false advertisingg consumer class actions: and latest...

Presenting a live 90‐minute webinar with interactive Q&A

False Advertising Consumer Class Actions: gBest Practices and Latest DevelopmentsBringing or Defending Misleading Advertisement Litigation

T d ’ f l f

1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific

THURSDAY, JULY 18, 2013

Today’s faculty features:

Neal R. Marder, Partner, Winston & Strawn, Los Angeles

Julie Hussey, Partner, DLA Piper, San Diego

Ali R. Rabbani, Winston & Strawn, Los AngelesAli R. Rabbani, Winston & Strawn, Los Angeles

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Mazza v. American Honda Motor Company, Inc.and

Other Recent Trends in False AdvertisingOther Recent Trends in False Advertising Class Action Litigation

Neal R. MarderWinston & Strawn

© 2013 Winston & Strawn LLP

(213) 615‐[email protected]

Agenda

• In re Tobacco II and California False Advertising Law• In re Tobacco II and California False Advertising Law

• California Standing Requirements

• Economic Damages Class Actionsg

• Standing in Federal Court and the Mazza Decision

• Other Recent Trends

• Greenwashing Claims

• Misleading Health Claims

© 2013 Winston & Strawn LLP6

California Standing Requirements

• Proposition 64• In 2004, California voters passed Proposition 64, which altered the

standing requirement for plaintiffs bringing claims under California’s Unfair Competition Law (“UCL”) and False Advertising Law (“FAL”).p ( ) g ( )

• The UCL and FAL, as amended by Proposition 64, provide that a person may pursue “representative claims or relief on behalf of others” only if that person (1) “has suffered injury in fact and has lost money or property p ( ) j y y p p yas a result of the unfair competition,” and (2) complies with Section 382 of the California Code of Civil Procedure (the authorizing statute for class actions in California).

• Since the passage of Proposition 64, courts have continued to wrestle with the standing requirement under the UCL and FAL.


California Standing Requirements (cont’d)

• In re Tobacco II Cases, 46 Cal. 4th 298 (2009)• The California Supreme Court held that in order to have standing, only the

named class representatives in a private enforcement action under the UCL need to establish that they suffered an injury and lost money or y j y yproperty “as a result of” the alleged wrongdoing.

• The Court also held – while carefully limiting its discussion to the “fraudulent” prong of the UCL – that the “as a result of” language requires p g g g qa showing of actual reliance.

• Some of the more interesting cases on standing after Tobacco II involve economic damages class action suits.g


Economic Damages Class Actions

• What is an economic damages class action?• Plaintiffs who may have actually suffered personal injury or damage to

property, nonetheless contend that they have been harmed because they were deprived of an economic benefit as a result of defendants’ actions.p

• Plaintiffs' avoid alleging personal injury or property damage and tailor their argument to economic damages in order to avoid losing on class certification due to individual issues predominating.p g

• Typical Contentions in Economic Damages Class Actions• Typically plaintiffs contend that they, and a class of similarly situated

h b f h hconsumers, have been deceived into paying more for a product than they otherwise would have paid had they known the truth about the product in question (i.e., had they known about the potential dangers of using the product)


product).

9

Economic Damages Class Actions (cont’d)

• Economic Damages Cases & Standing• Until recently, the majority of courts found that allegations of economic

injury alone, in the absence of physical injury or property damage, were not sufficient to establish a legally cognizable injury to invoke standing to sue.

• Birdsong v. Apple, Inc., 590 F.3d 955 (9th Cir. 2009).• Class action alleging that the iPod was defective because it poses a risk of hearing loss. • The alleged economic harm – purchasing a product that was allegedly worth less than

th h i did t tit t i j i f t “[T]h ll d l i l dthe purchase price – did not constitute an injury in fact. “[T]he alleged loss in value does not constitute a distinct and palpable injury that is actual or imminent because it rests on a hypothetical risk [of future physical injury].”

• The majority of courts reached the same conclusion:K th l L’O l USA I 2008 WL 2938045 (D N J ) ff’d b 2010 WL 1169958 (3d• Koronthaly v. L’Oreal USA, Inc., 2008 WL 2938045 (D.N.J.), aff’d by 2010 WL 1169958 (3dCir. 2010);

• O’Neil v. Simplicity, Inc., 574 F.3d 501 (8th Cir. 2009);• Rivera v. Wyeth‐Ayerst Labs., 283 F.3d 315 (5th Cir. 2002);

h h ( l )


• Herrintgton v. Johnson & Johnson Consumer Cos., 2010 WL 3448531 (N.D. Cal. 2010).

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• Prior to Kwikset: Economic Damages Cases & StandingThe Other Side• Prior to the recent Kwikset decision, only a handful of courts held that

allegations of economic harm alone were sufficient to give plaintiff classallegations of economic harm alone were sufficient to give plaintiff class standing to sue:• Cole v. General Motors Corp., 484 F.3d 717 (5th Cir. 2007);

• Gonzalez v. Pepsico, Inc., 489 F. Supp. 2d 1233 (D. Kan. 2007);p , , pp ( );

• Sanchez v. Wal‐Mart Stores, 2008 WL 3272101 (E.D. Cal. Aug. 6, 2008).

• Kwikset changed the playing field in economic damages class action lawsuits.lawsuits.



• Kwikset Corp. v. Superior Court, 51 Cal. 4th 310 (2011)• The California Supreme Court held that “plaintiffs who can truthfully

allege they were deceived by a product’s label into spending money to purchase the product, and would not have purchased it otherwise, have ‘lost mone or propert ’ ithin the meaning of Proposition 64 and ha e‘lost money or property’ within the meaning of Proposition 64, and have standing to sue.”

• The Court adopted a two‐part test for interpreting the “lost money or property” standing requirement A party must:property standing requirement. A party must: • (1) establish a loss or deprivation of money or property sufficient to qualify as injury in

fact, i.e., economic injury; and • (2) show that the economic injury was the result of, i.e., caused by, the unfair business

practice or false advertising that is the gravamen of the claimpractice or false advertising that is the gravamen of the claim.

• Significance of Kwikset: The California Supreme Court blew the door wide open for plaintiffs to establish standing in economic damages class actions in California.



