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

What should a corporation do when a class action lawsuit claims it broke the law, the group of allegedly affected people is massive, but the real-world “harm” is effectively nil?

If the lawsuit fails to state a valid claim, obviously you move to dismiss it. But what if your best arguments require expensive discovery, you can’t be certain of a victory even then, and the downside risk—such as from statutory minimum damages—is intolerable to you?

One good strategy for corporate defendants facing these situations is to settle by making corrective changes to address the alleged problem and, in lieu of what would be tiny damages payments to affected class members, contribute a palatable amount of money to non-profit groups working to protect the interests of those consumers. Continue Reading Cy Pres Class Action Settlements Just Fine, Ninth Circuit Says

Yesterday, a panel of the Third Circuit Court of Appeals took another step back from a circuit split over the extent to which aspiring class plaintiffs must show a “reliable and administratively feasible means of determining whether putative class members fall within the class definition,” and one judge called for scrapping that requirement altogether.

Continue Reading Third Circuit Steps Back from the Brink of a Circuit Split over “Ascertainability”

On August 2, 2017, the U.S. District Court for the Central District of California dismissed a putative class action lawsuit against Ross Stores that accused the discount retailer of misleading promotional pricing practices. The lawsuit stemmed from February and May 2015 purchases by the two lead plaintiffs of items bearing price tags with a selling price and an instruction to “Compare At” the higher, reference price. Ross has since changed the reference price signal from “Compare At” to “Comparable Value.”

The Second Amended Complaint, filed in March 2016, contained the following allegations:

  • The use of “Compare At” is deceptive, as the higher, reference price is not a price at which substantial sales of the item were made in California.
  • The higher, reference price is the price of similar, non-identical merchandise – a material fact that Ross fails to adequately disclose.
  • A reasonable consumer would expect the reference price to refer to the price of an identical item.
  •  The retailer’s explanation of its comparison pricing is “buried” on the website and out of view in stores. Specifically, the explanation states that the comparison pricing “represents a recent documented selling price of the same or similar product in full-price department stores or specialty stores[, and w]here identical products are not available [Ross] may compare to similar products and styles.”

According to the plaintiffs, these practices violate California law, which promotional pricing statutes (1) prohibit retailers from making a false or misleading statement of fact concerning the reason for a price reduction, and (2) require that an advertised reference price have been the prevailing market price for the item within the immediately preceding three months. See Cal. Civ. Code § 1770(a)(13); Cal. Bus. & Prof. Code § 17501.

In May, Ross and the plaintiffs filed a motion for summary judgment and motion for class certification, respectively. With respect to the new, “Comparable Value” signal, the Court determined that the plaintiffs lacked standing to challenge these tags because they failed to present evidence that they actually relied on the phrase when making their purchases, or that they suffered any economic injury as a result of Ross’s use of the phrase. As a result, the Court granted the motion for summary judgment with respect to Ross’s use of “Comparable Value.”

With respect to the “Compare At” signal, the Court found that the phrase is not “obviously false or misleading on its face,” and the plaintiffs had not presented evidence, other than their own declarations and price tags, in support of their argument that the reasonable consumer would expect the reference price to refer to the price of an identical item. Regardless, the Court concluded, the plaintiffs also failed to demonstrate economic harm, and therefore lacked standing to pursue their claims. Importantly, the Court rejected the plaintiffs’ reliance on the Ninth Circuit decision in Hinojos v. Kohl’s Corp., noting that, “the standard of proof on a motion for summary judgment is higher” and demands proof that the items purchased were not worth as much as Ross claims, rather than vague averments of injury.

For the first 28 weeks of 2017, the most frequently alleged claims in new food and beverage false-advertising class actions have related to featured product ingredients that allegedly are absent, or present only in small quantities, in the food at issue.

