closing SeaWorld during pandemic didn't make "unlimited" entry passes deceptive

Kouball v. SeaWorld Parks & Entertainment, Inc., 2020 WL 5408918, No.: 20-cv-870-CAB-BGS (S.D. Cal. Sept. 9, 2020)

Kouball failed to state a claim under the usual California statutes and common law causes of action by alleging that SeaWorld deceptively failed to disclose that it intended to keep charging her for her annual pass while its amusement and water parks were closed due to the pandemic. The parks closed in March; in April, Kouball was charged the full amount of her monthly payment of $48.99 for her annual passes. Kouball alleged that she would not have paid for the membership had she known that she would not have access to the park and that SeaWorld continues charging its customers monthly fees while the parks remain closed.

Kouball failed to identify an affirmative misrepresentation of “unlimited access,” but pled only her own subjective belief in such access.  “The complaint does not identify when and where she purchased the annual membership passes, nor does it identify any specific statement that SeaWorld made that she read, viewed, or heard, that led her to a belief that she would have unlimited access to the parks.” (She did cite the website where annual pass options say “unlimited omission” but didn’t allege reliance on the website or on this statement. This seems easily fixable. Under each annual pass option it also states, “Restrictions may apply...hours and services are subject to change or cancellation without prior notice.” Would reasonable consumers think the park could be completely closed under these terms?)

Nor did she successfully plead a deceptive omission. Since she relied on her own subjective belief, disclosure wouldn’t have helped, and also she didn’t allege that SeaWorld had a duty to disclose. “Under California law, an allegedly fraudulent omission is actionable only if the omission is ‘contrary to a representation actually made by the defendant, or an omission of a fact the defendant was obliged to disclose.’” In particular, “SeaWorld, like the rest of the world, would not have been aware it would need to temporarily close its parks due to an unprecedented global pandemic. Moreover, such temporary closures were likely required under state or local orders and the decision on how to charge customers or provide other relief would be dependent on the agreements between them.”

Also, the CLRA covers only “goods or services,” and an unlimited entry pass is neither.

another advertiser's Google click fraud suit is revived

Singh v. Google LLC, 2020 WL 5202081, --- Fed.Appx. ----, 2020 WL 5202081 (9th Cir. Sept. 1, 2020)

The court of appeals reverses the dismissal of Singh’s California FAL/UCL claims against Google for allegedly charging for fraudulent clicks despite its promises. While the district court found that Singh lacked statutory standing, the economic injury requirement “demands no more than the corresponding requirement under Article III of the U.S. Constitution.” It was sufficient for Singh to allege that he purchased some number of clicks from Google via its AdWords program; that Google misrepresented the general efficacy of its fraudulent click filters; and that he would not have purchased clicks but for his reliance on the allegedly erroneous fraud filter rate. Indeed, Singh alleged that he hired a company to analyze some of his ad campaigns, which showed that Google’s filters caught fewer fraudulent clicks than advertised, and that numerous studies prior to 2016 on third-party ad campaigns found that Google’s filters did not catch as many fraudulent clicks as Google advertised. “At the pleading stage these allegations together are sufficient to draw the reasonable inference that Singh’s ad campaigns prior to 2016 similarly suffered higher-than-advertised rates of fraudulent clicks not caught by Google’s filters, and that he accordingly paid for more fraudulent clicks than Google advertised he would.”

Google also argued that its AdWords Agreement expressly precluded Singh’s claims, but the court of appeals agreed with the district court that a reasonable jury could find that Singh was reasonable in relying on Google’s extra-contractual statements about the general effectiveness of its click filter system, notwithstanding the “no guarantee” provision in the AdWords Agreement.

 

Just stocking a falsely advertised product isn't enough for contributory liability

In re Outlaw Laboratory, LLP, 2020 WL 2797425, No. 18-CV-0840-GPC (S.D. Cal. May 29, 2020) 

Plaintiff makes male enhancement products, allegedly in compliance with the DHSEA. It sued 51 convenience and liquor stores in the San Diego, California area; 23 of those defendants have been terminated, 20 are actively litigating, and eight haven’t appeared/answered. The defendants allegedly sold falsely advertised male enhancement products containing undisclosed pharmaceuticals; some of the accused products contain hidden ingredients including sildenafil, the consumption of which can cause “life-threatening hypotension” and greatly “increase[s] the risk of heart attack,” among other effects. 

The court applied issue preclusion to Outlaw’s argument for direct liability for the retailers under the Lanham Act, based on past litigation. Outlaw’s only allegations about the stores were that they sold the products, not that they advertised or marketed them beyond placing them on their shelves. Failing to disclose the bad ingredients was not itself actionable under the Lanham Act. 

Contributory liability under the Lanham Act is a cognizable theory, but wasn’t plausibly pled here. After all, courts accept contributory liability in §43(a)(1)(A) cases, and such claims arise from clauses that are “subpart[s] of a single statutory provision,” “share the same introductory clause,” “were motivated by a unitary purpose” to prohibit unfair competition, and are rooted in tort law (which, of course, permits contributory liability). POM Wonderful even recognized that, of these two provisions, false advertising is “the broader remedy.” 

The leading case, from the Eleventh Circuit, requires a showing that (1) there was direct false advertising, and (2) “the defendant contributed to that conduct either by knowingly inducing or causing the conduct, or by materially participating in it.” Duty Free Americas, Inc. v. Estee Lauder Companies, Inc., 797 F.3d 1248, 1277 (11th Cir. 2015). In other words, the plaintiff “must allege that the defendant...intended to participate in or actually knew about the false advertising” and “that the defendant actively and materially furthered the unlawful conduct—either by inducing it, causing it, or in some other way working to bring it about.” (Note that “material participation” in the initial description looked like it did not require knowledge, but apparently not.) Outlaw didn’t properly allege the required elements with specificity. 

Among other things, the complaint lacked allegations that the stores “actively and materially furthered the unlawful conduct.” For example, there were no allegations that they “controlled,” “monitored,” or even “encouraged” the false advertising. There was no reference to “a clear contractual power” to stop the false advertising, or any extensive communications with the unknown third parties who supplied the products “regarding the false advertising.” Even allegations of knowledge were unspecific, as if general FDA announcements put the stores on notice. 

Outlaw’s allegations also failed if the court applied the standard of ADT Sec. Servs., Inc. v. Sec. One Int’l, Inc., No. 11-CV-05149-YGR, 2012 WL 4068632, at *3 (N.D. Cal. Sept. 14, 2012): contributory liability can arise if the defendant “(1) intentionally induced the primary Lanham Act violation; or (2) continued to supply an infringing product to an infringer with knowledge that the infringer is mislabeling the particular product supplied.” Since we don’t know who the primary violator is, we can’t tell that they were “induced” by the stores. 

California’s FAL: also failed. Outlaw lacked standing because it didn’t rely on the misrepresentations. The majority approach requires the plaintiff to have lost money or property in reliance on the misrepresentations, not merely because other people relied on the misrepresentations, as was alleged here. Also, as with the Lanham Act claims, the stores weren’t personally responsible for the false advertising, and “[a] defendant’s liability must be based on his personal ‘participation in the unlawful practices’ and ‘unbridled control’ over the practices that are found to violate section 17200 or 17500.” (Citing Emery v. Visa International Service Ass’n, 95 Cal. App. 4th 952, 960 (2002).) And there’s no vicarious liability under California consumer protection laws. Nor is there a duty to investigate and disclose the falsity on the packaging. 

Also, “remedies for individuals under the FAL are limited to restitution and injunctive relief.”  There was nothing to restore to Outlaw; an injunction was permissible, but only if the claims had been properly alleged. 

UCL fraudulent/unlawful: Again, putting a falsely advertised product on a shelf is not itself “fraudulent” in the absence of acts to adopt and further the false advertising. (Citing Dorfman v. Nutramax Labs., Inc., No. 13-CV0873-WQH, 2013 WL 5353043, at *14 (S.D. Cal. Sept. 23, 2013) (finding retailer defendant could be liable under the UCL where the defendant sold the products in their stores, entered into sales agreements with the manufacturer, provided pictures of the deceptive packaging, and made statements on their website with misleading labeling).) And again Outlaw lacked standing. 

Unlawful: Outlaw alleged that it was unlawful to sell pharmaceuticals without a prescription, but didn’t identify any particular section of any statute that was violated, so it still failed to state a claim.