• After Kwikset:• Jenkins v. JP Morgan Chase Bank, N.A., 216 Cal. App. 4th 479 (2013)

• The court found that the impending foreclosure of plaintiff’s home was sufficient to establish economic injury under Kwikset, but that plaintiff did not plead a sufficient j y p pcausal link because she defaulted on her loan.

• Law Offices of Mathew Higbee v. Expungement Assistant Servs., 214 Cal. App. 4th 544 (2013)• The court held that (i) plaintiff alleged “at least an identifiable trifle of injury” by claiming

he had been forced to pay increased advertising costs and to reduce his prices for services in order to compete, and (ii) plaintiff alleged causation by claiming he suffered losses in revenue and asset value.

• Shorter v. Sephora USA, Inc., 2012 WL 541519 (Cal. Ct. App. Feb. 16, 2012)• The court found that plaintiff did not plead injury in fact, “the absence of which is fatal to

plaintiff’s consumer claims,” based on allegations that she could only “try” three samples


of products in defendant’s store without assistance of a sales representative.

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Article III Standing

• Following Tobacco II, federal courts initially found that each and every putative class member must have Article III standingputative class member must have Article III standing.• Avritt v. Reliastar Life Ins. Co., 615 F.3d 1023 (8th Cir. 2010)

• The Court of Appeals found that the holding of Tobacco II – that only the class representatives are required to meet Proposition 64’s standing requirements – “is inconsistent with the doctrine of standing as applied by federal courts ”doctrine of standing as applied by federal courts.”

• “Although federal courts do not require that each member of a class submit evidence of personal standing, a class cannot be certified if it contains members who lack standing. A class must therefore be defined in such a way that anyone within it would have standing. Or, to put it another way, a named plaintiff cannot represent a class of persons who lack the ability to bring a suit themselves ”bring a suit themselves.

• Fine v. ConAgra Foods, 2010 WL 3632469 (C.D. Cal. Aug. 26, 2010)• “[E]ach class member need not submit evidence of personal standing . . . [but] a class must be

defined in such a way that anyone within it would have standing.”• “[C]lass definitions ‘should be tailored to exclude putative class members who lack standing ’”• [C]lass definitions should be tailored to exclude putative class members who lack standing.

• These decisions bode well for the defense bar. Indeed, if you can remove a class action filed in state court, the Article III standing requirement may provide a basis for defeating class certification in federal court based on lack of class wide injury.


Article III Standing (cont’d)

• More recent decisions, however, have suggested otherwise.• Stearns v. Ticketmaster Corp., 655 F.3d 1013 (9th Cir. 2011)

• The plaintiffs alleged that Ticketmaster’s website was designed to induce the putative class members into purchasing memberships in a coupon service deceptively advertised on Tickemaster’s website.Ci i T b II h Ni h Ci i f d h i di id li d f f d i li• Citing to Tobacco II, the Ninth Circuit found that individualized proof of deception, reliance, and causation for each class member are not necessary to establish standing under the UCL.

• Key to the court’s decision was that plaintiffs alleged that each class member was relieved of money in the transactions, and that these losses were traceable to the actions of Ticketmaster.

• Delarosa v Boiron Inc 275 F R D 582 (C D Cal 2011)Delarosa v. Boiron, Inc., 275 F.R.D. 582 (C.D. Cal. 2011)• The Central District of California, citing Tobacco II, found that the named plaintiff had standing

because the “defendant’s misrepresentation or nondisclosure was an immediate cause of the plaintiff’s injury‐producing conduct” and “a ‘reasonable man’ would attach importance” to the statements made by the defendant.S ifi ll th l i tiff ll d th t h b ht th d f d t’ ld di i lt f• Specifically, the plaintiff alleged that she bought the defendant’s cold medicine as a result of the allegedly deceptive representations on the product labels and company website, that the cold medicine did not work, and that she suffered economic injury as a result.

• Citing to Tobacco II and Stearns, the court also found that the absent class members had standing.


Article III Standing (cont’d)

• Greenwood v. Compucredit Corp., 2010 WL 4807095 (N.D. Cal. Nov. 19, 2010)• The plaintiffs alleged, among other things, that Compucredit marketed a sub‐prime

credit card by misrepresenting the positive effect it would have on cardholders’ credit scoresscores.

• Compucredit moved to decertify the class for lack of standing, relying on the Averitt decision to argue that absent class members must establish injury in fact by demonstrating reliance on the Compucredit’s alleged misrepresentations.

• Citing Tobacco II, the Court stated, “in UCL claims for false advertising, a materialmisrepresentation results in a presumption, or at least an inference, of individualized reliance. . . . This presumption of reliance, applied to all class members who necessarily received the allegedly materially deceptive solicitations, buttresses the ruling that class members suffered Article III injury ”members suffered Article III injury.

• All of these decisions interpreting standing led up to the Ninth Circuit’s recent decision in Mazza.


The Mazza Decision ‐ Background

• Mazza v. Am. Honda Co., 666 F.3d 581 (9th Cir. 2012)• The plaintiffs purchased Acura vehicles equipped with a Collision

Mitigation Braking System (“CMBS”). The plaintiffs alleged that Honda’s “advertisements misrepresented the characteristics of the CMBS and pomitted material information on its limitations” in violation of the UCL, FAL, and CLRA.

• The district court certified a nationwide class under Rules 23(a) and ( )23(b)(3), holding that:• the class members were entitled to a presumption of reliance under California law;

• common questions of law and fact predominated;

• Honda did not meet its burden under a choice of law analysis; and

• California had sufficient contacts to the claims asserted.


The Mazza Decision – Choice of Law

• Applying California’s three‐step choice of law analysis, the Ninth Circuit found that a nationwide class could not be certified.

• In particular, the Ninth Circuit first determined that there were “at least some” material differences between California’s consumer protection laws and the laws of other states.• Notably, Honda “exhaustively detailed” these differences including, for example,

discrepancies between the elements of scienter and reliance.

• Next, the Ninth Circuit determined that “each state has a strong interest in applying its own consumer protection laws” to the relevant car sales.

• Finally, the Ninth Circuit concluded that applying California law to the entire class would impair other states in their “ability to calibrate liability to foster commerce.” • The court noted that the place of the wrong has the predominate interest, so each class

members’ claim “should be governed by the consumer protection laws of the jurisdiction


members claim should be governed by the consumer protection laws of the jurisdiction in which the transaction took place.”

