9th Circuit orders class decertified: common issues on materiality/damages insufficient without deception

Rusoff v. Happy Group, Inc., --- F.4th ----, 2026 WL 2387098, No. 24-7706 (9th Cir. Aug. 17, 2026)

Court’s summary:

This is a deceptive advertising class action concerning “pasture raised” labels on egg cartons. After excluding the opinion of plaintiffs’ expert on egg industry standards, the district court found that plaintiffs’ inability to demonstrate consumer deception on a class-wide basis “precludes a finding of predominance” under Federal Rule of Civil Procedure 23(b)(3). The court nonetheless certified the classes based on assertedly common questions of materiality and damages. Because plaintiffs did not meet the requirements of Rule 23(b)(3), we reverse the grant of class certification.

USDA recognizes caged and cage free eggs; the latter has two subcategories, organic and free range. USDA considers “free range,” “pasture raised,” and certain similar terms to be synonymous. But there are a number of other standards from associations and retailers who operate voluntary certification programs, which egg producers pay to participate in. To these certifying organizations, “pasture raised” is the more stringent standard, so certified pasture-raised eggs tend to command a price premium in the market. But the certifiers’ standards differ, e.g., one requires at least 2 square feet of uncovered outdoor area per hen, while another requires about 22 square feet per hen available for potential use (though only about 5.5 square feet needs to be accessible to the hens at any one time if there’s rotation).

Happy Egg’s egg cartons advertise that its hens are “free range” and “pasture raised on over 8 acres.” Plaintiffs alleged that the more stringent “pasture raised” standards are the dominant industry standards, and that consumers paid a price premium for Happy Egg products based on the company’s implied compliance with these standards (even though Happy Egg did not identify either standard on its cartons).

Plaintiffs’ expert opined that “the prevailing consumer expectation is that an egg producer making a free-range or pasture-raised claim is adhering to the commonly accepted standards pertaining to such claims as set by the AHA or HFAC.” The lead plaintiffs testified that they didn’t know about the standards’ content. The court found that one expert didn’t have a methodology for examining different egg products in Seattle, rather than California or New York (where the class members resided).

There was also a consumer survey expert. The survey results found that using both the “pasture raised” and “free range” labels led consumers to conclude that the eggs were both pasture-raised and free-range, whereas with only a “free range” label, they concluded that the eggs were free-range, but not pasture-raised. The survey did not address whether a reasonable consumer understood “pasture raised” as aligned with either allegedly dominant standards. For materiality, survey respondents were 8.1 times more likely to state a preference for the eggs that included the “pasture raised on over 8 acres” representation.

Thus, plaintiffs’ theory of deception required both experts: the first to show that “pasture raised” had a commonly understood meaning tied to the dominant standards, while the survey would show that a reasonable consumer would understand Happy Egg’s “pasture raised on over 8 acres” claim to mean that its eggs were pasture-raised.

But the district court excluded the first expert, whose methods for assessing what a reasonable consumer would understand—such as photographing egg cartons in stores near his home for his own “personal purposes”—were unreliable, as they “[did] not pass the standards that he would expect of his own survey consultant.” Then, the survey lacked a key foundation piece, and couldn’t prove predominance.

But the district court still certified the class under Rule 23(b)(3) after finding that materiality and damages were common questions that predominated.

The district court correctly excluded the first expert’s opinions as unreliable because they didn’t come from “a rigorous evaluation of how a reasonable consumer understands the term ‘pasture raised.’” As a result, “on the foundational issue of deception, plaintiffs failed to make the required showing.” It wasn’t enough to show that certain industry standards are dominant without connecting that to consumer beliefs.

Plaintiffs responded that deception is governed by an objective “reasonable consumer” standard, which means that all claims by any plaintiff will necessarily rise and fall together. “But in order to reach the reasonable consumer analysis, a plaintiff must first show, on a classwide basis, what deceptive marketing or false advertising a reasonable consumer could have been misled by.” Thus, “[w]here the theory of deception is tied to an industry standard, evidence must be brought forward showing that there is a commonly understood industry standard, and that a reasonable consumer would associate a given representation with that standard.”

Then, the district court erred by not weighing the common issues against the individualized issues and determining whether the common issues are, on balance, important enough to justify class-wide treatment despite the existence of individualized issues. Deception is a central element of the claims. “[O]n this record, the lack of a classwide showing on deception cannot be overcome by supposedly common issues of materiality and damages that are unmoored from any classwide showing of actionable wrongdoing.”

consumers face more skepticism than competitor in online gaming case

Mitchell v. Skillz Platform Inc., 2026 WL 2212876, No. 26-cv-00674-AMO (N.D. Cal. Jul. 31, 2026)

Although competitors can aggregate harm to sue under the Lanham Act, consumers—the direct victims of false advertising—tend to have more trouble. Skillz just lost a big claim to its main competitor over falsely advertising that it didn’t use bots in mobile cash games. Here, with similar allegations under various state laws, the consumers struck out. Plaintiffs didn’t sufficiently allege reliance, causation, or lack of an adequate remedy at law (for the restitution claim).

Representations that users match with “real players” and have “no bots guaranteed” were plausibly false and deceptive, as were representations that users match with “players of equal skill.” But the representation that users can make “easy withdrawals” was non-actionable puffery with no set meaning.

The claims failed because plaintiffs didn’t allege that they relied on or even read any particular representation. “Most of the representations are allegedly located across Skillz’s website and social media accounts, so it is not reasonable to infer that Plaintiffs must have seen them.” Even an in-app badge displayed “in front of every single player, every time they launch a Skillz-powered application” since at least the beginning of 2024 wasn’t enough to plead that they actually read the alleged misrepresentations. Seems pretty fixable, but language quoted rejecting the RICO claim was bad news (and maybe another reason to avoid RICO claims): “[A]s the Ninth Circuit noted in a similar case, ‘there may be no single, logical explanation for gambling—it may be an addiction, a form of escape, a casual endeavor, a hobby, a risk-taking money venture, or scores of other things.’ As a result, it may well be that the representations ‘did nothing to influence [users’] perceptions’ or that users ‘played fully aware of how the [platform] operate[s].’” While the evidence in the competitor case tends to negate that idea, “users had to launch a Skillz application before seeing the in-app badge, so they might have already decided to play before seeing the representations at issue here.”

Foiled: Reynolds must face "Made in USA" class

Washington v. Reynolds Consumer Products LLC, No. 1:24-cv-02327-ALC-RFT, 2026 WL 2210008 (S.D.N.Y. Jul. 30, 2026)

The court certified a class of NY consumers under the NYGBL’s false advertising provisions, based on alleged falsity of aluminum foil that’s sold with a label claiming, “FOIL MADE IN U.S.A.”

Plaintiffs argued that reasonable consumers expect that the raw materials used in the products are sourced from within the United States and that a substantial amount of the transformation of raw materials into the foil takes place within the United States. But the only commercial source of aluminum is bauxite. “Since 1981, none of the bauxite mined in the U.S. was used for aluminum, and in 2013, U.S.-mined bauxite comprised less than 0.1 percent of world production.” Thus, plaintiffs alleged, Reynolds must be sourcing from outside the US.

To make aluminum foil, bauxite is processed and refined into alumina, which is then turned into aluminum through smelting. The resulting ingots undergo further processing to make aluminum foil. Plaintiffs alleged that a substantial portion of this processing occurs outside of the United States.

Reynolds’ (bad) argument was that the “Made in the U.S.A.” label referred only to the final foil itself, not to the ingots (as if people knew about the processing stages of aluminum foil).

Only discussing parts of the certification standard: Reynolds argued that plaintiffs lacked proof of a classwide definition of “made in USA,” common evidence of consumer exposure to the label, and common evidence of a price premium. But they had enough for certification on commonality and predominance.

The Third Circuit still stands alone in its extreme ascertainability rulings. The proposed class was comprised of all persons who purchased Reynolds Wrap aluminum foil labeled with the words “FOIL MADE IN U.S.A.” in New York from March 27, 2021, to the present, which was ascertainable “because the putative class has been concretely identified by subject matter, timing, and location.”

