The Advertising Disputes & Litigation and Consumer Protection Committees RECENT LITIGATION DEVELOPMENTS. [Cases from June 27 to July 9, 2014]

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2 The Advertising Disputes & Litigation and Consumer Protection Committees RECENT LITIGATION DEVELOPMENTS [Cases from June 27 to July 9, 2014] Prepared for the ADL and CP Committees by Dan Blynn, Sherrie Schiavetti, Katie Riley, and Donnelly McDowell of Kelley Drye & Warren LLP; Dale Giali and Thibault Schrepel of Mayer Brown LLP; Dave Conway and Kristen Brown of Venable LLP; Douglas Brown, Darren McCartney, and Samantha Duke of Rumberger, Kirk & Caldwell, P.A.; Heather Goldman of Bryan Cave LLP; Lauren Valkenaar of Norton Rose Fulbright LLP; Michael Mallow and Rachel Straus of Loeb & Loeb LLP; and Jeremy A. Schachter of Kilpatrick Townsend & Stockton LLP. RECENT DECISIONS Lanham Act and Other Competitor Actions The U.S. District Court for the Northern District of Illinois grants summary judgment in favor of the plaintiff and denies the defendant s cross-motions for summary judgment, in a patent infingement action, which also asserted Lanham Act false advertising claims. Plaintiff sued the defendant for infringement of seven of its patents related to oxygen absorber technology; the defendant counterclaimed, alleging infringement of two of its own patents, and false advertising in violation of the Lanham Act. With respect to the Lanham Act counterclaim, the court held that, because none of the customers deposed testified that they cared the least bit whether the system was patent-protected or not, the defendant s counterclaim could not be sustained. (Pactiv, LLC v. Multisorb Techs., Inc., No. 10 C 461, 2014 WL (N.D. Ill. July 2, 2014)). The U.S. District Court for the District of Minnesota grants the defendant s motion to transfer venue to the Central District of California. Plaintiff s complaint stated causes of action for, among other things, false advertising in violation of the Lanham Act, deceptive trade practices in violation of Minnesota s consumer protection statute, and unfair competition under Minnesota common law. In granting the motion to transfer, the court held, in part, that, to the extent that the plaintiff could properly pursue the Lanham Act and unfair competition claims, third-party buyers of the product at issue would be potentially significant sources of discovery. Because there was only one such buyer of the product in Minnesota and 28 in California and the surrounding states, the court held that this was a factor weighing heavily in favor of transfer. (WhatRU Holding, LLC v. Bouncing Angels, Inc., No , 2014 WL (D. Minn. July 1, 2014)). State Consumer Protection Laws The Texas Court of Appeals reverses a jury verdict that found defendant Patrick Cox liable under the Texas Deceptive Trade Practices Act for misrepresentations made by sales associates employed by his tax resolution company. The court found that even though his company violated the statute, no findings justified piercing the corporate veil; therefore, Cox could not be found personally liable. The court, then, examined whether the State of Texas presented sufficient evidence of Cox s 1

3 personal conduct to uphold liability. The jury previously found that Cox had violated five laundry list items under the statute. Because there was no evidence that Cox accepted payment from consumers, represented another entity that was endorsed or affiliated with his company, spoke with consumers, or advertised his company s services directly, the court reversed the jury s findings. While Cox did state he would solve the consumers tax problems by settling debts for pennies on the dollar with employees who were former IRS agents, the court found these declarations were not false or misleading. After reversing on the merits, the appellate court also reversed the trial court s permanent injunction and award of attorney s fees. (Cox v. State, No CV, 2014 WL (Tex. App. July 1, 2014)). The U.S. District Court for the District of New Jersey grants the defendants motion to dismiss the plaintiff s consumer fraud claim brought under New Jersey law, finding that her claims were subsumed by New Jersey s Product Liability Act ( PLA ). Plaintiff suffered from chronic back pain and eventually obtained surgery from the defendant-doctor, who implanted various medical devices in her back, which allegedly failed and caused significant injuries. Plaintiff claimed that she relied on statements made about the devices in advertising by the defendant-medical device manufacturer. The court held, however, that because the essence of the plaintiff s claims was her injury, they were about the product, not the conduct (i.e., the promotion of the product). As a result, the plaintiff s consumer fraud claim was dismissed as subsumed by the PLA. (Mendez v. Shah, No , 2014 WL (D.N.J. June 27, 2014)). 