Consumer Class Actions and Mass Torts : Class Action Lawyer & Attorney : J. Russell Jackson : Skadden Law Firm : Complex Class Actions : Consumer Class Actions & Mass Torts Law Blog

As I have noted repeatedly in prior posts, statements about the nutritional value or health effects of food and beverage products often serve as the basis for putative consumer fraud class actions.  Increasingly, however, courts are taking a critical view of these theories, dismissing claims based on puffery or representations that no reasonable consumer would rely upon.

For example, in Carrea v. Dreyer's Grand Ice Cream, Inc., No. 11-15263, Slip op. (9th Cir. Apr. 5, 2012), the plaintiffs had alleged that the defendant had violated California's Unfair Competition Law, Consumer Legal Remedies Act, and False Advertising Law, and New York's GBL section 349 by putting various statements on the packaging for its delicious Drumsticks product.  Plaintiffs alleged that putting "0g Trans Fat" on the front label was deceptive because there were trace amounts (less than 0.5 grams per serving) of trans fat in a serving.  Plaintiffs argued that although the FDA allows such a statement to be made in the Nutrition Facts label, it was fraud to put this statement on the front label unqualified by the statement "per serving."

The Ninth Circuit affirmed the trial court's dismissal of the claim as preempted by the Nutrition and Labeling Act.  Similarly, the court affirmed the trial court's holding that it would be implausible for a reasonable consumer to interpret the following statements to mean that Drumsticks are more nutritious or "wholesome" than competing products:  "Original Sundae Cone," "Original Vanilla," and "Classic."  The court noted that "it strains credulity to claim that a reasonable consumer would be misled to think that an ice cream dessert, with 'chocolate coating topped with nuts,' is healthier than its competitors simply by virtue of these 'Original' and 'Classic' descriptors."  Id. at 3.

Last week the maker of Muscle Milk was largely successful in having a number of allegations dismissed from a putative consumer fraud class action alleging that statements about its nutritional value were deceptive.  In Delacruz v. Cytosport, Inc., No. 11-3532 CW, Slip op. (N.D. Cal. Apr. 11, 2012), the plaintiffs claimed that Muscle Milk's beverage "Ready to Drink" and its snack bars ("Muscle Milk Bars") were deceptively marketed because they contained so many calories, saturated fat, and total fat, but still claimed to be healthy and nutritious.

The court looked to each set of representations allegedly made on the product, in advertising, and on the web.  With respect to representations on the product itself, the only ones that the court found to be potentially actionable were the use of the terms "healthy fats" and "nutritional shake."  The former suggests that the product has more unsaturated fats than it does, the court said.  The latter gave rise to an overall allegation of nutritiousness that could be actionable, the court explained.

The defendant argued that because the fats and other components were specifically listed in the Nutrition Facts panel, there could be no deception as a matter of law. But the court rejected this argument, reasoning that where the package has an affirmative misrepresentation, the defendant should not be allowed to rely on the small print of the Nutrition Facts panel to contradict it.  Slip op. at 13 (citing Williams v. Gerber Prods. Co., 552 F.3d 934, 938 (9th cir. 2008); Yumul v. Smart Balance, Inc., 733 F. Supp. 2d 1117 (C.D. Cal. 2010)).

But the court rejected plaintiff's claim that the statement "Healthy, Sustained Energy" on the product labels was misleading, reasoning that "the term 'healthy' is difficult to define and Plaintiff has not alleged that the drink contains unhealthy amounts of fat, saturated fat, or calories from fat, compared to its protein content, based on any objective criteria."  Slip op. at 13-14.  Plaintiffs had compared the fat content of defendants' products to Krispy Kreme donuts.  But the court held that this was unhelpful because plaintiff did not "explain how much protein, vitamins and minerals are in such a doughnut or posit an objectively healthy ratio of protein to fat.  Slip op. at 14.  With respect to the snack bars, plaintiff had also alleged that "healthy" was deceptive because it did not disclose that the bars contain saturated fats, fractionated palm kernel oil, and partially hydrogenated palm oil.  The court rejected this, stating that plaintiff did not allege that these fats were trans fats.

Looking at the advertising, the court rejected plaintiffs' claim based on the following statements, which it concluded were non-actionable puffery: 

Go from cover it up to take it off.

From invisible to OMG!

From frumpy to fabulous.

Slip op. at 14.

