Northern District of California denies the defendant s motion to dismiss the plaintiffs claims for lack of Article III standing and statutory standing under the California Consumers Legal Remedies Act ( CLRA ) due to the plaintiffs failure to purchase one of the defendant s smoothie kit products. The plaintiffs alleged that defendant Jamba Juice produced multiple frozen smoothie kits that it represented were all natural when, in fact, the products did not contain only all natural ingredients. The plaintiffs noted that they would seek certification of a class of all persons who purchased any one or more of the five smoothie kit products. The court held that the plaintiffs did not have standing to assert claims related to products they did not buy, but they could seek to represent a class of people who purchased the products, as long as each of the plaintiffs had standing in their own right, under Article III and the CLRA. (Lilly v. Jamba Juice Co., 13-CV , 2013 WL (N.D. Cal. Nov. 18, 2013)). The U.S. Court of Appeals for the Ninth Circuit reverses in part and affirms in part the district court s dismissal of a class action suit against a brownie manufacturer who allegedly failed to inform consumers about the side effects of melatonin in its brownies. The plaintiff brought suit under California deceptive advertising and unfair business practice statutes, arguing that he was misled by the defendant into buying an unsafe product that he would not have bought otherwise, due to the defendant s deceptive advertising. The Ninth Circuit held that the plaintiff did not state a plausible claim of deception because the brownie packaging disclosed the presence quantity of melatonin in each serving and warned consumers of the risk of drowsiness; additionally, research regarding the side effects of melatonin is inconclusive. However, the Ninth Circuit held that, because the plaintiff may be able to allege facts sufficient to state a claim for relief under California law to survive a motion to dismiss, the court remanded the case. (Cheramie v. HBB, LLC, , 2013 WL (9th Cir. Nov. 18, 2013). Federal Trade Commission (FTC) and Other Federal Agency Litigation The U.S. District Court for the Middle District of Florida adopts the magistrate s report and recommendation awarding the receiver s fees at a rate of $275.00/hour for both his legal and forensic accounting work. The order noted that [n]o receivership is intended to generously reward court appointed officers, particularly when the receivership estate will not likely recover sufficient assets to pay full restitution to the victims... The court stated that, in awarding fees to receivers, the time spent was a material factor, but the difficulty of the job, the expertise necessary to accomplish it, and the results achieved were more important factors. (FTC v. Info. Mgmt. Forum, Inc., No. 6:12-cv-986-Orl-28KRS, 2013 WL (M.D. Fla. Nov. 19, 2013)). The U.S. District Court for the Southern District of Texas denies the plaintiff FTC s supplemental motion to strike amended affirmative defenses. The FTC sued the defendants pursuant to 15 U.S.C. 2

4 53(b) seeking injunctive and equitable relief based on allegations that the defendants were sending spam text messages to consumers with promises of free gift cards from retailers, that were not in fact free. The FTC alleged that consumers could not actually receive the gift cards without paying money or fulfilling other undisclosed requirements. The court previously had granted in part and denied in part the FTC s initial motion to strike certain defenses, and defendants amended some of the defenses and expressly abandoned others. The court ruled that the FTC had not provided any basis to strike any of the defenses, and contrary to the FTC s request, the court could not strike defenses that had been expressly abandoned. The court also refused to apply the heightened motion to dismiss pleading standards of Bell Atl. Corp. v. Twombly, 550 U.S. 544, (2007) and Ashcroft v. Iqbal, 556 U.S. 662, (2009) to pleading of affirmative defenses. (FTC v. Verma Holdings, LLC, No. 4:13-cv-00594, 2013 WL (S.D. Tex. Nov. 14, 2013)). National Advertising Division (NAD) Decisions The NAD has recommended that Procter & Gamble Company discontinue certain claims made for the company s Olay Pro-X Advanced Cleansing System, following a challenge by L Oreal USA, Inc. The advertiser s campaign included several versions of its claim that Olay Pro-X is as effective as the Clarisonic Skin Cleansing System, a more expensive L Oreal product. NAD observed that much of the disagreement between the parties centered on the question of whether the their respective products are cleansing systems including a brush and facial cleanser or whether they are cleansing brushes that come with a sample facial cleanser in the package. The advertiser argued that the products are systems and based its parity claims on testing that used each brush with its associated cleanser. The challenger countered that the products are brushes that could be used with most cleansers, and that testing the brushes with different cleansers amounts to an apple-to-oranges comparison. Following its review of the evidence in the record, NAD concluded that the advertising claims at issue conveyed the unsupported message that the parties respective brushes performed equally effectively. Accordingly, the NAD recommended that the advertiser s claims that its Olay Pro-X cleanses as effectively as Clarisonic and similar claims be discontinued. Further, NAD