We reviewed news reports and other mentions of newly-filed food advertising class actions for the first part of 2017 and tabulated the central cause or causes of action to learn where the current substantive focus is in these cases. Out of 52 new food advertising class actions reported between January 1 and July 15 as having been newly filed, the largest single category – 12 cases – alleged the absence of an ingredient that was featured on the product’s label and/or marketing.  Three of the suits concerned truffle-infused cooking oils, alleging that these products actually contained no truffles.  Two cases were filed against makers of ginger ales, which the suits alleged contained no ginger.  Single cases alleged that a guacamole contained very little avocado, that coconut water contained no coconut, that veggie snacks contained no vegetables, that canned octopus was really squid, and that “steak” in a sandwich was really non-steak ground beef.

The other major categories reflect the types of food advertising claims that have been much in the news in recent months. Nine cases concerned “natural” claims.  Nine cases objected to “no sugar added” or similar claims, generally on the basis that evaporated cane juice allegedly was not characterized as a sugar.  Seven cases concerned slack fill, and a further four cases alleged underfill (i.e., not that there was empty space in the package, but that the actual weight of product was less than the stated weight).  Five cases accused the food of overstating its healthiness, and a further three charged that the product falsely claimed a nutritional benefit.  Four cases alleged that an undesirable ingredient claimed not to be in the product, such as trans fat or preservatives, actually was present.

The accompanying chart shows the 52 actions broken down into categories of claims asserted. The total assertions amount to more than 52 because some cases asserted more than one type of claim.

Based on this analysis of 2017 thus far, the two takeaways for food manufacturers are (1) advertising class actions are alive and well and remain a threat, and (2) manufacturers should pay close critical attention to the accurate characterizing of their ingredients. Other well-known controversies over hot-button issues like “natural” claims, slack fill, and the treatment of evaporated cane juice continue to play out in the courts and to be the subject of new challenges.

(Click here to enlarge image.)

On Friday, the Second Circuit Court of Appeals’ decision in In re Petrobras Securities refused to adopt what it called a “’heightened’ two-part ascertainability test in class action cases.  The Second Circuit agreed that class action plaintiffs must show that ‘the class is defined with reference to objective criteria,’ but did not agree that plaintiffs also must put forward “a ‘reliable and administratively feasible mechanism for determining whether putative class members fall within the class definition.’”  The Third Circuit ostensibly has required both showings in class action cases, but the Second Circuit decided to “join a growing consensus that now includes the Sixth, Seventh, Eighth, and Ninth Circuits,” all of which expressly disagreed with their interpretations of the Third Circuit’s holdings.

But are the appellate courts really in disagreement?

The Third Circuit, in fact, has never held that “a plaintiff must be able to identify all class members at [the] class certification stage.”  That quote comes from its 2015 Byrd v. Aaron’s, Inc. case, where it expressly held the opposite: “a plaintiff need only show that class members can be identified.”  In Byrd, the Third Circuit reversed a district judge’s decision denying class certification on ascertainability grounds, saying the district judge had imposed too strict a requirement.

The Third Circuit’s “ascertainability” cases all arose from facts so stark that it is hard to imagine any appellate court in the country would have decided the cases differently.  In Marcus v. BMW of North America, LLC, nobody—not the plaintiff, not BMW, and not even individual BMW dealers—knew or had any way to learn which cars had been fitted with allegedly defective tires.  In Carrera v. Bayer Corp., even the named plaintiff did not remember which diet supplement he had purchased, causing the court to wonder why Bayer should have to swallow every putative class member’s affidavit swearing that he or she purchased the subject product without being able to cross-examine.  And in Hayes v. Wal-Mart Stores, Inc., where Sam’s Club receipts did not include critical information on whether a customer purchased an “as-is” floor model, the Third Circuit merely remanded the case to determine whether the plaintiff could propose a method to establish who did and did not buy both an “as-is” product and a warranty that didn’t cover “as-is” products.

The “disagreement” among the Circuits, therefore, is over a concern that may be much more theoretical than real.  Taken to an extreme, the ascertainability requirement might mean that where a defendant has no list of class members, and where class members themselves are not likely to have retained receipts for purchases, classes can never be certified.  The Ninth Circuit refused to go that far in this year’s Briseno v. ConAgra Foods, Inc. decision.  The Ninth Circuit said it was disagreeing with the Third Circuit, but—and here is the critical part—neither the Third Circuit nor any other appeals court had actually held to the contrary.

