The Advertising Disputes & Litigation and Consumer Protection Committees RECENT LITIGATION DEVELOPMENTS. [Cases from June 16 to 26, 2014]

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2 The Advertising Disputes & Litigation and Consumer Protection Committees RECENT LITIGATION DEVELOPMENTS [Cases from June 16 to 26, 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 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.; Shahin Rothermel of Bryan Cave LLP; Lauren Aronson of Manatt, Phelps & Phillips, LLP; Lauren Valkenaar of Norton Rose Fulbright LLP; Hal Hodes and Linda Bean of the National Advertising Division of the Better Business Bureaus; Peter Farnese of Beshada Farnese LLP; Camille Calman of Davis Wright Tremaine LLP; Michael Mallow and Rachel Straus of Loeb & Loeb LLP; Jeremy A. Schachter of Kilpatrick Townsend & Stockton LLP; Tiffany Ge of Frost Brown Todd LLC. RECENT DECISIONS Lanham Act and Other Competitor Actions The U.S. District Court for the Northern District of Illinois grants in part and denies in part defendant Etailinsights, Inc. s motion to dismiss plaintiff Vertical Web Media, LLC s complaint pursuant to Fed. R. Civ. P. 12(b)(6) and 12(e). The parties sold competing products that compiled information and rank various online retailers in North America. According to the complaint, the defendant misused the plaintiff s proprietary information to create a portion of its own product without permission. Plaintiff alleged, among other things, that the defendant made false and misleading representations in violation of the Lanham Act on its website related to web sales available to subscribers; however, the plaintiff failed to identify in its complaint where on the defendant s website it had made those allegedly false misrepresentations. The court, therefore, dismissed without prejudice the Lanham Act claims to allow the plaintiff to cure the deficiencies in its pleadings. (Vertical Web Media, L.L.C. v. Etailinsights, Inc., No. 1:14-cv-03220, 2014 WL (N.D. Ill. June 24, 2014)). State Consumer Protection Laws The U.S. District Court for the Northern District of Illinois grants in part and denies in part the defendant s motion for summary judgment on, among other things, the plaintiff s consumer fraud and deceptive business practices claim brought under the Illinois Consumer Fraud Act. Plaintiff House of Brides, Inc. brought suit after the termination of its business relationship with the defendant Dessy Marketing & Distribution, Inc. due to their disputes over the shipment of and payment for wedding attire. The court dismissed the consumer fraud and deceptive business practices claim because the plaintiff failed to establish the necessary consumer nexus requirement that allows non-consumer businesses to pursue claims under the Act. The court explained that such requirement was necessary to ensure the Act achieves its main goal of consumer protection, thereby avoiding the adjudication of every individual breach of contract claim. (House of Brides, Inc. v. Dessy Mktg. & Distrib., Inc., No. 12 CV 08985, 2014 WL (N.D. Ill. June 24, 2014)). 1

3 The U.S. District Court for the District of Columbia, in a lawsuit brought under the D.C. Consumer Protection Procedures Act, enters an order denying injunctive relief but granting the plaintiffs request for statutory damages after previously granting summary judgment for the plaintiff. The court denied injunctive relief in light of the fact that the defendant-test preparation company had inserted an affirmative disclosure in its enrollment agreement distinguishing itself from a similarlynamed, third-party testing company, which was the origin of the alleged consumer confusion. However, the court awarded statutory damages in the amount of $1,500 per violation to the plaintiff and encouraged the parties to meet and confer on a reasonable amount of attorneys fees. (Beck v. Test Masters Educ. Servs., Inc., No , 2014 WL (D.D.C. June 20, 2014)). The U.S. District Court for the Eastern District of Tennessee grants the defendant s motion to dismiss claims of unfair and deceptive practices, and violations of the Tennessee Consumer Protection Act. During the plaintiff s travel with defendant United Airlines, the plaintiff alleged employees of the airline misrepresented boarding times, acted unprofessionally, and forced him to sit for seven hours in a room with no bathroom or air-conditioning. The court held that the plaintiff s claims fell within the scope of the Airline Deregulation Act and, therefore, were preempted by federal statute. (Shipwash v. United Airlines, Inc., No. 3:13-CV-564, 2014 WL (E.D. Tenn. Jun. 18, 2014)). The U.S. Court of Appeals for the Seventh Circuit affirms summary judgment in favor of the defendant-standards development organization that allegedly engaged in intentional publication of false and misleading information under the Wisconsin Deceptive Trade Practices Act. The defendant is an organization that develops standards for refrigeration processes, and the design and maintenance