The Advertising Disputes & Litigation and Consumer Protection Committees RECENT LITIGATION DEVELOPMENTS [Cases from July 30 to August 19, 2016] Prepared for the ADL and CP Committees by Dan Blynn, Shahin Rothermel, and Sam Boro of Venable LLP; Dale Giali, Elizabeth Crepps, and Rebecca Johns of Mayer Brown LLP; Sherrie Schiavetti, Katie Townley, Donnelly McDowell, and Jennifer Wainwright of Kelley Drye & Warren LLP; Doug Brown and Samantha Duke of Rumberger Kirk & Caldwell; Erik King of Lockheed Martin; Mike Sherling, Judicial Law Clerk, Maryland Court of Special Appeals; Tiffany Ge of Frost Brown Todd LLC; Eugene Bencik of NOVA Business Law Group, LLP; and Lauren Valkenaar of Norton Rose Fulbright LLP. RECENT DECISIONS Lanham Act and Other Competitor Actions The U.S. District Court for the Central District of California denies cross-motions for summary judgment and a motion for summary adjudication for lack of standing in a false advertising case brought by Homeland Housewares, LLC, the former IP holder of Nutribullet blenders, against Sharkninja Operating LLC, the maker of NutriNinja blenders. Homeland alleged that Sharkninja made inaccurate comparative claims regarding Nutribullet blenders because Sharkninja failed to specify the Nutribullet blender to which Sharkninja was comparing its product. The court previously had granted a preliminary injunction requiring SharkNinja to remove the allegedly infringing statements from its packaging. In a summary opinion, the court found that there were triable issues of fact and denied the summary judgment motions. The court also held that Homeland had alleged reputational injury sufficient to meet the Lanham Act s standing requirements. (Homeland Housewares, LLC v. Sharkninja Operating LLC, No. 14-03954, 2016 WL 4154676 (C.D. Cal. Aug. 2, 2016)). Consumer Class Actions The U.S. District Court for the Northern District of California grants in part and denies in part defendant Santa Cruz Natural, Inc. s motion to dismiss a class action alleging false advertising and unfair competition claims arising out of labeling of its soda products. Plaintiffs claimed that the products were labeled as containing evaporated cane juice, leading them to believe that the drinks contained no added sugars. Defendant argued that the plaintiffs lacked standing under California s Unfair Competition Law, Consumer Legal Remedies Act, and False Advertising Law because the plaintiffs failed to allege reliance upon the labeling in making their purchasing decisions. The court disagreed, finding sufficient the plaintiffs argument that, had they known that evaporated cane juice was sugar, they would not have made the purchases. Next, the court dismissed claims based upon products that did not contain evaporated cane juice; however, the court determined that all the plaintiffs claim based on sodas containing evaporated cane juice survived, even if every plaintiff had not purchased that particular drink, because those drinks were sufficiently similar to products that the plaintiffs had purchased. The court further rejected the defendant s preemption argument because the plaintiffs did not seek to impose new labeling 2
requirements, but, rather, to enforce misbranded products. Finally, the court determined that the plaintiffs potentially could survive the reasonable consumer test because a reasonable consumer could be misled as to whether the sugar in the sodas were naturally occurring. (Swearingen v. Santa Cruz Natural, Inc., No. 13-cv-04291, 2016 WL 4382544 (N.D. Cal. Aug. 17, 2016)). The U.S. District Court for the Southern District of New York grants in part and denies in part defendant Nestle Purina Petcare Company s motion to dismiss a putative class action for alleged false advertising of Nestle s dog food products. Plaintiff claimed that the defendant aggressively marketed its Beggin dog treat products as being made predominantly out of real bacon, when, in fact, the product consists largely of processed wheat, corn, soy, and water. Defendant argued that no reasonable consumer could be misled by the products advertising. The court denied the motion in part, holding that, whether a reasonable consumer would assume bacon would not be a main ingredient based on the advertising is a question of fact; the court similarly rejected the defendant s argument at the motion to dismiss stage that