interactive website offering illegal-in-CT ghost guns wasn't covered by CUTPA, but any sales were

Connecticut v. Indie Guns LLC, NO. (X06) UWY-CV23-6072307S, 2026 WL 2322641 (Ct. Super. Ct. Aug. 6, 2026)

The state sued Indie Guns for selling illegal ghost guns into Connecticut. Indie Guns defaulted, but the court only granted partial default judgment—merely having an interactive website doesn’t make the company subject to the Connecticut Unfair Trade Practices Act (CUTPA), although selling illegal products into the state is deceptive and unfair in violation of the law.

“[A]n out-of-state or foreign company that operates an interactive internet website is not, on that basis alone, engaged in trade or commerce in Connecticut.” And CUTPA requires such in-state trade or commerce, so this isn’t about personal jurisdiction but the scope of the law.

The state argued that the website was deceptive and unfair because it advertised its products to all consumers without warning of their illegality, and offered to sell to Connecticut consumers.

A violation of a Connecticut criminal statute such as the ban on ghost guns does constitute a CUTPA violation via unfairness. Unfairness requires considering: “(1) [W]hether the practice, without necessarily having been previously considered unlawful, offends public policy as it has been established by statutes, the common law, or otherwise—in other words, it is within at least the penumbra of some common law, statutory, or other established concept of unfairness; (2) whether it is immoral, unethical, oppressive, or unscrupulous; (3) whether it causes substantial injury to consumers, [competitors or other businesspersons].” “Inarguably, selling and delivering illegal gun parts in Connecticut readily satisfies all three criteria.”

So too with deception, which requires (1) a representation, omission, or other practice likely to mislead consumers; (2) interpreted reasonably under the circumstances; that is (3) material. “When a defendant sells a product to a buyer, the defendant represents, expressly or implicitly, that the product is legal in the state in which the buyer purchases or receives delivery of the product.” (Given that this was a test buy, there was no actual deception, but the state as enforcer isn’t required to show that.)

But there liability ended. CUTPA  defines “trade” and “commerce” as “the advertising, the sale or rent or lease, the offering for sale or rent or lease, or the distribution of any services and any property, tangible or intangible, real, personal or mixed, and any other article, commodity, or thing of value in this state.” (Emphasis added.). Actual sales/shipment to Connecticut definitely constitute engaging in trade or commerce, but not “the mere existence of an interactive website.” Although this does require the AG to wait until illegal products are shipped to Connecticut, so it creates some risk, that’s a policy decision for the General Assembly to make. (The court also commented that reaching Connecticut via distributors or other independent contractors would support application of CUTPA to a manufacturer.)

In part because of the default, we don’t actually know how many times Indie Guns sold into Connecticut. “Those practical challenges are likely why the state focuses on the Indie Guns’ website, rather than on gun sales, as the basis for imposing civil penalties. Those practical challenges, however, do not permit the court to speculate about the extent of Indie Guns’ sale of illegal gun parts to Connecticut consumers. Nor do those challenges permit the court to ignore the geographic scope limits of CUTPA.”

The state was entitled to judgment that Indie Guns acted willfully when it sold a ghost gun part to the investigator. But the state didn’t seek the $5000 maximum penalty for that sale. It was entitled to a permanent injunction against sales into Connecticut.

National Republican Senatorial Committee loses ROP/Lanham Act/UCL claims against alleged "Scam PAC"

National Republican Senatorial Committee v. Red Senate, 2025 WL 819711, No. 8:24-cv-02301-JVS-KES (C.D. Cal. Jan. 14, 2025)

NRSC sued Red State, alleging that it was exploiting Senator Rick Scott’s “name, image, and likeness without his consent to deceive and scam potential donors...” Red State is a Super PAC, which may accept “unlimited contributions” from nearly any domestic source “so long as it does not coordinate its public communications with any federal candidate.” But NRSC alleged that it was a scam, misleading donors “into believing that their contributions will support a particular candidate or cause, when in reality the Scam PAC plows that cash into endless fundraising that ultimately funds little more than the salaries of its officers and its preferred vendors, who profit handsomely.”

NRSC alleged that, according to FEC disclosures, Red Senate raised over $2.6 million in the 2019-2020 election cycle and spent over $1.1 million in total disbursements during the cycle, including over $1 million in operating expenses. The 2021-2022 election cycle had similar numbers, and, at the time the complaint was filed, Red Senate had raised over $300,000 in the current election cycle, and spent over $500,000, with approximately $450,000 going towards operating expenses. Thus, NRSC alleged, Red Senate merely compensates vendors and keeps any leftover cash, harming the candidates “they purport to be supporting” in the process.

Red Senate allegedly allocates the bulk of its spending to Wavecrest or Google Ads. According to the Google Ads Transparency Center, Red Senate has paid between $35,000 to $40,000 for Google ads mentioning Senator Scott, which were shown between 70,000 to 80,000 times throughout the United States. The advertisements specifically state: “Red Senate for Rick Scott - Keep Florida Red in 2024,” and “Red Senate for Rick Scott - Take Back Our Senate in 2024.” Red Senate also reported making independent expenditures in the 2024 Florida Senate race; however, as of October 2, 2024, none of the reported expenditures expressly advocated for Senator Scott or his opponent. Rather, “the reported expenditures served to raise funds for Red Senate while using Rick Scott’s name and likeness.”

Senator Scott allegedly assigned his rights to NRSC, and, “as the only national party committee solely purposed to supporting Republican senate candidates,” NRSC claims to have an independent interest in stopping false advertising and false personification of Republican candidates. NRSC sued for California statutory and common law right of publicity violations, Lanham Act false advertising, and unfair competition under California’s UCL.

The court took judicial notice of the existence of disclaimers on Red Senate’s website, though not their accuracy, and did the same for the content of FEC reports filed by Red Senate. And it took judicial notice of the “fact that there has been significant news media coverage of Senator Rick Scott, his 2025 campaign for re-election to the United States Senate, and his opponent Debbie Mucarsel-Powell.”

Initially, NRSC’s statement that Senator Scott’s assignment was exclusive was sufficient to establish standing to assert his claims as an initial matter. But did Scott have statutory Lanham Act standing? He needed to allege an “injury to a commercial interest in reputation or sales.” NRSC argued that the parties competed in “the political-fundraising marketplace,” meaning that “potentially millions of dollars were diverted from his campaign.” But the complaint didn’t so allege; its only allegations focused on the deception of donors. But the court granted leave to amend. (Seems like “commercial advertising or promotion” is going to be an insuperable barrier here.)

California’s UCL requires “the plaintiff to be the one ‘who has suffered injury in fact and has lost money or property as a result of the unfair competition.’ ” Consequently, “an injured [party’s] assignment of rights cannot confer standing on an uninjured assignee.” NRSC’s allegation of its own interest in stopping false advertising and false personification of Republican candidates was not enough to satisfy this burden; again, there was leave to amend.

As for the California claims, they were subject to anti-SLAPP analysis. NRSC argued that its complaint “challenges Red Senate’s deceptive conduct in fundraising—not the message it conveys in its ads,” so that the lawsuit did not “arise from” any statements that Red Senate made “in relation to political campaigns.” Instead, it arose from its post-speech conduct—its spending allocation. (I thought political spending was speech.) The court was unpersuaded by these arguments. “First, it is well settled that the anti-SLAPP statute applies to conduct in furtherance of the right to free speech, in addition to the protected speech itself. Second, even if the lawsuit as a whole challenges Red Senate’s disbursement of funds, the right of publicity claims specifically target Red Senate’s use of Senator Scott’s name in Google ads.” The speech was itself allegedly wrongful, not merely evidence of a wrongful act (fundraising misconduct). “[H]ad Red Senate never used Senator Scott’s name in its Google advertisements, NRSC would have no right to publicity claims.”

Thus, the burden shifted to NRSC to demonstrate a probability of prevailing on the merits of its claims. For a common law cause of action for commercial misappropriation, a plaintiff must prove: “(1) the defendant’s use of the plaintiff’s identity; (2) the appropriation of plaintiff’s name or likeness to defendant’s advantage, commercially or otherwise; (3) lack of consent; and (4) resulting injury.” The statutory cause of action requires commercial misappropriation.

Red Senate argued that its speech was related to a political campaign, a matter of public interest, and that NRSC couldn’t prove that Scott’s image was used “exclusively” for commercial gain. NRSC’s argument that Red Senate’s speech was unprotected because it was fraudulent lacked sufficient evidence. The exception for political speech isn’t limited to specific types of political campaigns; nor does the “underlying purpose of one’s dissemination of a political message” determine whether an exception applies. Motion to strike granted, with leave to amend. (How could there be a successful amendment, especially for the statutory cause of action?)

pandemic education shutdowns allow unjust enrichment, not contract or false advertising claims

Yodice v. Touro College & Univ. Sys., 2025 WL 579957, No. 21cv2026 (DLC) (S.D.N.Y. Feb. 21, 2025)

Yodice sued Touro for reimbursement of tuition and fees he paid during the Spring 2020 semester, when Touro’s campuses were closed due to the COVID-19 pandemic. On remand, the court dismisses some of the claims. Touro has nearly 20,000 students across the United States and three other countries. The Touro system includes an online institution named Touro University Worldwide (TUW), which offers undergraduate and graduate degree programs.

