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Defendants have had a nice run recently in winning pleading-stage dismissal of “reasonable consumer” false advertising cases.  That run came to an end yesterday, however, when the Second Circuit Court of Appeals in New York reversed the dismissal of claims regarding Kellogg’s “Cheez-It” crackers.  The front of the “Cheez-It” package prominently describes the crackers as “Whole Grain,” but as a quick look at the Nutrition Facts panel on the side label would confirm, the crackers’ main ingredient is enriched white flour, not whole grain.

New York, California, and numerous other states apply a “reasonable consumer” test to false advertising claims.  The test is meant to be objective, with courts asking whether an advertisement would mislead an objectively reasonable consumer, not whether the actual plaintiff was or was not misled.  Federal courts regularly, and rightly, dismiss false advertising claims at the pleading stage where, as one court put it in a “slack fill” case involving an over-the-counter pain reliever, “the[] failure to read an unambiguous tablet count does not pass the proverbial laugh test.”

Courts have been much less likely to see the humor, though, in cases where a food package includes statements that plaintiffs contend are affirmatively misleading.  In yesterday’s case of Mantikas v. Kellogg Co., the Second Circuit agreed with the plaintiffs, at least at the pleading stage.  In the Court’s view, “the large, bold-faced claims of ‘WHOLE GRAIN’” on the front of the package could be construed as “misleading because they falsely imply that the grain content is entirely or at least predominantly whole grain.”  Quoting an oft-cited Ninth Circuit case, the Court wrote that the Nutrition Facts panel did not “cure[] the deceptive quality of the ‘WHOLE GRAIN’ claims because “reasonable consumers should not be expected to look beyond misleading representations on the front of the box to discover the truth from the ingredient list in small print on the side of the box.”

The main good news in this bad outcome for the defendant is that the Second Circuit reiterated another core principle in cases like this:  When ruling on an advertising claim, courts must “consider the challenged advertisements as a whole, including disclaimers and qualifying language.”  Plaintiffs, in other words, cannot just include snippets of a package in their complaint and hope to avoid judicial scrutiny of the entire package at the pleading stage.

A second good sign is that the Second Circuit distinguished—and thus impliedly blessed—other district court decisions dismissing similar claims on “reasonable consumer” grounds.  In one case the Court examined, for example, the plaintiffs claimed to have believed that crackers advertised as “made with real vegetables” contained a larger amount of vegetables than they actually did.  The district court in that other case thought reasonable consumers know “the fact of life that a cracker is not composed of primarily fresh vegetables.”  In the Cheez-It case, by contrast, reasonable consumers “understand that crackers are typically made predominantly of grain” and “look to the bold assertions on the packaging to discern what type of grain.”  The case survived, therefore, only because the alleged affirmative misrepresentation went to a central and material fact about the food product’s nature.

Because of these limitations, the Second Circuit’s decision should not be viewed as anything other than the reaffirmation of an established principle:  Food product manufacturers cannot expect to win dismissal of a false advertising case at the pleading stage by claiming that an accurate ingredient label cures an affirmatively misleading material statement on the front of a package.  If, by contrast, a plaintiff’s purported read of an advertisement is objectively unreasonable, courts still can and should examine the entire package and dismiss claims that fail the “laugh test.”

In July, a DC District Court ruled that eBay could not compel a user of its services to arbitrate a dispute, even though the user had agreed to by bound by eBay’s User Agreement. That Agreement stated that the company had a right to modify the terms, and eBay had later modified those terms to include an arbitration clause for purposes of dispute resolution. Specifically, the Court held that eBay’s act of posting the updated terms did not constitute sufficient notice, and that the company had not presented proof sufficient to show that it had notified the user via email. Although the result is troubling for many companies who approach changes to website terms in the same manner that eBay did, the decision does provide some hints for what companies can do to provide support for arguments that their changes are enforceable.

Read our article in Digital Business Lawyer to learn more about the case and what you can do to help ensure that your website terms will be deemed enforceable.