the allegedly misleading information was mere puffery. However, the court granted the motion to dismiss as to the advertising claims made on the company website, finding that the plaintiff had not established that he had in fact accessed such advertisements. (Kacocha v. Nestle Purina Petcare Co., 2016 WL 4367991 (S.D.N.Y. Aug. 12, 2016)). The U.S. District Court for the Southern District of California grants in part and denies in part the motion to dismiss and denies the motion to strike filed by defendants Nature s Way Products and Schwabe North America in consumer class action alleging that the defendants coconut oil has too much total fat and saturated fat to be marketed as healthy. The court ruled that the complaint stated a claim, including that the defendants statements violated federal regulations regarding the use of healthy on food labeling, and that the plaintiffs adequately alleged reliance. The court ruled that healthy and Ideal for exercise and weight loss programs are statements that can support a warranty claim, but the word premium is puffery and cannot support a warranty claim. Because the plaintiffs alleged that they relied on the manufacturer s product labels, they needed not allege vertical privity with the defendants to sue for breach of warranty. The court, however, dismissed the plaintiffs unfair prong claim under California s Unfair Competition Law, which requires immoral, unethical, oppressive, unscrupulous, or substantially injurious practices or violations of constitutional, statutory, or regulatory provisions, because the allegations were not sufficiently specific, but denied the defendants motion as to the fraudulent and unlawful prongs. Even though the plaintiff purchased the coconut oil for the first time five years ago, the continuing violation doctrine preserves the claims for the entire statute of limitations period; however, the plaintiff did not plead sufficient facts to toll the statute of limitations. Accordingly, the defendants motion to dismiss claims outside the statutes of limitations based on the delayed discovery rule was granted. The court also ruled that the plaintiffs had standing to sue over substantially similar products that they did not purchase; but, because the plaintiffs are now aware of the alleged deception and likely will not purchase the product again, they do not have standing to seek injunctive relief. (Hunter v. Nature s Way Products, LLC, No. 16-cv-532, 2016 WL 4262188 (S.D. Cal. Aug. 12, 2016)). The U.S. District Court for the District of Columbia grants in part and denies in part the defendants motion to dismiss the plaintiffs amended class action complaint regarding the defendant s no!no! hair removal device. Subsequently, the U.S. District Court for the Eastern District of 3
California lifted the stay of the similar class action before it and granted the defendants motion for change of venue. Plaintiffs brought a number of implied and express warranty claims in the District of Columbia, as well as a number of state-specific consumer protection act claims against the defendant corporation and an officer of the company. The court denied the motion to dismiss the claims against the company, holding that the plaintiffs provision of additional details regarding each individual plaintiff s exposure to advertising regarding the device satisfied the reliance element for the warranty claims. For the consumer protection act claims, the court declined to dismiss based on the statute of limitations, as the claims were not barred on the face of the complaint. The court also held that the plaintiffs adequately alleged reliance on the advertising materials and sufficient causation to their alleged injuries. With respect to the corporate officer, the court dismissed the warranty claims for lack of privity and the consumer protection claims for a lack of individualized allegations against the corporate officer. After the ruling in the District of Columbia, the California court granted the defendants change of venue motion on the basis that the difference between the two actions was not greatly significant and greater efficiencies would occur if the matters were heard in one wholesale action. (Mouzon v. Radiancy, Inc., -- F. Supp. 3d --, No. 1:15-cv-1142, 2016 WL 4099045 (D.D.C. Aug. 2, 2016); Cantley v. Radiancy, Inc., No.1:15-cv-01649, 2016 WL 4191889 (E.D. Cal. Aug. 8, 2016)). The U.S. District Court for the District of New Jersey grants defendant TD Bank s motion to dismiss a putative class action alleging that it failed to disclose embedded fees in foreign currency transactions and misled customers as to foreign exchange rates, in violation of the Electronic Fund Transfers Act and the New Jersey Consumer Fraud Act. Plaintiffs claimed that TD Bank intentionally failed to disclose foreign transaction fees and did not make its applicable exchange rate readily available, thereby misleading customers into believing that TD Bank uses an objective rate such as those published in the Wall Street Journal. Plaintiffs alleged TD Bank charges an embedded transaction fee equating to a number of basis points added to TD Bank s applicable exchange rate. The court granted TD Bank s motion to dismiss, finding that the plaintiffs failed to plead fraud with particularity and pled only conclusory allegations. (MZL Capital Holdings, Inc. v. TD Bank, N.A., No. 14-cv-5772, 2016 WL 4163827 (D.N.J. Aug. 5, 2016)). The U.S. District Court for the Eastern District of Missouri denies the defendant s motion to dismiss the class action complaint alleging that it falsely labeled its products as Nothing Artificial despite containing synthetic, artificial substances. Plaintiffs asserted claims for violation of the Missouri Merchandising Practices Act ( MMPA ) and unjust enrichment. The court held that the complaint satisfied Fed. R. Civ. P. 9(b) s particularity requirements. Further, the court rejected the defendant s ingredient list defense, finding it plausible that a consumer might rely on the representation Nothing Artificial without looking at the ingredients, or that a consumer might not know that certain ingredients are artificial ingredients. The court found that the plaintiffs alleged a plausible theory of damages, noting that Missouri courts apply the benefit of the bargain rule when determining if a plaintiff has suffered an ascertainable loss under the MMPA. The court also noted that, whether a reasonable consumer would be deceived by a product label is generally a question of fact that cannot be resolved on a motion to dismiss. (Thornton v. Pinnacle Foods Grp. LLC, No. 16-cv-00158, 2016 WL 4073713 (E.D. Mo. Aug. 1, 2016)). 4
The U.S. District Court for the Northern District of California grants in part defendant Seaworld Parks and Entertainment, Inc. s motion to dismiss the plaintiffs first amended complaint alleging that Seaworld s marketing campaign, in which it made several statements concerning the welfare of its orcas, violated California s False Advertising Law ( FAL ), Unfair Competition Law ( UCL ), and Consumer Legal Remedies Act ( CLRA ). Plaintiffs sought restitution on behalf of themselves and injunctive relief. The court dismissed the CLRA claim because the plaintiffs failed to give the defendant the required notice and opportunity to cure. Next, the court dismissed the FAL and UCL claims, finding that the plaintiffs lacked Article III standing. According to the court, because the plaintiffs did not allege that they would purchase tickets to Seaworld in the future or otherwise suffer future harm, they lacked standing to pursue injunctive relief. Finally, the court dismissed the complaint as to certain plaintiffs pursuant to Fed. R. Civ. P. 9(b) because they failed to allege the specific representations upon which they relied, which would entitled them to relief. (Anderson v. Seaworld Parks and Entm t, Inc., No. 15-cv-02172, 2016 WL 4076097 (N.D. Cal. Aug. 1, 2016)). Federal Trade Commission (FTC) Litigation Decisions The U.S. District Court for the Middle District of Florida enters a final order providing injunctive and monetary relief in a lawsuit brought by the FTC against various providers of mortgage assistance services. The FTC filed a complaint alleging violations of the FTC Act, the Telemarketing Sales Rule ( TSR ), and the Mortgage Assistance Relief Services ( MARS ) Rule. The FTC alleged that the defendants misled consumers about the results of various mortgage assistance programs that they were to provide and the legal services that would be provided to consumers. The order prohibits the defendants from misrepresenting terms of mortgages, loan modifications, loans, and extensions of credit, or legal services to be provided. The final order