Reasonable restaurant consumers wouldn't think "krab mix" had real crab in it

Kang v. P.F. Chang’s China Bistro, Inc., No. CV 19-02252 PA (SPx), 2020 WL 2027596 (C.D. Cal. Jan. 9, 2020)

Kang alleged that P.F. Chang’s “employed a classic bait and switch tactic whereby it falsely labeled and advertised food products containing crab on their menu, when in fact, no crab meat was present in the product” by selling “food items containing ‘krab mix’ on their menu, including but not limited to [Defendant’s] Kung Pao Dragon Roll, Shrimp Tempura Roll, and/or California Roll.” He brought the usual California claims and a couple of others. The court dismissed all the claims.

Without representative plaintiffs from other states, Kang had no Article III standing to bring claims based on alleged violations of consumer fraud and deceptive trade practices laws of states other than California.

As for the California claims, this one could be resolved on a motion to dismiss. Reasonable consumers would not interpret “krab mix” to contain actual crab meat; it didn’t need to be labeled “imitation crab” or otherwise explained. (Citing McKinnis v. Kellog USA, 07-cv-02611, 2007 WL 4766060, at *4 (C.D. Cal. Sept. 19, 2007) (granting motion to dismiss without leave to amend on plaintiff’s UCL, FAL, and CLRA claims, finding no reasonable consumer would be misled by the word “Froot” in “Froot Loops” into believing the product contained “Fruit”); Pelayo v. Nestle USA, Inc., 989 F. Supp. 2d 973, 979 (C.D. Cal. 2013) (granting motion to dismiss on plaintiffs’ CLRA and UCL claims finding no reasonable consumer would be misled by the use of the words “All Natural” on a pasta product’s package into believing the product contained only natural ingredients, where pasta contained two artificial ingredients).)  In addition, “a reasonable consumer understands that cheaper sushi rolls, such as a California Roll, contain imitation as opposed to real crab.”  (Citing Werbel v. Pepsico, Inc., 2010 WL 2673860, at * (N.D. Cal. July 2, 2010) (holding, as a matter of law, that no reasonable consumer would be led to believe that “Cap’n Crunch’s Crunch Berries” cereal contained real fruit berries despite the use of the word berries in the product).)

Additionally, other dishes on P.F. Chang’s menu are labeled “crab,” where they contain actual crab. A reasonable consumer would recognize the contrast.

"no soy protein" claim for dog food plausibly indicates no soy

Rice-Sherman v. Big Heart Pet Brands, Inc., No. 19-cv-03613-WHO, 2020 WL 1245130 (N.D. Cal. Mar. 16, 2020)

Plaintiffs alleged that Big Heart falsely markets its Grain Free Easy to Digest Salmon Sweet Potato & Pumpkin Recipe Dog Food as “Grain Free,” and as containing “No Corn” and “No Soy Protein.” Most of the claim survived, though claims for injunctive/equitable relief and punitive damages survived. Of note: “no soy protein” is plausibly understood as meaning “no soy.”

Purchasers of such products allegedly “pay a premium in order to alleviate their pets’ allergies and provide various health benefits associated with a grain-free diet.” Plaintiffs allegedly would not have purchased the Product if the actual ingredient list had been fully disclosed. According to plaintiffs, “independent testing of Nature’s Recipe Food confirms that these representations are false because “[it] does, in fact, contain significant amounts of both corn and soy protein.” This testing was allegedly consistent with numerous academic studies that have found companies in the pet-food industry have inaccurate product labels, non-conforming ingredients, and cross-contamination. Some of the named plaintiffs also alleged that their dogs began displaying allergy symptoms after eating the product, incurring hundreds of dollars in veterinarian costs.

Big Heart argued that plaintiffs lack Article III standing because they didn’t specifically allege how, where, and why the “independent testing” was performed, and whether each specific Nature’s Recipe product purchased by each named plaintiff was tested. Those weren’t necessary for Article III standing, which was satisfied by allegations that they “spent money that, absent defendants’ actions, they would not have spent.” While Big Heart cited Wallace v. ConAgra Foods, Inc., 747 F.3d 1025 (8th Cir. 2014), for the proposition that plaintiffs are required to specifically allege that the particular product they bought contained the undisclosed ingredients, that’s not the law in the Ninth Circuit. As another court said, “if a customer has paid a premium for an assurance that a product meets certain standards, and the assurance turns out to be meaningless, the premium that the customer has paid is an actual, personal, particularized injury that is cognizable under Article III.”

Nor were plaintiffs required to allege that independent testing was done on their bags. In other cases finding insufficient allegations, the alleged contamination was sporadic and plaintiffs failed to allege that “all or even most” of the accused products were falsely advertised; therefore they were required to allege that the particular products they purchased were part of a subset of accused products that were falsely advertised. In the absence of such allegations, their claims were too speculative.  Here, however, plaintiffs focused on a particular product and argued that it was falsely advertised because it did, in fact, contain “significant amounts of both corn and soy protein.” Plaintiffs didn’t have to use the magic word “all,” given a fair reading of the complaint. In assessing standing on a motion to dismiss, the court must “presume that [ ] general allegations,” like the ones alleged here, “embrace those specific facts that are necessary to support the claim.”

Failure to state a claim: The complaint satisfied Rule 9(b). It alleged when and where each plaintiff bought the products; described the “Grain Free,” “No Corn,” and “No Soy Protein” representations on the Product packages which they relied on; described and included photographs of the false or misleading information on the packages and on Big Heart’s website; and alleged that the claims are false because independent testing revealed that the Products in fact contain corn and soy. They were not required to “provide definitions of grain, corn, soy, and soy protein or explain the parameters of the alleged independent testing.”  As for definitions, “[t]he relevant question is not what those terms mean, but rather what they mean to reasonable consumers, which cannot be resolved on a motion to dismiss.” Plaintiffs plausibly alleged that reasonable consumers would consider the representations “No Corn” and “No Soy Protein” to mean that the Product is free of corn and soy.  Big Heart alleged that there was a gap between “soy” and “soy protein,” but the court found that “hardly a logical gap.” Big Heart also argued over whether corn is a grain, but even if it isn’t, plaintiffs also alleged an explicit “No Corn” claim.

Independent testing: “Big Heart does not need more background information about the independent testing at the pleading stage in order to defend against plaintiffs’ claims.” Its results are accepted as true at the pleading stage.

As for the specific California claims, the arguments were largely repetitive of those rejected on 9(b). “These labels are not as ambiguous as such labels as ‘all natural’ or ‘healthy’; even if they were, the question of whether a reasonable consumer would likely be deceived is a factual dispute that cannot be resolved at the motion to dismiss stage.” Plaintiffs weren’t required to allege “that the corn or soy at the level detected would cause a health issue or nutritional deficiency.” They specifically alleged materiality, and also that Big Heart knew or had reason to know that consumers are likely to regard the matter as important given that they allege that Big Heart touts the “Benefits of Grain Free” on its website.

Warranty claims also survived. For implied warranty, plaintiffs used two theories: (1) there is a general warranty in all sales contracts that the product is fit for the ordinary purpose for which such good is used; and (2) the product does not conform to the promises or affirmations of fact made on the container or label.  Plaintiffs plausibly alleged (1) by alleging that Nature’s Recipe Food was specifically marketed for dogs with grain allergies, and that because it contains corn and soy it causes dogs to suffer allergic reactions and therefore is not fit for its ordinary purpose. And the court didn’t require privity for either theory.

Injunctive relief: In the Ninth Circuit, “a previously deceived consumer may have standing to seek an injunction against false advertising or labeling, even though the consumer now knows or suspects that the advertising was false at the time of the original purchase, because the consumer may suffer an ‘actual and imminent, not conjectural or hypothetical’ threat of future harm.” This includes cases where “the threat of future harm may be the consumer’s plausible allegations that she will be unable to rely on the product’s advertising or labeling in the future, and so will not purchase the product although she would like to,” and where “the threat of future harm may be the consumer’s plausible allegations that she might purchase the product in the future, despite the fact it was once marred by false advertising or labeling, as she may reasonably, but incorrectly, assume the product was improved.” But plaintiffs didn’t make those allegations here.

Equitable relief under the UCL, FAL, and CLRA: only available where there were no damages; the complaint didn’t make clear whether the claims for equitable relief and damages are based on the same theory (false advertising) or on separate distinct theories. Motion to dismiss granted (with leave to amend, as above).

Punitive damages: Not recoverable under the UCL or FAL, or for breach of express warranty under the California Commercial Code. A consumer seeking damages under the CLRA may recover punitive damages, but plaintiffs failed to allege the necessary elements: “both ‘oppression, fraud, or malice’ and that the conduct at issue was performed or ratified by an ‘officer, director, or managing agent.”