Plaintiffs had a common theory of deception. “Defendants focus much of their analysis on whether or not Plaintiffs can prove materiality and injury, rather than show whether these questions are common because they may be determined on a classwide basis.” All class members would have been exposed to the “FOIL MADE IN U.S.A.” label on the front of all aluminum foil products. Common evidence was required to determine materiality to a reasonable consumer.

And price premium injury was common injury; they proposed a damages model consistent with their theory of liability. Plus, given that statutory damages would be less than $50 or $500 here, most class members would opt for statutory damages over actual damages. “Statutory damages can be assessed on the basis of common proof,” creating a perfectly viable common damages model even without the proposed conjoint analysis.

Reading list: The Vanishing Enforcer: Consumer Protection in an Era of Dual Retrenchment

Alisher Juzgenbayev, The Vanishing Enforcer: Consumer Protection in an Era of Dual Retrenchment, 120 Nw. U. L. Rev. 1449 (2026).

Abstract

Recent developments, including reductions in the federal workforce, effective suspension of certain enforcement activities, and attempted centralization of independent agency rulemaking in the White House, have significantly weakened administrative agencies. This administrative retrenchment is concerning as private enforcement of a number of consumer protection statutes has been simultaneously curtailed through the Supreme Court’s decisions in Spokeo, Inc. v. Robins and TransUnion LLC v. Ramirez, which dramatically narrowed plaintiffs’ standing. These decisions rely in part on a vision of strong executive authority, positing that broad private standing conflicts with an Article II framework where a politically accountable President faithfully implements laws and exercises coordinated enforcement discretion. When the Executive interprets this discretion so expansively as to effectively nullify enforcement of federal statutory schemes, Congress retains few tools to engage in meaningful lawmaking to advance policies across different domains. The Fair Debt Collection Practices Act (FDCPA) and the Consumer Financial Protection Bureau (CFPB) offer a telling case study: as courts have systematically restricted private enforcement, particularly class actions, they have channeled enforcement toward the CFPB—theoretically positioning the agency to address systemic violations through enforcement, monitoring, and information gathering. While individual consumers may still access state courts or raise FDCPA violations defensively, addressing systemic violations requires robust administrative enforcement if the Article II justification for restricting private standing is to remain coherent. The possibility for such enforcement now faces mounting challenges from increased politicization of enforcement, executive disempowerment of agencies, and growing judicial skepticism about the propriety of independent agencies and their investigative and interpretative authority. The risk is that some consumer protection statutes will become effectively unenforceable as neither private litigation nor state alternatives can adequately fill the resulting enforcement gap.

"tasting like a smooth whisky" is not a disclosure that there's no whisky in the bottle

Pizzaro v. Sazerac Co., 2025 WL 2682673, No. 23-CV-2751 (KMK), No. 23-CV-4323 (KMK) (S.D.N.Y. Sept. 18, 2025)

The court certifies a class of purchasers alleging deception in their purchases of Fireball and Parrot Bay malt beverage (16.5% ABV) that looked a lot like Fireball whisky (33% ABV) and Parrot Bay rum (21% ABV in coconut flavor) under NY’s GBL.

Things I noted: material misleadingness to a reasonable consumer was a common question, which predominated; individual reliance was not required.

Sazerac argued that different labels defeated predominance: “Labels on 100 ml and 355 ml bottles, as well as on the outer packaging of 6-packs and 10-packs, describes Fireball Malt as ‘tasting like a smooth whisky’– a clear sign that the product is not a whisky.” In addition, “[p]urchasers of 6-packs or 10-packs of Fireball Malt would have seen the ABV printed prominently on the customer-facing panel of the package.” It also argued that the different bottle and label sizes undermine a survey that found that 63% of consumers for Parrot Bay Malt and 66% of consumers for Fireball Malt believe they contain distilled spirit because the survey only used images of 50 ml bottles.

But materiality could be established on a class-wide basis, and misleadingness could be measured by an objective reasonable consumer standard, also class-wide. Differences in the labels were not fatal:

Even if parts of the label like the “malt beverage” font are larger, other aspects of the label that could have misled consumers like the name “Fireball,” Dragon logo, “Red Hot” tagline, and “Cinnamon” statement are also larger. If a jury finds that the combination of these aspects would mislead a reasonable consumer to think they are buying whisky or rum instead of malt, the issue is resolved for the entire class without an individual inquiry.

As for “tasting like a smooth whisky,” that didn’t mean “not a whisky.” “A reader could reasonably understand the label to mean that the product is indeed whisky that tastes smooth like an expensive, well-aged whisky despite being a cheaper whisky.”

Sazerac argues that there could be no price premium because it line prices the products, which means “assigning a single, uniform price to all products sold in identical quantities.” When, as here, “the concern about the proposed class is not that it exhibits some fatal dissimilarity but, rather, a fatal similarity—[an alleged] failure of proof as to an element of the plaintiffs’ cause of action—courts should engage that question as a matter of summary judgment, not class certification.” Plaintiffs’ conjoint analysis for the price premium matched their theory of the case, which was all that was required.

The court also pointed to In re Gen. Motors LLC Ignition Switch Litig., 407 F. Supp. 3d 212 (S.D.N.Y. 2019), in which “Judge Furman helpfully distinguished between cases with dangerous defects and classic mislabeling cases for when the use of historical pricing data is apposite.” He reasoned that “where the alleged misrepresentations and omissions concern dangerous defects,” it is difficult to account for supply-side factors because “products containing such defects are rarely (if ever) sold (or allowed to be sold by regulators) when the defects are fully disclosed.” But “[i]n a classic mislabeling case,” using historical pricing data to account for supply-side factors in conjoint analyses “makes sense.” Here, “even if consumers purchase malt beverages under the mistaken impression that beverages are whisky or rum, an emergency room visit will not be necessary if consumed in moderation.”

 

9th Circuit affirms class status based on materiality of claim in product name

Noohi v. Johnson & Johnson Consumer Inc., --- F.4th ----, 2025 WL 2089582, No. 23-55190 (9th Cir. Jul. 25, 2025)

J&J sells Neutrogena Oil-Free Face Moisturizer for Sensitive Skin. The district court certified a class in a consumer protection case brought by Noohi, who alleges that, despite the name, Neutrogena Oil-Free Face Moisturizer for Sensitive Skin contains oils and oil-based ingredients (ethylhexyl palmitate and soybean sterols). The court of appeals affirmed the certification.

Noohi’s expert Hickner, a professor of materials science and engineering, opined that, although “oil” lacks a standard scientific definition, the term generally refers to a “naturally-derived, chemically synthesized, or petrochemically-refined slippery ... substance” that is hydrophobic—meaning that it does not mix with water—and more viscous than water, but less dense. Dr. Hickner opined that, based on their chemical structures and physical properties, ethylhexyl palmitate and soybean sterols are oils with oil-like physical properties.

Her expert Roberts, an econometrics expert, described his proposed process for measuring class members’ damages by calculating the economic value to consumers of the “oil-free” statement: qualitative market research designed to uncover consumers’ understanding of and response to the “oil-free” label, plus quantitative surveying and market analysis to measure the economic value to consumers of the “oil-free” statement.

J&J contested the evidentiary value of both experts’ proposed testimony and submitted competing expert declarations for both.

First, the district court could properly accept the proposed damages model of Noohi’s economic expert. The Ninth Circuit has held that “class action plaintiffs may rely on a reliable though not-yet-executed damages model to demonstrate that damages are susceptible to common proof so long as the district court finds that the model is reliable and, if applied to the proposed class, will be able to calculate damages in a manner common to the class at trial.” The district court did not abuse its discretion in finding the proposed damages model fit Noohi’s theory of harm and was sufficient for purposes of class certification.