Yodice alleged that TCDM markets various aspects of the on-campus student experience to the public. For example, its dental website says that students begin in the “dental simulation laboratory” and then “treat patients in our modern clinic.” The website also emphasizes the setting of TCDM’s Hudson Valley campus, which “attracts talented students who prefer a suburban lifestyle with easy access to the New York metropolitan area.” The campus’s location, the website explains, “provides students with numerous career, residency, clinical, and internship opportunities.” And various opportunities to work with local institutions “offer a chance for students to put their learning into practice, conduct research, or interact with patients and professionals in preparation for their future careers.”

Obviously, that didn’t happen through 2020. “Yodice left campus sometime in March. He did not have access to any of Touro’s facilities for the rest of the semester, and he was unable to experience the in-person academic, social, and professional interactions he would have had if not for the pandemic. Touro did not refund the tuition or fees paid by Yodice and other students who were unable to participate in in-person instruction or campus life for much of the Spring 2020 semester.”

Yodice alleged breach of contract, unjust enrichment, and consumer protection false advertising claims. The Second Circuit affirmed dismissal of his contract/unjust enrichment claims based on fees he paid, but reversed on tuition, concluding that the plaintiff “plausibly stated a claim for breach of an implied contract to recover tuition.” It likewise remanded for further consideration of the GBL false advertising claims.

The court here dismissed the contract and GBL claims, but allowed unjust enrichment to proceed as to those who paid tuition for the Spring 2020 semester at Yodice’s dental college.

Limiting the claim to that group: Yodice didn’t sufficiently allege that the other Touro schools were similar: “The FAC itself emphasizes the representations by specific Touro schools as to the quality of the on-campus experiences they offered. The only characteristic that the dozens of Touro schools around the world share is affiliation with the same corporate entity. And Yodice provides no reason to think he has anything in common with most of the class he seeks to represent except that they were, like him, students during the pandemic.”

Yodice argued that Touro’s class standing arguments would be properly handled in assessing the adequacy and commonality of the class representative and class pursuant to Rule 23(a), but “the independent requirement of class standing requires a connection between his claims and those of the class he seeks to represent even at the motion to dismiss stage.”

Breach of contract: dismissed because performance was impossible. “There is no dispute that holding in-person classes and other functions, as Yodice alleges was promised, would have been illegal.”

But that did mean that Yodice could proceed with his unjust enrichment claim seeking a prorated refund of the tuition he paid at the beginning of the semester. “To recover under a theory of unjust enrichment under New York law, a litigant must show that (1) the other party was enriched, (2) at that party’s expense, and (3) that it is against equity and good conscience to permit the other party to retain what is sought to be recovered.” He stated a claim by alleging Touro

retained his tuition even after providing a less valuable and less costly service than was expected when the parties entered their relationship. The FAC alleges essentially that the tuition was conferred under a mistake of fact -- that is, that in-person instruction would be possible. It plausibly alleges that Touro spent less money operating TCDM remotely than it would have on a normal, open physical campus. Whether equity and good conscience require a partial refund cannot be decided at this stage, but Yodice has sufficiently alleged that they do.

Unjust enrichment may be available where one party’s duty to perform is unenforceable due to impossibility. In Goldberg v. Pace Univ., 88 F.4th 204 (2d Cir. 2023), a similar unjust enrichment claim failed because an enforceable force majeure provision in the contract limited the defendant’s duties to provide in-person instruction. There, the plaintiff was attempting to circumvent the terms of the parties’ contract by alleging unjust enrichment. But here, the plaintiff has pled that Touro had a contractual duty to provide in-person instruction, but its performance was excused by the doctrine of impossibility. Fault is not necessary for “circumstances [to] create an equitable obligation running from the defendant to the plaintiff.”

GBL: Usually, the GBL is broader than contract law. But there was no false advertising here because no reasonable person would think that Touro had promised to provide in-person instruction regardless of what happened. “Yodice has not plausibly alleged that Touro’s representation of an on-campus experience was deceptive, or that a reasonable consumer would have understood it to mean that in-person instruction would continue even in a pandemic.” In summary, “Sections 34 9 and 350 are far-reaching, but they do not require businesses to append ‘unless impossible’ to the end of every advertisement.” Nor could this be characterized as a materially deceptive omission; there was no allegation that “Touro possessed some piece of material information at the beginning of the Spring 2020 semester unknown to its students that would have affected prospective students’ decision to attend the university.”

Timeshare company's own "exit" program for "qualified" owners isn't misleading even if broadly unavailable

Wesley Financial Gp. v. Westgate Resorts, Ltd., 2024 WL 4581512, No. 6:23-cv-2347-RBD-LHP (M.D. Fla. Aug. 28, 2024)

A rare timeshare exit company lawsuit against a timeshare developer, alleging false advertising and related claims. It’s unsuccessful but points to practices that the FTC or AGs might have something to say about.

At one point, plaintiff WFG obtained accreditation and an A+ rating from the Better Business Bureau, which it advertised with the AARP, allegedly bringing in more than $10 million in revenue. Its methods to secure exits do not include the use of attorneys or the provision of legal services.

Meanwhile, Westgate will not repossess financed timeshare interests with outstanding loan balances if owners are current on their payments. “Only paid-off (or inherited) timeshares qualify for voluntary repossession or termination with Westgate, and only at its discretion.” WFG’s advice is apparently to stop making payments and then wait for the developer to foreclose on an interest and offer to take it back, because the credit hit is better than the costs of other paths.

In response to exit companies, timeshare developers have rebranded their existing voluntary repossession procedures as developer-backed “exits.” Westgate has tried to divert consumers to its own “exit” program along with suing exit companies. In addition, it “stopped taking back interests from owners whom the developer even suspected of consulting an exit company, conditioning its repossessions on an affidavit swearing the owner has not worked with ‘any timeshare exit company, lawyer or law firm’ in seeking cancellation, or if they have, disclosing the third party, handing over any contract with them, and promising to cooperate in any future lawsuit against them.” WFG responded to this development with a confidentiality clause in its contracts requiring its customers not to reveal they are working with an exit company. Westgate has in fact sued owners it later discovered were WFG customers and signed the affidavit anyway. (I don’t understand why one would get into a relationship with a timeshare developer.)

Anyway, the timeshare coalition ARDA, on whose board two Westgate executives sit, allegedly got the BBB to revoke plaintiff’s accreditation, despite the exit company’s five-star rating based on more than a hundred customer reviews. Then, it successfully lobbied AARP to stop running WFG’s ads because it lost its accreditation. “Westgate later sued the exit company in its home state for violating the Tennessee Consumer Protection Act, which WFG violated by engaging in the unlicensed practice of law, the district court ruled.”

This lawsuit followed.

Lanham Act false advertising: WFG argued that Westgate’s exit program was not in fact available to most owners. It challenged the statement that “[b]y working with Westgate Resorts, owners who chose to relinquish their timeshare have been able to do so with very little effort and have been able to relieve themselves of all future maintenance fee obligations” because this offer is open only to a very limited subset of owners.

The court rejected this claim because the ads truthfully stated that direct “exits,” like voluntary repossession and contract termination, were available to “qualified owners” and “qualifying accounts,” “but without detailing those qualifications.” Given the reference to qualifications, the “owners have been able to relinquish” claim wasn’t likely to be materially misleading, even if “exit” is not available to most owners regardless of loan balance. The court reasoned that “qualified owners” does not mean or imply “most owners.”

This is where the FTC might well disagree: if the conditions are mostly unattainable and the qualifications are possible to explain—like “you’ve paid off the purchase”—then further disclosure is required to prevent consumers from wasting their time/money on something that won’t help them.

But, the court reasoned, “[f]alsely advertising an available ‘exit’ cannot deceive owners into no longer seeking an exit,” so it couldn’t have harmed the plaintiff if hopeful owners inquired further and found Westgate’s program unavailable. I don’t get this logic. Why wouldn’t the failure of the supposedly best option (as other parts of the ad campaign touted) plausibly lead at least some consumers to despair and give up? If I try a headache remedy that’s “the best available” and it doesn’t work, why would I try lesser versions?

Anyway, antitrust claims failed because they were antitrust claims.

FDUTPA prohibits “[u]nfair methods of competition, unconscionable acts or practices, and unfair or deceptive acts or practices in the conduct of any trade or commerce.” But, as explained above, “[a]dvertising the Legacy Program—which is undisputedly the only developer-backed way to cancel a Westgate timeshare—does not injure consumers substantially, even if the ads lead consumers to phone trees or high-pressure sales pitches before learning Westgate will not let them out.” So too with lobbying the BBB, and anyway that was the developer coalition, not Westgate directly, and FDUTPA doesn’t “extend indirect liability to third parties for the unfair and deceptive acts of another, regardless of their relationship.”