Statements in book promoting addiction treatment protected by Cal anti-SLAPP law

Selkirk v. Grasshopper House, LLC, 2020 WL 1241565, No. B294568 (Cal. Ct. App. Mar. 16, 2020)

Defendants Grasshopper House and Passages Silver Strand “are luxury facilities that purport to treat drug and alcohol addiction.” Former patients sued them for allegedly making false statements about the efficacy of their treatment programs. Under the anti-SLAPP law, Passages showed that some of its statements were protected speech and plaintiffs didn’t show enough merit to proceed; remanded with directions issue a new order striking certain allegations, although the denial of the motion to strike some other allegations wasn’t appealable.

The Passages facilities allegedly “are among the most expensive” rehabilitation centers “on the planet,” charging between $40,000 and $100,000 for a 30-day stay. Neither founder (including Pax Prentiss) has any education or training in the treatment of substance abuse. Passages allegedly advertises it discovered a novel treatment approach that “cured” Pax of his addictions and that can cure others. E.g., the Passages Malibu website stated: “The program we created for Pax, the one that is now the Passages program, was primarily based on finding out the ‘why’ behind his addiction. It worked. Pax finally discovered his ‘why’ and we knew that he was cured, that he would never again use drugs or alcohol.” The website also stated that the “treatment method ... has cured thousands of people at Passages.” Passages also claims in its advertising the program can cure addiction within 30 days.

Passages allegedly made similar statements in Internet, television, and print advertisements, in “television and other media interviews,” during lectures and personal appearances by the Prentisses, and in a book: The Alcoholism and Addiction Cure: A Holistic Approach to Total Recovery.

Passages filed a special motion to strike. Plaintiffs argued that their claims were based on Passages’ specific misrepresentations about the efficacy of the Passages treatment program and that promotional statements by a business about its services were commercial speech to which California’s anti-SLAPP did not apply. Plaintiffs submitted evidence that Pax continued to use drugs after the Prentisses opened Passages Malibu and that since 2004 Passages has not documented whether its clients remained sober after leaving its facilities. But they didn’t submit evidence that they were aware of Passages’ alleged misrepresentations before enrolling at the facilities.

The trial court ruled that all statements “arising out of television ads, internet advertising, and Defendants’ website constitute commercial speech which comes within the exception” to the anti-SLAPP law, but that the statements in the Prentisses’ book weren’t commercial speech under the law, which “specifically exempts from [the commercial speech rule] claims based upon the dissemination of a literary work.” Then, the trial court ruled as to the book statements that the plaintiffs demonstrated a probability of prevailing on each of their causes of action except their cause of action for negligence.

On appeal, Passages conceded that the statements about Pax’s personal history of addiction and abuse (whether those statements were book statements or non-book statements) weren’t eligible to be struck. They appealed as to the statements about addiction, treatment, and the Passages facilities, and plaintiffs cross-appealed.

The appeals court ruled that the trial court correctly held that the book statements were protected speech. In the book, Chris Prentiss states that he and Pax “use[d] what [they] learned curing [Pax] to help others discover the roots of their addiction or alcoholism and break free” and that, “having healed thousands of people,” Chris “can write with complete certainty that alcoholism and addiction are not diseases.” The book also tells readers that, if patients “set up ... intense therapy” at Passages, they “should be able to cure [their] addiction in thirty days or less.” These were statements relating to the public interest and contributed to public debate about addiction treatment; the purpose of the book wasn’t solely to advertise Passages but to discuss conventional treatment methods, why the authors believe addiction is not “incurable,” and why they believe their “holistic” treatment method is better than other treatment methods. “To be sure, the statements about the efficacy of the Passages treatment program and the number of patients the program has successfully treated may help Passages solicit new clients. But those statements also provide context and explain the Prentisses’ views on addiction and treatment. The statements about their views contribute to the public discussion of the issue.” The book also made claims that it could help readers treat their addictions on their own, without paying Passages for treatment: “Within the covers of this book, I will show you how you can cure your alcoholism or addiction” and “how to put together your own personalized program to achieve total recovery and optimum health by enlisting the help of several key health practitioners.”  Their views might be against the medical consensus, and might even “harm some persons who would receive better treatment from medical professionals.” But the question is whether the Prentisses “participated in, or furthered, the discourse,” not “the social utility of the speech at issue, or the degree to which it propelled the conversation in any particular direction.”  The book as a whole, and not just the challenged statements, had to be considered. And even if the challenged statements were false (or even Central Hudson commercial speech), that didn’t make them unrelated to an issue of public interest, an issue determined by the anti-SLAPP law and not by the Constitution.

With that out of the way, plaintiffs failed to show that their book-based claims had merit. The standard is like summary judgment: the court “accepts the plaintiff’s evidence as true, and evaluates the defendant’s showing only to determine if it defeats the plaintiff’s claim as a matter of law.” Plaintiffs didn’t submit evidence that they attended Passages because of the alleged misrepresentations, or that they heard or read the misrepresentations, or that they relied on these statements, or that they suffered any economic injury as a result of these alleged statements.

However, the order denying the special motion to strike the non-book statements wasn’t reviewable in this appeal, because where a trial court denies the motion on the grounds that the commercial speech exemption applies, that’s not immediately appealable, per the anti-SLAPP law itself, even if other parts of the order are appealable and even if the district court erred in keeping opinion statements in the case when the exemption only applies to statements of fact in commercial speech.

negative inference about other juices from "no sugar added" on D's juice is implausible

Shaeffer v. Califia Farms, LLC, 44 Cal.App.5th 1125, No. B291085 (Feb. 6, 2020)

Califia sells a “100% Tangerine Juice.” The front label includes “100% Tangerine Juice,” “No Sugar Added,” and “Never From Concentrate.” Shaeffer brought the usual California claims, alleging that she chose Califia’s Cuties juice over “other, similar tangerine juices” because its label “stated ‘No Sugar Added’ ” and because “she is diabetic.” She alleged that the label falsely implied that other, similar tangerine juices had added sugar. The court thought that wasn’t a reasonable inference from the truthful statements on the label as a matter of law.  A reasonable consumer was unlikely to make those inferential leaps, which would make almost any truthful claim about product attributes “fodder for litigation”: “Assume that a new airline runs an ad with a tagline, ‘No Hijackers Allowed.’ Is a reasonable consumer likely to infer that other airlines do allow hijackers and that the new airline is consequently the safer choice? We think the answer to this question is ‘no.’”  Deceptiveness is usually a factual question, but not here.

  

Shaeffer also alleged that the label was “unlawful” under the UCL because it does not comply with two of the five prerequisites that must be satisfied before a label may state “no sugar added” under a federal labeling regulation: (1) “the [product] that [Cuties Juice] resembles and for which it substitutes”—that is, “100% tangerine juice”—does not “normally contain added sugars,” and (2) the label does not also “bear[ ] a statement that it is not ‘low calorie’ or ‘calorie reduced’ ” and does not “direct[ ] consumers’ attention to the [product’s] nutrition panel.”  The court rejected the first argument—although there is a judicial split on this, the court found that a product cannot substitute for itself. Some courts reason that the “substitute” food for “juices with no added sugar” are “juices with added sugar, fruit-flavored soft drinks sweetened with sugar, or other sugar-sweetened beverages,” but the court didn’t resolve the question of whether the universe was tangerine juice or some larger class of juices because there was no allegation that either of these broader universes of foods does not “normally contain added sugars.”

As for the second, failure to use a statement disclaiming low/reduced caloric content, Shaeffer didn’t allege that she relied on the omission of the calorie statment. Shaeffer argued that “ ‘a presumption, or at least, an inference of reliance arises whenever there is a showing that a misrepresentation [or omission] is material’ ” and that the omission of the “not ‘low calorie’ or ‘calorie reduced’ ” statement from the label was material as a matter of law because its inclusion is (sometimes) mandated by the federal regulation. Even if this presumption were relevant to a claim based on unlawfulness and even assuming that it applies to a named plaintiff as well as to class members, the presumption was rebutted by her affirmative allegations that she actually relied on other reasons in deciding whether to buy the juice. Shaeffer also argued that reliance could come from an omission being “a substantial factor[ ] in influencing [her] decision” to buy a product, but she didn’t allege that low calorie content was one of many reasons for her purchase. And her diabetes made sugar material to her, but did not justify the inference that calorie content mattered.