For measuring the price premium, Dr. Roberts proposed to show survey participants the product and ask at what prices they would find it “too inexpensive to be considered, a good value, expensive but still worth considering, and finally, too expensive to be considered.” Dr. Roberts would introduce information “challenging the ‘oil-free’ claim,” e.g. by telling participants that the ingredients contained extracts of soybean and palm oil. Then the survey would ask the price question again. He proposed to use regression analysis to determine the percent of the product’s overall price associated with the phrase “oil-free.” Courts have approved of similar “benefit-of-the-bargain” damages models in deceptive marketing cases under California law.

Dr. Roberts also proposed to measure “softer” kinds of harms consumers might experience, such as changes to “overall consumer satisfaction, brand loyalty, willingness to recommend [the Product], and repurchase intent.” He proposed questions about their attitudes towards and impressions of the product before and after the “exposure.” He would use “multivariate statistic[al]” analysis to quantify the changes in respondents’ perceptions of the Product. That would include damages beyond a price premium. But that didn’t make the problem unusable. The problem only comes when a model proposes to measure damages not associated with the plaintiffs’ theory of harm that can’t be separated from damages tied to the plaintiff’s theory. So all Roberts had to do to solve the problem was … not ask those questions.

J&J also argued that rather than comparing what consumers are willing to pay before and after they learn that the Product is not “oil-fee,” Roberts should compare “what consumers paid for ‘Neutrogena’s Oil-Free Face Moisturizer for Sensitive Skin’ and what they would have been willing to pay for ‘Neutrogena’s Face Moisturizer for Sensitive Skin,’ holding everything else about the product’s performance and packaging (other than the ‘oil-free’ claim) constant.” Dr. Roberts’ model, J&J argued, would improperly include the “emotional value” that consumers associate with learning that the “Product’s label contains a lie.”  But “California law does not prescribe any specific means of measuring a price premium for purposes of actual damages or restitution. In fact, ‘[c]lass wide damages calculations under the UCL, FAL, and CLRA are particularly forgiving.’” All that was required was “some reasonable basis of computation.”

“There is no talismanic means of measuring damages for deceptive marketing claims under California consumer protection law.” Conjoint analysis is ok, as is “contingent valuation analysis,” which is similar to Dr. Roberts’ proposed methodology in that it varies the features of a single product by presenting new information about the product and asks survey participants to “directly report what they are willing to pay for it.”

True, surveys might be badly done and inflate damages or fail to replicate purchase conditions. But Dr. Roberts recognized those risks in his deposition and rejected telling survey participants “you were lied to.” “Should Dr. Roberts’ execution of the survey fall short of that mark, [J&J] may explore that failure at summary judgment, in a renewed Daubert motion, or during cross-examination at trial.” At the class certification stage, the key inquiry was simply whether Noohi has “demonstrated the nexus between [her] legal theory ... and [her] damages model.” Whether the proposed calculation of the price premium would be accurate was a “merits inquir[y] unrelated to class certification.”

Second, materiality and reliance were susceptible to common proof. “Materiality, and therefore an inference of reliance, can be established by reference to an objective, reasonable consumer standard, and so in this case may be proven in a way common to the class.” It is for this reason that class actions asserting the usual California claims are generally “ideal for class certification.”

The presumption was rebuttable, but the district court didn’t abuse its discretion in finding the presumption to be unrebutted. “If the misrepresentation or omission is not material as to all class members, the issue of reliance ‘would vary from consumer to consumer’ and the class should not be certified.” Here, the district court also relied on the undisputed evidence of classwide exposure to the “oil-free” language prominently displayed on the front of the packaging. In determining material misleadingness under California law, “the primary evidence ... is the advertising itself.” The court was quite plaintiff-favorable here, as its understanding of California law required:

It is hard to imagine that consumers would purchase a product labeled “Oil-Free Moisture” without regard to whether the product was free from oil. If, somehow, the evidence later shows that a reasonable consumer would not have found the product’s name to be material to their purchase decision, “the failure of proof on the element of materiality would end the case for one and for all; no claim would remain in which individual reliance issues could potentially predominate.” 

Given the objective standard for materiality and the undisputed evidence of classwide exposure, Noohi is entitled to the inference that reliance can be shown via common proof.

J&J argued that “oil-free” might have multiple different interpretations: doesn’t contain oils, doesn’t contain ingredients derived from oils, or doesn’t perform in a way consumers consider “oily.” But J&J didn’t offer persuasive evidence of this variance, only Noohi’s testimony as to her motivations for purchasing and the expert report of a dermatologist as to the dermatologic uses of oil-free products. That didn’t show variance within the class.

Second, even if understanding of “oil-free” varies across the class, J&J didn’t explain why that would undermine the commonality of materiality based on a reasonable consumer standard, or rebut the inference of reliance. In cases reaching the opposite conclusion, “a sizable portion of the class either were not misled by the statements or would not have found the misrepresentations to be material had they known the truth.” As opposed to showing that “oil-free” didn’t affect the purchase decision, J&J’s evidence at most showed that it “affected the purchase decision of class members—and so was material—for different reasons.” J&J offered no evidence that “a consumer who thought ‘oil-free’ meant ‘without oils’ was any more or less likely to be affected in their purchase decision than someone who thought it meant ‘without oil derivatives’ or not tactilely ‘oily.’” Thus, J&J’s argument didn’t undermine the idea that materiality was susceptible to common proof:

The baseline inquiry is whether the statement was material to a reasonable person. An affirmative answer to that question gives rise to an inference of reliance. A showing that for some portion of a class that statement was not in fact material upsets that inference. But a showing that a statement was material to different class members in different ways does not.

In California, “a plaintiff need not establish at the class certification stage that class members share a uniform understanding of the contested term.”

J&J also argued that it defeated the inference of reliance by showing that 30% of purchases were repeat purchases. (One thing that could be useful in a false advertising case would be to know whether that was a low percentage for a personal care product, or a high one.) “The existence of repeat purchasers does not defeat the inference of reliance. There is no indication that the repeat purchasers knew that the Product was not oil-free and purchased it anyway.” Plus, for reliance under California law, a misrepresentation need not be “the sole or even the decisive cause of the injury-producing conduct.”

"Target Clean" might certify specific qualities to reasonable consumers

Boyd v. Target Corp., --- F.Supp.3d ----, 2024 WL 4287669, No. 23-CV-02668 (KMM/DJF) (D. Minn. Sept. 25, 2024)

This interesting lawsuit relies on Target’s curatorial reputation for the false advertising claim. Target is headquartered in Minnesota and plaintiffs sought to represent a putative nationwide class over certain products labeled “Target Clean.” Target allegedly represents that the labeled products are “clean” because they are “free from ‘commonly unwanted’ chemicals or ingredients” and “ ‘formulated without ingredients [consumers] may not want.’ ” The labeling is allegedly independent of manufacturer claims, and at least some Target Clean products are not labeled or marked with a similar claim or description by the manufacturer.

example of Target Clean store sign

Target allegedly uses a bright green hexagon within which is Target’s typical “bullseye” logo and the word “clean.” Sometimes it’s on individual shelf labels associated with particular products, and also on larger display signs that offer a short explanation of the Target Clean program including a brief explanation of Target’s criteria, as well as on a website. It has identified 13 ingredients as being “banned” from Target Clean Beauty Products. The complaint has details about the alleged harms of these ingredients; generally, they allegedly have “known impacts on human health and the environment.”

Target allegedly designed and describes the Target Clean program as a shopping assistant for health-conscious consumers. A Target merchandise executive allegedly described the program as “tak[ing] the complications out of finding better-for-you product options,” conveying to the consumer that Target has done that work for them. However, plaintiffs alleged that some products do contain the banned ingredients, and that others contain ingredients that are equally or more harmful to humans than the banned ingredients.

Plaintiffs alleged common law breach of warranty, express and implied; common law fraud; negligent misrepresentation; violations of the Minnesota Consumer Fraud Act and Minnesota Uniform Deceptive Trade Practices Act; and violations of Alabama, Arizona, California, Colorado, Florida, Illinois, Indiana, Michigan, New Hampshire, New York, Oklahoma, and Washington consumer fraud and protection statutes (on behalf of putative state subclasses).