The debate between two Third Circuit judges and a dissenting colleague in In re Johnson & Johnson Talcum Powder Products Marketing, Sales Practices and Liability Litigation, a case decided last Thursday, is the best distillation I have seen of a debate raging in federal and state courts throughout the country:  When, if ever, can a plaintiff who purchased and used a product without incident, and did not pay a price premium for it, sue for “consumer fraud”?

The plaintiff, Mona Estrada, purchased baby powder made from talc.  She alleged, and of course the defendant disputed, that baby powder made from talc can cause ovarian cancer.  But Estrada herself neither contracted cancer nor alleged that her use of the product put her at higher risk of contracting cancer.  Instead, she sued for “consumer fraud” under California law, contending that the defendant implicitly promised a safe product but did not live up to that promise.  (The case was transferred to the District of New Jersey as part of an MDL.)

Estrada alleged that she continues to buy baby powder, although she now chooses powder made from corn starch rather than talc.  She conceded that  when she bought the talc product, she did not pay a “price premium” for it.  She also conceded that that the defendant did not advertise its product as better than competing products.  Of equal importance to the majority, she conceded that she used the entire product she purchased and that it delivered all of the benefits the defendant explicitly promised.  On both grounds, this distinguished her claims from those in the California Supreme Court’s Kwikset Lock case, where plaintiffs alleged they paid a premium for locks falsely advertised as “Made in the USA.”

The Third Circuit panel thus characterized, and dismissed, Estrada’s allegations on the following terms: she “purchased and received Baby Powder that successfully did what the parties had bargained for and expected it to do; eliminate friction on the skin, absorb excess moisture, and maintain freshness.”  Absent a price premium or a promise of superiority, she simply had nothing about which to complain, and her “wish to be reimbursed for a functional product that she has already consumed without incident does not itself constitute an economic injury within the meaning of Article III.”

Defendants facing “no injury” consumer fraud class actions can stop here, celebrate the Third Circuit’s conclusion, and figure out the best way to bring it to their own courts’ attention.  Particularly where the absence of a pleaded economic injury can be characterized as a failure of statutory standing, which would preclude a claim from being litigation in federal court or state court, rather than just a failure of Article III standing, which might allow the plaintiff dismissed from federal court to replead claims in state court, the Third Circuit’s precedential decision may become a powerful defense weapon.

Where the debate will rage, however, is in cases where plaintiffs allege consumer fraud on the basis that a product “may” be “unsafe,” even if that alleged risk did not manifest in the plaintiff’s own case.

From the majority’s perspective, Estrada’s “own allegations require us to conclude that the powder she received was, in fact, safe as to her.”  She “chose not to allege any risk of developing ovarian cancer in the future,” and “[g]iven the absence of such an allegation, Estrada cannot now claim that she was ever at risk of developing ovarian cancer.”  The court therefore construed her claim as alleging “benefit of the bargain,” but the claim fell short because she failed to allege “that the economic benefit she received in purchasing the powder was worth less than the economic benefit for which she bargained.”

Judge Julio Fuentes, in dissent, said he would have held that “the safety of the product—as a general proposition, not specifically as to Estrada herself—was an essential component of the benefit of Estrada’s bargain.”  Judge Fuentes would have allowed Estrada to proceed to discovery, and if she could have established that the powder was indeed unsafe, “[t]he price increase…caused by the company’s alleged misrepresentation as to safety” may well have been “the total sum she paid for the product.”  In other words, she could have claimed a full refund, even though she purchased and used the product, it delivered its promised benefits, and it caused no harm.

Last week’s decision may not be the end of the road in this case.  The majority and dissent argued over whether the decision conflicts with two other Third Circuit precedents that found standing to exist, one involving event tickets and another involving prescription eye drops.  En banc review, therefore, is at least possible.  If the panel’s decision stands, however, its application in the lower courts, and its persuasiveness in federal and state courts elsewhere, will be fascinating to observe.

