Thursday, May 01, 2014

7-year ad campaign triggers Tobacco II's reliance rules

Dodson v. Tempur–Sealy International, Inc., No. 13–cv–04984, 2014 WL 1493676 (N.D. Apr. 16, 2014)

Plaintiffs brought twenty-four claims under the laws of eleven states.  The alleged misrepresentations were that Tempur products are “formaldehyde free;” are “free of harmful VOCs [volatile organic compounds];” are “allergen resistant” or “hypoallergenic;” are “completely safe;” are “harmless;” and have only a “slight odor” that will “dissipate in a few days.” In addition, Tempur-pedic allegedly knowingly omitted the fact that numerous health agencies list formaldehyde as a “known human carcinogen;” that VOCs “can be and are often allergenic;” and that it has received many “customer complaints ... claiming Tempur-pedic’s products were causing them allergic reactions ....” Essentially, the allegations arise out of the undisclosed presence of formaldehyde and VOCs contained in or emitted from Tempur products. According to plaintiffs, “reliable testing of Tempur-pedic products reveals that formaldehyde and other potentially harmful VOCs, that can trigger allergy and asthma symptoms, are present in Tempur-pedic products and in the chemicals off-gassing from Tempur-pedic products.”

A California safe harbor provision relating to “environmentally friendly” claims was irrelevant, since those weren’t the claims at issue.

The court found that the complaint stated a claim under the CLRA for failure to disclose. Though there was no fiduciary relationship with the plaintiffs, plaintiffs plausibly alleged that defendants had exclusive knowledge of material facts not known to them—the actual chemical contents of the products (as well as the volume and content of customer complaints), which plaintiffs weren’t in a position to know about, especially given that defendants attributed the products’ odor to the “manufacturing process.” Separately, plaintiffs plausibly alleged active concealment of the contents of the products because ads and promotional materials specifically attributed the products’ strange odor to a “manufacturing process” and explicitly represented that Tempur material is “free of harmful VOCs such as formaldehyde and CFC—harsh chemicals that can trigger allergies and asthma.”

Also, plaintiffs plausibly pled materiality: they wouldn’t have bought/would’ve paid less had they known the truth.  This was enough to create a reasonable inference that defendants had a duty to disclose the true chemical contents of the products and the possible ramifications of their presence.  The pleadings also satisfied rule 9(b).

Defendants argued that plaintiffs didn’t adequately allege reliance because they didn’t each allege they viewed the ads at issue.  Under In re Tobacco II, this was a close case, since the “exception” for pleading reliance on specific misrepresentations in the context of a long-term ad campaigns is “narrow.”  (Reliance must still be pled, so this isn’t really an exception.)  Still, plaintiffs sufficiently pled reliance, given allegations that the misrepresentations were extensive—“appearing within in-store brochures, on Tempur-pedic’s website, and on its official Facebook page,” and made since at least 2007.

The UCL claim survived because plaintiffs successfully pled unlawfulness (and fraudulence), not just under the CLRA and FAL, but also under California Civil Code sections 1709–11, which makes it unlawful to “willfully deceive [ ] another with intent to induce him to alter his position to his injury or risk” and states that “[o]ne who practices a deceit with intent to defraud the public ... is deemed to have intended to defraud every individual in that class, who is actually misled by the deceit.” In addition, plaintiffs stated a UCL unfairness claim, because they alleged that the harm to consumers (triggering allergies etc.) outweighed the utility of the conduct.
Given the similarities between California law and the law of other states, the motion to dismiss non-California claims was also denied.

Further, the court rejected defendants’ arguments based on statutes of limitations.  The discovery rule and the doctrine of fraudulent concealment tolled the applicable California statutes of limitations for purposes of the motion to dismiss. Given defendants’ exclusive knowledge, plaintiffs plausibly alleged that they couldn’t have been expected to know the true chemical contents at the time of purchase, and that they didn’t have a reasonable opportunity to discover the alleged wrongdoing until scientific testing occurred in 2012 and 2013, within the 3-year limitations period.  The court reached the same result under New York law,  which recognizes equitable tolling.

Finally and inevitably, defendants challenged standing.  But not only did plaintiffs allege that these products could and did cause physical harm, the allegation that plaintiffs spent money that they wouldn’t have spent because of defendants’ conduct was “a quintessential injury-in-fact.”

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