What about the affidavit of non-involvement with exit companies? The court agreed that the language was “sweeping.” “Blocking consumers from speaking with attorneys about a contract as a condition of bargaining, and punishing consumers if they have done so, offends public policies favoring ‘access to redress,’ ‘access to courts,’ and the uninhibited ability to engage in ‘full and frank communication’ with an attorney about potential legal matters.” But Westgate denied that the affidavit’s language encompasses “all lawyers, law firms, or third parties”—only the ones that potential clients are likely to find and ones that have developed expertise.

Still, the court found that WFG couldn’t succeed, because a prohibition on contracting a non-lawyer exit company was fine. “[E]mploying contracts of adhesion is not an unfair trade practice on its own.”

Timeshare contract terminations are not some overriding consumer good whose blanket availability the law protects. It is not plausible to suggest that it is unethical, unscrupulous, or substantially injurious to consumers for Westgate to change its termination and repossession policies and procedures—even intending to nullify exit outfits’ methods that rely on getting the developer’s owners to stop payments.

This is true even if WFG is forced to refund a client’s money, because of its full refund guarantee, if Westgate finds out about its involvement. Refunds don’t harm consumers.

Tortious interference/civil conspiracy claims also failed, especially since WFG inserted its own nondisclosure provision after Westgate changed its practice—forcing disclosure can’t cause tortious interference under those circumstances.

California's UCL potentially available against junk fees

Sepanossian v. National Ready Mix Co., --- Cal.Rptr.3d ----, 2023 WL 7590798, No. B319260 (Ct. App. Nov. 15, 2023)

Sepanossian, who operates a construction business, filed a class action against Ready Mix, which sells mixed concrete to small businesses for construction projects, alleging Ready Mix charged its customers an “energy” fee and an “environmental” fee “wholly untethered to any actual cost for ‘energy’ or ‘environmental’ issues” that Ready Mix instead “recognize[s] as profit.” The complaint alleged causes of action for UCL fraudulent and unfair business practices; breach of contract; and “unjust enrichment.” The court of appeals reversed a dismissal of the UCL claims, but affirmed on unjust enrichment.  

Customers pay Ready Mix a “set rate” for its concrete products. Sepanossian alleged that Ready Mix adds an “energy” fee and an “environmental” fee separate from the set rate to every sale, about $30 each. These fees are uniform and do not correlate to or fluctuate in any way with any actual energy or environmental costs incurred by Ready Mix or the size of the order, but instead allegedly are recognized by Ready Mix as profit. The energy and environmental fee amounts were separately itemized on invoices and disclosed to customers, but without further explanation or information. “The gravamen of Sepanossian’s complaint is not that class members did not know the amount of these charges, but rather that the terms environmental fee and energy fee were misleading.”

Sepanossian alleged, “Plaintiff and class members would not have entered into contracts with Ready Mix and would not have paid the fees at issue had they known the truth about the ‘energy’ and ‘environmental’ fees and had not been subject to Ready Mix’s misrepresentations and omissions.”

The trial court dismissed the complaint on the basic theory that plaintiffs didn’t suffer any harm because the amount was disclosed to them and Ready Mix didn’t make any claims about how it was going to use the fees. I think that undersells the harms of junk fees—they come late in the transaction, they hamper comparison shopping, and by seeming “regulatory” they prevent any attempts at negotiation, which for a business customer might be a real thing.

The court found that plaintiffs stated a claim both for “fraudulent” and “unfair” practices under the UCL.  At the pleading stage, it was plausible that the fees misled consumers into thinking they had some nexus to energy or environmental costs. “A perfectly true statement couched in such a manner that it is likely to mislead or deceive the consumer, such as by failure to disclose other relevant information, is actionable,” and “a reasonable consumer would likely be surprised to learn that a charge expressly identified as an ‘energy’ or ‘environmental’ fee, added on top of the set rate for a concrete purchase, had no actual relationship of any kind to Ready Mix’s energy or environmental costs and was pure profit.” Indeed, “[r]easonable consumers are entitled to infer that the descriptive name attached to a particular fee they are being charged has some connection to the fee unless otherwise indicated.”

Unfairness: Similarly, it sufficed to allege that (1) such fees are automatically added to every concrete purchase, thus causing substantial injury to customers; (2) the fees provide no countervailing benefit to customers; and (3) the fees were mandatory and unavoidable, thus there was no way for customers to reasonably avoid the injury because if they wanted to purchase concrete from Ready Mix, they had to pay the fees. It wasn’t enough that consumers could avoid the fee by declining to transact with Ready Mix.

However, because there was an express contract between the parties covering the fees, and the contract was not procured by fraud or otherwise unenforceable or ineffective, Sepanossian could not assert a claim for restitution based on unjust enrichment.

crypto lender plausibly violated UCL via unlawfulness and deceptiveness

Jeong v. Nexo Capital Inc., 2022 WL 3590329, No. 21-cv-02392-BLF (N.D. Cal. Aug. 22, 2022)

Nexo’s Crypto Credit service allows users to take out loans against cryptocurrency collateral. Jeong alleged that, in response to SEC action targeting Ripple/XRP and the cratering price, Nexo limited the use of Ripple on its platform, causing customers to default on loans taken out against XRP collateral. This allegedly breached Nexo’s duty of good faith and fair dealing and constituted a violation of California’s UCL. The court partially granted/denied Nexo’s motion to dismiss.

The false advertising parts: Jeong alleged that Nexo advertised to consumers that it does not own users’ collateral (e.g., “Clients retain 100% ownership of their digital assets.... Nexo’s clients can enjoy their crypto wealth immediately, without having to sell their digital assets.”) while acting otherwise—eventually invoking its ownership right over users’ collateral to justify liquidation of that collateral (e.g. “Taking into consideration the fact that ... Nexo acquires the ownership of the collateral while the Nexo crypto credit is outstanding, when liquidations are effected, Nexo disposes of its own digital assets rather than rendering services to its clients, as it is the case with the repayments and the standard Nexo exchange service.”).

In addition, Jeong alleged that Nexo violated the unlawful prong of the UCL by offering loans in California despite lacking a California Finance Lender (CFL) License.

Previously, the court had dismissed a CLRA claim without leave to amend, finding that it was not plausible that Nexo offered “services” under the CLRA. However, it found that Jeong sufficiently pled misleadingness claims about “ownership.”

The court now found the breach of contract claim sufficiently pled.

UCL unlawful due to lack of license theory: Sufficiently alleged. Recall that the UCL’s “coverage is sweeping, embracing anything that can properly be called a business practice and that at the same time is forbidden by law.” The UCL “borrows violations of other laws and treats them as unlawful practices that the unfair competition law makes independently actionable.” While Nexo argued that the CFL only covered “money” loans, with money defined as “a medium of exchange that is authorized or adopted by the United States or a foreign government,” that argument was pointing to the wrong section of the law. The CFL provides that “[n]o person shall engage in the business of a finance lender or broker without obtaining a license from the commissioner”:

Nothing in this provision suggests that engaging in the “business of a finance lender or broker” requires lending “money” according to a particular statutory definition. Under the CFL, a “finance lender” includes “any person who is engaged in the business of making consumer loans or making commercial loans.” “Consumer loan” is defined as “a loan, whether secured by either real or personal property, or both, or unsecured, the proceeds of which are intended by the borrower for use primarily for personal, family, or household purposes”—which again provides no insight on whether a loan must be in fiat currency. The definition of “finance lender” indicates that “[t]he business of making consumer loans or commercial loans may include lending money,” (emphasis added), but this is an inclusive definition—it does not suggest that a loan must be in fiat currency.

In keeping with the CFL provision that it should be “liberally construed and applied to promote its underlying purposes and policies,” one of which is “[t]o protect borrowers against unfair practices by some lenders,” Jeong wasn’t required to plead that his loan was in fiat currency. And he sufficiently alleged that his injury was at least in part due to Nexo’s lack of licensure.

This also allowed a UCL unfairness claim to proceed.

UCL false advertising: “Plaintiff has plausibly pled that a reasonable consumer would have been deceived by Nexo’s public statements about lack of ownership over users’ collateral given its alleged invocation of ownership to liquidate that collateral[.]” Nexo argued that it didn’t claim to own any collateral if a user wasn’t in breach of the loan-to-value collateral requirements, and owning users’ collateral after an LTV breach was consistent with a “traditional understanding of collateral under U.S. law.” The court was unimpressed and found Nexo’s position to clash with the alleged conduct and the language of the contract, which did claim ownership while the loan was outstanding. The court thus didn’t reach plaintiff’s other theories of false advertising, including that Nexo allegedly advertised that there are “#ZeroFees” associated with its services, but Jeong allegedly was charged fees when Nexo liquidated his XRP collateral.