of energy efficient businesses, but it does not manufacturer or sell any products. The plaintiff alleged that the defendant disseminated inaccurate information in one of its standards, which caused building owners to choose to purchase its competitors systems over its own. The court upheld the defendant s motion to dismiss, holding that the plaintiff failed to allege that the defendant made any statements or representations in connection with any commercial transaction. It further held that adopting the plaintiff s interpretation of the act would render liable any standardssetting organization so long as a manufacturer could show that it lost sales as a result of allegedly inaccurate technical data. (Thermal Design, Inc. v. Am. Soc'y of Heating, Refrigerating & Air- Conditioning Eng rs, Inc., No , 2014 WL (7th Cir. June 18, 2014)). Consumer Class Actions The U.S. District Court for the Northern District of California denies the plaintiff s motion to certify a California consumer class in an action alleging false advertising of a number of defendant Gerber Products Company s food products intended for children under the age of two. Plaintiff sought to certify a single class on challenges to labels of 69 such products based on various statements indicating that the products were healthy, an excellent source of vitamins and minerals, and contained no added sugar. The court held that the plaintiff failed to define an ascertainable class, holding [t]he number of products at issue in this case, the varieties included and not included in the class definition, the changes in product labeling throughout the class period, the varied and uncertain length of time it takes for products with new labels to appear on store shelves, and the fact that the same products were sold with and without the challenged label statements simultaneously make 2

4 Plaintiff s proposed class identification method administratively unfeasible. (Bruton v. Gerber Prods. Co., No. 5:12-cv-02412, 2014 WL (N.D. Cal. June 23, 2014)). The United States District Court for the Southern District of California, in a class action lawsuit brought under California consumer protection laws, dismisses without prejudice the plaintiff s false advertising and breach of warranty claims against Wal-Mart, Inc. related to advertising for its Q10 supplement product. The court ruled that the plaintiff failed to allege sufficient facts to support that Wal-Mart s advertising claims related to the clinical strength, high absorption, and comparative efficacy of its product were false. In particular, the court observed that the plaintiff had alleged no facts to establish what consumers reasonably expect when presented with the challenged claims, aside from her own conclusory beliefs. It also found that the plaintiff failed to allege any facts concerning the performance of competing Q10 products. Additionally, the court dismissed the plaintiff s warranty claims for failure to allege the minimum standards of merchantability or fitness that Wal-Mart s supplement product failed to meet. (Cortina v. Wal-Mart, Inc., No. 13-cv-2054, 2014 WL (S.D. Cal. June 23, 2014)). The California Court of Appeal affirms a judgment dismissing the plaintiff s class action claims, which alleged unfair competition in violation of California s Unfair Competition Law ( UCL ). Plaintiff alleged that the defendant, Ralph s Grocery Company, sold and/or shared without consent its customers personal identification information that were provided when applying for membership into Ralph s free rewards card program. The court held that the plaintiff failed to allege an economic injury sufficient to meet the standing requirements of the UCL as there were no allegations regarding how he suffered an economic injury, i.e., loss of property or money, resulting from his use of the Ralphs reward card. The court further noted that the card was provided without cost to the plaintiff and provided the plaintiff only with discounts on certain products. (Heller v. Ralph s Grocery Co., No. B249608, 2014 WL (Cal. Ct. App. June 23, 2014)). The U.S. District Court for the District of Maryland dismisses a consolidated amended class complaint, challenging the advertising and labeling for GNC s TriFlex line of dietary supplements and a similar line of supplements manufactured for RiteAid, which contain the ingredients glucosamine hydrochloride and chondroitin sulfate. The advertisements and labels claimed that the supplements may help improve the health, comfort, and function of joints, and may help regenerate cartilage. Plaintiffs alleged that the vast weight of scientific evidence showed that glucosamine and chondroitin users did not experience improvements to joint discomfort or discomfort from deteriorating cartilage, and that the products performed no better than a placebo. The court dismissed the complaint with leave to amend, finding that the mere existence of a battle of the experts does not sufficiently establish that the defendants violated state consumer protection statutes. (In re GNC Corp. TriFlex Products Marketing and Sales Practices Litigation (No. II), MDL No , 2014 WL (D. Md. June 20, 2014)). The U.S. District Court for the Northern District of California denies the defendants motion to reconsider the court s previous partial grant of class certification. Defendant Dole Packaged Goods, LLC asserted that the recent California Supreme Court decision Duran v. U.S. Bank Nat l Ass n, created a new legal standard for certifying a class under California s Unfair Competition Law. The court rejected this argument, finding Duran to be irrelevant because labor laws, not Unfair Competition Law jurisprudence, governed that suit. The defendant also claimed reconsideration was 3