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The Mazza Decision – Reliance

• With respect to Article III standing, the Ninth Circuit noted that “[n]o class member may be certified that contains members lacking Article III standing.” However, the court adopted the reasoning of Tobacco II and held that the putative class suffered sufficient “injury in fact” because class members allegedly had been “relieved of money” by Honda’sclass members allegedly had been relieved of money by Honda s deceptive conduct.

• Notwithstanding Article III standing, however, the Ninth Circuit held that even a California class could not be certified because Honda’s advertisingeven a California class could not be certified because Honda s advertising campaign was not extensive enough to presume reliance by the class as a whole.• “In the absence of the kind of massive advertising campaign at issue in Tobacco II the• In the absence of the kind of massive advertising campaign at issue in Tobacco II, the

relevant class must be defined in such a way as to include only members who were exposed to advertising that is alleged to be materially misleading” and “exclude members who learned of the [alleged omissions] before [their purchases].”


The Mazza Decision – Takeaways

• Takeaways• After the Mazza decision, plaintiffs may have a more difficult time

certifying a nationwide class because of varying state consumer protection laws.

• Moreover, under California consumer protection laws, the presumption of reliance permitted in Tobacco II cannot properly be applied absent a “massive” and long term advertising campaign.g g p g


The Aftermath of the Mazza Decision

• Kowalsky v. Hewlett‐Packard Co., 2012 WL 892427 (N.D. Cal. Mar. 14, 2012).• The plaintiff brought claims under the UCL and CLRA on behalf of a

nationwide class.nationwide class.

• The district court denied the motion for class certification, finding that “Mazza controls and forecloses the certification of the proposed nationwide class.”nationwide class.

• Granfield v. NVIDIA Corp., 2012 WL 2847575 (N.D. Cal. July 11, 2012).• The plaintiff brought a nationwide class action alleging violations of the

UCL and CLRA.

• The plaintiff conceded that “under Mazza, she is not entitled to bring a


p , gclaim under California law . . . .” Given this concession, the court granted NVIDIA’s motion to dismiss.

21

The Aftermath of the Mazza Decision (cont’d)

• Bruno v. Eckhart Corp., 280 F.R.D. 540 (C.D. Cal. 2012)• Denied a motion for to decertify a nationwide class based on Mazza.

• The district court held that Mazza did not eliminate California’s choice‐of‐law analysis which “requires analyzing various states’ laws ‘under thelaw analysis, which requires analyzing various states laws under the circumstances of the particular case’ and given ‘the particular [legal] issue.’”

I P W d f l LLC Mkt d S l P ti Liti 2012 WL• In re PomWonderful LLC Mktg. and Sales Practices Litig., 2012 WL 4490860 (C.D. Cal. Sept. 28, 2012).• Certified a nationwide class under the UCL, FAL, and CLRA.

• “To the extent that Pom argues that California law cannot be applied to consumers nationwide as a matter of law, Pom is incorrect.”

• The court criticized Pom’s chart of each state’s consumer protection laws


because it did not “indicate which of these laws differ from California laws.”

22

The Aftermath of the Mazza Decision (cont’d)

• Takeaways• Recent decisions, such as POMWonderful, have called into question the full

reach of the Mazza decision. Accordingly, defense counsel can no longer merely rely on Mazza as a defense to nationwide class certification as a matter of law.

• It is not enough to simply cite to Mazza or attach a chart generally summarizing the consumer protection statutes of various states. Rather, f ff “ ”defense counsel must make an effort to “exhaustively detail” the material

differences between California and foreign law and clearly explain why the interests of each jurisdiction would be impaired by the application of California law.California law.

• Recent district court decisions, such as Keegan, have also called into question the reach of Mazza with respect to Tobacco II’s presumption of reliance. Defense counsel must make an effort to specify potential differences in


consumer exposure to an advertising campaign in order to defeat class certification on reliance grounds.

23

“Greenwashing” Consumer Class Actions

• What is a “Greenwashing” consumer class action?• Making a false or unverifiable claim that your product or service is

environmentally friendly in an effort to foster a pro‐environmental image and increase sales.

• Examples of common words that could result in a claim of Greenwashing include, among others: “environmentally friendly,” “sustainable,” “gone green,” “recyclable content.”S b l l d h d i i ll f i dl• Symbols are also used to convey that a product is environmentally friendly or “green.”

• The Federal Trade Commission (“FTC”) has weighed in on greenwashing claimsclaims.


“Greenwashing” (cont’d)

• Federal Trade Commission (“FTC”)• The FTC has the power to protect consumers by bringing enforcement

actions against companies that make false or misleading marketing claims, including environmental or “green” marketing claims.

• In order to protect consumers from unfair or deceptive practices, the FTC pronounced a multi‐tiered approach of (1) issuing rules and guides for businesses, including “Green Guides,” (2) publishing materials to help consumers make informed purchasing decisions and (3) challengingconsumers make informed purchasing decisions, and (3) challenging fraudulent and deceptive ads through enforcement actions.

• Plaintiffs’ counsel have used FTC greenwashing guideline violations to bring class actions against companies for false advertising.



• Recent Greenwashing Cases• Koh v. SC Johnson & Son, Inc., 2010 WL 94265 (N.D. Cal. Jan. 6, 2010)

• SC Johnson put a Greenlist “seal of approval” label on its Windex products, suggesting these products were environmentally sound.

• The Court considered whether consumers were likely to believe the Greenlist label was being endorsed by a third party.

• It examined the context of the symbols and their use by environmental groups to describe environmentally sound products.

• It also considered the FTC’s so‐called “Green Guides,” where the FTC indicated that a product label containing a globe with the words “Earth Smart” might be deceptive.

• The Court allowed the case to proceed and denied SC Johnson’s motion to dismiss, concluding that a reasonable consumer could have found the Greenlist label to be i l dimisleading.



• Recent Greenwashing Cases (cont’d) ‐ The Flip Side:• Hill v. Roll Int’l Corp., 195 Cal. App. 4th 1295 (2011)

• Plaintiff, a consumer, brought a class action alleging that images of green drops appearing on Fiji Water packaging looked like seals of approval used by independent, third party organizations Plaintiff alleged the drop conveyed that the product wasthird‐party organizations. Plaintiff alleged the drop conveyed that the product was environmentally sound.