But Nexo succeeded in keeping its class action waiver intact.

policy of paying only 85% purchase price for claims under service policy isn't inherently deceptive/abusive

Shuman v. SquareTrade Inc., 2021 WL 5113176, No. 20-cv-02725-JCS (N.D. Cal. Nov. 3, 2021)

SquareTrade sells service contracts for the protection of consumer goods. Shuman alleged that it consistently fails to provide consumers with the full terms and conditions of the contract at the time of purchase and systematically pays reimbursement in an amount that is less than the purchase price of the covered item when claims are filed. After UCL claims were dismissed, Shuman sought to add new plaintiffs.

Standing to seek injunctive relief: new plaintiff Gonzales alleged that he “felt misled and is not currently inclined to purchase additional SquareTrade protection plans, but he continues to purchase consumer products that could be covered by a SquareTrade protection plan, and would purchase additional SquareTrade protection plans in the future in the event that SquareTrade’s reimbursement practices were to be reformed to eliminate the unlawful practices discussed in this complaint.” This was sufficient to establish standing to seek injunctive relief.

However, he still didn’t allege a violation under either the “unfair” or the “fraudulent” prongs of the UCL or that he lacked an adequate remedy at law.

Unfairness is analyzed two different ways: “First, the ‘tethering test’ requires ‘that the public policy which is a predicate to a consumer unfair competition action under the “unfair” prong of the UCL must be tethered to specific constitutional, statutory, or regulatory provisions.’ ” “Second, the ‘balancing test’ asks whether the alleged business practice ‘is immoral, unethical, oppressive, unscrupulous or substantially injurious to consumers and requires the court to weigh the utility of the defendant’s conduct against the gravity of the harm to the alleged victim.’ ”

Plaintiffs alleged that the harm arising from SquareTrade’s conduct is the systematic underpayment of customer claims by 14.2%. That is, SquareTrade’s 2018 “Fast Cash” program began systematically reimbursing consumers only approximately 85% of the covered product’s purchase price, “regardless of the actual value of the product, when it was purchased, or its cost of replacement.” Plaintiffs argued that SquareTrade’s allegedly secret policy of underpaying its customers violated the principles undergirding both the Consumers Legal Remedies Act, and the Song-Beverly Consumer Warranty Act.

But those arguments were premised on the assumption that Gonzales was entitled to receive the purchase price of the covered item when he filed a claim, but they didn’t allege any facts showing that this was ever promised to him or that he was entitled to recover the full purchase price on any other ground. “Without any such allegations, the ‘harm’ Plaintiffs cite (underpayment of claims by 14.2%) is not a cognizable harm; nor do any of the consumer protection laws Plaintiffs cite embody a policy that a product protection policy must cover the full purchase price of a product.” Likewise, the allegations didn’t state a claim under the UCL’s fraudulent prong. Gonzales’s allegations as to what was promised to him with respect to replacement cost were “so minimal that they do not give rise to a plausible inference that a reasonable consumer would have been misled.”

In addition, Gonzales didn’t lack an adequate remedy at law because the restitution he sought was the same as the damages he sought on his breach of contract claim, namely, reimbursement for the difference between the purchase price and the amount that was actually paid on the claim. “This is not an election of remedies issue. The question is not whether or when Plaintiffs are required to choose between two available inconsistent remedies, it is whether equitable remedies are available to Plaintiffs at all.”

The unjust enrichment claim also failed for similar reasons. NY GBL claims by new plaintiff Abbott also failed. Abbott alleged that she was misled because she saw references to “protection” on a brochure that she didn’t read and a sales clerk used the word “warranty” in describing the plan. She was then “surprised and displeased” when SquareTrade paid only 85.8% of the purchase price of her covered products when she filed claims for coverage. But “a party does not violate General Business Law § 349 by simply publishing truthful information and allowing consumers to make their own assumptions about the nature of the information.” However, the original plaintiff’s unjust enrichment claim proceeded.

 

competitor succeeds in enjoining sale of competing but non-FDA-cleared medical devices

Telebrands Corp. v. Vindex Solutions LLC, 2021 WL 534361, No. 21-cv-00898-BLF (N.D. Cal. Feb. 12, 2021)

Telebrands sells stuff, including the Hempvana Rocket, a handheld transcutaneous electrical nerve stimulation (TENS) unit, “a pain-relieving pen that uses TENS therapy in the form of direct electrical stimulation to muscles.” TENS units are classified as Class II medical devices requiring a 510(k) premarket notification to the FDA and clearance. Telebrands hired a firm, Exponent, to evaluate competing medical devices, determine whether those devices were TENS units, and determine whether the device distributors had sought out and obtained clearance from the FDA after submitting 510(k) premarket notifications. Exponent identified numerous troublesome devices, including defendants'.

Telebrands alleged that, by unlawfully distributing the competing TENS units without first obtaining clearance, defendants received an unfair advantage. Also, their advertising omitted the lack of clearance, which allegedly meant that consumers “will be confused or misled into purchasing Defendants’ TENS units believing them to be equivalent to the Hempvana Rocket.”

The court found that Telebrands showed extensive evidence of unfair business practices, as well as evidence of lost sales, making it likely to succeed on UCL claims. But the FDCA can only be enforced by the FDA, you say? There’s a narrow path: “The plaintiff must be suing for conduct that violates the FDCA [to avoid explicit preemption], but the plaintiff must not be suing because the conduct violates the FDCA [which would be impliedly preempted].” Telebrands squeezed through this path because it was suing due to the unfair competition it faced, not because of the FDCA violation.

Telebrands also showed irreparable harm in lost sales and “dilution” of the Hempvana brand. Because of the linking practices of third-party marketplaces such as Amazon, “Telebrands anticipates that the expenditures made to create a brand for the Hempvana Rocket will inadvertently inure to the great benefit of Defendants. Defendants will be able to piggyback off of the money spent on and popularity gained by the advertising for the Hempvana Rocket.”

Disparate impact isn't "unfair" for consumer protection purposes, court indicates

Schulte v. Conopco, Inc., No. 20-2696 (8^h Cir. May 18, 2021)

This would make a great student note topic: Is disparate impact “unfair” under state consumer protection laws? The court here implicitly says no, without ever confronting the question directly. Seems wrong to me.

Schulte sued numerous companies for violating the Missouri Merchandising Practices Act (MMPA) through their marketing of men’s and women’s antiperspirants—the men’s is cheaper. The court of appeals affirmed the dismissal of the complaint.

The MMPA bans “the act, use or employment by any person of any deception, fraud, false pretense, false promise, misrepresentation, unfair practice or the concealment, suppression, or omission of any material fact in connection with the sale or advertisement of any merchandise in trade or commerce.”

A Missouri regulation interprets “unfair practice” as any practice that either “[o]ffends any public policy as it has been established by the Constitution, statutes or common law of this state, or by the Federal Trade Commission, or its interpretive decisions” or “[i]s unethical, oppressive or unscrupulous.”

But, the court reasoned, “Schulte mistakes gender-based marketing for gender discrimination. She ignores that the different scents, packaging, and labels make the products potentially attractive to different customers with different preferences.” In order to prevail, she’d have to plausibly allege that the only difference between the products is the gender of the purchaser,” but targeted marketing was not the same thing as “enforced point-of-sale pricing by gender.” (By that logic, advertising only to hire men would not be a problem if they’d hire women who showed up regardless.)

Because men and women can purchase any of the products, they both have equal opportunity to buy. “Ironically, her claim assumes all men and all women must purchase products marketed to their gender.” She’s free to purchase the men’s products if all she cares about is price. “Her choice not to illustrates a difference in demand based on product preferences, not the purchaser’s gender.” She doesn’t want the men’s products “because she does not want to ‘smell like a man.’ She just does not want to pay extra for her preference.” But “preference-based pricing is not necessarily an unfair practice."

Homeopathy claims weren't unfair in the absence of proven falsity

Allen v. Hyland’s, Inc., 2021 WL 718295, No. CV 12-1150-DMG (MANx) (C.D. Cal. Feb. 23, 2021)

This class action, about whether certain homeopathic products didn’t perform as indicated on the packaging, went to a jury trial that ended in Hyland’s favor on breach of warranty, Magnuson-Moss Warranty Act, and CLRA claims. The court then ruled for Hyland’s on the equitable UCL/FAL claims, guided by the jury verdict. However, the court of appeals reversed in part because “[t]he UCL’s prohibition of unfair business practices sweeps more broadly than the CLRA, Magnuson-Moss Warranty Act, or express warranty.” The UCL claim in fact “encompassed both a deceptive advertising theory and an unfair business practices theory.” Because UCL unfairness applies to practices that are against public policy; that are “immoral, unethical, oppressive, unscrupulous or substantially injurious”; or that cause unforeseeable injuries to consumers that are not outweighed by countervailing benefits, “[t]he jury’s narrow findings as to deceptive advertising do not resolve [Plaintiffs’] broader unfair practices theory” in their equitable UCL claim.