5 warranted because the court s acceptance of an expert s damages model was based on incorrect facts. Because the defendant s assertions were speculative, the court rejected this argument, noting that if the damages model turns out to be incorrect, the defendant, then, could move for decertification. Finally, the court refused to grant the defendant s request for interlocutory appeal, finding that it could appeal directly the court s classification order. (Brazil v. Dole Packaged Foods, LLC, No. 12-CV-01831, 2014 WL (N.D. Cal. Jun. 16, 2014)). The U.S. District Court for the Southern District of California grants the defendant-dietary supplement manufacturer s motion to stay, and denies without prejudice the defendant s motion to dismiss. Plaintiff filed a putative class action lawsuit against Supervalu, Inc., alleging false and misleading advertising of its glucosamine/chondroitin supplement sold at Albertson s grocery stores. Plaintiff alleged violations of California s Unfair Competition Law ( UCL ), Consumers Legal Remedies Act ( CLRA ), and breach of express warranty on behalf of a nationwide class. Defendant filed a motion to dismiss, and, shortly thereafter, filed a motion to stay. Defendant argued that this action is one of nine pending lawsuits challenging the efficacy of the same glucosamine/chondroitin dietary supplements manufactured by the same company. Defendant asserted that a settlement agreement was reached in three of the nine actions (which would involve certification of a settlement class) and requested an order staying this action during the pendency of the settlement approval process. Plaintiff did not dispute that the issues and the putative classes are effectively the same in this case and in the settled actions, and that if the settlement is approved, the plaintiff's putative class action will be moot. Because the plaintiff will have the opportunity to optout and pursue his individual claims, or object to the proposed settlement, the court determined that staying this action pending resolution of the settlement approval process is, on balance, in the best interests of the parties and the orderly course of justice. (Nunez v. Supervalu, Inc., No. 13-CV- 626, 2014 WL & 2014 WL (S.D. Cal. June 16, 2014)). Federal Trade Commission (FTC) Litigation The U.S. District Court for the District of New Jersey issued two opinions in FTC v. Wyndham Worldwide Corporation. The FTC initiated suit against the parent corporation and various subsidiaries who were engaged in operating hotels and resorts, alleging that the Wyndham companies had violated Section 5 of the Federal Trade Commission Act by committing unfair and deceptive acts and practices. Specifically, the FTC asserted that Wyndham engaged in unfair practices concerning data storage on three separate occasions, which led to customers credit card information being obtained by intruders. These alleged breach of duties occurred between April 2008 and January The FTC complaint alleged that the practices, taken together, unreasonably exposed consumers personal data to unauthorized access and theft. The FTC claimed that the Wyndham-related entities were liable under the common enterprise doctrine, which imposes liability upon related companies when the failure to hold them liable together would allow related companies to avoid an effective remedy based on the fact that Wyndham required various hotels to configure their computer systems to Wyndham s standards regarding reservations and payment card transactions. According to the FTC, the defendants failed to provide reasonable and appropriate security for the personal information collected and maintained by the hotels. The defendants moved to dismiss these allegations on the grounds that that they could not be held derivatively liable on the basis of the common enterprise theory because the FTC failed to alleged 4