To be sure, the Third Circuit has held that “unverifiable” affidavits as a method of proof of class membership may not suffice where reason exists to believe that class members’ memories may not be reliable.  That should not be particularly controversial.  But the Third Circuit has not held, and Judge Rendell’s strong concurrence in the Byrd case explicitly rejected, that the ascertainability doctrine should be read to “disable[e] plaintiffs from bringing small value claims as a class.”

The Second Circuit’s new Petrobras decision involved securities claims rather than consumer claims.  Under Supreme Court precedent, those who purchased Petrobras securities on a domestic exchange could be part of a putative class, but those who purchased securities abroad could not.  Although the Second Circuit refused to adopt an “ascertainability” test, it reversed the district court’s decision to certify a class because the court had not adequately considered, under the “predominance” test of Rule 23(b)(3), how it could distinguish between the two.

It therefore is hard to find much daylight between the Third Circuit in Byrd, which reversed a decision denying class certification, and the Second Circuit in Petrobras, which reversed a decision granting certification.  Both instructed district courts to figure out whether purely individual questions predominate, in which case certification must be denied. The Third Circuit has had more chances to give guidance on how to judge these questions, but unless and until a court comes out the other way in a case that actually resembles one the Third Circuit has decided, it is hard to discern true “disagreement.”  And the Supreme Court may end up speaking on the question before any real disagreement actually appears.

Class action plaintiffs anywhere in the country, including in the Third Circuit, may try to argue that they should be able to rely on affidavits from putative class members to figure out who is in the class.  In any Circuit, however, if the defendant can demonstrate that individual affiants’ memories may be unreliable on the key questions, the defendant should be able to overcome class certification.  The Third Circuit may have decided to call this “ascertainability,” but it may be thought of as predominance under another name, with a healthy helping of a defendant’s due process rights.

On July 5, bipartisan Attorneys General from 11 states filed an astonishing brief in the Third Circuit Court of Appeals, asking that court to reject the proposed class action settlement in In re Google Inc. Cookie Placement that would give settlement monies to non-profits rather than class members.

The plaintiffs in Google Cookie allege that Google circumvented the cookie-blocker settings in Microsoft’s Internet Explorer and Apple’s Safari browsers and placed advertising tracking cookies without user consent.  The putative class—theoretically, every user of those hugely popular browsers—obviously is massive.  The “damages” suffered by class members, however, if any, is vanishingly small.

In 2016, Google and the plaintiffs’ counsel reached a proposed $5.5 million class action settlement.  The plaintiffs’ counsel requested a $2.5 million fee, with the balance (after administrative costs) to be distributed to privacy rights non-profits such as the Berkman Center for Internet and Society at Harvard University and the Privacy Rights Clearinghouse.  Individual class members would receive nothing.

The Competitive Enterprise Institute’s Center for Class Action Fairness filed an objection to the settlement, arguing that if money cannot be distributed to class members, then the settlement class should not be certified at all.  The Delaware federal judge hearing the case disagreed and approved the settlement.  The objector took its arguments to the Third Circuit, and now 11 state Attorneys General have joined it.

The AG coalition brief, written by the office of the Arizona Attorney General, took no issue with the amount of the settlement and acknowledged that the settlement class is huge.  They contend, however, that “[d]irecting settlement funds to members of the class wherever feasible is important,” and that “there is a feasible path to distribution here.”  That “feasible path” is where the brief took an unprecedented turn for an AG objection.

“Claims rates in small-dollar cases are reliably in the very low single digits (if not below one percent),” the brief argued, citing cases with low claims rates.  “Even assuming a class in the tens of millions, such a claims rate would result in an economically meaningful” payment of “a few dollars to $15 or $20, if not more) to those lucky “one-percenters.”  That, these Attorneys General argued, “is preferable to making no distribution to any class members.”

