When fraudulent concealment is easier to plead than affirmative misrepresentation

Stanwood v. Mary Kay, Inc., --- F.Supp.2d ----, 2012 WL 7991231 (C.D. Cal.)

Plaintiffs sued Mary Kay alleging that it defrauded consumers by falsely advertising that it didn’t test its products on animals.  Had they known the truth, plaintiffs alleged, they wouldn’t have bought the products.  Mary Kay allegedly engaged in a long-term marketing and advertising campaign touting itself as a company that did not test its products on animals and telling PETA and the Coalition for Consumer Information of Cosmetics that it did not and would not test any of its products on animals, and secured placement on PETA’s “Do Not Test” list and the Coalition’s “Leaping Bunny” list of companies that don’t do animal testing. Mary Kay’s website said that “Mary Kay does not conduct animal testing for its products and is a PETA pledge member,” and allegedly told its sales force that it didn’t test any of its products on animals, knowing that the sales force would repeat these statements to consumers. Stanwood also alleged that in September 2011, a Mary Kay representative named Jacqueline represented to her, as part of a sale, that Mary Kay didn’t test any products on animals.

But Mary Kay decided to enter the Chinese market, where it was required by Chinese law to test certain products on animals. Stanwood alleged fraud/fraudulent concealment, and violations of the UCL, FAL, and CLRA.

Mary Kay made a standing argument that Stanwood didn’t buy the products sold in foreign countries and thus wasn’t harmed.  But Stanwood wasn’t seeking redress for a defect in those products; she alleged that she was injured by Mary Kay’s false claims and omissions, and she had standing to bring that claim because she alleged that she wouldn’t have bought the products at all had she known the truth. Thus, she suffered economic injury.

She also showed causation for standing with respect to Mary Kay’s advertising and Jacqueline’s statement, though not for claims related to the Mary Kay website or the PETA or Coalition lists, which she didn’t allege that she viewed, so those claims were dismissed.  (Sigh.  Shouldn’t this at least require some real analysis of whether the claims were similar enough to allow her to represent people who did see the website etc.?)

The court also didn’t see the relevance of the fact that the misrepresentations weren’t specific to the product she purchased, but instead concerned the company’s general operations:

As consumers have grown more aware of the social, environmental, and political impact of their purchasing decisions, they have tended to look to more factors, including company-wide operations, to inform their consumption choices. Consumers receive this information from a variety of sources, but one of the most direct and important remains the company itself. Companies, realizing this, have tailored their marketing to such consumers. It should not be unexpected then, that when companies make misrepresentations about their company-wide operations, they face potential liability in court to consumers who relied on those representations in purchasing their products.

This wasn’t a radical expansion of standing.  Mary Kay posed the following horrible: “[I]f a retailer guarantees that they have the lowest prices on every product they sell, but it turns out that a competitor actually sells one particular product for a lower price, under Stanwood's view anyone who purchased any product from that company would have standing to sue, even if she did not purchase the specific product in question.” But that hypothetical plaintiff would also have to allege that, but for the misrepresentations, she would not have purchased the product she purchased, even though it had the lowest price. This would be unlikely to pass the plausibility test, to say the least.

However, Stanwood didn’t plead fraud with particularity under Rule 9(b).  Even though Tobacco II says pleading exposure to a long-term ad campaign can be enough to plead standing, and that a plaintiff doesn’t need to plead an “unrealistic” degree of specificity in such cases, that doesn’t satisfy Rule 9(b).  (I thought Rule 9(b) also didn’t require an unrealistic degree of specificity, kind of by definition.)  Allegations that Stanwood was “exposed” to Mary Kay's “extensive and long term marketing and advertising campaign touting the company and its business operations as not testing any of its products on animals” failed to adequately plead the “who, what, when, where, and how” of the underlying misrepresentations.  Stanwood failed to plead what the ad materials specifically stated, to point to particular ads she personally encountered, or even specify their medium. 

What about Jacqueline’s September 2011 statements?  Alleging that Jacqueline was a Mary Kay representative was inadequate—it wasn’t clear “exactly what her position is, where she works, or her relationship with Mary Kay.”  Nor did Stanwood plead where the statements were made, even though she listed a phone number for Jacqueline; she didn’t specify whether the conversation was over the phone or in person.  (How can that be relevant to whether Mary Kay has adequate notice of the precise claims against it?)  She also needed to plead the “specific comments” on which she relied, and also the specific products she bought in reliance on the representations; listing Mary Kay products she’d bought in general wasn’t enough.

On the fraudulent concealment claim, Mary Kay argued that it had no duty to disclose non-safety-related matters.  To the contrary, a fact need only be material to trigger a duty to disclose outside the limited context of product defect cases (where warranty law covers what would otherwise be the terrain of the duty to disclose).  Stanwood adequately pleaded the elements of fraudulent concealment: that the information was material, that she was unaware of Mary Kay’s animal testing, that Mary Kay concealed the information to increase sales to consumers like her, and that she bought products as a result of Mary Kay's concealment.  However, as above, affirmative misrepresentations as part of Mary Kay’s general advertising campaign weren’t pled with sufficient particularity to be part of this claim.

Because the UCL, FAL, and CLRA claims were grounded in fraud, the same analysis applied; only UCL and CLRA claims based on fraudulent concealment survived, though the court gave Stanwood leave to amend.  Omissions must be material to be actionable under the CLRA; Stanwood sufficiently alleged materiality to a reasonable consumer by citing a 2011 survey conducted by the Physician's Committee for Responsible Medicine finding that 72 percent of respondents agreed that testing cosmetics on animals is inhumane or unethical and 61 percent believe that companies should not be allowed to test products on animals.  Actual effect on a reasonable consumer was a question of fact, but the study showed that the allegations weren’t completely without support.

Seems like a weird result to me, with the standard applied to the affirmative misrepresentations being mindlessly picky while the standard applied to the omissions being pretty loose.