False Advertising, Consumer Class Actions on the Rise

Articles

USA: False Advertising, Consumer Class Actions on the Rise

30/09/2009

Legal Trends and Effective Litigation Strategies for Defendants and Plaintiffs

Teleconference Program

Recent Activity in False Advertising Class Action Lawsuits

1. Consumer Protection Class Actions Coming from Every Direction.

If one thing seems certain concerning consumer class actions, it is that they still are coming hot and heavy from every direction. According to a 2008 Federal Judicial Center Report, consumer protection class actions have increased in the federal courts by more than 150 percent from 2001 to 2007 and the end is not in sight. Examples abound. In May of this year, General Mills received a Warning Letter from the FDA asserting violations of the FDCA arising from the company's labeling, particularly with regard to claims for reduction of cholesterol levels in its Cheerios cereal. While General Mills was still waiting to talk to the FDA, with whom the company “respectfully disagrees,” a consumer class action lawsuit was filed in the U.S. District Court for the Eastern District of California, repeatedly citing the FDA Warning Letter and purporting to represent a class of people in the state who purchased the cereal after the cholesterol claim was added to the label. No class certification decision has been rendered by the Court.

In a similar health case a few months earlier, another California resident, together with the Center for Science in the Public Interest, filed a class action against Coca-Cola in the Northern District of California on behalf of all California residents similarly situated alleging that the company misrepresented the content and health benefits of the defendant's “health beverage,” Glaceau Vitamin Water, in violation of California's consumer protection laws. Here again, there has been no class certification decision.

Enforcement actions by the Federal Trade Commission regularly have been followed by consumer class actions and these follow-on actions have not diminished in recent years. For example, a consumer class action recently was filed by an Arkansas resident on behalf of all Arkansas residents who had purchased Bayer's One-A-Day WeightSmart vitamins, which allegedly increased metabolism during the aging process. Earlier, the FTC filed suit in 2007, responding to marketing materials released by Bayer, which asserted benefits to WeightSmart that, according to the FTC, lacked sufficient scientific substantiation.

Another area in which follow-on consumer protection class actions are significant are those brought in the wake of State AG consumer protection actions, whether by a single AG or a large group. Seemingly, the only advertising dispute forum that is not an instigator of consumer class actions, at least so far, is the National Advertising Division of the Council of Better Business Bureaus, where most advertising disputes are between competing advertisers who seek cessation or continuation of the ad claims, but not money damages. There is no reason, however, why follow-on class actions could not be brought by consumers seeking damages from an advertiser whose ad claims have been determined by the NAD to be misleading.

Class actions have become an increasingly important part of the legal landscape, even outside the consumer protection area. A foremost example is Google's recent settlement with the Authors Guild and the Association of American Publishers attempting to resolve a copyright infringement class action brought in a New York federal court by members of those two groups. In advance of a “fairness hearing” in early October, Google has argued that readers will be the main beneficiaries, if and when the settlement goes into effect, when Google will begin to sell online access to between 5 million and 6 million books, which it has taken off library shelves, dug out of secondhand book shops, and borrowed from university deposits and digitized giving every citizen access to “books that today lie hidden on dusty shelves.” On the other hand, the proposed settlement has aroused significant opposition from numerous individual authors and their heirs, a number of publishing and author groups and Amazon, Microsoft, Yahoo and the German and French governments. The settlement also is under investigation by the U.S. Justice Department. According to opponents, in addition to giving Google a “monopolistic advantage,” a prime objection to the settlement is that Google has inverted copyright law by asking rights holders to opt out rather than opt in. This all comes to a head in early October when the Court will decide whether to approve or reject the deal or to modify it.

2. Rejection of Class Certification Appears to be Prevailing.

Paradoxically, despite the influx of new consumer protection class actions, defendants have been increasingly successful in persuading courts, both federal and state, to reject class certification in false advertising class actions.

One of the prime decisions in this increasingly predominant trend was the Second Circuit ruling in McLaughlin v. American Tobacco Co., WL 878627 (C.A.2, Apr. 3, 2008), where the Court reversed an order of the lower court which had certified a nationwide class consisting of cigarette smokers allegedly deceived into believing that “light” cigarettes were healthier than “full-flavored” cigarettes. The Court held that individualized proof of reliance on the alleged misrepresentation is required, common questions will not predominate and class certification was rejected.

Equally authoritative was Judge Posner's decision in Thorogood v. Sears, Roebuck and Company, U.S. Court of Appeals, Seventh Circuit No. 08-1590 (Oct. 28, 2008). There a class action was brought under the Tennessee Consumer Protection Act and the laws of 28 other states alleging that when Sears labeled its dryer as having a stainless steel drum, this implies that the drum is 100 percent stainless steel because otherwise it might rust and cause rust stains on the clothes dried in the dryer. Judge Posner responded to this allegation as follows: “Do the other 500,000 members of the class believe this? Does anyone believe this besides Mr. Thorogood? It is not as if Sears advertised the dryers as eliminating a problem of rust stains by having a stainless steel drum. There is no suggestion of that. It is not as if rust stains were a common concern of owners of clothes dryers. There is no suggestion of that either, and it certainly is not common knowledge.” In conclusion, the Seventh Circuit ruled that “[t]he evaluation of the class members' claims will require individual hearings. Each class member who wants to pursue relief against Sears will have to testify to what he understands to be the meaning of a label or advertisement that identifies a clothes dryer as containing a stainless steel drum ... The deal breaker is the absence of any reason to believe that there is a single understanding of the significance of labeling or advertising clothes dryers as containing a 'stainless steel drum.'” The Court instructed the district court to decertify the class.