The court deferred to the jury’s implicit factual determination that plaintiffs failed to prove by a preponderance of the evidence that the products cannot relieve the symptoms represented on Defendants’ products’ packaging. Plaintiffs failed to submit “evidence of definitive scientific research to meet their burden of proof as to the products at issue.” Though several did testify that they wouldn’t have bought the products if they knew the products had only a placebo effect, they didn’t meet their burden to prove by a preponderance of the evidence that the only medical benefit was via the placebo effect. Defendants’ products followed FDA labeling regulations (or lack thereof), indicating numeric dilution levels, ingredient names, and the word “homeopathic,” which by definition means the administration of remedies in minute doses. Defendants didn’t disclose the absence of controlled clinical trials or other medical testing, but they weren’t required to do so, despite the FTC’s determination that many consumers mistakenly believe manufacturers of homeopathic products test their products on people to show their effectiveness.

“While aspects of homeopathy are inconsistent with modern understandings of physics and chemistry, Defendants presented evidence that some clinical trials have shown favorable results from homeopathic treatment, as compared to a placebo or conventional treatment.” And there was evidence that “homeopathically prepared materials have an effect on animals and on human cells,” and that consumers are generally satisfied with the products.

Starting with an unfairness test borrowed from the FTCA, the factors that define unfairness are: “(1) the consumer injury must be substantial; (2) the injury must not be outweighed by any countervailing benefits to consumers or competition; and (3) it must be an injury that consumers themselves could not reasonably have avoided.” Because the jury found either that defendants’ products may perform as promised for some people or that plaintiffs failed to show otherwise, the court couldn’t find on this record that “the only conceivable benefit the products provide is as a placebo.” Thus, plaintiffs didn’t show substantial injury, especially with the evidence showing high levels of consumer satisfaction.

An alternative balancing test asks whether the alleged business practice “is immoral, unethical, oppressive, unscrupulous or substantially injurious to consumers and requires the court to weigh the utility of the defendant’s conduct against the gravity of the harm to the alleged victim.” This too hadn’t been shown. The ingredients are safe and the FDA doesn’t require randomized controlled trials for homeopathic products. There was scientific controversy over whether they worked.

Under a final test, “that the public policy which is a predicate to a consumer unfair competition action under the ‘unfair’ prong of the UCL must be tethered to specific constitutional, statutory, or regulatory provisions.” And plaintiffs couldn’t do this either. The FTC’s recent Enforcement Policy was issued after the trial.

TM choice of law: P's primary place of business determines which state's law applies

Lontex Corp. v. Nike, Inc., 2021 WL 3170600, No. 18-5623 (E.D. Pa. Jul. 27, 2021)

A rare choice of law opinion involving competitors. This is a trademark infringement claim but Lontex asserted claims under various state unfair trade practices law. The court declined to allow it to do that and confined it to the law of Pennsylvania, whose UTPCPL does not grant competitors standing. Thus, Lontex was left with only common-law and federal trademark claims.

Following the Restatement of Conflicts, courts consider: “the place where the injury occurred; the place where the conduct causing the injury occurred; the domicile, residence, nationality, place of incorporation and place of business of the parties; and the place where the relationship, if any, between the parties is centered.” Place of the injury is most important where “the injury occurred in a single, clearly ascertainable, state” and less important where “there may be little reason in logic or persuasiveness to say that one state rather than another is the place of injury, or when...injury has occurred in two or more states.” With respect to unfair competition specifically, it notes:

The effect of the loss, which is pecuniary in its nature, will normally be felt most severely at the plaintiff’s headquarters or principal place of business. But this place may have only a slight relationship to the defendant’s activities and to the plaintiff’s loss of customers or trade. The situation is essentially the same when misappropriation of the plaintiff’s trade values is involved, except that the plaintiff may have suffered no pecuniary loss but the defendant rather may have obtained an unfair profit. For all these reasons, the place of injury does not play so important a role for choice-of-law purposes in the case of false advertising and the misappropriation of trade values as in the case of other kinds of torts. Instead, the principal location of the defendant’s conduct is the contact that will usually be given the greatest weight in determining the state whose local law determines the rights and liabilities that arise from false advertising and the misappropriation of trade values.

As for the third factor, the plaintiff’s “principal place of business[] is the single most important contact for determining the state of the applicable law as to most issues in situations involving the multistate publication of matter that...causes him financial injury.”

There was a true conflict between the states’ unfair competition statutes because other states did grant competitors standing.

Here, the plaintiff’s principal place of business was the key, and that was Pennsylvania.  Lontext argued that “Illinois was the single state in which Lontex had the most pre-infringement unit sales...but fell back to fourth place in the infringement period when Nike flooded the Illinois market.” But that was no matter. “In a trademark infringement case such as this, every state in which both parties do business may have some relationship to the issues. There is evidence in this case that the allegedly infringing products were sold in all 50 states.”

a rare freestanding UCL unfairness claim re: service termination that rendered cameras nonfunctional

Soo v. Lorex Corp., 2020 WL 5408117, No. 20-cv-01437-JSC (N.D Cal. Sept. 9, 2020)

Plaintiffs brought California and New York consumer protection claims based on what happened to their home security Flir cameras; defendants moved to compel arbitration, which was denied because defendants failed to prove by a preponderance of the evidence that plaintiffs agreed to arbitrate. Defendants’ motion to dismiss was partly granted and partly denied.

Lorex made Flir cameras, which had the ability to upload security footage into cloud storage and a “Rapid Recap” feature, with which users could see a condensed, time-stamped video of activity observed by the camera. Cloud storage and Rapid Recap were made possible by applications managed by Lorex. After selling Flir cameras since 2015, in mid-2019 Lorex announced it was changing technology providers for the apps, rendering the cameras unable to connect to the apps and thus nonfunctional. Lorex then offered consumers a “Lorex Active Deterrence Wi-Fi replacement camera” or a Lorex.com store discount of US $120.00, which plaintiffs alleged were inadequate substitutes.

Defendants contended that the Warranty inside the box that plaintiffs’ cameras came in contained a binding arbitration provision. For purposes of this motion, it was undisputed that Lorex provides a hard copy of the Warranty in the box of every Flir camera it sells. The Warranty in the box advised plaintiffs that if they kept the cameras they were agreeing to the Warranty as well as to binding arbitration.

This was a “shrinkwrap” license [I can hear Eric Goldman sighing from 3000 miles away]. But Lorex’s warranty, unlike that in previous cases, didn’t give consumers any amount of time to examine the product and return it instead of accepting the arbitration agreement, and the included written materials did give the consumer the right to return the camera. “At a minimum, without evidence that Mr. Lauinger had the right to return the camera and thus reject the arbitration provision there can be no agreement to arbitrate formed by ‘keeping the [camera.]’”

Another plaintiff, Soo, “activated” his warranty online. Was that enough? Under California law, “silence or inaction cannot constitute acceptance of an offer,” unless an exception applies, such as “when the offeree has a duty to respond to an offer and fails to act in the face of this duty.” However, even then, a contract offeree’s silence cannot constitute consent to a contract “when the offeree reasonably did not know that an offer had been made.” California courts have held that “even if a customer may be bound by an in-the-box contract under certain circumstances, such a contract is ineffective where the customer does not receive adequate notice of its existence.” Previous case shad held that titles like “Product Safety & Warranty Information” aren’t enough to provide notice of “a freestanding obligation outside the scope of the warranty.” So too here. His online activation doesn’t support a finding that had to or should have been aware of the arbitration agreement. He “could have registered for warranty protection without ever seeing the in-the-box Warranty that contained the arbitration provision in the section entitled ‘State/Provincial Law.’”

Unfairness under the UCL: Courts are divided on how to assess unfairness, but plaintiffs invoked the balancing test: it asks whether the alleged business practice “is immoral, unethical, oppressive, unscrupulous or substantially injurious to consumers and requires the court to weigh the utility of the defendant’s conduct against the gravity of the harm to the alleged victim.”

Defendants argued that it wasn’t right to impute an underlying P2P service provider’s cessation of service to them. But plaintiffs alleged that “Defendants changed technology providers knowing that such a decision would cause the Flir Cameras to cease functioning.” And, after changing providers, defendants “have not created their own P2P software to replace OzVision that would continue to provide support for Flir Cameras, or otherwise partnered with another third-party vendor.” The harm could plausibly outweigh the utility of the conduct to defendants.  The cost-benefit analysis of unfairness was “not properly suited for resolution at the pleading stage.”

Fraudulent omission under the UCL: This was predicated on defendants’ failure to disclose that app support for the Flir cameras was contingent on Defendants’ contract with OzVision, and that there was no guarantee OzVision would continue to provide service. Plaintiffs alleged that had defendants disclosed such a fact, they would not have purchased their Flir cameras at all or on the same terms. However, the complaint didn’t plausibly support an inference that, at the time they sold the cameras, defendants knew that the functionality issue existed. This also disposed of the NY consumer protection claims.