Cal. court says "controversial" claim is therefore not factual

Serova v. Sony Music Entertainment, 44 Cal.App.5th 103 (2020)

Hard to believe the reasoning in this case could get worse, but they may have achieved it. The California Supreme Court told the court of appeals to reconsider its earlier decision in light of FilmOn.com Inc. v. DoubleVerify Inc., 439 P.3d 1156 (Cal. 2019).  Same result, slightly different reasoning: Because there is a dispute over the vocalist on certain recordings advertised as “Michael Jackson” recordings, this is a “controversial” question that therefore cannot be factual for purposes of commercial speech doctrine. In fairness to the court of appeals, this is a known problem of using “controversial” as a standard in a lawsuit over compelled commercial speech, where there is by definition a controversy. I’m not even strongly committed to this decision being wrong on the merits given the special context of an entertainment product. But it is a bad sign of where First Amendment cases are going: disclosure cases are now contaminating ordinary falsity cases.

Serova alleged that the album cover and a promotional video wrongly represented that Jackson was the lead singer on each of the 10 vocal tracks on the album, when in fact he was not the lead singer on three of those tracks. Previously, the court of appeals held that: (1) Serova’s claims arose from conduct furthering Appellants’ right of free speech “in connection with a public issue” under the anti-SLAPP law; and (2) Serova did not show a probability that her claims under the UCL and the CLRA would succeed because the claims concern noncommercial speech that is not actionable under those statutes.   

Reaffirming its earlier reasoning, the court of appeals concluded that FilmOn concerned only the first step of the anti-SLAPP analysis, i.e., whether particular claims arise from conduct that the anti-SLAPP statute protects. Specifically, FilmOn considered “whether the commercial nature of a defendant’s speech is relevant in determining whether that speech merits protection” under the anti-SLAPP law, and concluded that the context of a statement—including “the identity of the speaker, the audience, and the purpose of the speech” —is “relevant, though not dispositive, in analyzing whether the statement was made ‘in furtherance of’ free speech ‘in connection with’ a public issue.”

Here, the representations that Michael Jackson was the lead singer on the three disputed tracks “did not simply promote sale of the album, but also stated a position on a disputed issue of public interest.” Before the album was released, “certain Jackson family members and others publicly claimed that Jackson was not the lead singer,” while the Estate made a public statement about the authenticity, making the identity of the artist “a controversial issue of interest to Michael Jackson fans and others who care about his musical legacy.”  Sony’s financial interest in authenticity didn’t change that.

This case arguably falls within an exception to an exception: the legislature amended the anti-SLAPP law to exclude commercial speech, but then excluded ads for “any dramatic, literary, musical, political, or artistic work” from that exclusion. Still, the court reasoned, that didn’t mean that all such ads were necessarily within the scope of the anti-SLAPP law. There still needs to be some connection to a “public issue” or an “issue of public interest”; otherwise, an ad falsely claiming that a musical album contains a particular song would be covered by the anti-SLAPP law.

In FilmOn, the state Supreme Court held that a court must consider the context as well [as] the content of a statement in determining whether that statement furthers the exercise of constitutional speech rights in connection with a matter of public interest.” FilmOn alleged disparaging statements about the Web-based entertainment programming distributed by FilmOn.com by defendant’s confidential reports to paying clients classifying FilmOn Web sites under categories of sites that engage in copyright infringement and contain “adult content.” The court held that these reports were not “ ‘in connection with’ ” an issue of public interest. It was “ ‘not enough that the statement refer to a subject of widespread public interest; the statement must in some manner itself contribute to the public debate.’ ”

Here, the issue of public interest was whether Michael Jackson was in fact the singer on the three tracks. And the issue doesn’t simply concern some trivial fact about his life, but relates to his artistic legacy; the dispute was of widespread interest among Michael Jackson fans. This public controversy distinguished this case from other cases about allegedly misleading descriptions of a particular commercial product or service.

The connection between the issue and the speech is also relevant. The speaker and the audience for the statements at issue suggested a commercial purpose: appellants sell the album, and they made the statement to an audience of potential purchasers. But the content still was not merely commercial speech, and anyway FilmOn was clear that “[s]ome commercially oriented speech will, in fact, merit anti-SLAPP protection.” The content of the statements related directly to the issue of public interest, rather than being tangentially connected through a generalization of the statements’ subject matter (the  “‘synedoche theory’ of public interest”); cf. Commonwealth Energy Corp. v. Investor Data Exchange, Inc. (2003) 110 Cal.App.4th 26, 34, 1 Cal.Rptr.3d 390 [“The part is not synonymous with the whole. Selling an herbal breast enlargement product is not a disquisition on alternative medicine”].)   Even though the challenged statements didn’t refer to the controversy, they took a position on that controversy.  Unlike the statements in FilmOn, the statements here were public and contributed to the public conversation.  

It was also relevant that Sony wasn’t selling “a typical consumer product” but rather a product that is itself subject to First Amendment protection. “[T]he challenged conduct in this case helped shape the experience of the music that consumers purchased,” which was indeed the basis for Serova’s complaint. Without anti-SLAPP protection, Sony might have decided not to sell the disputed tracks at all; others might decide not to include songs or other artistic works with disputed provenance in a collection “rather than either (1) risk the expense of consumer litigation, or (2) dilute their marketing by acknowledging doubts about the provenance of the work that they do not share.” That would discourage protected speech.   

Then, Serova couldn’t show a probability of success because the UCL and CLRA apply only to commercial speech. Again, the speaker and the intended audience suggested a commercial purpose. But the content of the challenged speech was “critically different” from purely commercial speech for two reasons: (1) Sony’s statements “concerned a publicly disputed issue about which they had no personal knowledge” and (2) “the statements were directly connected to music that itself enjoyed full protection under the First Amendment.”

Personal knowledge matters because one reason commercial speech receives less constitutional protection than political speech is its greater verifiability. In Nike v. Kasky, the California Supreme Court “ascribed great significance to the fact that, ‘[i]n describing its own labor policies, and the practices and working conditions in factories where its products are made, Nike was making factual representations about its own business operations.”” Thus, “Nike was in a position to readily verify the truth of any factual assertions it made on these topics,” and that commercial regulation was “unlikely to deter Nike from speaking truthfully or at all about the conditions in its factories.” [Important note: not its factories. The factories were owned by subcontractors.] Here, by contrast, Sony’s representations about the identity of the lead singer didn’t concern its own business operations or a fact of which it had personal knowledge. Other defendants, not the Sony defendants, allegedly “jointly created, produced, and recorded the initial versions” of the tracks, so the vital element of personal knowledge was missing. The court of appeals commented that Kasky might well have come out differently “if the statements at issue concerned the labor practices of an independent commercial supplier who simply sold products to Nike for resale,” whereas the Kasky court specifically noted that Nike had entered into a memorandum of understanding assuming responsibility for its subcontractors’ compliance with local labor laws. [Assuming responsibility is not the same thing as having personal knowledge, by the way.]

Without personal knowledge, Sony’s statements didn’t fit into the definition of speech that is “ ‘less likely to be chilled by proper regulation,’ ” given the strict liability of consumer protection law.  Personal knowledge about the content of speech is “an important feature” in determining whether speech is commercial. Without direct involvement in the recording, from Sony’s perspective, its statements about the identity of the lead singer “were therefore necessarily opinion.” Appellants “could only draw a conclusion about that issue from their own research and the available evidence.” Thus, Sony’s representations about the identity of the singer were just statements of opinion. 

To avoid potential liability, it would have had to put a disclaimer on the album or leave the songs off entirely. The second option shows a chilling effect, and the first option is also constitutionally dubious because compelled commercial speech is a First Amendment problem, as shown by National Institute of Family & Life Advocates v. Becerra, ––– U.S. –––  (2018), which in response to Breyer’s dissent stated that it accepted [only] “the legality of ... purely factual and uncontroversial disclosures about commercial products.” Here, any compelled disclosure would not be “uncontroversial” by definition because “controversy has surrounded” the disputed tracks, and it wouldn’t be “purely factual” from Sony’s perspective because it lacked personal knowledge of the facts. Forcing Sony to put a claim in its advertising materials with which it doesn’t agree would be bad compelled commercial speech. Even a statement about uncertainty “implies the existence of real controversy or doubt about the identity of the singer even though Appellants might not believe that any reasonable doubt exists.” [Although Sony doesn’t actually know, according to the court of appeals, so the basis of its certainty is … an interesting question.]

Aaaaaaaaargh. The epistemological confusion here is so deep it’s more like rot.  Sony doesn’t have “personal” knowledge because it is a corporation and does not “know” anything. Imputing knowledge to a corporation serves many functions, but it’s distracting rather than helpful here.  If we took this concept seriously for commercial speech purposes—which, to be clear, we absolutely should not—then the companies selling quack autism cures are exempt from regulation precisely to the extent that they are ignorantly or avariciously parroting claims from bogus anti-scientific literature and didn’t do the research themselves.