Notes of interest: Target argued that exact purchase dates, not just year and month, were required to plead fraud with particularity; the court disagreed:

While the Court can certainly envision a scenario in which specific-date allegations are key to providing notice, this is not such a case. For one, the Court is unpersuaded that individual purchase dates are the relevant “when” in this matter, at all. Plaintiffs do not allege discrete acts of deceit or fraud where Target’s purported misrepresentations were unique to individual purchases on different dates. Instead, Plaintiffs allege that Target Clean has induced sales through misleading claims throughout the program’s entire existence. The fact that this allegation is broad does not mean that it fails to provide notice to Target as to “when” the fraud allegedly occurred. Moreover, as alleged in the Complaint, the period in which Target made its misrepresentations is not particularly long. According to the Complaint, the Target Clean program was launched in 2019 and continues to this day. This provides a “when” window of no more than four years at the time of the filing of the Complaint.

The real issue of interest is the reasonable consumer standard. Although the court was somewhat dubious, the early stage of the case allowed the claim to proceed. Certainly the allegation that at least one product literally contained an ingredient on the banned ingredients list had to be accepted.

The court was more sympathetic to Target’s arguments that “reasonable consumers would view Target’s posted definitions” to better inform themselves about what the program does and does not claim and that “clean” lacks any “accepted meaning [and] is too subjective and vague and wholly dependent on an individual’s interpretation, and lacks an empirical benchmark to provide any indicia of measurability to create a basis for a lawsuit ... based on reasonable consumer confusion.” But factual development was still required. “Clean” was something of a moving target—plaintiffs alleged meanings related to health; Target argued that Target Clean was a “proprietary” term and therefore meaningless puffery, “embodying only its own exact terms and conditions and communicating nothing more.”

At this stage, the court would not resolve the issue in Target’s favor. “Target’s own case law suggests that ‘clean’ is being used in cosmetics sales widely, and has at least some kind of consistent meaning apart from whatever proprietary meaning Target wishes to assign to it.” Moreover, “Target’s dependence on an idealized scenario of clear explanation and disclosure about its own definition of Target Clean ignores Plaintiffs’ second-order assertions about the Target Clean program—namely, that the program’s definitions about itself are confusing and inconsistent.” Finally, “Target’s position requires far too much assumption about what a Target Clean consumer would have reasonably encountered or been told about this program at the time of their purchases.”

The court noted that the last point made this case “unique” compared to other facially similar cases:

Many of the cases cited by Target dismissing consumer fraud actions can be fairly characterized as “product cases,” meaning that a plaintiff has sued the manufacturer of a product for the representations made about (and often literally on) that product. In this relatively closed universe—featuring a directly proprietary representation about a product, typically capable of being immediately verified or at least scrutinized by the consumer—it makes more sense for a court to render early legal conclusions about who the reasonable consumer is and what they have perceived. But the situation presented in this case is much murkier because this is not a typical products case. This is a case about a well-known national retailer alleged to have independently curated a selection of products and then presented those products to the consumer as being “Target Clean” through at least several variations of representations. The central allegation presented is that the Target Clean program itself is inherently deceptive, not merely any one claim about any one product. In other words, by representing Target Clean as a neutral tool to help consumers, Target is alleged to have used an imprimatur of authority, as a retailer, to point health-conscious consumers toward purchasing certain products.

Given this “broader Target marketing landscape,” plaintiffs were entitled to more expansive inferences about reasonable consumers. “[W]hile all of these positive representations about products communicate to the consumer that someone would like to sell them something, only Target’s representation that a product is ‘Target Clean’ suggests that Target has done some work on their behalf”:

The independent curation also effectively removes another key basis on which consumer deception cases are dismissed under Rule 12: that a reasonable consumer understands the concept of commercial puffery and knows they must verify the claims made about products. This caveat emptor logic does not squarely apply here. It is one thing to assume that a consumer expects a shampoo manufacturer to promote its own products by any means necessary, and therefore require that consumer, as a matter of law, to verify package labeling for abject dishonesty before claiming to have been deceived. But it is another thing to assume what a consumer reasonably expects when Target positions itself between the manufacturer’s label and the consumer, promoting certain products on its shelves over others as embodying certain standards. Here, the typical sales motivations are altered, and indeed, at this stage the Court can imagine that a consumer might reasonably assume that Target had independently made an assessment that some of its products are cleaner than others in a way that is meaningful to its customers. What follows from such an assumption (e.g., whether a reasonable consumer would feel that Target had relieved them of the need to verify claims or whether the reasonable consumer would view Target’s independent representations as being no more trustworthy than those of the shampoo maker) remains opaque to the Court. But assuming as true Plaintiffs’ well-pleaded allegation that Target Clean products are not actually “cleaner” than others, that opacity forecloses a quick dismissal on the merits of Plaintiffs’ fraud-based claims.

What about the next step in the chain of logic—that the Target Clean program allows ingredients that are just as harmful as the “banned ingredients”? “Plaintiffs implicitly suggest that a reasonable consumer would understand the representation as identifying banned ingredients by kind rather than with literal specificity.” That is, that “propylparaben is a banned ingredient because it is a harmful endocrine disruptor, and not merely that propylparaben is a banned ingredient.” Target argued that “the list of banned ingredients speaks for itself and cannot impart any representation other than its own, plain terms.” The court found this to be Target’s strongest argument, but not on a motion to dismiss. (FWIW, I think it’s an incredibly weak argument—the basic rules of implicature suggest that these ingredients are banned for a reason, and the reason is that they’re bad for you; banning ingredients that are bad for you while allowing others that are just as bad for you for the very same reasons that the banned ones are bad for you is silly and counterintuitive.)

[T]he difference between the representations and expectations alleged in the Complaint is not one of apples and oranges. Furthermore, as discussed above, Target is alleged to have made statements about the Target Clean program that arguably encourage broader expectations than Target is willing to concede can arise out of the fine print. Indeed, there is a fairly straight line between the alleged representation that Target Clean products are “formulated without a group of commonly unwanted chemicals” or “formulated without ingredients they may not want” and Plaintiffs’ assertion that a reasonable consumer broadly expects Target Clean products to “be safe and good for humans.”

The court also found the reasonableness of plaintiffs position strengthened by the reference to the FTC’s Guides for the Use of Environmental Marketing Claims (Green Guides), which state that “a truthful claim that a product, package, or service is free of, or does not contain or use, a substance may nevertheless be deceptive if: [ ] the product, package, or service contains or uses substances that pose the same or similar environmental risks as the substance that is not present.”

I won’t mention most of the other claim-specific issues, but Target sought to strike class allegations arising under Alabama’s Deceptive Trade Practice’s Act (ADTPA) because of a limitation written into the statute by the Alabama legislature that purports to ban the formation of class actions:

A consumer or other person bringing an action under this chapter may not bring an action on behalf of a class. The limitation in this subsection is a substantive limitation and allowing a consumer or other person to bring a class action or other representative action for a violation of this chapter would abridge, enlarge, or modify the substantive rights created by this chapter.

But Rule 23 governs the formation of classes in federal litigation. Shady Grove Orthopedic Associates, P.A. v. Allstate Insurance Co., 559 U.S. 393 (2010), as applied by the Eleventh Circuit to Alabama’s law, Lisk v. Lumber One Wood Preserving, LLC, 792 F.3d 1331 (11th Cir. 2015), rejected the claim that Alabama’s statutory ban on class action formation under the ADPTA implicated any substantive right (against deceptive conduct) as a matter of federal law. “The State of Alabama may organize consumer lawsuits in its own courts differently, but cannot impose those preferences on the federal courts. … [T]he nuanced analysis required under the Rules Enabling Act, as guided by Shady Grove, does not hinge on whether a state simply says that a given law does or does not implicate a substantive right.”]