In the years since the Class Action Fairness Act of 2005 required federal litigants to notify State AGs of proposed class action settlements, State AGs have taken a leading pro-consumer role in trying to limit the forms that settlements can take.  A multistate AG objection to a coupon settlement a decade ago, for example, has sharply curtailed the use of coupon settlements.  This is the first time, however, that AGs have argued it is better to direct small dollars to a tiny fraction of a large class than to pay millions of dollars to non-profits that ostensibly could advocate on behalf of the interests of the class as a whole. 

It will be very interesting to see how the Third Circuit responds to this argument.

Joining Arizona on the brief were the Attorneys General of Alaska, Arkansas, Louisiana, Mississippi, Missouri, Nevada, Oklahoma, Rhode Island, Tennessee, and Wisconsin.

BRIEF OF ELEVEN STATE ATTORNEYS GENERAL AS AMICI CURIAE IN SUPPORT OF OBJECTOR-APPELLANT AND REVERSAL

Western UnionLast week, California became the 50th state to join the multistate settlement with Western Union over its alleged complicity in fraud-induced wire transfers.  This followed Western Union’s $5 million agreement with 49 state and the District of Columbia for costs and fees in January, not to mention a whopping $586 million in settlement agreements with the United States DOJ and FTC.  While DOJ brought wire fraud and anti-money laundering charges against Western Union, and the FTC alleged violations of Section 5 of the FTC Act, and the Telemarketing Sales Rule, the states raised violations of their respective consumer protection laws.  California brought its complaint pursuant to the Unfair Competition Law, Cal. Bus. & Prof. Code §§ 17200-17209 (“UCL”), its analog to the FTC Act.

Some quick background on the UCL:

  • Traditionally, the UCL is thought to prohibit unfair competition, which includes unfair, deceptive, misleading, or false advertising.  § 17200; see Lavie v. Procter & Gamble Co., 105 Cal. App. 4th 496, 512 (2003) (whether “the ordinary consumer acting reasonably under the circumstances” is likely to be deceived).
  • But the UCL also forbids business activity unconnected with advertising when such activity constitutes an “unlawful” or “unfair” business practice that either violates another law or violates an established public policy.  § 17200; see e.g., In re Anthem Data Breach Litig., 162 F. Supp. 3d 953, 990 (N.D. Cal. 2016); Ballard v. Equifax Check Servs., Inc., 158 F. Supp. 2d 1163, 1176 (E.D. Cal. 2001).  Some common defenses to these claims include compliance with the underlying law, the practice is not unfair or is justified, and federal preemption.
  • The UCL provides private plaintiffs with the ability to bring claims for restitution and injunctive relief, while the government can also impose civil penalties of up to $2,500 per violation.  §§ 17203, 17206; see e.g., People v. JTH Tax, Inc., 212 Cal. App. 4th 1219, 1254 (2013) (“[T]he court could have imposed penalties of over $9 million, but only imposed penalties of $715,344 for these advertisements.”).

Here, the California Attorney General alleged that Western Union, during the course of its money transferring services, failed to scrutinize and stop complicit agents that did not comply with anti-money laundering policies, inadequately trained, vetted and reported agents, and overall did not “prevent fraudulent telemarketers, sellers, and con artists from using Western Union’s money transfer system to perpetrate their frauds.”  In other words, Western Union exposed its customers to fraud in violation of the UCL.

As part of the global settlement, Western Union agreed to implement a comprehensive anti-fraud program to detect and prevent future incidents.  California consumers who made a wire transfer through Western Union are entitled to a share of the DOJ restitution fund and may be eligible for more than $65 million in refunds.  The California Department of Justice also may recoup costs and fees from the $5 million multistate fund.

Bottom line: the UCL is a dynamic enforcement mechanism with the potential to curtail many different types of business activities that seemingly harm consumers, and provides the Attorney General with the ability to inflict stiff penalties for violations.

On Feb. 9, the Chair of the House Judiciary Committee introduced a bill titled the “Fairness in Class Action Litigation Act of 2017” (FCALA) (H.R. 985).  Although the FCALA has a worthy goal and several provisions that build on existing, successful class action reforms, it may have too many “poison pills” to pass the Senate, as did its predecessor bill of the same title introduced in 2015 (H.R. 1927).  Before businesses suit up for a fight over those more controversial aspects of the bill, however, they should consider the likelihood of unintended consequences if those provisions become law.

