For decades, Plaintiffs and defendants have fought bitterly over most aspects of class-action law. One issue, however, had managed to escape serious contention: the propriety of paying “incentive awards” (also known as “service awards”) to class representatives. Broadly speaking, such awards are sums paid to named plaintiffs—above and beyond what they receive as ordinary class members—to compensate them for the time, effort, and inconvenience their role may require. According to one academic study, these awards are generally modest, averaging 0.16% of the class-wide recovery, with a median of 0.02%. Incentive awards became widespread in the 1980s and 1990s, and are now near-ubiquitous, especially in the consumer class action domain where we focus. See 1 William B. Rubenstein, Newberg and Rubenstein on Class Actions § 17:7 (6th ed., June 2022 update) (noting that courts approved incentive awards in 93.4% of consumer class actions between 2006 and 2011).
A common maxim in the service industry is that the customer always knows best. But a recent decision from the Tenth Circuit suggests that the maxim has its limits when it comes to interpreting ambiguous marketing claims. In Bimbo Bakeries USA, Inc. v. Sycamore, the court held that the advertiser’s use of the word “local” in promoting its bread was not actionable under the Lanham Act, even though both a consumer survey and a jury of consumers had found the term to be misleading. The decision reflects courts’ growing comfort in rejecting proffered interpretations of labeling claims as objectively unreasonable, notwithstanding evidence that certain consumers may in fact subscribe to that unreasonable interpretation.
Fowl Ground: Ninth Circuit Reaches Unusual Result Applying Federal Preemption Law in Poultry Labeling Case
A few months ago, we analyzed the Ninth Circuit’s decision in Webb v. Trader Joe’s Company, No. 19-56389 (June 4, 2021), which held that a private plaintiff’s challenge to poultry labeling claims were preempted by federal law, warranting dismissal at the pleadings stage. However, the Ninth Circuit’s recent decision in Cohen v. ConAgra Brands, Inc., No. 20-55969 (Oct. 26, 2021), declined to apply preemption in a similar challenge to labeling claims on poultry products. In this post, we examine the two decisions and conclude that, notwithstanding Cohen, Webb remains the benchmark for future litigation in this area.
Earlier this month, this blog analyzed the preemption provisions of the Federal Meat Inspection Act (FMIA) and the Poultry Products Inspection Act (PPIA), which together regulate the labeling of meat and poultry products. We explained that trial courts in California and elsewhere routinely dismiss false advertising claims challenging statements on meat and poultry labels based on the statutes’ preemption provisions, which prohibit states from imposing requirements different from or in addition to federal law. Courts have specifically focused on the FMIA and PPIA’s pre-approval requirements in concluding that such challenges are preempted.
Two (Out of Three) Thumbs Down: Divided Ninth Circuit Panel Rules Rigged Product Reviews Can Be Actionable False Advertising
When you’re in the market for a fresh haircut or a new restaurant, innumerable business and product reviews are available to guide you towards a cleaner trim or tastier takeout. But what happens when the reviewer is not an impartial arbiter, but a less-than-honest broker disguising a financial interest in the service or product they’re applauding? And can a reviewer be held liable for false advertising if the reviews are secretly paid product placements?
This blog previously reported on the Seventh Circuit oral argument in Bell v. Albertson Companies Inc.—a case turning on whether a reasonable consumer would understand the phrase “100% Grated Parmesan cheese” on a cheese canister to mean that the product contained literally nothing but cheese. The Defendants had argued that reasonable consumers could not be deceived by such a claim, even though their products contained a small amount of cellulose powder and potassium sorbate mixed in with the grated Parmesan to act as a preservative. This was so, they maintained, since (1) the ingredient list expressly disclosed that non-cheese ingredients were present in the canisters, and (2) the canisters’ position on unrefrigerated store shelves should have signaled that a preservative was present. The district court dismissed these “100% claims” for failure to state a claim, and Plaintiffs appealed.
In a significant case for class action litigants, the Supreme Court is expected to resolve a circuit split over the standing requirements applicable to absent class members, and weigh in on the circumstances – if any – under which statutory violations can be deemed to give rise to Article III injury for such class members. The Supreme Court’s holding may have far-reaching implications for many varieties of class actions, including consumer protection and data privacy suits.