9th Circuit orders district court to reconsider statutory damages award to NY class under NY law

Montera v. Premier Nutrition Corporation, --- F.4th ----, 2024 WL 3659589, No. 22-16375, 22-16622 (9^th Cir. Aug. 6, 2024)

The key legal issue here arises from the quirk that NY bans GBL §§ 349 and 350 class actions in state court, but they can be brought in federal court. Premier sold Joint Juice for treating/preventing joint pain; a jury found it liable to a consumer class for false advertising under NY law; and the district court awarded statutory damages to the class, but cut them by over 90%. The court of appeals affirms liability/class certification and remands for recalculation based on an intervening appellate decision, as well as reversing the grant of prejudgment interest—overall, seems like a win for Montera.

The evidence showed that Premier targeted Joint Juice ads to people who suffer joint pain as a result of osteoarthritis. The packaging used the Arthritis Foundation logo and name, and made claims such as “Use Daily for Healthy, Flexible Joints” and “A full day’s supply of glucosamine combined with chondroitin helps keep cartilage lubricated and flexible.” On liability, “Montera introduced peer-reviewed, non-industry-funded studies finding that Joint Juice’s key ingredients, glucosamine and chondroitin, have no effect on joint function or pain; Premier maintained the product’s efficacy based on industry-funded studies.” Premier was aware of the no-effect studies; in 2011, the brand director for Joint Juice wrote, “there is no scientific evidence for chondroitin at 200 mg.” When Premier considered running its own study, its president wrote: “if poor—don’t publish.”

Montera’s expert testified that 92.5 percent of respondents to his study “believed that the product packaging was communicating one or more of [the packaging’s claimed] joint health benefits,” and 56% of respondents said that Joint Juice’s claimed joint health benefits “were material to their purchase decisions.” Montera also introduced Premier’s internal customer survey in which 96% of those surveyed said they were managing chronic pain, 75% said they bought Joint Juice because they have joint pain and thought the drink would help them, and 56% said they had been diagnosed with arthritis. In Premier’s expert’s survey, 21.5% of respondents said that information on Joint Juice’s packaging influenced their purchase decisions, and 32.3% said they had generally heard about the benefits of glucosamine.

GBL §§ 349 and 350 require courts to award the greater of actual damages or statutory damages of $50 or $500, respectively. Montera sought $550 per unit sold in statutory damages, totaling over $91 million. The district court, though, thought that would violate due process and awarded statutory damages of $50 per unit sold—the amount available under § 349—totaling roughly $8.3 million, along with roughly $4.5 million in prejudgment interest.

The court of appeals rejected Premier’s argument that there could be no misleadingness as a matter of law because it possessed substantiation for its claims. But deceptiveness is a question of fact, and the jury appropriately considered the studies introduced by both sides. This wasn’t a case where the plaintiff’s interpretations were implausible or unrealistic.

The court of appeals also rejected Premier’s argument that it was entitled to an instruction on safe harbors: Section 349 provides that “it shall be a complete defense” to liability if a challenged practice is “subject to and complies with the rules and regulations of” a federal regulatory agency. Premier argued that it complied with the FDA’s supplement regulations, which permit structure/function claims as long as those aren’t disease claims. But, to comply with this regulation, “a manufacturer must notify the FDA within 30 days of first marketing a supplement that the product’s label includes a qualifying claim, and certify that the claim is substantiated, among other requirements.” Premier didn’t dispute that it failed to comply with the 30-day notice—it began making the claims at issue in 2009 but didn’t notify the FDA until 2012. There was no evidence that the FDA excused its failure to comply or that the 2012 notification cured the earlier noncompliance. Thus, the district court did not err by declining to instruct the jury on the safe harbor provision.

Injury: The district court instructed the jury that the class was “injured by purchasing Joint Juice if it was valueless for its advertised purpose.” The jury found, by special verdict, that the class was injured by purchasing Joint Juice, and it awarded damages equal to the total amount spent on Joint Juice during the class period based on average purchase price. It thus the jury declined to reduce the damages amount on account of Joint Juice having any residual value for hydration/containing vitamin C apart from its advertised purpose.

NY law does not require a price premium or a physical injury. It requires only, as here, that class members didn’t get what they paid for: they bought a product that was advertised to improve joint health but in reality did not.  Indeed, “this case arguably takes the price premium theory to its logical endpoint: the jury found that Joint Juice was entirely ‘valueless for its advertised purpose,’ so the entirety of the purchase price could be viewed as a price premium.” Adopting Premier’s view would “immunize from liability the age-old deceptive tactics of the ‘grifting snake oil salesman,’ which spurred the adoption of some of the earliest consumer protection laws in this country.”

The court next rejected Premier’s argument that Montera did not show that each one of the class members’ injuries were caused by the statements on Joint Juice’s packaging. But that’s not the rule in NY. It is emphatically the law that reliance isn’t required to show causation under GBL §§ 349 and 350. New York uses “an objective definition of deceptive acts and practices.” Liability “turns on what a reasonable consumer, not a particular consumer, would do.” “Because the test is objective and turns upon the reasonable consumer, reliance is not at issue, and the individual reason for purchasing a product becomes irrelevant and subsumed under the reasonable consumer standard, i.e., whether the deception could likely have misled someone, and not, whether it in fact did.” As a result, “Rule 23(b)(3)’s predominance requirement poses no barrier to class treatment of [§ 349] claims because it’s unnecessary to make any individualized inquiry into what each plaintiff knew and relied on in purchasing his or her [product].”

The court also rejected challenges to certain evidentiary rulings at trial. Montera offered, among other things, “a list of Google AdWords that Premier purchased to market Joint Juice, many of which related to arthritis, and a television commercial featuring a celebrity recommending Joint Juice to help joint stiffness.” Although not every NY purchaser would have seen these, the evidence was not irrelevant; it was relevant to show the message conveyed by the packaging, including that the packaging was meant to convey a disease claim, not a structure/function claim. The trial court also properly instructed the jury to limit its analysis to the packaging.

Likewise, it wasn’t improper to admit a letter Premier’s tax advisor sent to the California Department of Resources Recovery and Recycling in 2010. The letter argued that Joint Juice should not be subject to a five-cent bottle deposit tax because it did not qualify as a “beverage” under California law, but rather was a “medical supplement” and “over-the-counter medication.” The letter also stated that “the only reason to purchase Joint Juice® supplement is for the medicinal value of the glucosamine and chondroitin it contains.” [On the one hand, ouch; on the other, this is glaringly obvious.] Again, this was relevant to the structure/function versus disease claims argument, and references to California law were not unduly confusing.

Likewise, Montera’s counsel’s arguments were not unduly inflammatory. Suggesting that Premier was “prey[ing] on the vulnerable” was allowed because counsel “is allowed to argue reasonable inferences based on the evidence,” and counsel’s argument that “Joint Juice set out to target people who suffer from arthritis” was consistent with the evidence of Premier’s marketing strategy. Counsel’s argument that Premier used “paid hacks and certified [q]uacks in the articles that they publish” was not “untethered from the record; it was consistent with evidence about Premier relying on industry-backed studies, evidence that some of the sponsoring companies refused to release the underlying data for external review, and the note written by Premier’s president not to publish the study Premier contemplated if it yielded unfavorable results.” References to the company’s size/consumers banding together were limited and not inappropriate as a response to defense counsel’s suggestion that Premier was a small company.

Statutory damages: The relevant statutes aren’t explicit about whether statutory damages are calculated on a per-person or per-violation basis. The district court, looking at federal cases (remember, there can’t be state cases on this), concluded that the statutory damages should be assessed on a per-unit basis. The court reasoned that GBL §§ 349 and 350 create private causes of action for persons “injured by reason of any violation” of either statute. “In our view, the plainest reading of that phrase is that a cause of action arises for each violation. Here, a class member suffered a violation each time they purchased a unit of Joint Juice bearing a deceptive label, whether packaged in a six-or thirty-pack, and New York law entitled them to receive either actual or statutory damages for each violation.” The history and consumer protection purpose of the statutes supported this reading, including an increase from $50 to $500 for § 350 because “[c]urrent limits are too low to be effective.”