recommended that the advertiser discontinue its claim that its Olay Pro- X brush is 6X better than basic cleansing. However, NAD concluded that the advertiser s claim that its product sets your skin up for supersonic anti-aging moisturization constituted mere puffery. (The Procter & Gamble Company (Olay Pro-X Advanced Cleansing System), NAD Report No (Oct. 25, 2013)) A five-member panel of the National Advertising Review Board ( NARB ) has determined that the American Society for the Prevention of Cruelty to Animals ( ASPCA ) can support challenged claims made in charitable solicitations, which the State Humane Association of California ( SHAC ) argued implied that the ASPCA is an umbrella or parent organization for all local SPCAs. The NARB panel, following its review of the evidence, found that the challenged charitable solicitations did not reasonably convey a message that the ASPCA is the parent or umbrella organization for local SPCAs. While SHAC argued that the ASPCA s charitable solicitations play on a general public misconception that the ASPCA has a direct relationship with all local SPCAs, the panel found nothing in ASPCA s charitable solicitations that contributes to any public misconception. The panel encouraged the ASPCA to continue its efforts to make clear to the public that there is no direct 3

5 affiliation between the ASPCA and local SPCAs. The NARB panel also addressed the question of NAD s jurisdiction. NAD s Policies and Procedures give the NAD jurisdiction over national advertising, which is defined as including any paid commercial message. The NARB panel found that charitable solicitations are arguably commercial to the extent they ask for money and promise how that money will be spent. In the absence of any indication that the NAD s Policies and Procedures intended to exclude charitable solicitations, the panel said, it was not willing to overturn the NAD s determination that it held jurisdiction over the challenged advertising. The panel also urged the Advertising Self-Regulatory Council, which sets policies and procedures for advertising industry self-regulation, to clarify whether charitable solicitations fall within the NAD s jurisdiction. (American Society for the Prevention of Cruelty to Animals (ASPCA Advertising), NARB Panel No. 185 (Oct. 16, 2013)). The NAD has recommended that DermStore LLC, discontinue claims that its SmartLash Eyelash Enhancer provides Up to a 68% increase in the appearance of lash length! or is Dermatologist Recommended. The advertiser maintained that its claim Up to a 68% increase in the appearance of lash length! was supported by an independent, 56-day study which assessed the performance of the advertiser s product on 30 subjects ages In response to a self-assessment questionnaire, percent of the subjects were satisfied with their eyelash length following treatment. NAD determined, however, that the claim does not communicate a message of consumer satisfaction, but instead communicates the message that lash-length actually increased by as much as 68 percent. NAD recommended the advertiser discontinue the claim. The advertiser also contended that its Dermatologist Recommended claim was supported by the recommendation of a Board Certified dermatologist who, after utilizing the advertiser s product, observed an increase in eyelash length. NAD noted that advertising claims concerning recommendations by medical professionals must be supported by well-conducted physician surveys based on doctors actual experiences in their daily practice. Given that the claim in this case was premised on the recommendation of one dermatologist s personal experience with the product, the NAD recommended that this claim be discontinued. (Dermstore, LLC (SmartLash Eyelash Enhancer), NAD Report No (Oct. 6, 2013)). RECENT FILINGS State Actions Complaint filed by the Shasta County, California District Attorney against Novartis Pharmaceuticals Corporation and Alcon Laboratories, Inc. removed from California Superior Court (Shasta County) to the U.S. District Court for the Eastern District of California. The complaint alleges that Novartis and Alcon have been selling Zaditor eye products in large boxes disproportionate to the amount of product that the consumer receives, in violation of California s packaging laws. Specifically, the complaint claims violations of California s False Advertising Law and Unfair Competition Law. (California v. Novartis Pharms. Corp., No. 2:13-cv (E.D. Cal. complaint removed on Nov. 18, 2013)). Consumer Class Actions 4

6 Putative class action filed against Speedwinds Nutrition Inc., in the U.S. District Court for the Central District of California, alleging that defendants falsely and deceptively advertised their dietary supplement, AntlerX IGF-1, in violation California s Unfair Competition Law, False Advertising Law, and Consumer Legal Remedies Act. Plaintiff claims that the defendants falsely represent that the product Improves athletic performance and strength, Increase[s] muscle mass, Improve[s] endurance, and Improve[s] aerobic capacity, among other benefits. Plaintiff alleges that he did not obtain any of the advertised benefits. (Gil, et al. v. Speedwinds Nutrition et al., No. CV (C.D. Cal. complaint filed Nov. 22, 2013)). Complaint filed against German American Technologies alleging that the defendants falsely and deceptively advertised their JetFuse NOX dietary supplement in violation California s Unfair Competition Law, False Advertising Law, and Consumer Legal Remedies