The Advertising Disputes & Litigation and Consumer Protection Committees RECENT LITIGATION DEVELOPMENTS. [Cases from July 6 to July 21, 2017]

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2 The Advertising Disputes & Litigation and Consumer Protection Committees RECENT LITIGATION DEVELOPMENTS [Cases from July 6 to July 21, 2017] 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, Mindy Pava, and Jennifer Rodden of Kelley Drye & Warren LLP; Doug Brown and Samantha Duke of Rumberger, Kirk & Caldwell; Darren McCartney of Walters McCartney, PLLC; Erik King of Lockheed Martin; and Eugene Benick of NOVA Business Law Group, LLP. RECENT DECISIONS Consumer Protection Laws The U.S. District Court for the Eastern District of Michigan dismisses with prejudice the complaints in six separate actions filed by a plaintiff pet food manufacturer against several of its competitors. The complaints in each action asserted a single Lanham Act false advertising claim, based on the defendant s inclusion of pictures of premium cuts of meat from various animals on its product packaging. The plaintiff alleged that the inclusion of these pictures misled consumers in three ways: (1) by conveying the message that the products included these premium cuts of meat that consumers would feed their families when, in fact, they only included the lower-cost parts of the animals that people would not eat; (2) that the pictures convey the message that the primary ingredient in the products is the premium cut of meat when, in fact, the primary ingredient is both lower quality and from a different animal; and (3) that the pictures suggest that the products contain the premium cuts of meat when, in fact, they contain only low-quality animal by-products. Plaintiff argued the message from the pictures was literally false or alternatively misleading to a reasonable consumer. The court rejected all three theories both under the literally false standard and the true but misleading standard. The court found the allegations implausible and insufficient primarily because the plaintiff failed to include any detailed factual allegations about how the pictures were utilized along with other aspects of the packaging as a whole and other marketing to create the specific message the manufacturer claimed was conveyed. The court rejected the literal falsity claim because the pictures by themselves could be susceptible to more than one plausible interpretation, other than the plaintiff s posited meaning. The court reasoned that a reasonable consumer could understand the pictures to convey merely that real chicken was used or that chicken flavoring was used. As such, a literally false claim could not be made. In addition, the court rejected the true but misleading theory as implausible because of the complete lack of allegations of how the pictures worked in conjunction with the packaging and marketing as a whole to convey the message the plaintiff alleged. The court surveyed other cases that found allegations of misleading advertising barely plausible, and determined that the manufacturer s allegations did not come close to meeting this minimal plausibility standard. The court granted the motion with prejudice because the plaintiff was given one chance to amend previously and was provided clear instruction to correct the failures. The court found that justice did not require, even under the liberal pleading standard, allowing the plaintiff another chance to amend. The court considered 2

3 significant the fact that the plaintiff made almost no changes to the original complaint and largely stood firm on its original allegations. The court found it would be unjust to require the parties to go through another round of analysis and motions practice, considering the significant time, cost, and expense that each of the defendants and the court already had been required to incur in reviewing and responding to the two complaints already filed. (Wysong Corp. v. APN, Inc., No , 2017 WL (E.D. Mich. July 20, 2017)). The U.S. Court of Appeals for the Ninth Circuit grants defendant-appellee Gerber Products Company s petition for rehearing, vacates its April 19, 2017 memorandum disposition (found at 2017 WL ), and issues a new memorandum disposition. Plaintiff-appellant filed the lawsuit challenging the labels of 69 of the defendant s baby food products. Plaintiff challenged various label statements not because they were false (the products may well have been As Healthy as Fresh ) but as both deceptive and, separately, as unlawful because they violated technical aspects of federal food label regulations. For example, under federal food label law, certain statements, whether true or not, may not be made on food marketed for children under two