Tuesday, September 06, 2016

NY law offers more than 43(a) when it comes to allegedly misleading omissions

Casper Sleep, Inc. v. Mitcham, --- F.Supp.3d ----, 2016 WL 4574388, 16 Civ. 3224 (S.D.N.Y. Sept. 1, 2016

Casper sells mattresses over the internet, while Mitcham and Mattress Nerd LLC operate a website that reviews mattresses. Casper sued under § 43(a) of the Lanham Act and § 349 of the New York General Business Law, alleging that Mitcham misleadingly implied that his reviews were unbiased, when in fact he collects sales commissions through affiliate marketing relationships with many of Casper’s competitors but not (any more) from Casper’s. The court allowed some of the claims to continue.

The FTC Guides Concerning Use of Endorsements and Testimonials in Advertising say that, “[w]hen there exists a connection between the endorser and the seller of the advertised product that might materially affect the weight or credibility of the endorsement (i.e., the connection is not reasonably expected by the audience), such connection must be fully disclosed.”  Mitcham includes a general “Affiliate Disclaimer” that appears on each page of his website:

On my site, I will often recommend products and link to other websites.
In many of those cases, I get paid a small commission if you end up purchasing anything through those links. Unlike a mattress salesman in a store, I don’t just get paid commission from one brand or one retailer; I’m an affiliate for many different companies, so I can help find you great deals no matter where they are.
I have not been paid to write any of these articles and all of these opinions are completely my own. I also do not accept paid advertising placement on my site.
My only compensation is when I help match a reader to the right product, and that reader makes the purchase through a link on my site. In this way, I can act as a brand-agnostic and retailer-agnostic salesman.

Disclaimers at the bottom of his mattress reviews “generally state that Mitcham is an affiliate of the relevant mattress company or companies and that Mitcham receives a ‘small commission’ if readers purchase a mattress through one of his affiliate links.” Nonetheless, Casper alleged, Mitcham misled consumers into thinking that his reviews were unbiased.  His “About the Mattress Nerd” page, for example, says in part, “it’s difficult to find an unbiased source. Many mattress guides out there are written by the companies trying to sell you their particular mattress…. I’ve switched teams to be on the side of the customer.”

Mitcham argued that Casper lacked “prudential standing,” but Lexmark says that phrase is a no-no.  More specifically, Mitcham argued that Casper was really alleging a violation of the FTCA, but that failed too.  “[C]ourts have held that a ‘plaintiff may and should rely on FTC guidelines as a basis for asserting false advertising under the Lanham Act.’”  However, the Lanham Act mostly failed because §43(a) doesn’t impose an affirmative duty of disclossure, and many of the challenged statements weren’t false or plausibly misleading.

Casper alleged that the affiliate disclaimer “affirmatively implies that Mitcham is an affiliate of virtually all the mattress companies whose products he reviews and therefore that his reviews remain unbiased despite these connections.” But “virtually all” isn’t “all,” and saying that he was an affiliate for many different companies was perfectly accurate, and it was implausible that readers would infer that Mitcham was entirely unbiased from his “admission of pecuniary interest in some but not all mattress brands.” Casper’s allegation that Mitcham’s commission was “meaningful” and not “small” was too vague and conclusory to support a claim.

As for claims of “brand-agnosticism” and “retailer-agnosticism,” those statements were “too subjective and opinion-laden” to support a Lanham Act claim.  So too for statements on the “about” page about the difficulty of finding an unbiased source/Mitcham’s alleged switching of teams to be on consumers’ side.  The nebulous claim that the combination of statements was misleading was “insufficiently tied to an actionable ‘description’ or ‘representation of fact.” [I wonder what a consumer survey might have shown about whether consumers perceived the disclaimers and understood them as the court interprets them.]

However, there was a Lanham Act claim for direct suggestions that Mitcham had an affiliate relationship with Casper. For example, MattressNerd.com contains a three-way comparison of Casper, Tuft and Needle, and Saatva mattresses. Casper alleged that, although Mitcham’s comparison originally named Casper the winner of this face-off, Mitcham updated the post after Casper terminated their affiliate relationship with Mitcham to recommend another affiliated company, Leesa, even though the comparison falsely stated that he was an affiliate for all the companies mentioned.  This was, as alleged, a literal falsehood.

Mitcham’s review of the Casper mattress also contained affiliate links to various of Casper’s competitors’ products, along with Amazon.com links to Casper and Tuft and Needle.  But the disclaimer just referred to “affiliate links.” The court considered this a closer case, but still “plausibly materially misleads consumers by directly suggesting that Mitcham has the same pecuniary interest in pushing sales of Casper that he does in pushing sales of each of the other mattress companies mentioned in the review.”

Mitcham argued that he didn’t compete directly with Casper, but Lexmark foreclosed such an argument.  “[T]here is no requirement that false-advertising claims under the Lanham Act be limited to the typical fact pattern.”  Mitcham also argued that Casper’s alleged injuries weren’t proximately caused by his allegedly inadequate disclosures.  But given that the reviews recommended competing mattresses over Casper’s, it was perfectly plausible that the alleged “deception ... cause[d] [consumers] to withhold trade from the plaintiff.”  

The court distinguished Wall & Assocs., Inc. v. Better Bus. Bureau of Cent. Va., Inc., 2016 WL 3087055 (E.D. Va. May 31, 2016), which found that alleged injuries weren’t proximately caused by the BBB’s description of itself as relying on a “national, uniform, and unbiased standard.”  Instead, the injuries proximately came from the bad rating the BBB gave the plaintiff.  But the court here only allowed claims to proceed based on specific claims about an affiliate relationship with Casper; BBB didn’t involve allegations of false or misleading statements about the plaintiff.  Also, proximate causation failed in BBB in part because the lack of sufficient overlap between the parties’ customers; here, “[t]he overlap between plaintiff’s and defendants’ prospective customers in this case is much tighter and arguably 1:1.”

As for the § 349 GBL claims, they ban “[d]eceptive acts or practices in the conduct of any business, trade or commerce or in the furnishing of any service in [New York].”  This requires “(1) consumer-oriented conduct that is (2) materially misleading and that (3) plaintiff suffered injury as a result of the allegedly deceptive act or practice.” In addition, a plaintiff must plausibly plead that the challenged “acts or practices have a broader impact on consumers at large.”

The court rejected Mitcham’s argument that the alleged “injury must include some potential danger to the public health or safety” and that, as a commercial actor, Casper needed to allege conduct that has “significant ramifications for the public at large.” Casper rejoined that §349 covered “those acts or practices which undermine a consumer’s ability to evaluate his or her market options and to make a free and intelligent choice.”

Courts have said different things about §349, but the court here pointed out that the narrowing courts were federal district courts, while the NY state courts—which actually have the interpretive authority here—have insisted that §349 is broad. The New York Court of Appeals (and the Second Circuit) have repeatedly held that the “[t]he ‘consumer-oriented’ requirement may be satisfied by showing that the conduct at issue ‘potentially affect[s] similarly situated consumers.’”   

Mitcham’s website was clearly geared towards consumers and the allegedly deceptive content could affect any number of similarly situated consumers.  Thus, the conduct was “consumer-oriented.”  Also, though the §43(a) claim failed, that didn’t make Mitcham’s disclosures adequate for §349 purposes.  Section 349 is “substantially modelled on the Federal Trade Commission Act,” and arguably did require better disclosures, following the FTC’s “clear and conspicuous” guidance.

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