The court noted that, given that class actions are not allowed in state court, “the Legislature was surely aware that the statutes’ deterrent function would not be accomplished by aggregating statutory damages across a large number of plaintiffs.” Individual filing fees were at least $400 when NY amended the law; using a per-person calculation would mean that “a consumer deceived into making several purchases of the same low-cost item might have to pay $400 in up-front filing fees to potentially recover $550 in combined statutory damages under §§ 349 and 350. We are not persuaded that the Legislature would have considered that such a meager incentive would accomplish the Legislature’s express goal of deterring statutory violations.”

So, does a $91 million statutory damages award violate due process? Wakefield v. ViSalus, Inc., 51 F.4th 1109 (9th Cir. 2022), concerned a company that placed over 1.8 million robocalls in violation of the Telephone Consumer Protection Act (TCPA). The TCPA’s statutory penalty is $500 “for each [ ] violation.” The district court ordered the defendant to pay $925.2 million. Instead of using the factors the Supreme Court has applied to common-law torts, the 9^th Circuit mandated the use of seven factors to decide “when an award is extremely disproportionate to the offense and ‘obviously’ unreasonable”: “1) the amount of award to each plaintiff, 2) the total award, 3) the nature and persistence of the violations, 4) the extent of the defendant’s culpability, 5) damage awards in similar cases, 6) the substantive or technical nature of the violation, and 7) the circumstance of each case.” This was intervening precedent because of how long 9^th Circuit cases take. [The underlying precedent is Lochner-era caselaw letting courts strike down statutory damages as excessive as a matter of substantive due process. Judicial supremacy over legislators strikes again, I guess. Compare how courts treat this argument in copyright cases.]

The court thus remanded without expressing an opinion about what would be unreasonable. The district court previously considered the NY legislature’s goals in barring aggregate damages in class actions, and concluded that such an intent supported reducing the total damages award. On remand, it should also consider the legislature’s goals for deterrence and compensation in enacting GBL §§ 349 and 350.

Prejudgment interest was unwarranted because the statutory damages award wasn’t compensatory; it exceeded the jury’s actual damages award of roughly $1.5 million, and thus awarding both statutory damages and prejudgment interest would constitute a windfall.

Dueling surveys don't defeat class certification in supplement suit

Corbett v. PharmaCare U.S., Inc., 2024 WL 1356220, No. 21cv137-JES (AHG) (S.D. Cal. Mar. 29, 2024)

The court partially grants class certification and rejects motions to exclude experts. Plaintiffs allege consumer protection and breach of warranty claims based on PharmaCare’s Sambucol product, a dietary supplement that is advertised to “support immunity” and contain a proprietary extract of black elderberry. Sambucol comes in various forms, including syrup, tablets, capsules, and gummies. The challenged labels include some combination of the following statements: “Supports Immunity”; “Scientifically Tested” (xkcd is, as always, excellent on this); “Supports the immune system”; “Virologist Developed”; “provides strong immune system support to help you and your family stay healthy throughout the year. … conveniently arms you with some of the best protection nature has to offer”; “only Sambucol® can guarantee consistent, immune supporting properties in every serving”; “Developed by a world renowned virologist, Sambucol®’s unique manufacturing process preserves and maximizes the naturally occurring health benefits of the Black Elderberry”; “used in published scientific studies. No other elderberry brand can make the same claim”; “Developed by a world renowned virologist, Sambucol® has been trusted by millions worldwide. Sambucol can be taken every day for continuous immune support.”

Plaintiffs had two theories: first, the products contain a new unreported dietary ingredient and therefore, were illegal to sell as dietary supplements. Second, the products were labeled and marketed in a way that claims that they mitigate or prevent disease.

The court allowed the parties’ experts and their dueling consumer perception surveys, plaintiffs’ materiality survey, and dueling conjoint analysis/damages opinions.

One of the plaintiffs was a fine representative; he testified that he wouldn’t have bought the products if he’d known of the illegality, which didn’t make him atypical. The other testified that he only bought products that didn’t make the alleged misrepresentations at the core of the disease claim, so wasn’t a typical representative for the disease claims. On the other hand, it didn’t matter that he didn’t recall seeing the “dietary supplement” label because the crux of the argument was that plaintiffs wouldn’t have bought the products if they’d known they were illegal, which didn’t depend on reading the phrase “dietary supplement.”

Because of state-law differences, a nationwide class couldn’t be certified, but a California one could be. The court declined to find the drug theory preempted at this time, noting that California’s Sherman Law adopts the FDCA’s provisions; this isn’t obviously an attempt to directly enforce the FDCA.

Predominance for the drug claims was satisfied based on the theory that an illegal unapproved ingredient would render the products illegal for sale, and that a jury could find that illegality would be material to a reasonable consumer. “Plaintiffs’ unfair or deceptive business practice NDI claim may rest upon a theory that even putting the products for sale on the marketplace is an implicit representation that they are being legally sold and comply with the FDA.” Further, this finding could be supported at the certification stage “based on evidence such as the perception of the named representatives and does not require survey evidence.”

Predominance for the disease claims: PharmaCare argued that the labels varied between products, and while the majority of packaging contains the statements “support immunity” and “scientifically tested” on the front of the package, the statement “virologist developed” varies in its location, including on other sides of the package and in varying font sizes. Courts don’t require uniformity, only “sufficiently similar representations.” The question was whether differences were “materially different.”

There was no dispute that the phrases “scientifically tested” and “supports immunity” appeared on the front of the packaging of all products and in largely the same format and prominence. As for “virologist developed,” it appeared variously on the back, side, and top panels, which the court didn’t find materially different from one another (as front placement might have been).  The text also differed, in that mostly “virologist developed” appeared as part of a bulleted list, but for several of the products, it appeared in a paragraph on the package. Still, the text wasn’t in a smaller or finer print; “this difference in how this one phrase appears on packaging is not ‘materially’ different to preclude class certification, particularly in light of the other statements that do appear consistently amongst all the packaging for the products.”

variants of "virologist developed"

PharmaCare argued that disclaimers on the packaging precluded a disease claim: “[t]his product is not intended to diagnose, treat, cure or prevent any disease” on the back or the side, but not on the front. Whether disclaimers avoid deception is typically a question of fact.

Plaintiffs’ consumer perception survey showed people products with and without the challenged representations, modified to be “brand neutral”—that is, removing mentions of Pharmacare and Sambucol, botanical imagery, and modified the background color so that participants could not use that to determine the brand.

The results showed that test group respondents shown the challenged representations were 2.2 times more likely to perceive the surveyed health benefits (51.9% versus 24.2%, or 27.7% net deception).  Defendants’ expert criticized the survey universe as overbroad—nearly half hadn’t purchased any of the products at issue in the past. He also argued that the survey didn’t test the theory of liability, and that the survey should have tested individual representations individually; used open-ended rather than closed-ended questions; and used actual packaging instead of modified packaging.

Defendants’ expert’s survey used respondents that shopped at supermarkets and drugstores who’d made a recent purchase in the product category of nutritional supplements/vitamins.

After being shown one of defendants’ products, respondents were asked open-ended questions, including 1) “please list all the reasons that you would or would not purchase this product;” and 2) “if you were to purchase [the product], would you have any expectations about specific benefits it would provide” and if answered yes, asked to explain their beliefs. Respondents were also asked a close-ended question on how likely it was that the product would deliver these specific benefits, being able to choose between “very likely,” “somewhat likely,” “neither likely nor unlikely,” “somewhat unlikely,” “very unlikely,” and “don’t know/no opinion.”