years of age. Plaintiff s theory of deception was that she relied on the defendant s challenged label statements in making her decision to purchase its products because she concluded the products were superior to competitor products that did not make the same label statements. In the new decision, and in a change from its original decision, the Ninth Circuit affirmed the district court s award of summary judgment in the defendant s favor on this deception claim. Upon rehearing, the Ninth Circuit this time without deciding whether the plaintiff s theory of deception was legally viable agreed with the defendant that the plaintiff s evidence was insufficient to meet her preponderance of evidence burden to demonstrate that the reasonable consumer would be deceived in this manner. Similar to its initial decision however, the Ninth Circuit reversed the district court s summary judgment award in the defendant s favor based on the plaintiff s claim under the unlawful prong of California s Unfair Competition Law ( UCL ), and reinstated that claim. Plaintiff presented sufficient evidence that the label statements violated the law, and the Ninth Circuit determined that the particular alleged violations of federal food label law at issue (as incorporated into California law via California s Sherman Food, Drug and Cosmetic Law) can be independently actionable under the unlawful prong of the UCL without allegations or evidence of consumer deception. Also similar to its initial order, the Ninth Circuit reversed the part of the district court s motion to dismiss the order on the plaintiff s unjust enrichment claim and reinstated that claim. Finally, and also similar to its initial decision, the Ninth Circuit reversed the district court s decision that, due to ascertainability problems, a class cannot be certified, and remanded the class certification decision for further consideration. (Bruton v. Gerber Prods. Co., -- Fed. Appx. --, No , 2017 WL (9th Cir. July 17, 2017)). Consumer Class Actions The U.S. District Court for the Southern District of California denies defendant New York & Company Inc. s motion to dismiss the plaintiff s third amended complaint in a putative consumer class action alleging violations of California s Unfair Competition Law ( UCL ), False Advertising Law ( FAL ), and Consumer Legal Remedies Act ( CLRA ). Specifically, the plaintiff alleges that she purchased shoes at one of the defendant s retail stores after seeing a large, red, rectangular sign that advertised that all of the shoes in the store were 70% off. She alleges that the discounted price of the shoes is part of a large scheme whereby New York & 3

4 Company, in its retail stores, outlet stores, and website, listed false and misleading regular prices on its merchandise that were either never offered to the general public, or they were offered for an inconsequential period of time and then continuously discounted. In denying the defendant s motion to dismiss, the court found that the complaint and accompanying evidence were sufficient under Fed. R. Civ. P. 9(b) because she provided sufficient detail about the allegedly false statements (the red sign) she saw which induced her purchase. She also included photographs of similar sale signs and a detailed list of other examples of products that were allegedly discounted in a similar manner to the shoes she purchased. However, the court granted the defendant s request to strike references in the complaint to New York & Company s outlet stores and website because plaintiff did not allege that she ever shopped at those locations. (Rael v. New York & Co., Inc., No. 16-cv-369, 2017 WL (S.D. Cal. July 17, 2017)). The U.S. District Court for the District of New Jersey grants the motion to dismiss filed by defendant Johnson & Johnson in a putative class action alleging that the defendant failed to disclose the increased risk of ovarian cancer associated with its Baby Powder and falsely represented that the product was clinically proven to be safe, gentle, and mild. Plaintiff alleged that she suffered economic injury in the form of the purchase price of the powder, though she did not allege that she suffered any physical harm as a result of such use. The court granted the defendant s motion to dismiss on grounds that the plaintiff lacked Article III standing to bring the action. Specifically, the plaintiff had not adequately alleged that she relied upon the defendants representations in purchasing Baby Powder and subsequently was denied the benefit of that bargain upon learning that Baby Powder allegedly caused an increased risk of ovarian cancer. However, the plaintiff was given leave to amend her complaint. (Estrada v. Johnson & Johnson, No. CV , 2017 WL (D.N.J. July 14, 