also prohibits violations of the TSR and the MARS Rule. Defendants were held jointly and severally liable for $8 million in unjust enrichment, which would be reduced by the $5,586,713 actually recovered from the defendants. The order appointed a liquidating agent and required the defendants to comply with reporting, record keeping, and monitoring obligations. (FTC v. Lanier Law LLC, No. 14-cv-786-J-34, 2016 WL 4262273 (M.D. Fla. Aug. 12, 2016)). RECENT FILINGS Consumer Class Actions Putative nationwide class action against Lumber Liquidators, Inc., alleging violations of the New York Deceptive and Unfair Trade Practices Act, the Magnuson-Moss Warranty Act, and state common law, removed and transferred to the U.S. District Court for the Eastern District of New York from the Central District of California. Plaintiffs allege that the defendant falsely marketed its laminate flooring products as compliant with the AC3 industry standard and as extremely durable and scratch resistant despite product testing demonstrating that the products were not AC3-complaint and were unusually susceptible to visible scratching and deterioration. (Hotaling, et al. v. Lumber Liquidators, Inc., No. 16-cv-04646 (E.D.N.Y. complaint transferred on Aug. 19, 2016)). Putative class action seeking certification of nationwide and California- and New York-only classes filed against PepsiCo, Inc. and Izze Beverage Co. in the U.S. District Court for the Southern 5
District of New York, alleging violation of California s Consumer Legal Remedies Act, False Advertising Law, and Unfair Competition Law, and Sections 349 and 350 of the New York General Business Law. Plaintiff claims that the defendants falsely advertise and label their Izze Soda products as containing no preservatives and delivering two servings of fruit despite the products containing the preservatives citric acid and absorbic acid, and allegedly not providing any of the nutritional value or benefits typically obtained through eating whole fruit. (Lindberg v. PepsiCo, Inc. et al., No. 16-cv-6569 (S.D.N.Y. complaint filed on Aug. 19, 2016)). Putative California-only class action filed against KIND, LLC, KIND FOODS, LLC, and KIND, INC. in the U.S. District Court for the Northern District of California alleging violations of California s Unfair Competition Law and Consumers Legal Remedies Act, and restitution based on quasi-contract. Plaintiffs assert that the defendants falsely label their snack bar products as Made in the USA even though at least one the ingredients, ascorbic acid, or Vitamin C, is sourced from another country. (Fraser v. KIND, LLC, et al., No. 3:16-cv-4766 (N.D. Cal. complaint filed on Aug. 18, 2016)). Putative New York-only class action filed in the U.S. District Court for the Southern District of New York against Boulder Brands, Inc., alleging violations of the New York General Business Law. Plaintiff claims that defendant under-fills its Low Sodium and Extra Virgin Olive Oil Smart Balance spreads by selling 13 ounces of product in 15-ounce tubs. (Pepper v. Boulder Brands, Inc., No. 16-cv-6512 (S.D.N.Y. complaint filed on Aug. 17, 2016)). Putative nationwide class action filed in the U.S. District Court for the Southern District of New York against Shinola/Detroit, LLC and Bedrock Manufacturing Co. alleging violations of the New York Deceptive and Unfair Trade Practices Act, the Magnuson-Moss Warranty Act, and common law. Plaintiffs allege that defendants deceptively labeled its watches as Built in Detroit when virtually all components of the watch are made overseas. (Huber, et al. v. Shinola/Detroit, LLC, et al., No. 16-cv-06465 (S.D.N.Y. complaint filed on Aug. 15, 2016)). Putative nationwide class action, with New York subclass, filed against Better Planet Brands, LLC d/b/a Acure Organics in the U.S. District Court for the Southern District of New York, alleging violations of New York Deceptive and Unfair Trade Practices Act, negligent misrepresentation, breach of express warranty, and unjust enrichment. Plaintiff asserts that the defendant misleadingly advertises its hair care products ability to repair damaged hair when, in reality, none of the ingredients in these products have the ability to repair the protein from which hair is made, keratin. (Morales v. Better Planet Brands, LLC, No. 1:16-cv-06464 (S.D.N.Y. complaint filed on Aug. 15, 2016)). 6