Lawyers who file “slack-fill” cases against food manufacturers found a friendly venue in Missouri.  Missouri has a broad consumer fraud law and multiple courts have denied motions to dismiss slack-fill claims pleaded under that statute.  But the real fight in class actions—where the money is, in a bank robber’s parlance—is over class certification, and on Tuesday, a Missouri judge denied certification in one of the closely-watched slack-fill cases against a candy maker.

In White v. Just Born, Inc., a Missouri case against the maker of Mike and Ike® candies, it was no great shock that the Court denied multi-state class certification.  Convincing a court to certify a multi-state class is a tough slog for plaintiffs in any state law-based case, especially so if the case has only one plaintiff, rather than a plaintiff from each of the states in question.  Even a single-state class can pose the threat of massive statutory damages, however, so the real victory in White was the Court’s refusal to certify even a Missouri-only class.

The plaintiff in White bought two boxes of the defendant’s candy at a dollar store.  He pleaded that he personally “attached importance” to the “size” of the candy boxes and thought he was buying “more Product than [he] actually received.”  Bully for him, the Court thought, but “the question of whether any [consumer fraud] violation injured each class member will require individualized inquiry” because “if an individual [already] knew how much slack-fill was in a candy box before he purchased it, he suffered no injury.”  It does not matter at the class certification stage that a “reasonable consumer” may have been deceived.  What matters instead is whether the practice actually caused injury to all putative class members in a common and centrally determinable manner. In a slack-fill case over a dollar’s worth of candy, it seems, it cannot. Continue Reading Slack Fill Plaintiffs May Win Battles But Lose the War

Early this year, a Ninth Circuit panel upended a major nationwide class action settlement because it found that the District Court had not sufficiently considered material differences among the 50 states’ relevant laws.  I called that decision—now likely headed for en banc review–“Regrettable But Forgettable” because the district court should be able to correct the error the Ninth Circuit identified.  The district court had not conducted any predominance analysis at all, which always is required, even for settlement classes.  Had it done so, it very likely could have found that for settlement purposes, with no questions for a jury to try, variations in state law would not have been material.

Yesterday, the Second Circuit reminded us that for litigation classes, variations in state laws absolutely can and should tank class certification.  Langan v. Johnson & Johnson Consumer Cos., No. 17-1605 (2d Cir. July 24, 2018) is a “natural” case, challenging that label on two several baby-oriented bath products.  The plaintiff allegedly purchased some in Connecticut and contended that 20 other states have similar consumer fraud laws.  The district court certified a 21-state class, after which J&J successfully petitioned the Second Circuit, under Rule 23(f), to hear an interlocutory appeal. 

J&J tried to argue that the plaintiff lacked Article III (constitutional “case or controversy”) standing to sue on behalf of purchasers in other states, but the Second Circuit rejected that contention.  “[A]s long as the named plaintiffs have standing to sue the named defendants, any concern about whether it is proper for a class to include out-of-state, nonparty class members with claims subject to different state laws is a question of predominance under Rule 23(b)(3), not a question of ‘adjudicatory competence’ under Article III.”  The court recognized some tension in case law over this question, but thought that Supreme Court guidance counseled treating “modest variations between class members’ claims as substantive questions, not jurisdictional ones.” Continue Reading Second Circuit Bounces Multistate “Natural” Class. Now, Keep An Eye On the Ninth Circuit

When class actions have a low settlement value relative to the size of the class, it is normal for defendants to pay out money to non-profit groups that advocate for issues relevant to the case rather than directly to class members. Last July, in “Give the Money to One Percenters, Not to Non-Profits,” I reported that 11 state Attorneys General had decided to buck this ongoing trend, asking the Third Circuit to reject a class action settlement in which Google would have paid $3 million to non-profit groups advocating for privacy rights.  The Third Circuit has not ruled on that appeal, but with a new brief to the U.S. Supreme Court, the number of state AGs advocating for this change now has grown to a bipartisan group of 20.