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, grants in part and denies in part the defendant-dietary supplement manufacturer s motion for judgment on the pleadings. The plaintiff accused the defendant of misrepresenting the glucosamine content of its canine nutritional supplement. The court refused to dismiss the plaintiff s statutory fraud claim on the grounds that the plaintiff had adequately alleged a misrepresentation (i.e., misstating the amount of chondroitin in the product), an ascertainable loss (i.e., the product had a measurable amount of chondroitin less than advertised), and a causal connection (i.e., the plaintiff relied on the chondroitin claim when purchasing the product). In doing so, the court rejected the defendant s collectivized pleading defense because it found that the plaintiff s allegations were sufficient to notify the defendant of the alleged counts. However, the court dismissed without prejudice the plaintiff s common law fraud claim for failure to adequately plead the elements of knowledge and reasonable reliance, and it dismissed with prejudice the plaintiff s unjust enrichment claim upon concluding that indirect purchasers cannot bring such claims under New Jersey law. The court also dismissed with prejudice all claims against the manufacturer s web designer for lack of personal jurisdiction because he was a California resident with no contacts in New Jersey. (Hoffman v. Liquid Health Inc., No , 2014 WL (D.N.J. July 2, 2014)). The U.S. District Court for the Northern District of California denies the plaintiffs motion to alter a judgment insofar as relates to the court s application of the primary jurisdiction doctrine, but grants the motion insofar as it seeks to convert the dismissal to a stay. Plaintiffs, on behalf of themselves and a nationwide consumer class, sued defendant Santa Cruz Natural, a soda and juice manufacturer, for false advertising under California consumer protections laws based on the defendant s use of 2

4 evaporated cane juice as the name of a cane-based sweetener ingredient in its products. Defendant moved to dismiss on, among other grounds, the primary jurisdiction of the Food and Drug Administration based on FDA s ongoing, formal process of issuing guidance as to whether evaporated cane juice is the common or usual name of the ingredient. On April 2, 2014 and based largely on a March 5, 2014 notice by FDA confirming that it was still engaged in its formal review of the issue the court granted the defendant s motion, dismissed the case without prejudice, and entered judgment on the basis of FDA s primary jurisdiction. Plaintiffs moved to alter, amend, or be relieved from the judgment under Fed. R. Civ. P. 59(e) (correct manifest error and prevent manifest injustice) and 60(e) (correct a mistake). The court denied the plaintiffs motion regarding the underlying primary jurisdiction ruling, finding that they simply were re-litigating issues considered (or that could have been considered) in the motion to dismiss proceedings. The court also noted that multiple similar primary jurisdiction rulings had issued in numerous other evaporated cane juice cases since the court issued its April 2 order. The court, however, granted the plaintiffs request to convert the dismissal without prejudice to a stay based on the unique circumstances of th[e] case, the potential prejudice to plaintiffs, and the apparent lack of prejudice to defendant. The court accepted the plaintiffs argument that a stay (as opposed to a dismissal without prejudice) was appropriate because further judicial proceedings were contemplated following the completion of FDA s review, and because of the potential that the plaintiffs may confront a statute of limitations issue if the case were dismissed and they were later forced to re-file it. (Swearingen v. Santa Cruz Natural Inc., No. 3:13-cv-4291, 2014 WL , (N.D. Cal. July 01, 2014)). The U.S. District Court for the Northern District of California denies ebay s motion to dismiss a putative class action complaint. When a seller lists an item for sale on ebay, the seller is charged a fee to list the item for a certain amount of time. When a potential buyer selects the Buy It Now option, the item is delisted, even if the potential buyer does not complete the transaction. Plaintiff, a seller, listed his vehicle on ebay paying a $36 listing fee for 21 days. A potential customer selected the Buy It Now option, but ultimately did not purchase the vehicle. Plaintiff requested a refund of the remaining time listed on the listing, but ebay only offered a nominal credit. Plaintiff then brought a class action complaint alleging, among other things, violation of California s consumer protection statues. In its motion to dismiss, ebay raised the argument that these practices are outlined in its user agreement, which sellers must accept prior to listing items. Plaintiff argued that that the terms and omission in the documents were ambiguous and misleading to the reasonable consumer. The court found that the plaintiff alleged enough to survive a motion to dismiss, including his own reliance on the terms and omissions in