• The California Court of Appeal dismissed the lawsuit, finding that the Green Drop was not deceptive because it bore “no name or recognized logo of any group, much less a third party organization, no trademark symbol, and no other indication that it is anythingthird party organization, no trademark symbol, and no other indication that it is anything but a symbol of Fiji water.”

• The court noted the image was “just a green drop, being the most logical icon for its particular product, water,” unlike the globe icon cited by the FTC.

• The court also found that the placement of the symbol on the back of the bottle next toThe court also found that the placement of the symbol, on the back of the bottle next to Fiji’s own website address, showed that it is a symbol of Fiji Water and not a third party organization.



• Greenwashing and Section 17200• Trends to Watch – Potential that increased governmental regulation to

prevent “Greenwashing" will give rise to Section 17200 claims based on allegedly "unlawful" business practices.• People v. Enso Plastics, No. 30‐2011‐00518091‐CU‐MC‐CJC (Orange County Superior

Court, Oct. 26, 2011) California Attorney General very recently filed a lawsuit against Enso Plastics,

Aquamantara, and Balance Water Company over alleged deceptive and false l b li / k ti f l ti b ttl “bi d d bl ” d “ l bl ” dlabeling/marketing of plastic bottles as “biodegradable” and “recyclable” under the UCL and the FAL claiming it is an unlawful business practice to the extent the defendants violated FTC guidelines.

• Key Battleground in Greenwashing Suits – Litigation over standing i i j i f d “l i d i i ” i li hrequirements, injury in fact, and “long‐term, extensive advertising” in light

of In re Tobacco II and subsequent cases.



• Summary• Because consumers are growing increasingly concerned about the impact

of their purchases on the environment, companies are likely to try to gain competitive advantage by marketing their products and services as

i t ll f i dl “ ”environmentally friendly or green . • However, these types of claims, and other claims regarding corporate

responsibility, run the risk of sparking consumer class action lawsuits alleging that the claims are deceptive or misleadingalleging that the claims are deceptive or misleading.

• Policies and procedures should be put in place to minimize potential exposure from these types of claims.


Misleading Health Claims

• Growing Area of Litigation• Just as companies are tempted to gain competitive advantage by

marketing their products and services as environmentally friendly, so too are companies running into trouble by marketing products and services based on their healthf l and n tritional al ebased on their healthful and nutritional value.

• Such health and nutritional claims run the risk of sparking consumer class action lawsuits alleging that the claims are deceptive or misleading.I d f b h FTC d FDA h l d i i h• Increased enforcement by the FTC and FDA has led to an increase in the filing of false advertising class actions. Indeed, plaintiffs’ attorneys have filed a number of false advertising class actions following agency enforcement actions – including actions against Kellogg, Dannon, Coca‐Cola, Nestlé, and Reebok.


Misleading Health Claims (cont’d)

• Major v. Ocean Spray Cranberries, Inc., 2013 WL 2558125 (N.D. Cal. June 10, 2013)

• Consumer of Ocean Spray juices and drinks brought a putative class action alleging that several of Ocean Spray’s food products had been improperly labeled as “No Sugar Added” or as including other allegedly false representations regarding the content of the drinks, amounting to misbranding and deception.

• The court denied plaintiff’s motion for class certification, finding that her claims were atypical because she sought to bring claims regarding products that she did not actually purchase.

Th C d d i dd h R l 23 l d• The Court deemed it unnecessary to address other Rule 23 elements, and denied class certification.



• In re Ferrero Litig., 278 F.R.D. 552 (S.D. Cal.) • Plaintiff brought a nationwide class action under the UCL, FAL, and CLRA

claiming Ferrero’s long‐term labeling and advertising campaign was deceptive and misleading by “promot[ing] its Nutella spread as healthy and beneficial to children when in fact it contains dangerous levels of fat and sugar.”

• Contacts with California of putative class members who resided outside of California were found insufficient to support certification of a nationwide

f f fclass. The Court certified a class of California purchasers only.

• The Court found that the plaintiffs’ claims “are based on a common advertising campaign, and include common questions such as whether F ’ d ti i i i t d th t N t ll i h lthiFerrero’s advertising campaign misrepresented that Nutella is healthier or more nutritious than it actually is.”

• Settled: California Class provides for a settlement fund of $550K and nearly $1M in fees


$1M in fees.

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• Red v. Kraft Foods, Inc., 2011 WL 4599833 (C.D. Cal.)• “Plaintiffs’ proposed class consists of millions of consumers who

purchased different products bearing different labels over the span of a decade.”

• The district court denied class certification in part because “different consumers were exposed to different representations.”

• Unlike Ferrero Kraft did not involve a long term singular uniform• Unlike Ferrero, Kraft did not involve a long‐term, singular, uniform advertising claim.

• Renewed motion for class cert. denied because even under subclasses “individual class members to recover would need to show at aindividual class members, to recover, would need to show, at a minimum, proof of how many purchases they made of the offending products, where and when, in order to discern [damages].” (Oct. 26, 2012)



• Zeisel v. Diamond Foods, Inc., 2011 WL 2221113 (N.D. Cal. June 7, 2011)• Northern District certified false advertisement class based on Diamond’s

allegedly deceptive health claims.allegedly deceptive health claims.

• In this case, the main battle was over the ascertainability of the class.• The court rejected Diamond’s argument that the lack of records enabling one to confirm

if an individual consumer actually purchased the products in question foreclosed aif an individual consumer actually purchased the products in question foreclosed a finding of ascertainability.

• The court held that “the [class] definition [is not] subjective or imprecise. Rather, it includes objective characteristics that would permit a consumer to identify themself as a member of the proposed class ”member of the proposed class.