Courts approve these “cy pres” distributions to non-profits where they find it “infeasible” to distribute money directly to class members.  The Circuits are slightly split on what it means to be “feasible,” however, and in the new brief, the AGs chastise the Ninth Circuit for approving cy pres “whenever there is a large class.”  The AGs prefer “feasible” to be synonymous with “possible,” and whenever possible, they want money to be distributed, somehow, at least to a subset of affected class members.

In the new case, In re Google Referrer Header Privacy Litigation (captioned at the Supreme Court as Frank v. Gaos, with “Frank” being Ted Frank, head of the Competitive Enterprise Institute’s Center for Class Action Fairness), Google would pay out $8.5 million to settle claims that it inappropriately shared user searches with third party marketers.  The Ninth Circuit “quickly disposed of the argument that the district court erred by approving a cy pres-only settlement.”  Because “[o]bjectors do not contest the value of the settlement” or plead that they suffered any out-of-pocket injury from Google’s conduct, the only question was whether it was “feasible” to distribute $8.5 million to a class with 129 million estimated members who performed searches through Google. Continue Reading State AGs Still Really Don’t Like Cy Pres Class Action Settlements

This week, by a 2-1 vote, a Ninth Circuit panel reversed a district court’s approval of a massive class action settlement involving Hyundai’s and Kia’s allegedly inflated statements of fuel efficiency.  The majority’s long decision, over a vigorous dissent, amounted only to a “greatest hits” collection of Ninth Circuit class action and settlement skepticism.  Nothing in it was new, and importantly, the panel majority Court said explicitly that the district court could approve the settlement anew upon remand.   

Put another way:  Settlement proponents in Ninth Circuit cases are going to have to deal with this decision in In re: Hyundai and Kia Fuel Econ. Litig. for the foreseeable future, but the case really did not erect any hurdles to approval that weren’t already there.

Twenty years ago, when the asbestos bar proposed a multibillion-dollar, highly creative settlement of tens of thousands of asbestos cases, the Supreme Court bounced the settlement because the proposed class raised too many individual issues.  The Supreme Court’s holding in that case—Amchem Prods. Inc. v. Windsor—was that although federal judges need not consider the manageability of a class action trial when a settlement is proposed, a settlement class still has to satisfy Rule 23(b)(3)’s requirement that common questions “predominate” over questions that are purely individual to each class member.  That a settlement would resolve a matter on fair terms is not enough if the settlement glosses over too many individualized issues.  Continue Reading The Ninth Circuit’s Hyundai Decision Is Regrettable But Forgettable

Most Popular Ad Law Access Posts of 2017

As reported in our Ad Law News and Views newsletter, Kelley Drye’s Advertising Law practice posted 106 updates on consumer protection trends, issues, and developments to this blog in 2017. Here are some of the most popular:

Ad Law News and Views is produced every two weeks to help you stay current on advertising law and privacy matters. You can subscribe to it and other Kelley Drye Publications here and the Ad Law Access blog by email or RSS feed.

2018 Advertising and Privacy Law Webinar Series 

Please join Kelley Drye in 2018 as we continue our well attended Advertising and Privacy Law Webinar Series. Like our in-person events, this series gives key updates and provides practical tips to address issues faced by counsel as well as CLE credit. This webinar series will start again in February 2018. Please revisit the 2017 webinars here.

On October 25, the U.S. District Court for the District of Massachusetts dismissed a consumer class action under Massachusetts law, contending that Wesson vegetable oil is falsely labeled “100% natural” because it allegedly is extracted from genetically modified corn, soybean and rapeseed.  Lee v. Conagra Brands., Inc., 1:17-cv-11042 (D. Mass Oct. 25, 2017).  This was an unusually clean case in that there was no other ground challenging the “100% natural” claim and no counts for other legal violations.  The court thus had squarely to decide whether the presence of genetically modified ingredients renders a product not “natural” under the law.

