Monday, March 28, 2016

Bar review question: is this false advertising?

Themis Bar Review, LLC v. Kaplan, Inc., 2016 WL 1162624, No. 14-cv-00208 (S.D. Cal. Mar. 24, 2016)
Themis, a relative newcomer to the bar review business, advertised its students’ bar passage rates; a 2013 ad listed passage rates for 2012.  The left column of the ad listed a jurisdiction, and the two columns to the right showed Themis’ students’ passage rates for that jurisdiction and the overall state passage rate for that jurisdiction. At the top of both of those columns was a small asterisk, corresponding to fine print language reading “Based on Themis first-time takers who completed 75% or more of their course assignments and on state bar exam first-time takers.”  Themis filed a declaratory judgment action and Kaplan counterclaimed for false advertising.
Ad as shown in Themis' declaratory judgment action

Ad as shown in Kaplan's counterclaim

The court declined to grant cross-motions for summary judgment.  Themis argued that Kaplan’s claim was moot because Kaplan sought only injunctive relief and Themis permanently ceased circulating the relevant ad. But voluntary cessation doesn’t guarantee mootness, and Themis failed to provide adequate assurances it wouldn’t run similar ads in the future.  Its CEO said that it voluntarily changed the format “to make the explanation larger and more prominent, in the hopes of eliminating any argument over the issue, and because I favor full disclosure to students choosing between bar exam providers.”  But a present intent that could later change isn’t enough.
Kaplan argued that the pass rate was literally false, even coupled with the footnote, because Themis’ data collection methods were problematic. The court rejected a literal falsity argument based only on the main text, because “the proper focus is on the advertisement as a whole rather than an isolated section. Thus, the pass rates are literally false only if they are inaccurate with respect to the population defined in the footnote: first time takers who complete 75% or more of the course.”  RT: This reasoning wrongly assumes that the ad, taken as a whole, actually conveys the message in the footnote to consumers.  If the footnote doesn’t work as a disclosure, then Themis shouldn’t get to convert a literal falsity claim into a more difficult to prove implicit falsity claim by including an element in the ad that consumers don’t actually perceive as part of the ad context.

As to the footnote-modified claim, Kaplan submitted an expert report concluding that Themis’ practice of individually contacting students in states that do not publish pass lists is problematic. Self-reporting “may result in a systematic response bias such that students who failed the exam might be ashamed of the fact and therefore lie when asked whether they passed.” Themis argued that there wouldn’t be misreporting because (1) law students are honest, and (2) it was in students’ self-interest to report failure because they could get a free repeat course if they failed.  A reasonable jury could go either way on this.
Likewise, as for the misleadingness claim, summary judgment was inappropriate.  Law students are the relevant audience.  Kaplan’s survey gave the ad to 331 current law students, allowed them to look at it for as long as they wanted, and then took it away from them before asking various questions. The test group received the actual Themis ad. The control group received a modified version that displayed the footnote text more prominently.
Kaplan control ad with disclosure in column text
Both groups were asked whether the pass rates on the ad represented all Themis test takers or only a certain subgroup of test takers. In the test group, 15.7% of the students answered correctly and 69.3 % answered incorrectly. In the control group, 64.8% of students answered correctly and only 17.6% answered incorrectly.

Themis’ study was essentially the same, except that it didn’t use a control group and allowed respondents to keep the ad and refer to it while answering the questions.  And it tested two different ads with significantly more prominent footnotes.  (So, completely different.) About 84.5% of the 801 students tested correctly answered that the pass rates referred to a certain subgroup of Themis students, while about 12% incorrectly said that the pass rates covered the entire population of Themis students.
Ad tested by Themis

Another ad tested by Themis

Themis argued that “in high-level involvement purchasing decisions such as choosing a bar prep company, a reading test, where the subject can reference the ad while answering questions, is more appropriate than a memory test,” given that humans have bad short-term memories.  Kaplan responded that memory wasn’t the issue; if a student noticed the footnote, short-term memory issues wouldn’t prevent them from answering correctly a very short time later.  Moreover, Kaplan argued, a memory test was more realistic, because consumers look at an ad as long as they need to and form their impressions during this time period. “Thus, if a student did not notice the footnote after looking at the advertisement but before being asked about it, that suggests that the advertisement would be misleading in a real life scenario.”  Asking specific questions while the student is reviewing the ad causes them to pay more attention to the footnote than they otherwise would have.  (Repeating court’s use of singular “they” because I support it.) 
Screenshot from Themis survey

Another screenshot from Themis survey

Also, the presentation of Themis’ survey emphasized the disclaimer. As Kaplan’s expert said: “When respondents scrolled down to reach the question, they were left with a view of the ad that is heavily focused on the disclaimer. If respondents read the question and then looked back up to the ad, the disclaimer is the first thing they would see (and possibly the only part of the ad they would see).” The court found Kaplan’s arguments “highly probative” (noting in passing that it saw no reason to distinguish a trademark case accepting Kaplan’s position from a false advertising case).
Themis argued that, in any event, the ad was factually true and facially unambiguous and therefore survey evidence of misleadingness couldn’t be considered, apparently trying to invoke the Mead Johnson/Havana Club line of cases, but the court noted that there was no “binding” authority supporting Themis’ argument.  (Also, if you need a footnote to clarify your claim, your claim is not “facially” unambiguous.)  In any event, Themis failed to establish that the pass rates were literally true.
Themis’ study, however, didn’t suffice to defeat Kaplan’s motion, because it didn’t test the Themis ad at issue.  “Given this disparity in footnote prominence, it is possible that a substantial number of the students who correctly answered the question would not have answered correctly if presented with the much smaller footnote of the actual Themis Ad at issue here.”  (Which makes my point about facial ambiguity.)  Themis argued that law students were trained to read “fine print,” especially given the expense of bar prep and the importance of passing the bar.  (I routinely ask my students how many of them have read the full agreement between them and the law school, or them and their landlords.  Spoiler: always some, never a lot.)  Moreover, “[n]o Themis student has ever complained to Themis that Themis’ advertisements are misleading or deceptive.”  Those arguments were enough to reject Kaplan’s motion for summary judgment.  The court would not hold, as a matter of law, that law students were unlikely to read footnotes signaled by asterisks “when evaluating which expensive bar review course to choose to prepare for one of the most important tests of their lives, especially when there is evidence that no student has ever complained of being misled.”
Kaplan also argued that, even assuming that students read the footnote, Themis’ ads were still misleading with respect to some jurisdictions because of a lack of statistical significance.  (I think Kaplan should be arguing about practical significance, but this is a common lawyers’ problem.)  For example, Themis advertised that 100% of its students who were first time takers and completed 75% or more of the course passed the July 2013 Washington D.C. bar exam, compared to the DC-wide average of 71%. But that 100% pass rate was based a population of four students, which couldn’t realistically show any Themis advantage.  The court agreed that comparing Themis pass rates to state/district-wide averages might imply that the Themis pass rates were based on a sample size large enough to show significance (statistical or practical).  A reasonable jury could go either way.


Anonymous said...

I think the argument is both practical significance and statistical significance. I have not done the math, but a sample size of 4 may result in a low significance statistic representing a high probability the difference is passage rate is just chance. Then it follows that the without a statistical significance, the information must be of no practical significance to the consumer.

RT said...

I agree, given the low actual numbers--but there's no reason to say "statistical significance" when you should at least be discussing both!