Federal law expressly authorizes manufacturers of dietary supplements to make “structure/function” claims—that is, claims about the effect of particular nutrients on the structure or function of the human body. (Think: “vitamin C supports the immune system” or “calcium supports healthy bones”). Despite this federal authorization, consumers often attempt to bring state-law challenges to manufacturers’ structure/function claims, asserting that they are false or misleading. This type of clash between federal and state law is a classic recipe for preemption. And that is especially true where the relevant federal statute—here, the Food, Drug, and Cosmetic Act (FDCA)—contains an express preemption clause. See 21 U.S.C. § 343-1(a).
In a recent decision, McGee v. S-L Snacks Nat’l, 982 F.3d 700 (9th Cir. Dec. 4, 2020), the Ninth Circuit upheld a district court’s dismissal of a putative class action for lack of Article III standing. McGee is notable for the court’s willingness, at the motion-to-dismiss stage, to subject a consumer’s theories of injury to meaningful scrutiny, and for its willingness to disregard conclusory and implausible allegations of harm. It also serves as a helpful reminder that disclosures in a product’s ingredients list can be highly relevant in assessing the plausibility of a consumer’s claimed losses.
Our parents and teachers taught us that “two wrongs don’t make a right.” But in the world of Lanham Act litigation, the opposite is often true. When defending a Lanham Act claim brought by a competitor, the doctrine of unclean hands—the lawyerly version of “But they did it too!”—can be a case-dispositive argument. Last month, the Ninth Circuit made it a bit easier to establish this defense, holding that a defendant arguing unclean hands need not prove that the plaintiff’s unclean conduct caused “actual harm.” See Certified Nutraceuticals, Inc. v. Avicenna Nutraceutical, LLC, 2020 U.S. App. LEXIS 22351 (9th Cir. July 27, 2020).
Increasingly, consumers base their purchase decisions on facts about a company or its product that have nothing to do with the performance or quality of the product itself. For example, does the manufacturer treat its workforce fairly? Is it a responsible steward of the environment? What are its stances on social issues like abortion or LGBTQ rights? To which parties or candidates does it (or its officers) donate? All of these facts—and countless others—are “material” to many consumers in the sense that they affect (or even dictate) purchase decisions. Indeed, in recent years, ethical, moral, and political concerns like these have led to countless instances of boycotts and other forms of consumer speech—a welcome sign of a healthy body politic and liberal democracy.
Flushable Wipes, Take Three: The Second Circuit Gets Injunctive Standing Right, But Classwide Damages Models Wrong
As our readers know, we’ve kept a close eye on the “flushable wipes” litigation—known variously as Kurtz v. Costco and Belfiore v. Procter & Gamble—as it has bounced between Judge Weinstein’s courtroom in the Eastern District of New York and the Second Circuit. The cases raise several issues important to class-action defendants, including the necessity of a rigorous damages model at the class-certification stage; the availability of injunctive relief to customers who are already wise to the alleged deception; and the appropriateness of massively multiplied “statutory damages” in the class context. We (and others) had hoped that the Second Circuit would use the case to provide clear answers to these questions and to remedy the New York federal courts’ status as a hotbed for questionable class-action complaints. But with that court’s latest ruling—fortunately, an unpublished and non-precedential one—those hopes may have gone down the tubes.
Injunction Defunction: The Second Circuit Extinguishes Injunctive Relief as a Remedy for Consumer False Advertising Claims
Last week, the Second Circuit issued an important published decision holding that previously injured consumers who seek to challenge product labeling lack constitutional standing to pursue claims for injunctive relief, and cannot obtain certification of an injunctive relief class under Federal Rule of Civil Procedure 23(b)(2). See Berni v. Barilla S.P.A., 2020 U.S. App. LEXIS 21167 (2d Cir. July 8, 2020). Although the Second Circuit’s holding arose in the context of a settlement class, not a litigation class, the court’s reasoning was not dependent on or limited to that specific context; rather, the panel held, in unqualified terms, that “past purchasers of a product . . . are not likely to encounter future harm of the kind that makes injunctive relief appropriate.” The Berni decision appears to close the door to injunctive relief for consumers asserting mislabeling claims in the Second Circuit.
