Wednesday, August 21, 2013

if product is objectively worse than promised, consumers have standing

In re Clorox Consumer Litigation, 2013 WL 3967334 (N.D. Cal. July 31, 2013)

This is follow-on consumer class litigation over Clorox’s Fresh Step cat litter marketing (previous discussion of class action; previous discussion of Lanham Act prequel).  The ads represented that Fresh Step was the only cat litter using carbon, and that Fresh Step was better at eliminating odors than baking soda brands.  Plaintiffs alleged that Church & Dwight’s studies showed the literal falsity of these claims, and that they therefore paid a premium they otherwise wouldn’t have paid: a 25-pound box of Clorox’s Fresh Step costs $10.77, or $0.43 per pound, while a 25-pound box of Clorox’s Scoop Away cat litter brand (which does not contain carbon) costs $9.37, or $0.37 per pound, while a 20-pound box of C&D’s baking-soda-based Super Scoop costs $7.88, or $0.39 per pound.

This opinion involved a new round of Clorox moving for judgment on the pleadings. It first contested plaintiffs’ Article III standing, arguing that plaintiffs failed to plead that Fresh Step didn’t work as advertised in reducing odors or that they personally found Fresh Step less effective; their injuries were only hypothetical since they didn’t allege that they compared Fresh Step to other brands.  Clorox argued that they couldn’t show injury if they never experienced Fresh Step’s inferiority, and that the presence of better cat litters on the market was irrelevant to harm.

The court agreed with plaintiffs: they pled an actual and concrete economic injury by alleging that they were deceived into paying a premium for a less effective cat litter.  Even if Fresh Step did eliminate cat odors, it didn’t perform as advertised if it was worse than other competing products. Plus, if it’s objectively inferior, it’s irrelevant that plaintiffs didn’t figure that out first hand.  The court was not going to assume that there was no objective way to measure or compare cat litter effectiveness. 

Clorox essentially argued that taste in cat litter is a matter of personal preference, like preferring Pepsi to Coke. Maybe so, but the complaint properly pleaded that baking-soda-based litters were objectively better at reducing cat odors.  That one type of cat litter might be objectively superior wasn’t implausible. Indeed, that was Clorox’s very own claim in its ads.  (In a footnote, the court rejected Clorox’s analogy to a Pepsi taste test superiority claim; Clorox argued that a consumer who relied on such a claim, enjoyed the Pepsi he bought, never bought Coke, and never personally found Coke preferable, wouldn’t have standing to sue.  But the taste of a soft drink can’t objectively be measured.  A better hypothetical would be Pepsi’s claim that its product had fewer calories than Coke. This could be falsified and, if false, could harm calorie-conscious consumers, who need not try Coke to prove injury.)

The cases Clorox cited didn’t allege injury from paying a premium based on a misrepresentation about superiority.  However, Clorox’s arguments did raise questions about certification.  If measuring odor fighting is subjective, then commonality/representativeness would be hard to show.  (I myself would be tempted to hold Clorox to its measurability claims, like the house that was haunted as a matter of law.)

New Jersey claims: the New Jersey Consumer Fraud Act requires (1) unlawful conduct by the defendant; (2) an ascertainable loss on the part of the plaintiff; and (3) a causal relationship between the defendant’s unlawful conduct and the plaintiff’s ascertainable loss.  Clorox repackaged its standing arguments to contend that plaintiffs didn’t plead ascertainable loss; nope. NJ accepts the “benefit of the bargain” theory, where the difference in value between the product promised and the one received can be reasonably quantified.

However, the breach of express warranty claim failed because the NJ plaintiff failed to provide the required notice within a reasonable time after discovering the breach; failure to provide such notice before suit bars the claim forever.  The fact that Clorox knew of C&D’s earlier Lanham Act lawsuits was irrelevant; the statute specifically contemplated notice by the buyer.

In NJ, unjust enrichment requires a plaintiff to show that it expected remuneration when it conferred a benefit on the defendant and that the retention of that benefit without payment would be unjust.  Some cases hold that enrichment claims should be dismissed when based on tortious conduct without allegations that the plaintiff anticipated remuneration (isn’t the allegation here that the plaintiff expected to get more than she did in return for her money?); others allow unjust enrichment claims based on false advertising to proceed. The court went with the former and dismissed the claim with prejudice.