California unjust enrichment: It was plausible that the failure of defendants’ replacement program to properly compensate Plaintiffs for the lost value of their cameras with adequate replacement cameras or a comparable store credit may sustain a claim for unjust enrichment at the motion to dismiss stage.

Trespass to chattels: perhaps surprisingly, also survives.  Defendants argued that OzVision, not they, rendered the cameras nonfunctional. But plaintiffs sufficiently pled that it was defendants’ acts that “substantially harmed the functioning” of their devices, which “significantly impaired the devices’ condition, quality, and value.”

Placebo effect is ok by CLRA: Homeopathic remedy wins jury trial on false advertising, still needs to defend against "unfairness"

Allen v. Hylands, Inc., --- Fed.Appx. ----, 2019 WL 2142843, No. 17-56184 (9th Cir. May 15, 2019)

Allen, on behalf of a class, appealled following a jury’s verdict in favor of Hyland’s. “The gravamen of [Allen’s] claims is that Hyland’s [homeopathic] products are ineffective at providing the promised symptom relief.” The district court framed the argument as: “Defendants made material misrepresentations about products which do not work and cannot possibly work as a matter of scientific principle, given the level of dilution of their active ingredients.”

“The parties submitted conflicting jury instructions: Allen’s proposed instructions stated that Allen needed to prove that Hyland’s products ‘did not’ work, while the instructions proposed by Hyland’s stated that Allen had to show that the products did not and ‘cannot relieve symptoms as represented.’”  The court went with “cannot,” and declined to give Allen’s proposed instruction that the jury “may not take into consideration the placebo effect in determining whether [Hyland’s] products provided relief.”

The jury returned a verdict for Hyland’s on the Magnuson-Moss Warranty Act claim, express warranty claim, and CLRA claim. Relying on the jury’s express and implicit findings of fact, the district court found for Hyland’s on the equitable FAL and UCL claims and denied Allen’s motion for a new trial.

If “cannot” was error, it was probably harmless, because the parties used “do not” and “cannot” interchangeably throughout. As for the placebo effect instruction, Allen relied on FTC v. Pantron I Corp., 33 F.3d 1088 (9th Cir. 1994), rejecting the placebo effect as a way a product could “work.” But CLRA, Magnuson-Moss Act, or express warranty cases haven’t adopted this holding [nor have they rejected it, for the record], so the proposed instruction wasn’t supported by law.

Admitting Hyland’s expert was also not an abuse of discretion.  He was a board certified expert in toxicology who’d published extensively; several of his works concerned the principles of hormesis (Wikipedia: “any process in a cell or organism that exhibits a biphasic response to exposure to increasing amounts of a substance or condition,” in particular, a response at low doses that would be reversed or not observed at high doses), about which he was called to testify; and his testimony on the relationship between hormesis and homeopathy was derived from a literature review citing to several peer-reviewed sources in his field.

There was a reasonable basis for the jury’s verdict, and no abuse of discretion in denying Allen’s Rule 59 motion.

As to the equitable claims, the district court should follow the jury where it found facts, but if “determining the equitable claims requires proof of a fact that the jury did not implicitly or expressly find, the district court must make its own determination.”  The FAL claims required proof of the same facts as the legal claims, so that was ok. But the UCL claim had both deceptive advertising and unfairness theories, and the latter was broader than the CLRA, Magnuson-Moss Warranty Act, or express warranty claims. The UCL’s unfair prong can apply to business practices that are against public policy, that are “immoral, unethical, oppressive, unscrupulous or substantially injurious,” or that cause unforeseeable injuries to consumers that are not outweighed by countervailing benefits. The jury’s “narrow” findings on deceptive advertising didn’t resolve the broader unfair practices theory. Thus, the district court erred in granting judgement to Hyland’s without further analysis and that part of the case was reversed.

What's UpCounsel? LegalForce thinks it's false advertising

LegalForce RAPC Worldwide P.C. v. UpCounsel, Inc., 2019 WL 160335, No. 18-cv-02573-YGR (N.D. Cal. Jan. 10, 2019)

LegalForce’s litigation against various competitors in the trademark registration world continues.  UpCounsel “is an online marketplace for legal services that enables users (primarily entrepreneurs and businesses) to find and hire attorneys via its website.” LegalForce sued UpCounsel for false advertising and unfair competition, including acting as an unregistered lawyer referral service.

Here, some of the false advertising claims were dismissed as puffery, while others survived.

Law firm/virtual law firm: Exemplary statements included: “We are the world’s largest virtual law firm for businesses of any size. We allow businesses to get high-quality, cost-effective legal services. While our lawyers serve as outside general counsel to many companies, we also assist with specialized legal work like IP, immigration, commercial contracts, litigation, and much more.” The “world’s largest” part was nonactionable puffery.  The “virtual law firm” part was not actionable because of the context, which also introduced UpCounsel as a “startup” that enabled others to “find” attorneys and thus indicated that UpCounsel was a platform rather than a true firm.  I understand the court to be reasoning that there are “tech platforms that enable individual lawyers to communicate with clients” (Uber, but for lawyers) and there are “law firms,” and because most of the challenged statements gestured at identifying UpCounsel as a “platform,” all the rest of that understanding—including that the lawyers would be individuals operating separately—would naturally follow.  On the one hand, seeking legal counsel does require some care and attention from a reasonable consumer; on the other, (1) the whole point of the service is to target people starting businesses fresh, who may not know the ins and outs of the legal services market; (2) even experienced nonlawyers may reasonably not know very much about the important differences between a “law firm” and other means of getting legal services. Anyway, similar statements were analyzed similarly, where there was mention both of a “virtual law firm” and of independent contractors or a claim of “as good as using a law firm.”

However, claims of the form “Top 5% of { Practice Area}  Lawyers in { City}” were not puffery.  LegalForce alleged that “[b]y indicating ‘5%’, UpCounsel implies that there exists an independent and publicly trusted ranking system in each and every city and the attorneys that UpCounsel lists on its city pages are chosen from the top 5% of such a list. In reality, no such list exists.” It quoted a review by a customer of UpCounsel who said the reason he selected UpCounsel was because he believed it was “a network for only the most top notch legal reps in the area” and “[t]he attorneys offered with them are at the top of their game and you will get what you pay for.” Another customer wrote that he was deceived when he saw an advertisement on a search engine “[o]ffering ‘Business Legal Services On-Demand by Top Attorneys’” and thought that a disruptive startup would be a good, cheaper choice for a disruptive startup to use. He concluded: “I wish I had never used UpCounsel and I’m warning all startups, business and companies out there to never make the same mistake!” [Which goes to show that you maybe shouldn’t hire a lawyer the way you’d summon a Lyft.]

Lanham Act claims based on the claim of “Top 5% of Trademark Attorneys” already survived a motion to dismiss on the basis of puffery. Challenging similar statements pertaining to other types of attorneys, namely patent, intellectual property, copyright, and startup attorneys, didn’t change the analysis. UpCounsel cited Hackett v. Feeney, No. 2:09-cv-02075-RLH-LRL, 2011 WL 4007531 (D. Nev. Sept. 8, 2011) to argue that, in order to be actionable, the statement must answer the “critical question ‘[Top 5%] as determined by whom[?]’ ” But that case involved a “voted #1 best show in Vegas!”; not only is #1  particularly puffy, but voting on a best show is also puffier than specifying a specific category of attorneys. Specifying a specific practice area meant that “[i]t cannot be said that no reasonable consumer would rely on such an assertion.”

UpCounsel argued that Google made the challenged statements, not UpCounsel, but this didn’t work at the motion to dismiss stage.  “Plaintiffs allege that the search results ‘republish’ statements originally made by UpCounsel. The issue of who actually made the statements (i.e., the search results) is a factual issue to be resolved at summary judgment.”

The same result happened with “The 10 Best { Practice Area}  Lawyers in { State}  NEAR ME,” which was allegedly false because “individuals listed in each resulting page are not usually near the customer who did the search, and often not even in the same state.”  “A reasonable consumer reading these statements could conclude that UpCounsel attorneys are objectively and measurably superior to other ‘{ practice area}  lawyers in { state}’ near the consumer.” [And even if not, they could reasonably conclude that those were lawyers “near” them.]