Then respondents were shown actual labels and asked to select any of 24 options of statements on the packaging that appealed to them, which included the challenged representations. If they did, they got a follow-up: 

In this survey, only 39.8% of respondents identified health-related reasons for why they would purchase the product, and only 21.2% identified immunity support. Only 71.2% of respondents answered that they would expect the product to provide benefits; 49.2% reported some health-related benefit, with 33.9% identifying immune support/boost immune system. Id. Dr. Keegan’s survey further tested attributes that consumers found appealing, including the following:

Further questions found that consumers varied in their certainty:

Defendants’ surveyor concluded that consumers provide a wide range of reasons for purchasing the products, without a unified or predominant reason driving their decision, that they had wide expectations of the benefits the product would provide, that there was wide variation in what consumers found appealing based on the statements on the packaging, and that consumers did not uniformly understand the statements to mean what plaintiffs assert they mean.

Plaintiffs’ expert had his own criticisms, mostly about use of open-ended questions for most of the survey, and a close-ended question with a ton of options. He contended that using such questions in a self-administered online survey tends to underestimate phenomena, and that survey experts believe that close-ended questions are “more appropriate for scientifically rigorous, quantitative survey research.” In his view, the survey encouraged respondents to answer “I don’t know” to his open ended questions, while providing 24 options for the close-ended question encouraged “under selection” of options.

Moreover, to plaintiffs’ expert, the responses actually supported the claim: “5 of the 7 most “appealing” claims were related to the Plaintiffs’ challenged claims: ‘Supports your immune system’ (62.7 % of respondents); ‘Supports immunity’ (59.0%); ‘Strong immune system support to help you and your family stay healthy throughout the year’ (48.9%); ‘Immune supporting properties’ (48.9%); and ‘Scientifically tested’ (41.0%).”

The dispute didn’t defeat predominance, because it could be resolved classwide.

So too with the dispute over plaintiffs’ materiality survey (and defendants’ expert’s modified version thereof). The materiality survey was a referendum: it tested consumers’ preference for buying the products with or without the challenged representations. Consumers were 11 times more likely to choose the product with the representations (8.1% versus 91.9%).

Defendants’ expert argued that this was dumb, because the format drew attention to the only difference between the products, and the product packaging in the control left open space that, in the real world, would be filled with other product benefit claims. He conducted a survey showing only Sambucol with the claims to one group and Sambucol without to the other, and found “no statistically significant difference between respondents’ likelihood of purchasing products with and without the Considered Representations.” 

Again, this “amounts to a disagreement on survey methodology, rather than suggestions that a survey could not be designed to test materiality in the first place.”

Damages: Plaintiffs first argued that a full refund model could be used to measure damages where a plaintiff’s theory of liability is that the product is valueless (which an illegal or useless product would be). The court disagreed on uselessness, because plaintiffs didn’t show that the products had no other benefits at all. Plaintiffs also argued that a product might actually be worthless if it was illegal to be sold as it was, but the cited cases involved a greater degree of illegality (illegal nicotine sales to youth, or poison sold as food, or a Schedule III controlled substance).

But a price premium model could work, and it was enough at this stage to propose, in detail, how that would be done.

Damages questions preclude certifying a Lanham Act false advertising plaintiff class

Ciccio v. SmileDirectClub, LLC, 2024 WL 559235, No. 3:19-cv-00845 (M.D. Tenn. Feb. 12, 2024)

The court denied certification to a proposed class of dentists/orthodontists over SDC’s allegedly false advertising for its plastic aligners/teledentistry services, based on difficulties identifying harm/causation.

Under Lexmark, “a plaintiff suing under [the false advertising provision of the Lanham Act] ordinarily must show economic or reputational injury flowing directly from the deception wrought by the defendant’s advertising,” which is usually accomplished by showing that the defendant’s “deception of consumers cause[d] them to withhold trade from the plaintiff.” “Each individual member of the putative class, therefore, would need to establish an actual effect on consumers resulting in injury—not to the broad community of dentists and orthodontists—but specifically to him/her and his/her practice.” This they could not do.

“Consumer motivations are complex, and a court cannot simply ‘assume[ ] ... that every [purchase] during the relevant time period was the result of [the defendant’s] allegedly false statements.’” The consumers here were many, “with different needs and preferences.” Even if falsity/misleadingness of the ads was a common issue, that wasn’t enough. “[T]he question of whether, and to what extent, any given plaintiff was actually injured by one or more of the statements will depend on plaintiff-specific contextual factors. Drawing a coherent, factually supported line from a single misleading statement in a company’s advertisement to an actual economic injury by a competitor is inherently difficult to do, and, insofar as it would be possible at all for the kinds of statements at issue in this case, it would be particularly difficult to do on a class-wide basis.” Thus, causation/harm would predominate.

A presumption of harm from false comparative advertising wouldn’t help, because this wasn’t a case in which “the plaintiff’s product was specifically targeted.” And anyway, a presumption would just help established “minimally sufficient injury—not the extent of the injury or how it was distributed among class members.” Even accepting plaintiffs’ expert opinions on damages and even assuming disgorgement as a remedy, there’d be no way to figure out how harm was distributed. The court accepted criticisms of one survey, including, interestingly, that it didn’t give respondents the option of saying that they’d stop pursuing teeth-straightening treatment altogether, even though many SDC customers might have done just that if SDC weren’t an option.

Nor did a damage report adjusting for “[p]otential differences in the prices for” the relevant services “in different parts of the country and in urban versus rural areas” suffice because individual dental and orthodontic practices “are likely to differ in other ways that would be just as relevant—if not more relevant—to whether and to what extent any given practice was likely to be affected by SmileDirect’s allegedly improper marketing. For example, some practices may serve a wealthier patient population than others in the same geographic area, and one cannot assume that SmileDirect’s pitch—which focused significantly on costs—would affect each practice’s potential patients in the same way. Similarly, different patient populations might have different media diets, resulting in different levels of exposure to the challenged SmileDirect statements.”

Although absolute precision isn’t required, there’s “a point at which approximation eclipses the truth so fully that the numbers produced cannot serve the purpose they were intended to serve.” Lost profits would also be impossible to calculate classwide because profit margins can vary so much.

Nor was an injunction-only class appropriate when money damages are so central to the case.

reliance can be presumed in NY from material misleadingness, as in California

Polvay v. FCTI, Inc., --- F.Supp.3d ----, 2024 WL 322050, No. 22-cv-4315 (JSR) (S.D.N.Y. Jan. 29, 2024)

The court certified a class of New York consumers who were assessed multiple fees for making balance inquiries at one of defendant FCTI’s ATMs at 7-Eleven stores. During the relevant period, all New York customers who used one of defendant’s ATMs saw the same initial prompt: “Would you like to view your account balance?” If they said yes, a balance inquiry fee would be assessed to the customer. And if the customer selected an account, a prompt would appear and ask the customer, “Would you like to print your Balance and continue the Transaction?” If they continued, this would be treated as a second balance inquiry and a second balance inquiry fee would be assessed, earning another interchange fee for FTCI; interchange fees are a major source of its revenue. The class alleged that “Continue/Cancel Prompt” screen was deceptive because it didn't reasonably appear to be a second balance inquiry, but defendant FCTI treated it as such. (Who thought this was ok?!) They brought claims under NYGBL Sections 349 and 350.

FTCI’s key argument was that causation must be determined on an individual, rather than class, basis. Instead, the court applied a presumption of reliance.

The court ruled based on three relevant principles used by the New York Court of Appeals: First, Sections 349 and 350 do not require proof of reliance. Second, causation is required. Third, there is a relationship between reliance and causation. This relationship, the court predicted, was best understood as allowing a presumption of reliance on a materially misleading statement at the class certification stage.

The New York Court of Appeals has explained that under Section 349, an allegation “that defendant’s material deception caused [plaintiffs] to suffer [a monetary] loss” is sufficient for purposes of causation; “[p]laintiffs need not additionally allege that they would not have otherwise entered into the transaction” (as would be required for showing reliance). Materiality is what satisfies the causation requirement, as in securities fraud cases and in California consumer protection cases.