Two provisions of the FCALA would extend to all class actions some of the beneficial changes Congress imposed on securities fraud class actions in the 1995 Private Securities Litigation Reform Act.  The bill would require named plaintiffs to provide certifications attesting to their willingness to serve as class representatives and disclosures of any other class action cases they have brought.  It also would presumptively stay discovery in all class actions while motions to dismiss are pending.  Both of those steps would be helpful to class action defendants and preclude class plaintiffs from exerting undue settlement pressure until the Court has determined the plaintiff has a plausible claim.

The FCALA then would go beyond the securities reforms by also requiring class counsel to disclose any employment, familial, or contractual relationship it has with the named plaintiff and precluding courts from certifying classes represented by people possessing such relationships.  The bill seems to preclude a law firm from representing the same client in multiple class actions — a requirement the bar will resist.  It also would stay discovery during the pendency of “any motion to transfer” or “motion to strike class allegations.”  In that respect, the FCALA would become the first federal law or rule explicitly recognizing the propriety of pre-discovery challenges to class claims.  The bill does not contain an express exception allowing discovery on class issues while a motion to strike class allegations is pending, which would set up an interesting and perhaps untenable dynamic if the defendant seeks to introduce materials beyond the pleadings while preemptively attacking class claims.

The bill would substantially tighten class certification requirements.  Under current law, before certifying classes, courts must find (among other things) that the named plaintiff is a “typical” and “adequate” class representative, and that questions common to the class “predominate” over questions individual to each putative class member.  The FCALA would impose a new “super-typicality” requirement that “each proposed class member [must have] suffered the same type and scope of injury” as the named plaintiff.  What this would mean in practice is unclear.

Every Court of Appeals to opine on the subject of class definitions has precluded so-called “fail-safe” classes and held that classes must be “defined with reference to objective criteria.”  The FCALA would codify that requirement.

The FCALA also weighs in on the current Circuit split over “ascertainability” and resolves that split in the Third Circuit’s favor.  It would preclude class certification unless “there is a reliable and administratively feasible mechanism” to determine whether someone is a member of the class.  The bill is silent, however, as to whether accepting say-so affidavits from class members is such a “feasible mechanism.”  If affidavits are not acceptable, the net effect of the FCALA likely would be to preclude class certification in consumer products cases where the defendants do not have contact information for their end-purchasers.  That potential effect already has generated major opposition to the bill from consumer advocates.

In fact, the FCALA would go well beyond the Third Circuit’s holding by prohibiting courts from certifying classes unless a means exists to “distribut[e] directly to a substantial majority of class members any monetary relief secured for the class.”  Businesses, however, should be at least as wary of that provision as the plaintiffs’ bar is, if not more so.  Although one possible outcome, if this aspect of the FCALA becomes law, is that classes rarely will be certified, another is that plaintiffs will push harder to maximize claims rates, including by demanding intrusive third-party discovery from the defendants’ business partners and insisting on ever-more-expensive and burdensome steps to provide notice to class members.

Where defendants find themselves on the wrong end of a class certification ruling, current Federal Rule of Civil Procedure 23(f) already permits interlocutory appeals from those orders.  Rule 23(f), though, allows the Courts of Appeals to accept or reject those appeals based on any criteria they may set.  The FCALA would require the Courts of Appeals to hear these appeals mandatorily.  That change would be a boon to defendants who believe a class was certified wrongly, but it also would mean defendants must bear the costs and risks of defending appeals from disappointed plaintiffs that, under the current procedures, never would have made it past the petition stage.

The most recent round of major class action reform, the Class Action Fairness Act of 2005, came in the last year of unified Republican control of Congress and the Presidency.  The return of that unified control stirs hope for further class action reform, which is badly needed.  The FCALA is a helpful first shot in that battle, but it could use some additional input from the proverbial front lines of the consumer class action wars.

To learn more about Class Action Litigation, please tune in for our webinar on February 22 at 12 PM ET on “Litigation is Inevitable: Update on Recent Advertising Class Actions.” For more information and to register, please click here.