Seventh Circuit Rejects Court Intervention In Light Beer Ad Wars: Is A New Trend Brewing In False Advertising Law?
The last few years have seen a pitched battle for market share among the manufacturers of America’s leading “light” beers—a battle that’s been waged not only in America’s bars and on the airwaves, but in the courtroom. Earlier this month, in Molson Coors v. Anheuser-Busch, Nos. 19-2200, 19-2713, 19-2782, 19-3097 & 19-3116, 2020 WL 2097557 (7th Cir. May 1, 2020), the Seventh Circuit gave Anheuser-Busch, the maker of Bud Light, a major victory in that battle, wiping out an injunction that the district court had entered in favor of Molson Coors, the maker of Miller Lite and Coors Light. That’s newsworthy in itself—but, because of its novel reasoning, the Molson Coors ruling may have broader significance for false-advertising law.
“Whether reasonable consumers would be deceived by a challenged advertisement is a question of fact that can’t be decided on a motion to dismiss.” This claim is one of the biggest sacred cows in false advertising litigation. But as the Second Circuit has made clear twice in the past year, it’s just a load of bull. Take, for example, Chen v. Dunkin’ Brands, Inc., --- F.3d ----, 2020 WL 1522826, which the Second Circuit decided unanimously earlier this week. In Chen, the court doubled down on its June 2019 holding that a court can decide at the pleadings stage “whether a reasonable consumer would have been misled by a particular advertisement,” Geffner v. Coca-Cola Co., 928 F.3d 198, 200 (2d Cir. 2019), affirming the dismissal of a false advertising claim involving the meaning of “steak.” In the process, the court also served up a tasty side dish of personal jurisdiction doctrine.
Food and beverage advertising, like other forms of speech, is usually entitled to First Amendment protection – even if it may not always enjoy the same caliber of protection as, for example, journalism or political speech. See, e.g., Sorrell v. IMS Health, Inc., 564 U.S. 552, 557 (2011) (“Speech in aid of pharmaceutical marketing . . . is a form of expression protected by the Free Speech Clause of the First Amendment.”)
Ninth Circuit Endorses RICO Claims For Prescription Pharmaceutical Promotion
The Racketeer Influenced and Corrupt Organizations Act (RICO) was meant to help take down the Mafia. For years, however, plaintiffs have attempted to contort it into a federal false advertising regime for prescription pharmaceuticals, complete with treble damages and attorney’s fees. The Ninth Circuit recently gave plaintiffs a boost in that effort, permitting RICO claims to proceed against pharmaceutical companies based on allegedly improper labeling and promotion of their prescription medications.
Patterson partner and Misbranded contributor Jonah Knobler recently critiqued the Ninth Circuit’s decision—and pharmaceutical RICO suits generally—at Drug and Device Law. Check out that post here.
Joining the Trend: D.C. Circuit Latest Court of Appeals to Decline to Certify Class Containing Uninjured Members
A few weeks ago, the U.S. Court of Appeals for the D.C. Circuit weighed in on a recurring question in class action litigation: can a court certify a class where some class members—even if only a small fraction of the class—are uninjured? Joining a string of recent decisions on this subject, the circuit court held in In re Rail Freight Fuel Surcharge Antitrust Litig., 934 F.3d 619 (Aug. 30, 2019), that class certification was properly denied for lack of predominance because twelve percent of the proposed class—constituting thousands of proposed class members—were uninjured by the defendants’ alleged misconduct. This ruling follows a similar determination from the First Circuit last October, covered here. Although both cases involved antitrust allegations, their holdings are readily applicable to consumer product class actions, where there is often evidence—either from the defendants’ files or the plaintiffs’ own experts’ analysis—that a considerable number of proposed class members were uninjured by defendant’s alleged mislabeling.
Last month, the Second Circuit heard oral argument in what had seemed like the most consequential consumer class-action appeal in that court in years: three consolidated cases involving “flushable” hygienic wipes. Both sides of the class-action bar were at the edge of their seat waiting for the Second Circuit’s guidance on several controversial issues of class-action law, including the appropriate standard for reviewing damages models at the class-certification stage. Earlier this week, however, the Second Circuit essentially punted, sending the cases back to the district court for “further factual development.” This is a frustrating result, but reading between the lines, class-action defendants may have reasons for cautious optimism.