Here, then, if a plaintiff could prove that (1) each class member was automatically shown the “Continue/Cancel Prompt” before pressing the “Continue” button and (2) that the “Continue/Cancel Prompt” was objectively material and misleading, then a presumption of reliance for purposes of showing causation would apply. Plaintiff showed (1) and there was enough to go to a jury on (2). Among other things, the Compliance Department at Pulse Network, an ATM Network, found that the “Continue/Cancel Prompt” screen violated its rules and that no “reasonable person would interpret this question to mean the cardholder is actually requesting a second Inquiry.”

FTCI didn’t rebut this presumption, merely speculating that some customers were aware that printing their account balance would result in a second balance inquiry fee based on agreements, disclosures, and account statements they received from their banks. But there was no evidence that these disclosures or agreements stated that printing an account balance would constitute a second balance inquiry. Moreover, evidence that certain customers incurred two balance inquiry fees on multiple occasions, was insufficient to show the “Continue/Cancel Prompt” screen had no effect on their decision to press “Continue.” It was just as plausible that they didn’t know or understand why they were charged twice.

I’m not going to run through the rest of the certification analysis, but a declaration from plaintiff’s expert stated that he could ascertain the members of the class and calculate damages using an algorithm and that the necessary transactional information to do so is in possession of defendant and the banks. He didn’t need to design the algorithm before certification; ascertainability is a “modest threshold requirement [that] will only preclude certification if a proposed class definition is indeterminate in some fundamental way.” Speculation that some third-party banks may refuse to turn over the necessary data wasn’t sufficient for finding lack of ascertainability.

Cy pres recipient in false advertising case has to be false-advertising-focused group, court rules

 You might think that class action rules can be a bit like Calvinball, and I'd be hard pressed to disagree. Here's another hurdle to jump, although it's certainly jumpable.

Hawes v. Macy’s Inc., 2023 WL 8811499, No. 1:17-cv-754 (S.D. Ohio Dec. 20, 2023)

The court denies settlement approval in this case alleging that Macy’s misrepresented the thread count in some of the sheets it sold, because it doesn’t like the cy pres part of the remedy. The global class action settlement created a $10.5 million common fund, and the parties jointly moved the court to approve. As part of the settlement, Macy’s agreed to change the packaging on its sheets to include the language: “Thread count determined from a sample of a representative sheet by counting cotton yarns and by separating and counting adjacent parallel polyester yarns.” The $10.5 million fund would first satisfy any notice and administrative costs. The remaining balance was to go towards the class counsel’s attorneys’ fees, incentive payments for the named plaintiffs, and payouts to the class members who submit eligible claims. Class members whose purchases Macy’s can verify through its own records would receive $7.50 per unit of CVC Sheets purchased (and could potentially receive a secondary distribution), as would class members who had proof of purchase through receipts. Class members who attest under penalty of perjury that they purchased CVC sheets would receive $2.50 per household (no matter how many sheets persons in the household claim to have purchased) and no secondary distribution.

If, after all that, it was “economically feasible” to make a second distribution, the first two groups of claimants would receive their pro-rata share of the remaining funds, weighted according to the purchase price that each claimant paid for his or her sheets, but capped at 50% of that purchase price. If it wasn’t economically feasible to make a second distribution, or if funds remain even after a second distribution, the agreement provides that the remaining funds would go to the Public Interest Research Group (PIRG), a nonprofit advocacy organization that the parties chose.

The notice plan already went into effect and was “remarkably successful at generating claim submissions,” with an estimate of over one million claims before the close of the claims period; roughly 10% could be verified either by internal record or proof of purchase.Only 59 class members opted out and none objected.

First, the court found that the state consumer protection law claims couldn’t cover the US because it wasn’t enough to allege that “substantially similar statutes” exist in all other states is insufficient, and they only cited California and Missouri consumer protection law in the complaint. But fraud and unjust enrichment, along with UCC breach of warranty, did not create any conflicts. Thus, the court certified a class.

“The relief provided in the settlement (at least for those whose purchases are verifiable by Macy’s business records or who can provide proof of purchase) likely meets or exceeds what any class member could have procured by an individual lawsuit.” The submitted claims would likely account for around 40% of the class. “For low-value-claim class actions like this one, a 40% distribution rate weighs towards a finding of adequate relief.” Nor were appropriate incentive awards to class representatives a problem.

Although “every circuit to squarely consider the issue” has found that Rule 23 does not preclude cy pres awards. But when are they ok? The Eighth Circuit says only when “existing class-member claimants have been fully compensated and further distribution to remaining class members is not feasible” and when the recipient is “for the next best use for indirect class benefit.” Accordingly, the use to which the funds are put must be “consistent with the nature of the underlying action and with the judicial function.” The recipient must be one that “relates directly to the injury alleged in [the] lawsuit and settled by the parties.”

Here, it was proper to use cy pres as a last resort. “While Category 3 claimants will only receive $2.50, which would fall short of a full recovery for a fully-proven claim, the claimants in that category would likely not succeed at trial because they would struggle to prove they actually bought sheets,” and further distributions to absent class members were also feasible.

So what was the problem?

As far as the Court can tell, … PIRG does no work addressing false or misleading labeling for bed sheets, textiles more generally, or even false advertising as a category. … PIRG’s work appears to primarily focus on company or government policy related to toxins, waste, or climate change. … [M]ost of PIRG’s consumer-related campaigns relate to product safety, food safety, and unfair loan practices. True, the bed sheets here may have had a rougher texture than the customers had been led to believe, but uncomfortable and unsafe are two different categories, and no one contends the sheets raised safety issues.

Perhaps even more troubling to the Court in its assessment of PIRG as a potential cy pres recipient, … PIRG uses portions of its funds to donate to other organizations—organizations whose missions are even a further cry from any issues this suit presents. In 2016, PIRG granted $40,000 to the People’s Action Institute, an organization that advocates for socialized medicine, pursues “climate justice,” and fights against “the growing threat of authoritarianism in rural communities.” PIRG also donated over a million dollars to Environment America, an organization that seeks to ban plastic. Last, but not least, PIRG donated $60,000 to “Onward Together,” a PAC that supports progressive candidates in their runs for offices across the country.  

Whatever one may think of the merits of such endeavors, it is hard to see how they have much to do with bed sheets, thread count mislabeling, or even consumer fraud more generally. In sum, the Court can discern no way in which a potential multi-million-dollar award to PIRG is the “next best use” for a class fund created to settle consumer fraud claims stemming from inaccurate bed sheet thread counts. PIRG does not relate “directly to the injury” suffered by the class members and it would be an inappropriate exercise of the “judicial function” to divert class money to an unrelated organization that has nothing to do with the class or the injury its members suffered.

Worse, the parties didn’t provide argument beyond a “vague, unsupported statement” that PIRG “has as its purpose the advancement of consumer protections and rights.” Nor was it enough to provide a declaration from PIRG’s Director of its Consumer Watchdog Team stating that they will use any award “to promote accurate and truthful labeling and advertising of consumer bedding products … [to] educate consumers with a focus on truth in labeling … [to] serve as a marketplace watchdog … [and to] research and monitor the marketplace.” This was too vague a promise, and anyway there was no mechanism to enforce it. Further, money is fungible, so even enforceable restrictions wouldn’t help. (Does that mean every cy pres recipient has to be newly created? That seems … unhelpful, and also fungibility could presumably be overcome with evidence that there’d be no bedding marketing program at all in the absence of the money.)

“[T]he Court has an obligation to ensure that settlement proceeds benefit the class. The cy pres doctrine simply allows for a distribution that achieves those benefits indirectly.” The court singled out the National Advertising Division of the Better Business Bureau, which “exists entirely to address false advertising,” though TINA seems like a much better bet to me. Apparently NAD would satisfy the court’s desire for “narrow[] tailor[ing]” to the class’s interests, but the parties needed to identify some “organization that verifiably engages in meaningful work related to deceptive advertising,” requiring new notice to the class. The court expressed its concern that “the settlement notice postcard distributed to potential class members included no mention of the cy pres award, [which should] be included in any future notice so that class members can raise objections to that distribution if they wish.”