The court’s decision that GMOs are not necessarily not natural relied on the FDA’s longstanding approach to the use of the term.  The FDA has no formal definition of “natural” as applied to foods, but its policy, as expressed in the Background section of FDA’s November 12, 2015, request for comments on the subject, is that “we have not attempted to restrict use of the term “natural” except for added color, synthetic substances, and flavors” and “we have considered “natural” to mean that nothing artificial or synthetic (including colors regardless of source) is included in, or has been added to, the product that would not normally be expected to be there.”  80 FR 69905.  The court was also influenced by the FDA’s policy not to require special labeling of products containing genetically modified ingredients based on its 1992 conclusion that “The agency is not aware of any information showing that foods derived by these new methods differ from other foods in any meaningful or uniform way, or that, as a class, foods developed by the new techniques present any different or greater safety concern than foods developed by traditional plant breeding.”  57 FR 22984.

The court concluded, “Because Wesson’s ‘100% natural’ label conforms to FDA labeling policy, it cannot be unfair or deceptive as a matter of law.”  That is a strongly stated, absolute conclusion.  This was not a pre-emption case, but a determination on the merits that the label is not deceptive.  One might wonder how this sits with the view espoused by the Supreme Court in POM Wonderful LLC v. Coca-Cola Co., 134 S. Ct. 2228 (2014), holding that food or beverage labels conforming to FDA labeling regulations can still be false or misleading under Section 43(a) of the Lanham Act.  The Supreme Court limited its holding to the federal Lanham Act, so POM Wonderful does not control consumer class actions brought under state laws, but its underlying logic was that FDA regulations – to say nothing of informal “policies” – are not the final authority on whether advertising and labeling statements may deceive consumers.

It will be interesting to see how other courts handle this issue as it relates to GMOs and all-natural claims, an increasingly common type of food marketing class action.  Also interesting is the potential gap opened up between Lanham Act and state consumer actions in terms of what is deceptive, which heretofore has been fairly coterminous.  This Conagra decision suggests that in a case this one or like POM Wonderful v. Coca-Cola, a competitor Lanham Act action could be permitted despite the label satisfying FDA regulations or other pronouncements, but the consumer class actions that typically follow Lanham Act cases, seeking their own bite at the pie, might not be.

In a review of new class action cases filed against in 2017, we counted at least 11 actions in the food industry alone alleging that a product was not “natural” or “all-natural” as claimed in its advertising or labeling. “Natural” is, by a healthy margin, the most contested single word in food and personal care products class action litigation.  Why do class action cases around “natural” continue unabated?

  1. “Natural” Doesn’t Mean Much …

There is no generic, official definition of “natural.” In November 2015, after being prodded by almost every stakeholder, the FDA put out a request for information and comments regarding the use of “natural” in foods.  Since then, the FDA has done nothing.  It hasn’t even closed the web page for submitting comments, which were supposed to end in May 2016 – you can still leave a comment if you want to.  This doesn’t mean we have no idea what the FDA thinks “natural” means.  There is enough guidance on narrower definitions, such as the FDA’s definition of “natural flavor” and its opposite, “artificial flavor,” and the USDA’s general definition of “natural,” that we can guess with some confidence what the FDA’s definition of “natural” would look like if it were issued tomorrow.  But a guess doesn’t carry much authority, and isn’t much use in stopping litigation.

  1. … but Some Consumers Think It Means a Lot …

In advertising law, however, neither the advertiser nor even the government is the final arbiter of what an advertising claim means. It is the consumer audience that gets to interpret advertising claims, and regardless of what was intended, the advertiser is responsible for any reasonable interpretation of its advertising.  In private cases, the proxy that is used for a “reasonable consumer” is a significant proportion of consumers who report receiving a particular meaning in a competent consumer perception survey, that proportion sometimes being as low as 15%.  The implicit assumption is that at least 85% of consumers are reasonable, so that any slice of 15% of consumers must include some reasonable ones.  It may seem like a debatable premise these days, but it’s one we have to live with. Continue Reading Three Reasons “Natural” Class Actions Are Here to Stay