2017)). The U.S. District Court for the District of Minnesota grants defendant General Mills motion to dismiss the plaintiffs class action claims involving granola bars labeled as Made with 100% Natural Whole Grain Oats. Plaintiffs brought claims under the consumer protection acts and warranty laws of Minnesota, Illinois, California, and New York. Plaintiffs sought to certify statewide classes as well as a nationwide class on the issue of whether granola bars containing trace amounts of an herbicide and desiccant were misleadingly labeled. Addressing whether the plaintiffs established a plausible claim, the court held that no reasonable consumer would interpret the label Made with 100% Natural Whole Grain Oats to mean that there is no trace of an herbicide or desiccant. The court reasoned that the General Mills granola bars would have satisfied the more stringent standard for organic with its chemical pesticide residue, so it cannot be deemed to be misleading that the product contained a trace of a biocide. Addressing the breach of warranty claims, the court reasoned that it was not plausible that a representation regarding one ingredient being 100% Natural means that the product as a whole does not contain traces of synthetic ingredients, so General Mills could not have breached a warranty it never gave. (In re General Mills Glyphosate Litig., No. CV , 2017 WL (D. Minn. July 12, 2017)). The U.S. District Court for the Southern District of New York denies in part and grants in part defendant BHH, LLC s motion to dismiss the plaintiffs class action complaint, and grants the plaintiffs class certification motion, in a case involving ultrasonic pest repellers that allegedly help to drive out pests. BHH sought to dismiss the case on several grounds. First, BHH claimed that the economic loss rule defeated plaintiffs common law fraud claim. The court found that the 4

5 fraudulent inducement exception to the economic loss rule applied because, while not expressly pled, the amended complaint sufficiently alleges the elements of such claim. Moreover, the plaintiffs met the heightened pleading standard of Fed. R. Civ. P. 9(b) because they allege that the products did not work as advertised and cite scientific studies and regulatory investigations discrediting allegations that like products repel pests. The court also addressed the plaintiffs California s Unfair Competition Law ( UCL ) and False Advertising Law ( FAL ) claims, finding that the plaintiffs failed to state a plausible claim for restitution under the UCL and FAL because they did not allege that the funds received by BHH were traceable to the plaintiffs, and [a]llegations that a defendant received ill-gotten gains are insufficient to state a claim under these statutes unless plaintiff also alleges a vested interest in the money. Finally, the court certified the class, noting in particular that the class was ascertainable because consumers could be asked whether they purchased the pest repellers in the United States during the class period, and records could be subpoenaed from third-party retailers. Moreover, reliance and causation could be established due to the presumption that a customer would not have purchased the product for any other reason than the advertised one. (Hart v. BHH, LLC, No. 15cv4804, 2017 WL (S.D.N.Y. July 7, 2017)). The U.S. District Court for the Northern District of California grants, in part, the defendant s motion to dismiss the plaintiffs California Unfair Competition Law, False Advertising Act, and Consumer Legal Remedies claims. Plaintiffs filed a putative class action alleging that defendants Macy s, Macy s West Stores, and Bloomingales engaged in a pricing scheme by which they mislabeled their merchandise with false or inflated original regular prices in an effort to deceive consumers into believing that the listed sale price is more advantageous. First, plaintiffs conceded to the dismissal of claims against Macy s and Bloomingdales after the court determined that there were no specific allegations that a named plaintiff purchased any items from Bloomingdales or that Bloomingdales was responsible for the pricing scheme in question. Pertaining to claims against Macy s West Stores, the court reasoned that the plaintiffs failed to allege sufficient facts regarding their purchases because they did not specifically identify the actual transactions involving purportedly misleading prices, and also failed to identify the false and misleading statements they relied upon when making purchases. The court further concluded that the plaintiffs did not have standing to seek injunctive relief because they could not show that they risked being harmed by the same pricing scheme again. However, the court denied the motion