• False advertising class actions brought on the heels of FTC and FDA enforcement actions have largely been unsuccessful:• Fraker v. Bayer Corp., 2009 WL 5865687 (E.D. Cal. Oct. 6, 2009);• Fine v. ConAgra Foods, Inc., 2010 WL 3632469 (C.D. Cal. Aug. 26, 2010);Fine v. ConAgra Foods, Inc., 2010 WL 3632469 (C.D. Cal. Aug. 26, 2010);• Weiner v. Snapple Beverage Corp., 2011 WL 196930 (S.D.N.Y. Jan. 21,

2011);• Von Koenig v Snapple Beverage Corp 2011 WL 43577 (N D Cal Jan 6• Von Koenig v. Snapple Beverage Corp., 2011 WL 43577 (N.D. Cal. Jan. 6,

2011);• Carrea v. Dreyer’s Grand Ice Cream, Inc., 2011 WL 159380 (N.D. Cal. Jan.

10, 2011);)• Scheuerman v. Nestle Healthcare Nutrition, Inc., 2012 WL 2916827 (D.N.J.

July 17, 2012).



• Summary• These cases make it clear that plaintiffs’ counsel are now scouring food

labels for nutrient‐based claims that might violate federal labeling requirements.

• Marketing departments for food and beverage companies touting performance, health, or nutritional benefits must ensure that they have followed all applicable regulations and include any necessary disclaimers.P li i d d h ld b i l i i i i l• Policies and procedures should be put in place to minimize potential exposure from these types of claims.


Julie L. HusseyDLA Piper LLP (US)(619) 699‐[email protected] July 18, 2013

TODAY’S DISCUSSION

Summary Judgment PreemptionPreemption

Lack of Substantiation

Damagesa ages

Expert Challenges

Settlement ConsiderationsCoupon/Vouchers

Product Donation

Cy Pres

Objector issues

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SUMMARY JUDGMENT

Summary Judgment is achievable in Consumer Class ActionsActionsJohns v. Bayer Corp., 2013 1498965 (S.D. Cal. April 10, 2013)

(granting Bayer summary judgment based on lack of substantiation)

Stanley v. Bayer Healthcare LLC, 2012 WL 1132920 (S.D. Cal. April 3, 2012) (granting Bayer summary judgment based on lack of substantiation)

Hoffman v. NOW Health Group, Inc., No. BER-L-9022-12 (Sup. Ct. N.J Mar. 22, 2013)

Ries v. Arizona Beverages USA LLC, 2013 WL 1287416 (N.D. Cal. March 28, 2013) (granting summary judgment where plaintiffs failed to provide any evidence proving high fructose corn syrup it not natural)

POM Wonderful LLC v. Coca-Cola Co., 679 F.3d 1170 (9th Cir. 2012) (granting summary judgment based on preemption)

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SETTLEMENT CONSIDERATIONS:COUPON SETTLEMENTS

CAFA 28 U S C §§ 13321(d) 1453 and 1711 14 governsCAFA 28 U.S.C. §§ 13321(d), 1453 and 1711-14 governs federal class actions

§1712 governs coupon settlements and disfavors themg p

Under section 1712, to the extent attorneys’ fees are based on an award of coupons, they must be based on the value of the coupons actually redeemed by class memberscoupons actually redeemed by class members.

Coupon not defined.

Coupon/Voucher settlements are subject to “heightenedCoupon/Voucher settlements are subject to heightened judicial scrutiny”

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National Association of Consumer Advocates (“NACA”) Guidance on Coupon Settlements: Should only be proposed in rare circumstances. Such instances include:

1) If the primary goal of litigation is injunctive relief and the defendant1) If the primary goal of litigation is injunctive relief and the defendant agrees to it, or the coupons are good for small-ticket items class members are likely to purchase, or the certificates represent true discounts not otherwise available,

2) where the coupons are freely transferable,

3) where the coupons can be added to any already existing coupons or sales incentives,,

4) where the coupons are stackable, i.e., more than one can be used in a transaction; and

5) where there is a market-maker to insure a secondary transfer market5) where there is a market maker to insure a secondary transfer market.

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Coupon Settlements Strongly Disfavored in Federal Court.

Many courts have rejected class action settlements with couponMany courts have rejected class action settlements with coupon payment to class

BUT - In EasySaver, class counsel was awarded $8.65 million in fees and $200 000 in costs In finding the amount of attorneys’ feesfees and $200,000 in costs. In finding the amount of attorneys fees reasonable, the court took into account both the value of the $20 credits that every class member would receive, plus the amount of the $12 5 million settlement fund against which class members couldthe $12.5 million settlement fund against which class members could submit claims for refunds and the remainder of which (minus administration costs) was designated for cy pres distribution. In re EasySaver Rewards Litig., 2013 WL 435032 (S.D. Cal. Feb. 4, 2013)y g , ( , )

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SETTLEMENT CONSIDERATIONS: COUPON SETTLEMENTS – THE GOOD

In re EasySaver Rewards Litig., 2013 WL 435032 (S.D. Cal. Feb. 4, 2013), )

Gallucci v. Boiron, Inc., 2012 WL 5359485 (S.D.Cal. Oct. 31, (2012).

Zeisel v. Diamond Foods, Inc., 2012 WL 4902970 (N.D.Cal. Oct. 16, 2012)

Franco v. Ruiz Food Products, Inc., 2012 WL 5941801 (E.D.Cal. Nov. 27, 2012)

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SETTLEMENT CONSIDERATIONS:COUPON SETTLEMENTS – THE BAD

Wilson v. DirectBuy, Inc., 2011 U.S. Dist. LEXIS 51874 (D. Conn. May 16, 2011) (rejecting coupon settlement, holding that “the settlement is valueless t th h lf th l )to more than half the class.).

Synfuel Technologies, Inc. v. DHL Express, 463 F. 3d 646, 648 (7th Cir. 2006), (reversing district court approval of a coupon based class action settlement holding that “the [trial] court did not attempt to quantify the valuesettlement, holding that the [trial] court did not attempt to quantify the value of [the] plaintiffs' case or even the overall value of the settlement offer to class members.").

Figueroa v Sharper Image 517 F Supp 2d 1292 1321 (S D Fla 2007) Figueroa v. Sharper Image, 517 F. Supp. 2d 1292, 1321 (S.D. Fla. 2007) (rejecting class action settlement that offered $19 coupons for use at the defendant's stores reasoning that it was not the product of an informed, arm's-length negotiation”.)

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In Re HP Inkjet Printer Litigation: Ninth CircuitAttorneys’ fee award to class counsel violated CAFAAttorneys fee award to class counsel violated CAFA

When a settlement provides for coupon relief, in whole or in part, attorneys’ fee that is “attributable to the award of coupons” must be calculated using the redemption value of the couponscalculated using the redemption value of the coupons.