New York: Clorox’s standing/injury arguments didn’t get rid of the GBL claims either.  Clorox argued that pecuniary harm wasn’t enough, but even the cases it cited recognized that a consumer might have a cognizable GBL claim where the consumer pays a higher price for a product as a result of a defendant’s misrepresentations.  Clorox argued that plaintiffs needed to plead more particularized facts about the alleged price premium, since Fresh Step is a very popular brand and thus would command a price premium anyway. The court disagreed.  “It is plausible that Clorox can charge more for Fresh Step because Clorox represents that Fresh Step is better at eliminating odors than other brands. It is also plausible that Fresh Step became one of the most popular brands of cat litter through the success of Clorox’s advertising.”

However, the complaint failed to allege that the NY plaintiff was deceived in NY, as required.  Alleging that she was a NY resident was insufficient; the deception must occur in NY. The plaintiff was granted leave to replead.

Express warranty claims survived: whether Clorox made an affirmation of fact or promise that was false when made was a question of fact, even though Clorox argued that it believed (and still does) that Fresh Step was more effective than other brands.  (This seems to interpret “false” to mean “knowingly false,” and I’m not sure that’s what it should mean in a warranty context.)  The rejected standing arguments also failed to show that there was no breach, even though the NY plaintiff didn’t allege that she personally deemed Fresh Step ineffective.

In NY, unjust enrichment isn’t a catchall cause of action, but applies only unusually, when, “though the defendant has not breached a contract nor committed a recognized tort, circumstances create an equitable obligation running from the defendant to the plaintiff.”  An unjust enrichment claim is not available where it simply duplicates a conventional contract or tort claim, as here.  If the GBL/warranty claims succeeded, the claim would be duplicative, and if it failed, her unjust enrichment claim would have to fail because it was predicated on the same theory of deception.

Florida: the Florida Deceptive and Unfair Trade Practices Act claims didn’t fall to Clorox’s rehashed standing/harm arguments.  In Florida, the measure of damages is the difference in market value of the product as delivered and the market value as it should have been.  However, the same problem as with the NY claims required repleading to allege a connection with Florida; the Florida plaintiffs didn’t allege where they saw Clorox’s ads or bought Fresh Step.

The Florida Advertising Act declares that the dissemination of “any misleading advertisement” is “fraudulent and unlawful.” Clorox argues that plaintiffs were required to satisfy Rule 9(b) as interpreted by the 11th Circuit; the court already rejected a similar argument on an earlier motion to dismiss and declined to revisit the issue.  Also, the case wasn’t in the Eleventh Circuit; the court here was bound to follow Florida law, not the law of another circuit.

On breach of express warranty, the court noted uncertainty about whether privity was required, as it is with breach of implied warranty.  Some courts don’t require privity where the retailer or “middleman” is unlikely to have relevant knowledge regarding the manufacturer’s product. The court found those cases persuasive and applicable, given that it was unlikely that cat litter retailers had relevant knowledge about the comparative effectiveness of cat litter.  Thus the express warranty claim survived, though the unjust enrichment claim was dismissed as duplicative.

Texas: the Texas Deceptive Trade Practices Act allows suit over three types of conduct: (1) false, misleading, or deceptive acts or practices; (2) breaches of express or implied warranty; and (3) any unconscionable action.  For the first two prongs, Clorox argued that plaintiffs failed to satisfy Rule 9(b), but the court disagreed.  As for (3), unconscionability relates to “an act or practice which, to a consumer’s detriment, takes advantage of the lack of knowledge, ability, experience, or capacity of the consumer to a grossly unfair degree.” “A slight disparity between the consideration paid and the value received is not unconscionable, a glaring and flagrant disparity is.” The court didn’t find Clorox’s alleged conduct “grossly unfair,” since plaintiffs conceded that Fresh Step did reduce cat odor.  “[F]or the purposes of Texas law, it is not unconscionable to charge a premium of a few cents per pound for an effective cat litter.”

The breach of express warranty claim also was kicked out for failure to provide notice within a reasonable time.  A demand letter to Clorox’s counsel a year after litigation began was too late, since plaintiffs allegedly learned of the defects through Church & Dwight’s lawsuits, filed in early 2011.  Nor was there an independent cause of action for unjust enrichment; it was just a theory of recovery.

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