6 the rigorous factual prerequisites to establish such liability. The court rejected this argument, reasoning that the FTC complaint alleged sufficient facts to state a cause of action. Further, the court drew a distinction between the common enterprise theory and piercing the corporate veil under an alter ego theory. A decisive factor in the court s holding focused upon the fact that it would be impractical to obtain an effective injunction if all the defendants were not held jointly and severally liable. The court concluded that, in situations where corporations are so intertwined that a judgment absolving one of them of liability would provide the other defendants with a clear mechanism for avoiding the terms of the order, courts have been willing to find the existence of a common enterprise. The court also found that the other elements of the common enterprise theory were properly alleged by the FTC, including common control and use of common offices. The court held that the FTC did not have to allege other factors, such as shell corporations used to perpetuate a fraud, lack of substantial business by the related companies, or a failure to maintain separate books and records. (FTC v. Wyndham Worldwide Corp., No , 2014 WL (D.N.J. June 13, 2014)). The court also issued a second opinion granting the defendants motion certifying several questions as controlling questions of law to the U.S. Court of Appeals for the Third Circuit. The focus of the certification issue related to claims by the defendants regarding (1) whether Section 5 of the FTC Act grants the FTC general authority over corporate data security and (2) whether the FTC has provided adequate notice of the standard that Section 5 requires with respect to corporate data security. The court reasoned that the question of whether the FTC has the authority to enforce standards as to privacy protection of consumer financial information was a question of significant importance and subject to legitimate dispute. Further, the court reasoned that the question of whether the FTC had provided sufficient notice to industry members regarding the required standard also would materially advance the litigation and was a matter of significant public interest. (FTC v. Wyndham Worldwide Corp., No , 2014 WL (D.N.J. June 23, 2014)). National Advertising Division (NAD) Decisions DraftKings, Inc., a fantasy sports website, has notified the NAD that it will permanently discontinue claims that the site is the #1 destination for daily fantasy sports on the Internet, as well as claims that it is the industry leader in daily fantasy sports. The claims at issue were challenged before the NAD by FanDuel, Inc., the operator of a competing daily fantasy sports website, Upon receipt of the NAD s inquiry letter, the advertiser informed the NAD in writing that, for reasons unrelated to the NAD proceeding, it had permanently discontinued use of its #1 Destination claims. The advertiser explained that it believed that its Industry Leader claims were presented as stand-alone, monadic claims of general excellence and constituted puffery under applicable NAD case history. However, the company informed the NAD in writing that, for reasons unrelated to NAD s proceeding, it had also permanently discontinued use of the Industry Leader claims and, in the future, would limit such claims to statements that the company is a leader in the daily fantasy sports industry, rather than the leader. The NAD noted its appreciation for the advertiser s voluntary action to permanently discontinue the challenged claims, action that the NAD deemed necessary and appropriate, given the absence of supporting evidence. (DraftKings, Inc. (DraftKings Fantasy Sports Website), NAD Report No (June 17, 2014)). 5

7 The NAD has recommended that Reckitt Benckiser LLC discontinue certain advertising claims for the company s Mucinex and Maximum Strength Mucinex chest congestion relievers, including claims that Only Mucinex has a bi-layer tablet. One side starts fast in 8 minutes. The other side keeps on working for 12 hours. The claims at issue were challenged by Pfizer Consumer Healthcare, the maker of Robitussin, a competing expectorant. Reckitt has said it will appeal NAD s findings to the National Advertising Review Board (NARB). The active ingredient in the advertised products, guaifenesin, is the only expectorant approved by the FDA. It is available in the challenger s product, Robitussin, in an immediate release form, which must be taken every four hours. NAD noted for the record that the Mucinex bi-layer tablets provide an innovative and convenient way for consumers suffering from chest congestion to take an expectorant with both immediate and extended release guaifenesin. The question for NAD, however, was whether the advertising claims that the Mucinex bi-layer tablet starts to work in 8 minutes could reasonably be interpreted by consumers to mean that they will begin to experience perceptible symptom relief eight minutes after taking Mucinex. Following its review of the advertising at issue, NAD determined that they could. Reckitt argued that its disclosure, based on the bioavailability of guaifenesin and bioavailability does not imply symptom relief, effectively limited the message and made clear that the product would not provide symptom relief in eight minutes. NAD disagreed. It had concerns about the size and prominence of the disclosures, which appear in small type at the bottom of the