deciding to sell his vehicle on ebay. (Rosado v. ebay Inc., No. 5:12-CV-04005, 2014 WL (N.D. Cal. June 30, 2014)). The U.S. District Court for the Northern District of Illinois grants in part a defendant homeopathic drug manufacturer s motion to dismiss, or, in the alternative, to strike class-allegations or stay the case. The plaintiff claimed to have been damaged by the defendant s allegedly false advertising claims that the drug could relieve flu like symptoms, when in fact, the product was so diluted that there was statistically no possibility that even a single molecule of the alleged active ingredient was still present in any specific bottle of the drug. The defendant argued that the case was moot because the manufacturer had made a settlement offer before the plaintiff filed a class certification motion, that the plaintiff had no standing to pursue class claims because, by his own allegations, he would never purchase the product again, that monetary damages were unavailable because the manufacturer already agreed to provide refunds, that the fraud claims were not pled with 3

5 particularity, that the suit was preempted by federal law, and that the case should at least be stayed or transferred to the Southern District of California where a prior class-action settlement concerning essentially the same claims had already been approved (that decision was on appeal before the Ninth Circuit). The court found transfer to be inappropriate because neither party was from Southern California, none of the relevant events occurred there, and currently there was no case pending in the Southern District of California. However, the court did find that a stay was appropriate because many of the same issues which would arise in the current case were addressed in that case or might be addressed by the Ninth Circuit, or on remand to the district court should the Ninth Circuit reverse. The court also found important that the Ninth Circuit appeal had been fully briefed and was awaiting decision for 15 months, the average time for a decision coming out of the Ninth Circuit. Therefore, the court granted the motion to stay pending the resolution of the Ninth Circuit s decision. The other grounds for dismissal were denied without prejudice to be renewed later if warranted. (Conrad v. Boiron, Inc., No. 1:13-cv-07903, 2014 WL (N.D. Ill. June 30, 2014)). The U.S. District Court for the Southern District of New York grants defendant Staples, Inc. s Fed. R. Civ. P. 12(b)(6) motion to dismiss the plaintiff s putative class action, which alleged, among other things, deceptive practices and false advertising in violation of New York General Business Law 349 and 350. Plaintiff alleged, among other things, that Staples failed to provide the services advertised that would be provided in connection with the purchase of the Staples Protection Plan. Specifically, the plaintiff claimed that he was misled into believing that purchasing a protection plan in conjunction with a computer meant that Staples provided him a warranty for two years when in reality, the Protection Plan coverage did not begin until after the manufacturer s warranty expired, one year later. The court dismissed the claims because the language of the contract unambiguously provided that Staples was not responsible for coverage during the manufacturer s warranty period. The court also found that, even if the language could be construed as being unclear, the claim would still fail because the breach was immaterial and there were no damages. The court found that purchase of the Protection Plan meant only that plaintiff purchased the right to have his computer fixed without charge during the first two years that he owned it, a benefit that he was never denied. Thus, the absence of any injury prevented all his claims, including his false advertising claims from moving forward. (Orlander v. Staples, Inc., No. 13 Civ. 703, 2014 WL (S.D.N.Y. June 30, 2014)). Federal Trade Commission (FTC) Litigation The U.S. District Court for the Western District of Washington grants in part the FTC s motion for a temporary restraining order. The FTC sued four entities and the owner alleging that the defendants were misleading purchasers by asserting that their companies previously had agreed to advertise in the defendants business directory, and through unsolicited telephone calls, told customers that they were simply confirming their business addresses and contact information. Then defendants would attempt to bill the customers at least $479.95, and sometimes threaten suit, using the recordings to induce the customers to pay for the ad placement in the business directory. The court granted the FTC s motion for a temporary restraining order, but limited the relief in several respects. First, the court held that the FTC only had to prove likelihood of success and the balance of the equities, with greater weight being provided to the public interest, compared to private interests. However, the court denied the FTC s request for an asset freeze, holding that the FTC must present evidence showing a likelihood of dissipation of the claimed assets or other inability to recover monetary 4