Ninth Circuit reversed and remanded, because the fees that were “attributable to” the coupon relief, but failed to first calculate the

d ti lcoupon redemption value

PRACTICAL ISSUE: How to calculate redemption value if coupons not yet distributed?

Coupon Settlements are disfavored by Plaintiff bar because of difficulty with approval

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Coupons settlements should rarely, if ever, require identifiable class members to purchase major, large ticket items from defendant as the sole significant relief.

Coupons should have some form of guaranteed cash value, even if the cash redemption value is less.p

Coupon settlements should not be proposed to the court unless it is apparent that the defendant is providing greater relief to the class than would be available from an all-cash settlementthan would be available from an all cash settlement.

Coupons should be for a wide variety of goods, and not just the goods at issue in the case.

PRACTICE TIP: Consider tiered settlement with both coupon/voucher and/or product with cash option

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SETTLEMENT CONSIDERATIONS:CY PRES AWARDS

The doctrine of cy pres - meaning “as near as possible.”

A cy pres award takes funds from a settlement and distributes it toA cy pres award takes funds from a settlement and distributes it to organizations for the benefit of the class.

Cy pres awards have been recognized as appropriate by both federal and state courts See e g In re Agent Orange Product Liability Litigand state courts. See e.g., In re Agent Orange Product Liability Litig., 818 F.2d 179 (2d Cir. 1987); State of California v. Levi Strauss, 41 Cal. 3d 460 (1986).

Th h ld b b t th d f th f dThere should be some nexus between the proposed use of the funds and the class on whose behalf the litigation was brought, or where the proposed use further the purpose of the statutes upon which the litigation was basedlitigation was based.

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SETTLEMENT CONSIDERATIONS:CY PRES AWARDS

Recent Trends Regarding Cy Pres AwardsCy pres awards as part of settlement often bring objectorsCy pres awards as part of settlement often bring objectors.

While district courts tend to overrule these objections, several cases in which cy pres awards were components of the settlement have been appealedbeen appealed.

Favorable Recipients:Consumer’s Union

Colleges/Universities

Challenging Recipients:Pharma Companies often cannot donate to research that may be related

to a company product

Consumer Advocacy Groups are naturally disfavored by Defendants

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CY PRES – CIRCUIT ANALYSIS

First, Fourth, Fifth, Tenth and Eleventh Circuits: Reasonable Approximation Test Reasonable Approximation Test

Fourth and Tenth Circuits have not directly addressed Tenth circuit is split at district level

Second: More likely to approve cy pres than others

Some deference given to Plaintiff’s cy pres choice

Third:Generally approves but increasing scrutinyGenerally approves, but increasing scrutiny

Direct benefit to class members evaluated

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Sixth: Has not directly addressed Has not directly addressed

Approval of cy pres is evaluated, but often approved

Seventh: Not as restrictive as other circuits

Likely approval of cy pres

Eighth: Similar to 4th and 5th, requires cy pres match purpose of lawsuit

Cy pres often approved

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Ninth Circuit:Most difficult circuit to obtain cy pres approvalMost difficult circuit to obtain cy pres approval

Lane v. Facebook, Inc. marginally relaxed Kellogg standards; still disfavored in 9th Circuit

“[w]e do not require as part of that doctrine that settling parties select a cy pres recipient that the court or class members would find ideal. On the contrary, such an intrusion into the private parties' negotiations would be improper and disruptive to the settlement process.” (9th Cir. Sept. 20, 2012)

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KEY NINTH CIRCUIT CASE

Dennis v. Kellogg Co.,No. 11-55674, 2012 WL 2870128 (9th Cir. July 13, 2012)

Plaintiffs alleged Defendant made false and unsubstantiated representations in its advertising and labeling that consumption of Frosted Mini-Wheats products was clinically shown to improve p y pchildren's attentiveness by nearly 20%.

Settlement included a non-revertible fund of $2.75 million to provide cash payments to class members who submit claim forms with anycash payments to class members who submit claim forms with any money remaining to be distributed to appropriate charities. In addition, Defendant to distribute $5.5 million worth of specified food items to charities that feed the indigent.g

Two class members objected, arguing cy pres distributions are only proper after it is proven that distribution to the class is impractical. The District Court rejected this argument and granted final approvalThe District Court rejected this argument, and granted final approval to the settlement.

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KEY NINTH CIRCUIT CASE

Dennis v. Kellogg Co.,

Objectors appealed to the Ninth Circuit. The Ninth Circuit reversed the lower court’s decision granting approval of the settlement.

With respect to the cy pres aspect of the settlement the Ninth Circuit With respect to the cy pres aspect of the settlement, the Ninth Circuit held that:

“…[T]he district court did not apply the correct legal standards governing cy presdistributions and thus abused its discretion in approving the settlement Thedistributions and thus abused its discretion in approving the settlement. The settlement neither identifies the ultimate recipients of the cy pres awards nor sets forth any limiting restriction on those recipients, other than characterizing them as charities that feed the indigent. To the extent that we can meaningfully review such distributions where the parties fail to identify the recipients we hold that the cy presdistributions where the parties fail to identify the recipients, we hold that the cy presportions of the settlement are not sufficiently related to the plaintiff class or to the class’s underlying false advertising claims.”

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Defending False Advertising Class Actions

Ali R. RabbaniWinston & Strawn


(213) 615‐[email protected]

Agenda

• Substantive Motions and Defenses• Substantive Motions and Defenses

• Failure to Plead False or Misleading Representations

• Materiality and Pufferyy y

• Failure to Plead Reliance or Causation

• Preemption and Related Defenses

• Defeating Class Certification

• Removal


Failure to Plead False or Misleading RepresentationsRepresentations

• Fink v. Time Warner Cable, 837 F. Supp. 2d 279 (S.D.N.Y. 2011), aff’d, 714 F.3d 739 (2d Cir. 2013)• The Southern District of New York dismissed false advertising claims under California

and New York law.

• The court found that plaintiffs insufficiently alleged that Time Warner’s advertised internet speeds were misleading. In particular, Time Warner’s claims of speeds “up to” 3x faster than DSL and 100x faster than dial‐up were not misleading because plaintiffs’ allegations only related to specific computer applications, not their internet connections as a whole.