This whole thing is not even a correct description of Kasky! Nike didn’t have “personal knowledge” of conditions in the factories of its subcontractors because it had made the business decision to set itself up in a way that offloaded risk and control to its subcontractors. Subcontractors are independent third parties. That was the point.  Nike had hired other third parties to monitor, but even if those third parties had “personal knowledge” of the conditions, Nike still didn’t, by the exact same logic that is in play in this decision.

The imposition of strict liability for factual claims made to sell products should not depend on—and never has before depended upon—the corporate form a company has chosen to adopt, which by the way is usually unknown to consumers.  Nike and Sony both decided to have certain tasks performed outside the boundaries of the corporation; they did so for reasons that are doubtless well-founded in economics, but should not be encouraged by the structure of false advertising law—especially since, if corporations do take advantage of this new rule, there will often be no one to hold liable for resulting falsity. For example, ingredient suppliers don’t engage in “advertising” to the public, and the sellers of the final product won’t have personal knowledge of whether the ingredients are truly the ingredients. The ingredients list on the product will therefore, according to the reasoning of the court of appeals here, merely be the seller’s “opinion” about the ingredients.  Contrary to what the court of appeals says, what is “purely factual” should not be and never before has been measured by the “perspective” of the advertiser.

That’s not even getting into the invited error around controversiality/disclosure precedents. Under this interpretation, an advertiser seems to get to create controversy by disagreeing with the regulator, at least if the advertiser has enough market power to get its voice heard.

But even if you think that “controversial” serves an important purpose in mandatory disclosure situations, the court of appeals’ reasoning here has turned every deception case into a mandatory disclosure case, which makes no sense.  Consider: the shark cartilage seller wants to advertise that shark cartilage cures cancer. The regulator says: no, that’s false.  The seller says: now my choices are to not sell shark cartilage or to put a disclaimer on my shark cartilage saying it doesn’t cure cancer, and that’s bad compelled speech about a controversial subject!  Those are the exact choices Sony has. But if a commercial speaker is saying something false, those are legitimate choices to put it to—shut up and stop fooling people, or say something true instead—even if it believes its own claims.  

All the real work in this case is being done by the idea that the factuality of “Michael Jackson sang this” is of a different order/regulability than the factuality of “shark cartilage cures cancer” because of the former’s connection to an expressive work. Making other arguments than that just screws up First Amendment doctrine for everyone.

The court of appeals does go on to say that there’s a deep connection between the challenged statements and the First Amendment-protected art they promote.  Unlike the foregoing, this is actually a legitimate argument. As long as there is a distinction between speech that is sold and other things that are sold that happen to have speech on them (e.g., cans of corn), this rationale will not destroy false advertising law generally.

The court of appeals notes that “[t]he identity of a singer, composer, or artist can be an important component of understanding the art itself. No one could reasonably dispute that knowing whether a piece of music was composed by Johann Sebastian Bach or a picture was painted by Leonardo Da Vinci informs the historical understanding of the work.” I think that’s true, but it’s interesting to consider the ideological work being done here: “Thus, the marketing statements at issue here are unlike the purely factual product or service descriptions constituting commercial speech in cases that Serova cites.” There’s nothing “thus” about it!  There is a ground truth about who was the lead vocalist on these songs, at least as much as there is about a “representation that products were manufactured in the United States” and about an “attorney’s certification as an expert,” two of the cited cases.  Indeed, what counts as “made in the USA” once you know the historical facts is often substantially more subject to debate than how to decide who’s the lead singer on a song once you know the historical facts, as far as I can tell.  The implications to the consumer of the “purely factual” question of who sang a song may be complex—but then again, so are the effects on the consumer of “made in the USA,” and of knowing how much alcohol is in a can of beer. And there are a lot of factual statements that are, because of how science works, provisional: right now, we think some things about aspirin are true because that’s what the scientific consensus is; false advertising law should rely on scientific consensus even though the ground truths it seeks are subject to revision.

Anyway, the court continued, some statements about art could be commercial speech—like film ads featuring fictional endorsements from a nonexistent critic, or a statement falsely stating that a particular song is included in an album. But not these statements, where (1) the identity of the artist was itself an issue of public discussion and interest; and (2) Sony had no personal knowledge of the issue.

Final note: this standard is out of whack with the usual First Amendment rules for defamation, which are usually thought of as pretty strong. Defamation of a public figure requires malice—knowledge or reckless disregard for a high probability of falsity. Even if the court of appeals was right that Sony’s scienter should matter, why shouldn’t it be enough to allege that Sony was reckless about the truth?  Suppose, for example, that a non-Sony defendant had privately acknowledged to Sony that MJ probably wasn't the singer. 

Judge Alsup seems to think cosmetic mask claims are false

Miller v. Peter Thomas Roth, LLC, 2020 WL 363045, No. C 19-00698 WHA (N.D. Cal. Jan. 22, 2020)

OK, he doesn’t say so outright, but wait for the bit about the in-court demonstration he expects.

Defendants PTR Labs sell “specialty skincare products,” here the Rose Stem Cell and Water Drench product lines. PTR Labs advertised the Rose Stem Cell line with the “buzzwords” “bio repair,” “reparative,” “rejuvenates,” and “regenerates,” and the Water Drench Products as “containing hyaluronic acid which attracts and retains one thousand times its weight in water from moisture in the atmosphere.” Plaintiffs sued for false advertising under the UCL, among other things. Class certification was denied as moot without prejudice because the court could resolve a liability determination and potentially enter a statewide injunction against PTR Labs’ challenged ads without certifying a class. The court would revisit whether there was a need for a class to distribute restitution if plaintiffs succeed individually on the merits.

Here, the court denied defendants’ motion for summary judgment, finding issues of fact on deceptiveness to a reasonable consumer. For the Rose Stem Cell Products, the labels “rose stem cells,” “cutting edge bio-technology,” “bio-repair,” and at times “regenerates” and “rejuvenates” could cause the reasonable consumer to “believe that the Rose Stem Cell Mask is capable of repairing skin.” While “[s]ome reasonable consumers might interpret this as mere puffery, … others could sensibly conclude that rose stem cells actually repair human skin.”  For the Water Drench ad, a reasonable consumer could believe that hyaluronic acid actually can attract and retain one thousand times its weight in water, despite the use of “up to” to soften the claim. The court noted that “the plain focus of the ad was one thousand times its weight in water. … Subtle qualifications do not overcome the thrust of the ad.” Since the plaintiffs offered reasonable interpretations of the ad claims, the court turned to evidence of falsity.

Plaintiffs’ expert, an organic chemist with experience in human embryonic stem cell research, offered a “helpful declaration” that created a genuine question as to falsity. For the Rose Stem Cell product, he explained, among other things, that “[a] plant cell cannot become a human cell” and that “[a]ny cell (animal or plant, stem cell or not) in a topically applied cosmetic cannot affect cells in the skin, because the barrier function of the skin prevents those cells from penetrating to the level of living cells.” The jury would simply be asked to resolve whether the divergence between consumers’ reasonable interpretations of the ads and the truth was deceptive. It was unnecessary for the falsity expert to discuss the specific ad language at issue.

As to the “up to one thousand times its weight in water” claim, the expert explained that the claim is “incredible on its face,” citing “[p]ublished data from actual studies by real chemists establish[ing] that hyaluronic acid binds a small amount of water, equivalent to about half the weight of the hyaluronic acid.” As the court commented:

Our jury will look forward to an in-court demonstration in which a certain amount of hyaluronic acid is placed in a beaker, one thousand times that weight in water is placed in another beaker, and the contents are combined, all watching to see if all the water will be absorbed. Both parties’ experts would be well advised to prepare for such a demonstration. [Query whether visual inspection could actually disclose this, but still!]

However, plaintiffs didn’t submit evidence as to whether hyaluronic acid draws in atmospheric vapor and provides long lasting moisturizing benefits, so the court did grant summary judgment as to those statements.

On standing, the Rose Stem Cell plaintiff couldn’t remember when she saw the ad for the product, but she testified that she did rely on it when she made a later purchase. That was ok. “When a manufacturer promotes a lie about its products, those who were misled by the lie may well continue to rely on the lie even after the manufacturer has withdrawn the lie from circulation. Admittedly, [the plaintiff] will have to explain away a lot of memory snafus at trial. Our jury may possibly think she is the liar. But all of that goes to the weight, not admissibility, of her evidence.”

claims for ab exercise device going beyond FDA clearance are actionable

Loomis v. Slendertone Distrib., Inc., 2019 WL 5790136, No. 3:19-cv-854 - MMA (KSC) (S.D. Cal. Nov. 6, 2019)

Loomis brought the usual California claims based on ads for the Flex Belt, a purported ab-exercise device. While denying standing for injunctive relief and finding a bunch of the challenged claims to be puffery, there was still enough to continue, and the court also rejected an FDA preemption argument.