6 damages. The court also denied the FTC any relief sought in their proposed temporary restraining order, but not addressed in its motion for entry of the temporary restraining order. (FTC v. Onlineyellowpagestoday.com, Inc., No. C14-838, 2014 WL (W.D. Wash. July 3, 2014)). RECENT FILINGS Consumer Class Actions Putative California-only class action filed against Jos. A. Bank Clothiers, Inc. ( JAB ) in the U.S. District Court for the Southern District of California, alleging violation of California s Unfair Competition Law and Consumer Legal Remedies Act. Plaintiffs claim that the regular prices advertised in JAB s buy one [regular priced item] get one [or more] free suit offers, and percent off sales are fabricated, inflated, and not representative of the true former price, within the preceding three months, for the product. The plaintiffs further allege that no consumer actually ever has paid the regular price for a suit outside of a promotion and that JAB products are perpetually on sale. (Lucas, et al. v. Jos. A. Bank Clothiers, Inc., No. 3:14-cv-1631 (S.D. Cal. complaint filed on July 9, 2014)). Putative class action filed against Fuhu, Inc. and Fuhu Holdings in California Superior Court (Los Angeles County), alleging violation of the California Legal Remedies Act, false advertising, unfair trade practices, breach of express and implied warranty, fraud, deceit and/or misrepresentation. According to the allegations in the complaint, the defendants manufacture, distribute, and sell Nabi brand electronic tablets for children and represent to consumers that the Nabi tablets are rechargeable and include a power adapter. According to the complaint, however, the power adapters included with the Nabi tablets do not reliably recharge the tablets and do not permit the tablet to be operated while plugged into a power source. The complaint further alleges that, because the Fuhu defendants sell the Nabi tablets with proprietary power adapters, consumers cannot use any alternative power adapters to provide power to or to recharge the batteries of the Nabi tablets. (Miller, et al. v. Fuhu, Inc., et al., No. BC (Cal. Super. Ct. complaint filed on July 7, 2017) Putative class action filed against ASA College, Inc. and its officers in the U.S. District Court for the Southern District of New York, alleging violations of New York General Business Law 349. ASA College is a privately owned, for-profit career college located in New York City. Plaintiffs allege that ASA College students have been victimized by a massive scheme to draw millions of dollars of federal and state financial aid to ASA at the students expense and detriment by systematically and fraudulently misrepresenting the nature of ASA s certificate and degree programs to past, current, and prospective students and various state and federal agencies. According to the plaintiffs, the defendants represent that ASA College programs provide occupational training that leads to specific types of employment; that ASA will place its students in externships that will lead to its students obtaining jobs in their fields; that ASA will provide its students with effective job placement assistance; that ASA graduates have a proven track record of obtaining jobs in their fields; and that an ASA degree is a fast and affordable route to obtaining a job. In reality, however, ASA purportedly conceals from students that its programs do not provide relevant or necessary occupational training; that the programs cannot be completed in the short amount of time represented; that ASA does not provide meaningful externships or job placement assistance; that the large majority of ASA students never graduate; that the vast majority of those who do graduate are 5

7 unable to find work; and that all students gain from enrolling in ASA is crippling student loan debt that they are unable to afford and lost eligibility for future federal and state educational loans and grants. (Sanchez, et al. v. ASA College, Inc., No. 1:14-CV (S.D.N.Y, complaint filed on July 3, 2014)). Putative nationwide class action filed in the U.S. District Court for the Southern District of New York against Hain Celestial Group, Inc., alleging violations of the California Organic Products Act, Consumers Legal Remedies Act, False Advertising Law and Unfair Competition Law based on organic and all natural claims made for Hain Celestial s Earth s Best brand infant foods, baby foods, kids food, baby care products, and home care products. According to the complaint, the products were deceptively labeled as organic and all natural because they allegedly contained a multitude of non-organic, synthetic compounds, such as benzyl alcohol, dimethicone, ethylhexyl palmitate, magnesium sulfate, panthenol, and phenoxyethanol. (Segedie, et al. v. Hain Celestial Group, Inc., No. 7:14-CV (S.D.N.Y. complaint filed on July 3, 2014)). 6