• The court also found that a reasonable consumer would not be misled because the advertisements were qualified with the phrase “up to.”

M Th C C l C 774 F S 2d 699 (D N J 2011)• Mason v. The Coca‐Cola Co., 774 F. Supp. 2d 699 (D.N.J. 2011)• The District of New Jersey dismissed plaintiffs’ claim that "Diet Coke Plus" was

deceptively advertised as healthy and containing nutritional value.• The court found that Coca‐Cola’s claims were not false because Diet Coke Plus did, in


,fact, contain vitamins and minerals.

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Failure to Plead False or Misleading RepresentationsRepresentations• Loreto v. Procter & Gamble Co., 2013 WL 645952 (6th Cir. 2013)

• The Sixth Circuit affirmed, in part, the Southern District Ohio’s dismissal of false advertising claims under Ohio and New Jersey law.

• The court found that all but one of defendant’s claims relating to the cold medicine with vitamin C were neither false nor plausibly misleading.

• Wright v. General Mills, Inc., 2009 WL 3247148 (S.D. Cal. 2009)• The Southern District of California dismissed UCL, FAL, and CLRA claims, finding

that plaintiff failed to allege that defendant’s use of “100% Natural” on granola bar labeling and advertising was misleading under Twombly/Iqbal.


Materiality and Puffery

• Hughes v. Panasonic Consumer Electronics Co., 2011 WL 2976839 (D.N.J. July 21 2011)July 21, 2011)• Marketing televisions as having “industry leading black levels and contrast ratios.”• The District of New Jersey found that “Panasonic’s alleged misrepresentations

about the Televisions’ ‘industry leading’ technology and features, which create y g gy ,superior image and color quality, are not ‘statements of fact,’ but rather subjective expressions of opinion.”

• In re Ferrero Litig., 794 F. Supp. 2d (S.D. Cal. 2011)• Advertising Nutella as “healthy ”• Advertising Nutella as “healthy.”• The Southern District of California noted that “[g]eneralized, vague, and

unspecified assertions constitute ‘mere puffery’ upon which a reasonable consumer could not rely ….” However, the court denied the motion to dismissbecause a reasonable consumer could be deceivedbecause a reasonable consumer could be deceived.


Materiality and Puffery

• Baltazar v. Apple, Inc., 2011 WL 6747884 (N.D. Cal. Dec. 22, 2011)• Apple’s statement that the iPad can be used “just like a book.”

• The Northern District of California found such claim was “mere puffery.”

• Vitt v Apple Computer Inc 2012 WL 627702 (9th Cir Feb 28 2012)• Vitt v. Apple Computer, Inc., 2012 WL 627702 (9th Cir. Feb. 28, 2012)• Apple’s advertisement of iBook G4 as “mobile,” “durable,” “portable,” “rugged,”

“built to withstand reasonable shock,” “reliable,” “high performance,” “high value,” an “affordable choice,” and an “ideal student laptop.”value, an affordable choice, and an ideal student laptop.

• The Ninth Circuit affirmed that these statements are generalized, non‐actionable puffery because they are “inherently vague and generalized terms” and “not factual representations that a given standard has been met.”


Failure to Plead Reliance or Causation

• In re Actimmune Mktg. Litig., 2010 WL 3463491 (N.D. Cal. Sept. 1, 2010), ff’d ( h )aff’d, 2011 WL 6887072 (9th Cir. Dec. 30, 2011)• The Northern District of California dismissed UCL claims for failure to allege

reliance on allegedly misleading representations.C f il d t ll th t th i ib b li d th t th d• Consumers failed to allege that their prescribers believed that the drug was effective for the challenged indication as a result of allegedly fraudulent off‐label promotion.

• Payers failed to allege that prescribers relied upon off‐label promotion as opposed to “perfectly legitimate channels of communication” with defendant.

• Cleary v. Philip Morris Inc., 656 F.3d 511 (7th Cir. 2011) • The Seventh Circuit affirmed dismissal of putative class action p

complaint, holding that plaintiffs failed to state a claim for unjust enrichment, even assuming that Illinois recognized an independent tort, where they alleged no deception, causation, or harm.


Preemption and Related Defenses

• Hairston v. South Beach Beverage Co., 2012 WL 1893818 (C.D. Cal. May 18, 2012)• Plaintiff challenged the labeling of SoBe Lifewater, including:

• (1) the statement “all natural with vitamins” because some of the vitamin ( )ingredients were synthetic;

• (2) fruit names used to describe Lifewater flavors even though Lifewater doesn’t contain any fruit;

• (3) using a vitamin’s common name (e.g., B12) when it is synthetic.

• Ruling on a motion to dismiss, the court held that plaintiff’s claims relying on the fruit and vitamin names were preempted.

• FDA allows the use of fruit names/images to describe the characterizing flavor of the product (even if product doesn’t contain fruit).

• FDA regulations treat “natural” and “synthetic” vitamins as equivalent.


Preemption and Related Defenses

• Astiana v. Dreyer’s Grand Ice Cream, Inc., 2012 WL 2990766 (N.D. Cal. July 20, 2012).• The Northern District of California held that (1) plaintiff stated claims that

“All Natural Flavors” and “All Natural Ice Cream” slogans were misleading,All Natural Flavors and All Natural Ice Cream slogans were misleading, and (2) claims were not preempted by the Food, Drug & Cosmetic Act and FDA regulations (but dismissed claim under Magnuson‐Moss Act).

• Taradejna v General Mills Inc 12‐cv‐00993 (D Minn ) (Dec 10• Taradejna v. General Mills, Inc., 12‐cv‐00993 (D. Minn.) (Dec. 10, 2012 Order)• Plaintiffs challenged General Mills’ use of Milk Protein Concentrate in its

G k Y t d tGreek Yogurt products.

• Minnesota federal court dismissed claims because FDA had primary jurisdiction over the underlying question of whether yogurt could contain ilk i


milk protein concentrate.

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Class Definition

• Ascertainability. Are class members objectively identifiable?• Weiner v. Snapple Beverage Corp., 2010 WL 3119452 (S.D.N.Y. Aug. 5, 2010)

• Denying certification where, among other things, class members would not have retained receipts and labels, and a declaration process would simply invite speculation and require burdensome administrationspeculation and require burdensome administration.