So too with “{ City}  { Practice Area}  Lawyers 5.0 ***** Based on { X number of}  reviews,” e.g., “Cotati Intellectual Property Lawyers 5.0 ***** Based on 5450 reviews.” That was allegedly false because “It is impossible for Cotati Intellectual Property Lawyers to have 5,450 reviews on UpCounsel. Cotati is a small town in Northern California with a population of 7,455. There are only 21 attorneys in the city of Cotati licensed to practice law in California, and none of these 21 attorneys are listed on UpCounsel.” (Among other things, one guy who allegedly never even used the UpCounsel platform appeared as a “Top 5%” franchise lawyer in Santa Rosa, California, “Top 5%” copyright lawyer in Coeur d’Alene, Idaho, and a “Top 5%” intellectual property lawyer in Montgomery, Alabama, among other practice areas and cities.)  Invariably, LegalForce alleged, UpCounsel would display a five-star rating, resulting from deceptively aggregating reviews to make it seem as if the reviews came from actual customers in those cities and states.” UpCounsel allegedly used code to “refresh” its reviews to make them more attractive to Google.

UpCounsel argued that use of SEO techniques “as a means to its advertising ends” didn’t state a claim under the Lanham Act because UpCounsel’s “software code” wasn’t a statement that was seen or relied on by customers, and that statements regarding five-star reviews were non-actionable puffery. The first issue, whether the code is (or made) a statement that consumers saw and relied on was a factual issue for summary judgment. The statements were not puffery. [Among other things, that there were X number of relevant reviews is a verifiable statement, even if the individual statements in the review might be non-factual.]

Similarly, LegalForce alleged that UpCounsel “intentionally and purposefully, and in bad faith, attempts to deceive Google search crawlers and the public that uses Google to search for legal services.” For example, “UpCounsel’s tag for its 5450 fabricated reviews for attorneys in Cotati is based on a fraudulent data field called ‘reviewCount’ which is printed on each page,” and “UpCounsel’s page source for each of its tens of thousands of reviews” includes code whose the sole purpose was to “trick search engines into recognizing UpCounsel’s aggregate ratings as trustworthy.” Using this code allegedly intentionally violated Google’s technical and content guidelines.

UpCounsel argued that its “software code” and HTML “page source” weren’t statements that were seen and relied on by customers. Further, a false advertising claim requires a false statement made by the defendant, so UpCounsel argued that a claim couldn’t be based on search results that LegalForce elicited from a search engine using words that LegalForce chose. The court agreed that, standing on their own, the software code and HMTL page source weren’t actionable statements. But LegalForce’s pleading “tied the software code and HTML page source to specific actionable statements,” such that UpCounsel’s actions caused search results to include false and misleading statements.  The software code and HTML page source were thus allegedly evidence of intent to mislead consumers.

Next, LegalForce alleged that “UpCounsel deceives customers by steering them to attorneys and non-attorneys who are not located anywhere close to their city, or authorized to practice in their respective state” or in any state. Among other things, UpCounsel listed patent agents as lawyers; UpCounsel conceded that three examples cited in the complaint were in fact patent prosecutors (among other things, a patent agent appeared as a “Top 5%” immigration lawyer in Blackfoot Idaho and as an “Oregon Attorney[ ] & Lawyer[ ] for Hire On-Demand” through UpCounsel). But UpCounsel argued that it didn’t steer anyone to unlicensed attorneys and that nothing on its UpCounsel’s website represents that these individuals are attorneys.

Comment: Google search results are answers to questions, which thus could be false as answers—and potentially false advertising under the right circumstances—even if they lack a true/false value standing alone. If UpCounsel programs its site to respond to a search for lawyers with unlabelled nonlawyers or lawyers outside the jurisdiction and use the headline “Top 5% of Patent Lawyers in Oakland, California,” then the response can be as false as if I asked for Diet Coke at a restaurant and was given undisclosed Diet Pepsi in return (and though I am loath to admit it, the results for consumers could be far worse).  There’s nothing inherently false about Diet Pepsi; the falsity is in the use in response to a request for something else. 

However, this formulation seems to foreground a §230 issue that is not discussed in the opinion: does UpCounsel rely on what its (putative) lawyer-contractors tell it?  Or does the problem come from non-§230 protected decisions made by UpCounsel on how to structure or label the website?  This formulation also highlights that labelling may be the key here: there’s nothing wrong with advertising an alternative to what the consumer is searching for, but even in the comparatively more liability-happy area of trademark the courts have understood that labeling is the key.  One question is whether ultimately it should matter that, in the individual description of the lawyer/patent agent on the page of “patent lawyers,” (1) that description is provided by the user, or (2) the description is clear, which in the case of the specific patent agent identified by the complaint it was not—he offered “legal services” and “patent prosecution services” but didn’t disclose that he was a nonlawyer, something another nonlawyer might not notice especially among a page of lawyers offering similar services.  When I search Amazon I often get a set of results that don’t make any sense (something to do with algorithmic manipulation or something even weirder?); is Amazon falsely advertising to me because of those bad results, which come from seller-provided information?  My sense is that the answer is no, but then again the fact that some of the results are bad is much easier to determine when I’m looking for girls’ pants size 10; I also think that it is different for a platform to claim to provide access to legal services in particular, which structures consumer expectations when looking at specific entries.

One problem seems to be that UpCounsel structured its own page/headline creation algorithm to be so overenthusiastic that it recommended lawyers far outside their practice areas or states of licensure.  Unless that came from data entered by individual participants checking boxes for those practice areas/states, I think that §230 would not pose a barrier to liability for such structuring.

Anyway, the court concluded: “Accepting as true plaintiffs’ allegation that the search results ‘republish’ statements originally made by UpCounsel, as the Court must in analyzing UpCounsel’s motion to dismiss, UpCounsel cannot reasonably argue at this stage that it has not made false statements by way of the search results.”

UCL claims:  Allegations of lost business and decrease in business value, and allegations of wrongfully denied business opportunities, sufficed to plead standing under the UCL’s expansive standing doctrine.  But could LegalForce bring claims based on violations of other laws that didn’t themselves provide a private cause of action? Usually, yes; the limit is that plaintiffs may not “plead around an absolute bar to relief” by recasting the cause of action as a claim under the UCL: “[t]o forestall an action under the unfair competition law, another provision must actually ‘bar’ the action....” by explicitly precluding private enforcement or expressly providing immunity for the conduct alleged.

Some of the other rules that LegalForce alleged UpCounsel violated thus allowed a bootstrapping UCL claim, such as the provision of the California Business and Professions Code section that bars unregistered attorney referral services. This was not enforceable by private parties, but its violation could be borrowed to create a remedy under the UCL. However, the California ules of Professional Conduct expressly provide: “These rules are not intended to create new civil causes of action.”  Their violation couldn’t be borrowed for a UCL claim. As for federal USPTO rules of professional conduct, the court found no binding or citable authority that the claims were impliedly preempted.

The UCL unfairness claim also survived. As a competitor, LegalForce had to use the more limited definition of “unfair”: they had to plead “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, or otherwise significantly threatens or harms competition.” UpCounsel argued that this couldn’t be done without pleading “a reduction of competition in the market in general and not mere injury to their own positions as competitors.” The court didn’t agree that LegalForce had to state an antitrust claim to proceed.  They sufficiently pled that UpCounsel’s actions “otherwise significantly threaten[ ] or harm[ ] competition,” given allegations that UpCounsel gave itself an unfair advantage over legitimate, rule-following competitors.

Restaurant can't bring unfair competition claim against Trump Old Post Office claim for using Trump's name to draw business

K&D, LLC v. Trump Old Post Office, LLC, No. 17-731 (RJL), 2018 WL 6173449 (D.D.C. Nov. 26, 2018)

Plaintiff owns Cork Wine Bar, located in the downtown Washington, D.C. area. Cork argued that it faced unfair competition from the Trump Old Post Office due to the desire of people to curry favor with the Administration by getting restaurant services (including both hosting and catering) there, encouraged by statements from people in the Administration.

The court found that this advantage, while perhaps looking bad (and, you know, violating the Emoluments Clause), was not unfair competition.  Even though D.C. common law doesn’t have specific elements, it’s understood to include “various acts that would constitute the tort if they resulted in damage.” These acts include “defamation, disparagement of a competitor’s goods or business methods, intimidation of customers or employees, interference with access to the business, threats of groundless suits, commercial bribery, inducing employees to sabotage, [and] false advertising or deceptive packaging likely to mislead customers into believing goods are those of a competitor.’ ”  But none of this was pled—interference with business isn’t anything that harms the business; it means tortiously interfering with access to the business. [After all, the problem doesn't seem to be commercial bribery, as such.]

Somewhat uncharitably, the court characterized Cork’s objection as being to “the process known as competition, which though painful, fierce, frequently ruthless, sometimes Darwinian in its pitilessness, is the cornerstone of our highly successful economic system.”  Prominent people are allowed to have equity in the companies they promote.  More to the point, given that a government official might be thought to have more power worth courting via purchases as opposed to simply a popular image, a forty-year-old case is (almost) directly on point.  In Ray v. Proxmire, 581 F.2d 998 (D.C. Cir. 1978), Ray alleged that Proxmire’s tour and hospitality service unfairly competed with Ray’s similar business by trading on the prestige and contacts that Proxmire had as the wife of the senior sitting United States Senator from Wisconsin. The court of appeals there held that “simple use of one’s status in society is not itself illegal .… financial success does not become unlawful simply because it is aided by prominence; nor could it be, without locking the famous out of the economy.” “[H]owever reprehensible it might be through political influence to use public [office] for private gain, that evil cannot provide a basis for” Cork’s unfair competition claim here.