Act. Plaintiff claims that the product does not contain any bio-available amount of one of the advertised ingredients and, thus, cannot provide the promised benefits. (Tomiello, et al. v. German American Tech., LLC, No. 13CV2781 (S.D. Cal. complaint filed Nov. 22, 2013). Purported nationwide class action filed against SpeedyPC Software in the U.S. District Court for the Northern District of Illinois, alleging, among other things, fraudulent inducement and violations of the Illinois Consumer Fraud and Deceptive Business Practices Act. Plaintiff asserts that defendant deceptively, misleadingly, unfairly, and fraudulently markets and sells its SpeedyPC Pro software as a product capable of identifying, reporting, and repairing various computer errors and privacy and security threats, increasing system startup speeds, and optimizing computer performance, when in fact the product does little more than remove unwanted or redundant items from a computer s Microsoft Windows operating system registry, and remove superfluous temporary files from a user s hard drive. Notwithstanding the defendant s claims to the contrary, the plaintiff maintains that the software product is not effective in removing malware, credibly protecting a user s privacy, removing serious security threats, or preventing damaging PC errors, and that the software does not and cannot perform all of the benefits represented by defendant. Plaintiff further alleges that the defendant offers consumers a trial version of its software to conduct a free computer scan to detect computer errors that the defendant s software purportedly will fix, when, in fact, the software allegedly is ineffective in remedying some or all of these problems. According to the plaintiff, both the defendant s free trial diagnostic scan and its purchased, registered utility software are allegedly programmed to always identify problems on a user s computer (even where none exist), artificially inflate the number of errors and security risks found on a user s computer, identify innocuous items as errors, report poor security and performance on a computer without any credible assessment, and arbitrarily (and in some cases allegedly incorrectly) characterize particular errors as serious or critical, all allegedly in order to induce consumers to purchase, upgrade and/or re-purchase defendant s software. (Beaton, et al. v. SpeedyPC Software, No. 1:13-cv (N.D. Ill. complaint filed on Nov. 20, 2013)). Putative nationwide class action filed against ConAgra Foods, Inc. in the U.S. District Court for the Northern District of California, alleging, among other things, violations of California s Unfair Competition Law, False Advertising Law, and Consumers Legal Remedies Act. Plaintiffs maintain that Orville Redenbacher s Buttery Flavor Popcorn Oil sold by ConAgra is misbranded and that its labels are misleading, deceptive, unfair, and fraudulent because they state that the product contains 0g Trans Fat. Plaintiff also alleges that four Fleischmann s spreads ( Fleischmann s Original 60% 5

7 Whipped Vegetable Oil Spread, Fleischmann s Light Spread, Fleischmann s Unsalted Spread, and Fleischmann s Olive Oil Spread ) are similarly defective because their labels assert that these products constitute an Excellent source of omega 3 ALA. According to the plaintiff, these products contain more fat (and, in the case of the Redenbacher product, saturated fat) than federal and California food labeling regulations permit in products making these representations without qualification, while failing to provide qualifying disclosures on the products labels, and nutrition disclosures that are allegedly required by federal and California law for products (such as these) that contain amounts of fat and saturated fat that exceed a baseline level specified by federal regulations. In addition, the plaintiff maintains that Omega 3 does not have an established daily value under U.S. Food and Drug Administration rules, and therefore, federal and California regulations allegedly prohibit ConAgra from asserting (as it does on its Fleischmann s spread labels) that its products constitute an excellent source of Omega 3 or use other language conveying the same message. Plaintiff asserts that the failure to include qualifying language with these representations rendered the products misbranded, that California and federal law prohibit the manufacture, advertising, distribution, holding. or sale of misbranded products, and, therefore, that ConAgra s sale of these products was unlawful, regardless of whether anyone relied on these representations. (Swearingen, et al. v. ConAgra Foods, Inc., No. 3:13-cv (N.D. Cal. complaint filed on Nov. 15, 2013)). Putative class action seeking certification of nationwide and multi-state (Florida, New York, and California) classes filed against Snyder s-lance, Inc. in the U.S. District Court for the Southern District of Florida, alleging violations of the Florida Deceptive and Unfair Trade Practices Act, New York General Business Law sections 349 and 350, and California s False Advertising Law, Unfair Competition Law, and Consumer Legal Remedies Act. Plaintiffs claim that Snyder s-lance falsely advertises certain Snyder s of Hanover-, Cape Cod-, EatSmart-, and Padrino s-brand pretzels and tortilla chips as All Natural when, in reality, the products contain synthetic ingredients and Genetically Modified Organisms ( GMOs ). (Barron et al. v. Snyder s-lance, Inc., No. 0:13-cv (S.D. Fla. complaint filed on Nov. 13, 2013)). 6