Preemption: Slendertone argued that the Flex Belt had been FDA cleared [NB: not approved] “for Toning, Firming and Strengthening the stomach muscles,” and thus the claims were preempted. States can adopt FDCA rules for their own law, but parallel state “consumer protection laws, such as the UCL, FAL, and CRLA, are nonetheless preempted if they seek to impose requirements that contravene the requirements set forth by federal law.” But Loomis didn’t challenge whether the FDA should have cleared the Flex Belt or whether the specific FDA-cleared statement is misleading, and this was a case involving a Class II medical device, not FDA approval.

Actionable statements: because the FDA cleared the Flex Belt as an EMS device for toning, firming, and strengthening abdominal muscles, “such representations cannot be deceptive to a reasonable person.” But it would be deceptive to market an EMS device as cleared by the FDA “for weight loss, girth reduction, or for obtaining ‘rock hard’ abs.” Much of the advertising Loomis cited was puffery, such as the testimonials:

With my schedule I can’t do an ab workout every day, but with The Flex Belt® I’ll put it on every day because I’m doing things at the same time. So it’s really just being smart. It’s easy, I wear it every day and my abs are there to show for it! My abs feel like I’ve had the most amazing workout and I just wore The Flex Belt® around the house for 30 minutes.

The Flex Belt® tightens, tones, and strengthens my stomach without me even having to think about it. It has taken my abs to a whole new level... it does all the work, and I get the results.

These statements were “highly subjective to the individuals giving the statements,” although I think they’re misleading. There was nothing actionable about the claims on Amazon to “stimulate all your major stomach muscles at the same time providing you with the perfect abdominal contraction ….You don’t have to worry about your form or come up with the time to get it done.” That didn’t claim that the Flex belt alone will result in weight loss, girth reduction, or an attractive appearance. [I don’t think it’s “alone” that’s the problem. I think the problem is that the Flex belt doesn’t produce a marginal effect on any of these, and the implication is that it does.]  “GREAT ABS START HERE,” “Maximum Core Strength,” and “Ultimate Toning Technology” were also puffery.  [But if it doesn’t work at all, then it’s not exaggeration, it’s just … not true.]

In the ads, “any reference to fat loss is accompanied by disclaiming language that the Flex Belt is insufficient to achieve weight loss and that a more attractive abdominal area requires proper diet and exercise,” e.g., the “Flex Belt does not remove inches of fat but it tones, tightens, and strengthens your stomach muscles. Using The Flex Belt in conjunction with your dedication to Diet, Nutrition and Exercise can help you achieve your goals of a more attractive stomach as well!”

Still, there were specific statements, in context, that were plausibly deceptive to a reasonable person.  E.g., “Who Should Use the Flex Belt®?...Anyone that wants more attractive abs, regardless of current fitness levels”; “With The Flex Belt®, it doesn’t matter what your current exercise status is because there will always be time to build firmer, stronger abs. This product is perfect for … anyone that wants more attractive abs, regardless of current fitness levels”; and touting the product “[f]or those looking for a convenient way to tone, strengthen and flatten the abdominal area.”

These claims made it “probable that a significant portion of the general consuming public or of targeted consumers, acting reasonably in the circumstances, could be misled” to believe the Flex Belt could help consumers achieve more attractive abdominal muscles. It was contradictory to make misleading statements as to improved abdominal appearance while simultaneously disclaiming that “The Flex Belt does not remove inches of fat.” In addition, although the testimonials and pictures of six-pack abdominal muscles were puffery, they “contribute[d] ‘to the deceptive context of the packaging as a whole.”

UCL unlawful and unfair claims also survived, as did claims for breach of express warranty, despite a limited warranty addressing product defects stating that “THIS LIMITED WARRANTY IS THE ONLY WARRANTY FOR THE PRODUCT, AND THERE ARE NO OTHER EXPRESS WARRANTIES, ORAL OR WRITTEN, PROVIDED BY [Slendertone].”

Under California law, “[w]ords or conduct relevant to the creation of an express warranty and words or conduct tending to negate or limit warranty shall be construed wherever reasonable as consistent with each other.” Limitation of warranties are allowed “only by means of [w]ords that clearly communicate that a particular risk falls on the buyer.” Further, disclaimers or modifications “must be strictly construed against the seller.” “Noting the presumption of construing warranties as consistent with one another, the burden against the seller, and the fact the limited warranty was included in the packaging for the Flex Belt after Plaintiff purchased it, the Court finds that the limited warranty does not upset Plaintiff’s alleged express warranty cause of action.”

Not worth a hill of beans: can label showing mound of beans plausibly misleads

Beckman v. Arizona Canning Co., 2019 WL 4277393, No. 16-cv-02792-JAH-BLM (S.D. Cal. Sept. 9, 2019)

If the can shows lots of whole, plump beans, but the ingredients list puts water first, is there a plausible deception claim? The court here answers yes. “Unlike the image advertised on the principal display panel, consumers receive mostly water, with a portion of beans fully submerged and undetectable at first sight.” Plaintiffs brought the usual California claims.

can with beans

website showing can labels

 

Actual contents, per pleading

Arizona Canning argued that, of about 361 bean products listed by the USDA branded food products database, which contains information provided voluntarily by food producers, at least 15 bean products list water as a primary ingredient. But that couldn’t be taken to show the existence of an industry standard, which was a factual dispute.

“Based on an informal survey, Plaintiffs allege that when consumers were asked to look at a can of Defendant’s Sun Vista Beans, each consumer expressed a belief that the can was predominantly filled with beans.”  Arizona Canning argued that it was unreasonable to look at the picture to determine the ingredients, instead of the ingredients label. Williams v. Gerber Product Co., 552 F.3d 934 (9th Cir. 2008), is a problem for that argument, and plaintiffs alleged that because Sun Vista Beans are sold in opaque canned containers, consumers depend upon the product advertisement, label, and the fill of the can to conduct product comparisons and make purchasing decisions.

The court began with the proposition that “images can reasonably be interpreted to have various meanings.” Context, “judicial experience’ and “common sense” all play roles in whether a misleadingness claim is plausible. Here, the plausible meanings of the image of cooked beans is either: (1) identifying the type of bean being sold or (2) depicting the can’s contents. In this specific context, the dehydrated beans in the background and the placement of the bowl of hydrated beans in the forefront of the image supported (2), and so did comparing the image of this product with Arizona Canning’s other bean product - pinto beans with jalapenos - which showed chopped jalapenos sprinkled throughout the bowl of beans. 

Arizona Canning argued that the image was “a picture of beans as they are suggested for serving.” “While this interpretation seems reasonable, it is contrary to the detailed information offered within the nutrition fact panel, which indicates the primary ingredient is water. For this ‘suggestion’ to be accepted, consumers must drain more than half of the can’s contents – leaving the consumer with either a smaller serving size or significantly less servings than represented.”

Unlike the products in other image cases, “beans are not made up of various heterogenous ingredients.” Thus, a consumer “could reasonably believe that a can labeled ‘pinto beans,’ with no additional descriptor, is primarily filled with just that.”

Plaintiffs also alleged that the net weight, serving size, and number of servings per container were deceptive because, for example, a 29 oz. can of Sun Vista whole pinto beans advertised “about 6 servings.” The label also defined a serving as one half cup, or 4 oz., which a consumer would think meant that the can contained 24 oz. beans and 5 oz. water. But that contradicted the ingredient label. “It is not plausible that a reasonable consumer would believe the entire 4oz serving consisted of only one ingredient,” but—based on “common experience”—it was plausible that consumers would believe that one serving of cooked ready-to serve “pinto beans” “typically does not have the same consistency as soup.”  Thus, if the serving size x number of servings listed was relatively close to the can’s capacity, a consumer could reasonably believe that the can was filled nearly to capacity with the ingredient advertised and reflected in the name of that product—here, pinto beans.

Defying Williams, Arizona Canning argued that consumers should look at the ingredient list. But “most shoppers digest the information on the back after seeing the pretty picture on the front,” and the entirety of the advertising had to be considered. Consumers often look for whether specific ingredients are present or absent, but they are less likely to consider which ingredient is most predominant, “especially if it appears obvious from the name of the product or the label’s display panel.”