print advertisements. Further, the NAD noted that, even if the disclosures had been clear and conspicuous, they would not have been sufficient to cure the misimpression of the main message that Mucinex bi-layer tablets provide relief within eight minutes (as opposed to being bioavailable within eight minutes). Accordingly, the NAD recommended that these claims be discontinued. (Reckitt Benckiser, LLC (Mucinex), NAD Report No (June 18, 2014)). RECENT FILINGS Consumer Class Actions Putative class action filed against Fage Dairy Processing, S.A., Fage USA Dairy Industry, Inc., and Fage USA Holdings, Inc. in the U.S. District Court for the Eastern District of New York, alleging deceptive and unfair business practices in violation of New York s Deceptive and Unfair Trade Practices Act under N.Y. Gen. Bus. Law 349 and negligent misrepresentation. Plaintiff class members allege that the defendants manufactured, marketed, and sold a variety of Fage Greek yogurt products as part of the Total 0% product line. However, according to the plaintiffs, the defendants failed to provide any context as to what the 0% represented, despite the fact that they prominently displayed the phrase Total 0% on their products. The plaintiffs allege that by using such a label, the defendants attempted to convey to consumers that the products were healthier than other yogurts by suggesting that they lacked sugar, carbohydrates, calories, or any other ingredient that a consumer might find to be unhealthy. In reality, however, the products contained around 16 grams of sugar each, not 0%. (Solitz, et al. v. Fage Dairy Processing, S.A., et al., No. 1:14-CV (E.D.N.Y, complaint filed on June 19, 2014)). Putative class action filed against 99 Cent Only Stores, Inc. in California Superior Court (Los Angeles County), alleging violations of California s Unfair Competition Law and Consumer Legal Remedies Act. Plaintiff claims that the defendant misleads the public, because the name 99 Cent Only Store leads customers to believe that items will cost no more than $0.99, when, in fact, they 6

8 may cost upwards of two or three dollars. (Ermani, et al. v. 99 Cent Only Stores, Inc., No. BC (Cal. Super. Ct. complaint filed on June 19, 2014). Putative nationwide class action filed in the U.S. District Court for the Eastern District of New York against Chobani LLC, alleging violations the New York Deceptive and Unfair Trade Practices Act. According to the complaint, the defendant deceptively market its Chobani yogurt products by making a number of misleading claims, including concealing the presence of sugar by labeling it evaporated cane juice, labeling the products as Greek despite the fact that they are not made in Greece or through any method in particular to Greece, and displaying 0% on the top and front of certain labels without additional context. (Stoltz, et al. v. Chobani, LLC, et al., No. 14-CV-3827 (E.D.N.Y. complaint filed on June 19, 2014)). Putative class action filed against Dole Packaged Foods, LLC in the U.S. district Court for the Western District of Arkansas, alleging, among other things, violations of Arkansas consumer protection statute. According to Plaintiff, the labels on Dole s fruit products, including its Dole Tropical Fruit in Light Syrup & Passion Fruit Juice, Dole Tropical Fruit in 100% Juice, Dole Mixed Fruit in 100% Fruit Juice, Dole Diced Peaches in 100% Fruit Juice, and Dole Mandarin Oranges in 100% Fruit Juice, are unlawful under Arkansas law, and misleading, deceptive, unfair, and fraudulent because the labels inclusion of the phrase All Nature is a deceptive representation that hides from consumers that the product contains unnatural ingredients, including citric acid and ascorbic acid. (Kinney, et al. v. Dole Packaged Foods, LLC, No (W.D. Ark. complaint filed on June 18, 2014)). Putative California-only class action filed against Tristar Products, Inc., which alleged violations of California s Unfair Competition Law, False Advertising Law, and Consumer Legal Remedies Act, removed from California Superior Court (Los Angeles County) to the U.S. District Court for the Central District of California. Plaintiff claims that Tristar falsely advertises that its Flex-Able Hose is impervious to kinking and breaking, and able to expand up to three times its original length but shrink back to its original shape in seconds. (Dix, et al. v. Tristar Prods., Inc., No. 2:14-cv-4705 (C.D. Cal. complaint removed on June 18, 2014)). Putative statewide class action filed in New York Supreme Court against Kind, LLC, alleging violations of the New York Deceptive and Unfair Trade Practices Act based on the marketing of defendant s Kind Healthy Grains line of products, which include various snack bars and cereal. According to the complaint, the defendant deceptively labeled products as healthy and concealed that the products actually contained processed sugar by misrepresenting the sugar as evaporated cane juice. (Helcher, et al. v. Kind, LLC, No (N.Y. Sup. Ct. complaint filed on June 16, 2014)). 7