to dismiss the plaintiffs request for restitution, finding that whether they can prove the amount of restitution should be addressed later in the litigation. (Haley v. Macy's, Inc., No. 15-cv-06033, 2017 WL (N.D. Cal. July 7, 2017). Federal Trade Commission (FTC) Litigation Decisions The U.S. District Court for the Western District of New York denies a motion for summary judgment filed by the Federal Trade Commission ( FTC ) and the New York Attorney General against various corporate and individual defendants accused of unfair and deceptive practices regarding debt collection activities under the FTC Act and the Fair Debt Collection Practices Act ( FDCPA ). Defendants argued that they were not involved in debt collection activities, but, instead, were involved in separate legitimate activities of purchasing and placing debt with third parties. They argued that the debt collection practices were performed by call instigators who would transfer the consumers to defendants who functioned as independent payment processors. 5

6 The plaintiff proceeded under the theory that the defendants were a common enterprise and the separate entities were simply a ploy to separate themselves from responsibility. Payments made could be for legitimate services and the parties involved in the deception were not parties in this case. The court denied the plaintiffs motion for summary judgment on the grounds of contested factual issues as to all or most of the elements required to establish a common enterprise. The court found that some evidence of common enterprise existed, but it was unclear which parties were involved. The court also found disputed facts as to each defendant s individual liability. (FTC v. Vantage Point Services, LLC, No. 15-cv-6S, 2017 WL (W.D. N.Y. Jul. 17, 2017)). RECENT FILINGS Consumer Class Actions Putative nationwide class action, with California-only subclass, filed against Beaumont Products Incorporated d/b/a Clearly Natural Essentials in the U.S. District Court for the Central District of California, alleging causes of action for, among other things, violation of the consumer protection statutes of forty-one states. Plaintiff asserts that the defendant s Clearly Natural Essentials beauty products are mislabeled as natural, causing consumers to pay a premium price. According to the plaintiff, despite the Clearly Natural and Pure and Natural statements on the labels, the products contain multiple synthetic and artificial ingredients. (Paul v. Beaumont Products Inc., No. 8:17-cv (C.D. Cal. complaint filed on Jul. 18, 2017)). Putative nationwide class action, with California-only subclasses, filed against Dr. Pepper Snapple Group, Inc. in the U.S. District Court for the Central District of California, alleging causes of action for, among other things, common law fraud, intentional misrepresentation, negligent misrepresentation, and violation of California consumer protection statutes. Plaintiff asserts that the defendant s Canada Dry Ginger Ale products are falsely labeled because they do not contain ginger. According to the plaintiff, despite the use of the term ginger in the product name and the inclusion of a Made from Real Ginger statement on the label, testing revealed that the product did not contain ginger. Instead, the plaintiff claims, the defendant uses cheaper, substitute ingredients to mimic the taste of ginger to prevent consumers from realizing the product does not contain ginger. (Margaryan v. Dr. Pepper Snapple Group, Inc., No. 2:17-cv (C.D. Cal. complaint filed on Jul. 14, 2017)). Putative class action seeking certification of nationwide and New York-only classes filed against Atkins Nutritionals, Inc. in the U.S. District Court for the Southern District of New York, alleging violation of Sections 349 and 350 of the New York General Business Law. Plaintiff claims that Atkins makes misleading Net Carbs claims about its snack products, which contain sugar alcohols that have a significant effect on blood sugar levels. As a result, the plaintiff alleges, Atkins should not deduct carbohydrates derived from these sugar alcohols when determining the Net Carbs count. (Garcia v. Atkins Nutritionals, Inc., No. 1:17-cv-5232 (S.D.N.Y. complaint filed on July 11, 2017)). 6

7 Putative New York-only class action filed against The Coca-Cola Company in the U.S. District Court for the Eastern District of New York, alleging violation of Sections 349 and 350 of the New York General Business Law. Plaintiff claims that Coke falsely advertises its Gold Peak Tea products as having No Preservatives, when they contain the well-known preservatives citric acid, phosphoric acid, and ascorbic acid. (Naseri v. Coca-Cola Co., No. 1:17-cv-4033 (E.D.N.Y. complaint filed on July 6, 2017)). 7