• Overbreadth. Does the class definition include persons without claims?• Sanders v. Apple Inc., 672 F. Supp. 2d 978 (N.D. Cal. 2009)

St iki l ll ti h d fi iti ld i l d f t h• Striking class allegations where definition would include owners of computers who neither purchased them nor saw ads, individual reliance issues would predominate, and different state laws would apply.

• Failsafe. Does the definition incorporate merits inquiry? • This is often done in order to avoid overbreadth, causing the class to be

unascertainable without detailed inquiry.


Commonality

• Wal‐Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011)• “Commonality requires the plaintiff to demonstrate that the class members ‘have

suffered the same injury.’ This does not mean merely that they have all suffered a violation of the same provision of law.…Their claims must depend upon a common contention ‐ for example the assertion of discriminatory bias on the partcommon contention for example, the assertion of discriminatory bias on the part of the same supervisor. That common contention, moreover, must be of such a nature that it is capable of classwide resolution—which means that determination of its truth or falsity will resolve an issue that is central to the validity of each one of the claims in one stroke ”of the claims in one stroke.”

• Challenging commonality: questions must arise from the same facts for everyone.

• Chow v. Neutrogena Corp., No. CV 12‐04624, at 2 (C.D. Cal. Jan. 22, 2013).Th C l Di i f C lif i f d h d t i i h th N t ’• The Central District of California found that determining whether Neutrogena’s products “worked as advertised” for each individual class member would require individualized inquiries into the merits of each class member’s claims.


Adequacy and Typicality

• Major v. Ocean Spray Cranberries, Inc., 2013 WL 2558125 (N.D. Cal. June 10 2013)10, 2013)• A plaintiff who seeks to bring claims for products she did not purchase is atypical.

• In re Aqua Dots Products Liability Litig., 654 F.3d 748 (7th Cir. 2011)A l i tiff h k l id li f l d il bl th h d f d t’ l t• A plaintiff who seeks class‐wide relief already available through defendant’s voluntary refund program does not fairly and adequately represent class members.

• “Plaintiffs want relief that duplicates a remedy that most buyers already have received, and that remains available to all members of the putative class. A representative who proposes that high transaction costs (notice and attorneys' fees) be incurred at the classproposes that high transaction costs (notice and attorneys fees) be incurred at the class members' expense to obtain a refund that already is on offer is not adequately protecting the class members' interests.”

• Peviani v. Natural Balance Inc., 2011 WL 1648952 (S.D. Cal. May 2, 2011)• A plaintiff who does not share the same injuries is an inadequate representative and• A plaintiff who does not share the same injuries is an inadequate representative, and

her claims are not typical. • Holding that wife of user of performance enhancement product failed to satisfy

adequacy and typicality requirements because she did not suffer injuries users may have suffered.


Predominance and Superiority

• Pelman v. McDonald’s Corp., 272 F.R.D. 82 (S.D.N.Y. 2010)• Individual questions:

• Whether class members purchased because they believed the products were healthful.

l l i hi b f l f d d ll d h l h di i• Causal relationship between fatty, salty food and alleged health conditions.• Sources of food consumed.

• The Southern District of New York denied class certification.• Rule 23(c) issue certification also denied for lack of proof of numerous

persons of age who relied upon advertising and suffered health effects as a result.


Predominance and Superiority

• Weiner v. Snapple Beverage Corp., 2010 WL 3119452 (S.D.N.Y. Aug. 5, 2010) (denying certification).• The Southern District of New York denied class certification.

• Claim that consumers paid more for beverages because of “All Natural” labeling p g gcould not be proved on a class‐wide basis (causation and actual injury).

• Economist’s contention that he could develop models showing injury to all consumers was speculative and insufficient.

• The potentially millions of class members were also unascertainable, since purchasers likely did not retain receipts.


Nationwide Classes

• Mazza v. Am. Honda Motor Co., 666 F.3d 581, 596 (9th Cir. 2012)• District Court certified a nationwide class.• Ninth Circuit decertified the nationwide class:

• Common questions did not predominate: “[V]ariances in state law overwhelm common issues and preclude predominance for a single nationwide class.”

• No presumption of reliance: California‐only class would fail because the class would “almost certainly include[] members who were not exposed to, and therefore could not have relied on, Honda's allegedly misleading advertising material.”

• Red v. Kraft Foods Inc., 10‐cv‐1028 (C.D. Cal.)• Declining to certify a nationwide class based solely on the grounds that Kraft

engaged in nationwide marketing. (Sept. 29, 2011)• Renewed motion for class cert. denied because even under subclasses “individual

class members, to recover, would need to show, at a minimum, proof of how many purchases they made of the offending products, where and when, in order to discern [damages].” (Oct. 26, 2012)


[ g ] ( )

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Nationwide Classes

• Ries v. Arizona Beverages USA LLC, 287 F.R.D. 523 (N.D. Cal. 2012)• Plaintiffs challenged “all natural” labeling” on Arizona iced tea drinks that contain

high‐fructose corn syrup and citric acid. Plaintiffs sought certification under Rule 23(b)(2).

• Injunctive relief class certified

• Monetary relief rejected

• Plaintiffs sought monetary restitution that would require “individualized assessments of damages” based on the number of products bought.

• Even though the amount of damages could be calculated based on overall beverage sales, “it would be unmanageable under Rule 23(b)(2), which lacks Rules 23(b)(3)’s notice and opt‐out requirements designed to facilitate the award of23(b)(3) s notice and opt out requirements designed to facilitate the award of monetary damages to individual class members.”


Removal

• Class Action Fairness Act• Jurisdiction based on minimal diversity.• Amount in controversy is $5 million or more.• Class of 100 or more members.• Common question of law or fact.

• Advantages of Federal Court• Often more favorable procedure and procedural law.• Coordination (especially after Smith v. Bayer, 131 S. Ct. 2368 (2011))• Potentially more effective enforcement of judgments.

• Potential Disadvantage• Shady Grove Orthopedic Assocs. v. Allstate Ins. Co., 130 S. Ct. 1431 (2010) (holding that

state law class action prohibitions that are procedural rather than substantive do not supersede Rule 23 in federal court).


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