(a) Based on the Need for Individualized Proof of Reliance, Class Certification Denials Keep Increasing.

In the Bayer case, referred to above, an Arkansas state class sought certification of all Arkansas residents who had purchased One-A-Day WeightSmart vitamins from Bayer during the applicable time period, based on the marketing claim that the pill enhanced metabolism. Rejecting plaintiff's claim that Bayer's use of “uniform marketing and advertising” by Bayer, which allegedly “contributed” to the purchase of Bayer's product by all class members, thereby entitling plaintiff to class certification, the District Court ruled that “[p]laintiff must provide evidence that each class member saw the alleged false advertisements and subsequently purchased WeightSmart in order to prove that each class member is entitled to restitution.” Class certification was denied. Thompson v. Bayer Corporation, 2009 WL 2424352 (E.D.Ark., Aug. 6, 2009).

Even more recently, a New Jersey State appellate court affirmed the denial of class certification in a putative nationwide class action, where it was alleged that the maker of the dietary supplement Relacore deceptively marketed it for use in cutting fat and stress. The appellate court upheld the denial of certification on the ground that there are a number of individual factors that “would necessitate an evidentiary hearing for each class member” on the deceptive advertising claims. Lee v. Carter-Reed Company, A – 4598-07 (Aug. 19, 2009).

This decision is a far cry from the New Jersey Superior Court decision in International Union of Operating Engineers Local No. 68/Welfare Fund v. Merck & Co., No. ATL-L-3015-03 (Atlantic Co., N.J., Super. Ct. Law Div. July 29, 2005), where the Court certified a nationwide class, applying New Jersey law, and held that “plaintiff could prove that Merck's alleged misrepresentations and/or omissions were a causal factor in all the third-party payors including Vioxx as a part of their medical benefits programs without a detailed analysis of each decision made by each member of the class.” Such holdings have become few and far between.

(b) Is There a Caveat?

Is there a caveat lurking that could establish that common questions predominate over individual issues of reliance, thereby persuading courts to grant class certification in consumer protection class actions? One possibility is presented by state consumer protection laws.

For example, in Kasky v. Nike, 27 Cal.4th 939 (May 2, 2002), the California Supreme Court held that California's Unfair Competition Law (UCL) permitted not only public prosecutors, but also “any person acting for the interests of ... the general public” can bring an action for relief under the statute. To bring such a “private attorney general” action “it is necessary only to show that members of the public are likely to be deceived.” Relief included not only injunctive relief, but restitution “compelling a UCL defendant to return money obtained through an unfair business practice to those persons in interest from whom the property was taken.” On its face, this language would appear to support a class of “private attorneys general,” who would be entitled to money damages based on any “property” obtained from them through an unfair business practice. After the U.S. Supreme Court granted Certiorari, the Solicitor General, in support of Nike, argued that the First Amendment is violated when a private party is able to obtain judicial relief for a company's allegedly false statements about its products even though the party did not rely on those statements or suffer any injury whatsoever.

The Supreme Court returned the case to the California Supreme Court without decision and the case was settled shortly thereafter. In the meantime, California's electorate narrowed the scope of the UCL in 2004 by passing Proposition 64, changing the language of the statute to read that a person could bring suit “only if the person has suffered injury in fact and has lost money or property as a result of the unfair competition.” While this has ended California's sanctioning of “private attorneys general” seeking damages on a class-wide basis, other states may follow the original Kasky v. Nike holding by certifying consumer classes without individualized proof of reliance on the alleged misrepresentation. This would seem to be increasingly unlikely as more and more courts hold that individualized proof of reliance is required and deny class certification.

Perhaps the answer lies in what occurred on September 18, 2009. On that date, the Dannon Company settled a nationwide class action by agreeing to change its labeling and marketing materials and creating a $35 million fund to reimburse qualified consumers. The original case, filed in California in January 2008, followed by similar class actions in Ohio, Florida and Arkansas, charged Dannon with allegedly falsifying the health benefits of its Activia, Activia Life, and DanActive yogurts. Apparently, the settlement was reached without the class certification issue being raised.

The enticing prospect that a settlement could take place may help to explain why consumer protection class actions keep coming even while more and more courts are rejecting them based on the absence of predominant common questions.

3. What Law Applies in a Multi-State Class Action?

After certifying a multi-state class action, a number of courts have been faced with the question of which state law to apply. In the now-repudiated Merck case in New Jersey, supra., the state court determined to apply New Jersey law, where Merck was headquartered, even though the court acknowledged that a number of states preclude class actions by private citizens and other states require individual proof of reliance on the allege misrepresentation. Judge Posner was troubled by this issue in Thorogood, supra. “Our plaintiff wants to litigate in a single federal district court half a million claims wrested from the control of the courts of the 29 jurisdictions in which those claims arose and the laws of which govern the claimants' entitlement to and scope of relief. The instructions to the jury on the law it is to apply will be an amalgam of the consumer protection laws of the 29 jurisdictions, and procedural rules by which particular jurisdictions expand or contract relief will be ignored. The Tennessee Consumer Protection Act, for example does not authorize class actions.” In the end, no determination was necessary on this issue.

That appears to be the bottom line with respect to this issue. As courts increasingly decline to certify consumer protection class actions, the question of what law applies need not be reached, with all the attendant procedural and due process problems.

Hugh Latimer
hlatimer@wileyrein.com

<< Back to Articles