UCL unfairness: Under the balancing test (more often used in cases brought by consumers, like this one), “courts must examine the practice’s impact on its alleged victim, balanced against the reasons, justifications and motives of the alleged wrongdoer. In short, this balancing test must weigh ‘the utility of the defendant’s conduct against the gravity of the harm to the alleged victim.’” The harm was selling consumers a less-than-half-full product, depriving them of the benefit of the bargain. Arizona Canning argued that, if the case succeeded, food manufacturers would be “unnecessarily stifled from displaying their product on the label.” The Court didn’t agree. “Countless food manufactures have successfully displayed and marketed their product without consumer confusion or a likelihood of deception… [A]ny utility derived from Defendant’s practice and desire to display an image of a ‘suggested serving’ of beans, that omits or abates the predominant ingredient, is outweighed by the alleged negative impact on Plaintiffs and other putative class members.”

Under the competing tethering test (usually used when claims are brought by competitors, “unfair means conduct that threatens an incipient violation of an antitrust law or violates the policy or spirit of one of those laws because its effects are comparable to or the same as a violation of the law…”  Ignoring the antitrust part of this, plaintiffs alleged (and the court agreed) that they also satisfied the tethering test because defendants violated the spirit of the FDCA and the Sherman Food, Drug, and Cosmetic Law. Arizona Canning rejoined that, as a matter of public policy, it is common for food/beverage products to indicate items on the principal display panel that are not the predominant ingredient. That’s true, but even then, false advertising is not ok, and complying with the FDCA isn’t enough to preclude a false advertising claim. “It is quite possible to comply with FDA regulations and still violate the policy or spirit underlying those regulations.”

Kellogg's un-FDAMA-approved health claim was "unlawful" under UCL

Hadley v. Kellogg Sales Co., 2019 WL 3804661, No. 16-CV-04955-LHK (N.D. Cal. Aug. 13, 2019)

An important reminder that California’s UCL makes “unlawful” conduct a violation even without separate consumer deception (although consumer belief may be important for damages causation).  Hadley won partial summary judgment on UCL claims against certain Kellogg advertising that its cereal products supported heart health.  First, the court had previously ruled that preemption hadn’t been shown to apply to the labeling statements “Heart Healthy” or “+ Heart Health +” and declined to revisit the matter now.  (Among other things, Kellogg filed an answer to the operative amended complaint 149 days late without seeking leave to do so. Discovery had closed and the plaintiff had made a number of strategic decisions about what claims to pursue, and “Kellogg effectively asks the Court to reward Kellogg for not citing this regulation in three years of litigation in six versions of Kellogg’s preemption defense. In this Court’s []view, rewarding Kellogg for effectively sandbagging Plaintiff would be clearly erroneous and a manifest injustice.” FWIW, the court didn’t like the “unwieldy” number of products/claims challenged by the plaintiff either.)

Kellogg did succeed in avoiding punitive damages under the CLRA, which allows them upon “clear and convincing evidence that the defendant has been guilty of oppression, fraud, or malice.” Hadley’s theory was that “Kellogg knew long before consumers of the dangers of added sugar consumption, knew consumers were ignorant of those dangers, and intentionally obscured those dangers, misleading consumers through both affirmative misrepresentations and deceptive omissions, encouraging Class Members to consume its products, putting their health at risk in pursuit of profit.” But the FDA has taken the position that “inadequate evidence exists to support the direct contribution of added sugars to obesity or heart disease.” Hadley’s own expert admitted that he couldn’t find one study that finds that cereal consumption increases the risk of coronary heart disease, diabetes, or obesity. There wasn’t a triable issue of whether Kellogg met the high standard for punitive damages here.

Hadley sought summary judgment on the argument that two statements: (1) “+ Heart Health + / Kellogg’s Raisin Bran / With crispy bran flakes made from whole grain wheat, all three varieties of Kellogg’s Raisin Bran are good sources of fiber” and (2) “Heart Healthy / Whole grains can help support a healthy lifestyle” were unlawful under the UCL. The UCL borrows other statutes and regulations for unlawfulness. Federal regulations (which have been adopted as California law) govern health claims on food, defining a health claim as “any claim made on the label or in the labeling of a food...that expressly or by implication,...characterizes the relationship of any substance to a disease or health-related condition.” The regulations specify that “[n]o expressed or implied health claim may be made on the label or in the labeling for a food,” unless “[t]he claim is specifically provided for …”; the linking of “[d]ietary fiber and cardiovascular disease” is specifically listed as an unauthorized claim.

Statement 1 (+ Heart Health +/good source of fiber): Kellogg argued that this was two separate claims, each “expressly authorized by the FDA regulations” and that they weren’t required to be separated by any given distance.  Hadley responded that there is a separation requirement because the regulations bar making a direct link between cardiovascular health and fiber. The regs expressly prohibit health claims associating dietary fiber with heart disease and don’t contain an exception for “when the reference to dietary fiber, considered alone, is an otherwise authorized nutrient content claim.”  The court agreed.

Statement 2: “Heart Healthy / Whole grains can help support a healthy lifestyle.”  This statement links whole grains and cardiovascular disease and was not specifically authorized by any regulation, in violation of the statutory/regulatory scheme. Kellogg conceded that “the FDA has not promulgated a formal regulation authorizing food manufacturers to associate consumption of whole grains with cardiovascular disease” but argued that Statement 2 should be considered authorized because it was similar to two claims that the FDA approved via the streamlined process outlined in the Food & Drug Administration Modernization Act of 1997 (FDAMA).

The court disagreed. The FDAMA “provides an alternative avenue for obtaining approval of health claims that are not specifically authorized by FDA regulations,” where (i) “a scientific body” must have published an “authoritative statement” “about the relationship between a nutrient and a disease or health-related condition;” (ii) a manufacturer, “at least 120 days” before using a health claim, submits to the FDA “the exact words used in the claim,” as well as support for its validity; (iii) “the claim and the food must be in compliance” with other requirements; and (iv) the claim must be “stated in a manner so that the claim is an accurate representation of the authoritative statement,” and “so that the claim enables the public to comprehend the information provided in the claim and to understand the relative significance of such information in the context of a total daily diet.”

Under FDAMA, General Mills in 1999 submitted the statement: “[d]iets rich in whole grain foods and other plant foods and low in total fat, saturated fat, and cholesterol, may help reduce the risk of heart disease and certain cancers.” Kraft in 2003 submitted: “[d]iets rich in whole grain foods and other plant foods, and low in saturated fat and cholesterol, may help reduce the risk of heart disease.” By explicit statutory language, FDAMA requires submission of the “exact words” to be used; Statement 2 didn’t contain these exact words.  (And this case is why: preauthorization would be almost meaningless if the manufacturer could just get in the general target area and claim that it got close enough to be deemed authorized.)  It was not enough to argue that, when “read alongside the FDA-compliant disclaimer language,” the “message is substantively identical to an approved FDAMA claim.” (An asterisk referred to fine print: “[w]hile many factors affect heart disease, diets low in saturated fats and cholesterol may reduce the risk of heart disease.”)  Even assuming that it was ok to look to the fine print, that still wasn’t the exact words. Indeed, the asterisked statement “may reduce the risk of heart disease” was different from “may help reduce the risk of heart disease”; the former was simply not an approved statement, implicating the requirement that the manufacturer must submit “a balanced representation of the scientific literature relating to the relationship between a nutrient and a disease or health-related condition to which the claim refers.” Relatedly, Kellogg failed to cite any authority that it could rely on a FDAMA claim submitted by different manufacturers regarding different products and different product claims.

Kellogg argued that, regardless, there was no evidence that its statements were “likely to deceive reasonable consumers or that Kellogg acted with deceptive intent.” That’s not the law. The Ninth Circuit has explicitly held that the “FDA regulations include no requirement that the public be likely to experience deception,” and thus, the “reasonable consumer test” is not an element of a violation of FDA regulations. (Of course, reliance will also be an issue in assessing damages, so the reasonable consumer is not gone from the case.)

The court also denied Kellogg’s motion to strike the testimony of Bruce Silverman about consumer behavior and the challenged claims because he didn’t conduct a consumer survey. But his opinion could be based on his “many years of marketing experience and his review of Kellogg’s own internal consumer research and other documents.” In California state law cases, “surveys and expert testimony regarding consumer expectations are not required.”  Kellogg’s competing expert did do a survey, and that would also come in because the surveys were relevant to assessing materiality. Surveys are “typically ‘adequate evidence’ of whether consumers were deceived or injured by an advertisement.”