Cork argued that the common law evolves, but provided no case law indicating that D.C. common law had evolved so far as to reject Ray.

In which I sue Amazon again

In FTC v. Amazon, the initial opinion was heavily, albeit badly, redacted.  With the able assistance of Paul Alan Levy from Public Citizen, MediaPost and I have moved to unseal the opinion and the documents on which it's based, on the ground that the public's First Amendment interest in access to judicial proceedings outweighs whatever embarrassment the facts might cause Amazon.  Here's our motion to intervene and motion to unseal.

FTC rules don't explain excessive redactions in FTC v. Amazon

F.T.C. v. Amazon.com, Inc., NO. C14-1038-JCC (W.D. Wash. Apr. 26, 2016)

 

Amazon made it really easy for kids to make in-app purchases in “free” apps; the court agreed with the FTC that this was bad, denying the FTC’s request for an injunction and holding the question of damages for further briefing.

 

In some ways the biggest story here is how Amazon convinced a judge to redact embarrassing, but highly relevant and non-trade-secret, information about Amazon’s business practices here, despite the grant of summary judgment on liability for §5 violations.  The willingness to let parties choose what the court makes public is even more disturbing than the willingness to seal documents apparently willy-nilly.  Here’s a story focusing on that.

 

15 U.S.C. § 57b–2 covers “any document, tangible thing, or transcript of oral testimony received by the Commission pursuant to compulsory process in an investigation” and requires confidentiality of documents produced pursuant to a civil investigative demand.  However, this provision doesn’t prevent disclosure of relevant information in judicial proceedings to which the Commission is a party.  16 C.F.R. § 4.10(g), et seq., provides FTC Rules of Practice for Adjudicative Proceedings.  This regulation allows disclosure of information obtained from a CID, subject to the submitter’s ability to seek a protective or in camera order.  Nothing in the (accidentally unredacted) opinion of the court discloses a trade secret, as far as I can tell, and at least some of what was redacted—specifically, the FTC’s request for a 20-year monitoring requirement as part of its request for injunctive relief—didn’t come from Amazon in the first place, so the statute can’t really explain what happened here.  What did?

California false advertising requires "advertising," but unfair competition doesn't

Golden v. Sound Inpatient Physicians Medical Group, Inc., No. 14-cv-00497, 2015 WL 8539034 (E.D. Cal. Dec. 11, 2015)

 

Golden, a medical doctor, was a VP of medical affairs/chief quality officer at Dameron Hospital from 2008-2012.  Golden was also the majority shareholder of the California Hospitalist Physicians, Inc. (CHP), a medical corporation providing primary care medical services, which contracted with Dameron to provide services from 2009-2012, at which point Dameron chose Sound Inpatient as the new hospitalist group for Dameron.  Golden had entered into agreements with several doctors to provide hospitalist services for their patients, competing with Sound Inpatient.

 

Golden posted a list in the emergency room of doctors who designated her as the hospitalist for their patients.  But Sound Inpatient sent letters to providers saying Golden did not practice at Dameron anymore; sent a nurse to visit offices of providers stating Golden was not practicing at Dameron anymore; and told employees to inform Dameron emergency room staff not to check anymore whether Golden was designated as hospitalist for patients, because all those patients were now assigned to Sound Inpatient.

 

Golden sued for violation of the California consumer protection laws.  She had standing to sue because she alleged that she lost money as a result of patients not seeking her services anymore.

 

Under Cal. Bus & Prof. Code § 17500, it’s “unlawful for any person [or] corporation … with intent directly or indirectly to dispose of real or personal property or to perform services … or to induce the public to enter into any obligation relating thereto, to make or disseminate … any statement, concerning that real or personal property or those services … which is untrue or misleading, and which is known, or which by the exercise of reasonable care should be known, to be untrue or misleading.”  However, a close reading of the statute convinced the court that the statements had to be made in “advertising,” which these statements were not.  The relevant language from Section 17500 refers to false statements disseminated: “in any newspaper or other publication, or any advertising device, or by public outcry or proclamation, or in any other manner or means whatever, including over the Internet.” The all-inclusive language of “any other manner or means whatever” could include letters, a nurse’s statements to providers, and instructions to employees not to check whether Golden had been designated as the hospitalist. But section 17500 as a whole clearly referred to advertising, and there was a “common sense” difference between the communications at issue here and advertising. If Golden could sue here, “nearly any false statement connected with the sale of a product/service constitutes false advertising.”  (Which would be a problem because …)

 

The language of the statute clearly referred to harm to the public, and Golden didn’t show that the public was induced or that a false advertisement was disseminated to the public. Instead, Sound Inpatient allegedly targeted individual providers and employees.   “[T]hese sporadic, infrequent means were not directed at the public for purposes of section 17500.”  Moreover, the complaint didn’t allege how consumers such as patients were deceived or harmed, just that medical providers and staff were the recipients of false statements.  (If they didn’t get the hospitalist they’d chosen, why isn’t that harm?)

 

Section 17200 prohibits “any unlawful, unfair or fraudulent business act.”  “Unlawful” borrows violations of other laws, and without a 17500 predicate claim, there was nothing there.  As for “fraudulent,” that requires actual and justifiable reliance, and Golden didn’t allege that she relied on Sound Inpatient’s false statements.  Nor did most of the facts alleged amount to “unfair” conduct, which requires “an incipient violation of an antitrust law, or that violates the policy or spirit of [such] laws because its effects are comparable to a violation of the law, or that otherwise significantly threatens or harms competition.”

However, alleged false statements that Golden wasn’t practicing at Dameron anymore nudged the complaint based on 17200 past the threshold of plausibility.  Repeatedly making such false statements with the aim of drawing patients away from Golden stated a claim for unfair competition.

Copyright infringement is channeled into (c), not state or Lanham Act claims

Quadratec, Inc. v. Turn 5, Inc., 2015 WL 4876314, No. 13–6384 (E.D. Pa. Aug. 13, 2015)

 

The parties compete to sell removable soft tops and other aftermarket parts and accessories for Jeep vehicles. Quadratec alleged that it invests substantial resources in the advertising of its products by “creating tens of thousands of unique photographs” and writing descriptions of the photographs, which “differentiate it from all of its competitors in the automotive market.” Except for Turn 5, which allegedly engaged in extensive copying of its images and descriptions (including a Quadratec photo with a superimposed Turn 5 logo on it), despite Quadratec’s demands that it stop.  (Why no 1202 CMI claim?  Although it seems unlikely to have concealed copyright infringement, so quite probably futile, though that doesn't distinguish it from various other claims asserted.)  Further, Quadratec alleged that Turn 5 falsely advertised its Baricade Soft Top products by falsely claiming that they exceeded original equipment manufacturer standards and are made from Black diamond sailcloth material (though this allegation isn’t addressed in this ruling).  Quadratec registered its images and sued.

 

Copyright infringement: though the complaint alleged that images other than those specifically identified might have been infringed, it also provided sufficient notice about particular registered images, and Quadratec wouldn’t be allowed to base claims on unidentified images. However, statutory damages/attorneys’ fees claims were dismissed because in all cases the infringements began before the registrations; allegations that Take 5 began infringing new parts of the registered work post-registration were insufficient because statutory damages go on a work by work basis.

 

§43(a)(1)(A): Dastar barred this claim. There was no misrepresentation of the origin of the goods for sale.  Quadratec argued that it was claiming false designation of the origin of the services at issue, here providing catalog services. That is, Take 5’s use of the product presentations was likely to confuse Quadratec’s customers into believing that “identical product presentations in both Plaintiff’s and Defendant’s catalogs” means that the “catalog sources are the same or otherwise affiliated.”

 

But Dastar precludes this argument.  Neither party is in the business of selling catalog services, only aftermarket Jeep products.  There could be no confusion as to the origin of those goods.  The Lanham Act doesn’t create a cause of action for plagiarism of marketing.

 

§43(a)(1)(B): Again, this failed because there was no alleged misrepresentation about the products for sale, rather than about the source of the marketing materials used to sell them.

 

Misappropriation: preempted by the Copyright Act.  The alleged deceit involved was not an extra element because it occurred only by way of reverse passing off, which meant that there was nothing fundamentally different from a copyright infringement claim.

 

Unjust enrichment: Ditto.  Quadratec alleged that Take 5 received benefits beyond the mere intrinsic value of the Quadratec materials, because it diverted profits and goodwill from Quadratec and saved money on advertising that it could use to lower its prices in competition with Quadratec.  The alleged financial benefit in the form of reduced overhead didn’t make the unjust enrichment claim qualitatively different than the copyright infringement claim.