California SCt rejects record-keeping ascertainability requirement

Noel v. Thrifty Payless, Inc., --- P.3d ----, 2019 WL 3403895, S246490 (Cal. Jul. 29, 2019)

Noel brought a putative class action on behalf of retail purchasers of an inflatable outdoor pool sold in packaging that allegedly misled buyers about the pool’s size, asserting the usual California claims (UCL, FAL, CLRA). The district court found that the proposed class wasn’t ascertainable, and the court of appeals agreed. Here, the California Supreme Court rejects an ascertainability requirement that would require good written records, either from the seller or the purchasers, of purchases.  The proposed class definition here was sufficiently ascertainable, in that it defined the class “in terms of objective characteristics and common transactional facts” that make “the ultimate identification of class members possible when that identification becomes necessary.”  This standard was satisfied here, where the class definition would allow class members to self-identify.

The facts: the package image indicates that the pool can handily accommodate several adults when inflated and filled:

A pool holding five people with plenty of room between them

Here’s the actual pool, as inflated and filled:

 

a pool that holds three children

Rite Aid sold over 20 thousand of these pools in California during the class period (nearly 2500 were returned), making nearly $950,000 in revenue.

The court surveyed its own decisions, those of the California courts, and federal courts on ascertainability to derive its standard.  In general, the concerns for proper definition and identification of class members are well addressed by the usual certification standards, which consider both the costs and benefits of the class action device, while ascertainability pulls a few considerations out into a vacuum.  So, for example, the court of appeals here worried that “[i]f the identities of absent class members cannot be ascertained, … it is unfair to bind them by the judicial proceeding.” But certification of a class requires the provision of the best practicable notice; due process doesn’t invariably require individual notice to absent class members. A heightened ascertainability requirement demanding the ability to provide individual notice would be “pyrrhic,” since it conflicts with the point of class actions for aggregating low-value claims. Nor is a heightened ascertainability requirement “necessary to protect the due process interests of class action defendants by protecting them from bogus claims and disproportionate liability.… There is no suggestion that, if the plaintiff class ultimately prevails, Rite Aid will face any onslaught of spurious claims, much less a bevy that could not be weeded out through a competent claims administration process. Also, because it is known how many pools were sold and not returned, and how much in revenue Rite Aid earned from these sales, the overall body of claims has a functional ceiling that further marginalizes any prospect of exaggerated liability.”

Using objective facts (rather than class members’ subjective states of mind) to define the class thus makes it ascertainable.  This puts members of the class on sufficient notice, and supplies “a concrete basis for determining who will and will not be bound by (or benefit from) any judgment,” making res judicata determinations possible.   The court also pointed out that “premising ascertainability on the existence of official records capable of being used to identify class members might, in some situations, incentivize potential class action defendants to destroy or refuse to maintain useful records that could provide a basis for class treatment.”

The appropriate form of notice to satisfy due process could be worked out as part of the broader certification process/assessment of manageability. “[G]iven the modest amount at stake (the pool having retailed for $59.99), the odds that any class member will bring a duplicative individual action in the future are effectively zero. Thus the true choice in this case is not between a single class action challenging the packaging of the Ready Set Pool and multiple individual actions pressing similar claims; it is between a class action and no lawsuits being brought at all. Under the circumstances, due process may not demand personal notice to individual class members, and to build a contrary assumption into the ascertainability requirement would be a mistake.”

Thus, the trial court abused its discretion when it determined that the class proposed by plaintiff wasn’t ascertainable. The proposed definition, “All persons who purchased the Ready Set Pool at a Rite Aid store located in California within the four years preceding the date of the filing of this action,” was neither vague nor subjective.

Keurig unsuccessfully argues that false advertising law unconstitutionally compels speech

Smith v. Keurig Green Mountain, Inc., No. 18-cv-06690-HSG, 2019 WL 2716552 (N.D. Cal. Jun. 28, 2019)

Smith brought a putative class action against Keurig, alleging that its “recyclable” single-serve plastic coffee pods were mislabeled as such because they are not in fact recyclable, due to their size, composition, and a lack of a market to reuse the pods. Although the pods at issue are made from Polypropylene (#5) plastic—a material currently accepted for recycling in approximately 61% of U.S. communities—domestic municipal recycling facilities (MRFs) are allegedly not equipped to capture materials as small as the Pods and separate them from the general waste stream. Keurig’s instructions allegedly further impede the Pods’ recyclability by advising users that they need not remove the Pods’ paper filter, which ensures contamination. And due to the Pods’ design, their foil lids are allegedly difficult to remove, posing another risk of contamination.

Smith alleged reliance and that she wouldn’t have bought them/paid what she did for them absent the false representations. She allegedly desired to continue purchasing recyclable single-serve coffee pods and would purchase such products properly manufactured and labeled by Keurig in the future. She brought the usual constitutional claims.

The court declined to dismiss the complaint. Keurig argued that, because advertising for the Pods contained the disclaimer “check locally” regarding recyclability, Smith either ignored the qualifying statements or bought the Pods knowing that they may not be recyclable at her local MRF. She still alleged injury in fact.  She alleged that, in fact, the pods weren’t recyclable across the board, making a “check locally” disclaimer misleading.

Keurig also argued that its recyclable and nonrecyclable pods cost the same, so she couldn’t have been injured. This wrongly assumed that her only choice was between Keurig pods, but other coffee products are available and she allegedly would have sought them instead had she known the truth.

As for standing for injunctive relief, Keurig argued that there was no informational injury here, because the pods would have to be enlarged to make them recyclable so Smith can’t be fooled again.  But “Keurig could plausibly make recyclable Pods without changing their size: MRFs could evolve to be able to capture small plastics such as Pods, such that all Keurig would need to do is make it easier to clean out the Pods and remove their foil lids.”

Keurig also argued that its labeling was truthful and consistent with the FTC’s Green Guides.  Those say: “[i]f any component significantly limits the ability to recycle the item, any recyclable claim would be deceptive. An item that is made from recyclable material, but, because of its shape, size, or some other attribute, is not accepted in recycling programs, should not be marketed as recyclable.” They also state that when recycling facilities are available to less than 60% of consumers where the item is sold, all recyclability claims should be properly qualified.  Keurig couldn’t rely on the Green Guides at this stage of the proceedings.  “Setting aside the adequacy of Keurig’s qualifying statements, the Green Guides state that if a product is rendered non-recyclable because of its size or components—even if the product’s composite materials are recyclable—then labeling the product as recyclable would constitute deceptive marketing. And, among other things, the complaint alleges that the size and design of the Pods render them non-recyclable. Thus, even following Keurig’s logic that the Green Guides might operate as a liability shield, the allegations in the complaint are not precluded based on the Green Guides’s plain text.”

Keurig argued that it was implausible that a reasonable consumer under the circumstances—i.e. a consumer who wants to preserve the environment—would not understand the recyclability of the Pods in light of the disclaiming language that they are “[n]ot recyclable in all communities” and the directive for consumers to “check locally” to determine recyclability at their local MRFs. But, again, the complaint pled that the disputed Pods are not recyclable at all. Cases where disclaimers were sufficient to render an advertisement not false or misleading were thus irrelevant, and common sense “would not so clearly lead a person to believe that a package labeled ‘recyclable’ is not recyclable anywhere.”

Keurig also made an argument that we should expect more of: that Smith’s citation of the Green Guides sought to unconstitutionally compel Keurig’s speech by requiring a change in its labeling.  (Citing National Institute of Family & Life Advocates v. Becerra, 138 S. Ct. 2361 (2018), which is not a commercial speech case.) Keurig contended that California doesn’t have a compelling governmental interest in mandating the wording of Keurig’s qualifying statements, and that it would be unduly burdensome to require Keurig to [avoid deception and] monitor the number of MRFs at which the Pods are recyclable and revise its labeling accordingly.  Given the allegations of the complaint, Smith wasn’t seeking to compel Keurig to finetune its qualifying statement; she was seeking to stop Keurig from mislabeling the pods as recyclable. “And Keurig cites to no persuasive case law for the principle that a prohibition against deceiving consumers constitutes compelled speech.” [This argument is a reminder that all the action is in what constitutes “deceiving” consumers.  Of course a prohibition on deceiving consumers restricts speech! And if you want to get deception-adjacent, then the law is likely to constrain exactly what you can say.  Courts retain the intuition that there’s something different about saying “if you want to talk about X when you’re selling a product, you have to do it with these words/rules because otherwise you deceive consumers” from saying “salute the American flag or get expelled,” but given cases like NIFLA we are definitely heading for more fights attempting to recharacterize deception protections as unwarranted speech restrictions.]