And in analyzing the website, the court considered this statement:  "Ready-to-Drink is an ideal nutritional choice [if] you are . . . on a diet."  The court concluded that this, too, is puffery:  "The word 'ideal' is vague, highly subjective, and non-actionable, like 'superb, uncompromising quality,' addressed in Oesteicher v. Alienware Corp., 544 F. Supp. 2d 964, 973 (N.D. Cal. 2008), and 'high performance' and 'top of the line,' addressed in Brothers v. Hewlett-Packard Co., 2006 WL 3093685, at *4-*5 (N.D. Cal. 2006)."  Slip op. at 15.

Thus, after all of the statements challenged by plaintiffs, the court concluded:

the sole cognizable misrepresentation that Plaintiff has plead is the 'healthy fats' statement on the fourteen ounce Muscle Milk RTD container, buttressed by the 'nutritious snack' statement.

Id.

These decisions -- particularly coming, as they do, from the People's Republic of California -- provide some encouragement that courts are becoming increasingly comfortable with excluding challenged representations as non-actionable as a matter of law where they are puffery or could not be reasonably relied upon by a reasonable consumer to produce an injury.

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I like Nutella.  I like peanut butter better, and that's usually what's on my toast in the morning.  But sometimes I like to switch it up with Nutella.

I don't know the precise amount of sugar or oil that it contains.  But I know where to look for such information:  right on the label, in the box marked "Nutrition Facts."

I have voiced my opinion in previous posts about the bogus nature of lawsuits where lawyers have invented class action "misrepresentation" claims out of Nutella's claim that the tasty spread can be part of a healthy breakfast. No one can be deceived into thinking that Nutella has suddenly become wheat germ.  A simple look at the Nutrition Facts on the label tells anyone who is curious what they want to know.

And so it was with great disappointment that I read the decision certifying a class of California purchasers of Nutella.  See In re Ferrero Litigation, Case No. 11-CV-205 H(CAB), Slip op. (S.D. Cal. Nov. 15, 2011) (Law 360 subscription required).  Plaintiffs' consolidated complaint asserted claims under California's Unfair Competition Law, its False Advertising Act, Consumer Legal Remedies Act, and for breach of express and implied warranties.  It claims that "Ferrero misleadingly promotes its Nutella spread as healthy and beneficial to children when it in fact contains dangerous levels of fat and sugar."  Slip op. at 2.

The opinion gives great lip service to the Supreme Court's decision in Wal-Mart v. Dukes, quoting it often on rigorous analysis and commonality.  And yet it ultimately certifies a class in which most of the class members likely were not deceived and would have bought Nutella even if they had read the label and thus knew the facts that plaintiffs claim were concealed.  The district court reasoned:

To the extent that Defendant interprets the decision in Wal-Mart as requiring plaintiffs to prove common class-wide injury at the class certification stage, the Court disagrees.  Rather, Plaintiffs must show that the claims of the class "depend on a common contention . . . of such a nature that it is capable of classwide resolution--which means that determination of its truth or falsity will resolve an issue that is central to the validity of each one of the claims in one stroke."  Wal-Mart Stores, Inc., 131 S. Ct. at 2551.  In this case, the claims made on behalf of the proposed class are based on a common advertising campaign, and include common questions such as whether Ferrero's advertising campaign misrepresented that Nutella is healthier or more nutritious than it actually is, or makes a more significant contribution to a balanced breakfast than it actually does, including for children.  Thus, Rule 23(a)(2)'s commonality requirement is satisfied.

Slip op. at 6.

One of the fundamental questions that remains unaddressed in the district court's opinion is the obvious overbreadth of the class definition.  The class is defined as a classic "all purchasers" class:  "all persons who . . . bought one or more Nutella products in the United States for their own household use rather than resale or distribution."  Slip op. at 2.  This, of course, sweeps into the class everyone, even those who used and enjoyed the product and would purchase it again and again.  Like me.  Or like plaintiff Hohenberg, who testified at her deposition that she "does not regret buying Nutella and continued using the spread after she learned about its sugar content."  Slip op. at 8-9.

Of course, where a class includes a large number of people who have no damages and have not been injured, the class definition is imprecise and overbroad.  Courts routinely deny class certification in such circumstances. See, e.g., State ex rel. The Coca-Cola Company v. Nixon, 249 S.W.3d 855 (Mo. 2008) (class of all purchasers of fountain Diet Coke was overbroad because many did not care that the product contains saccharin and would drink it anyway).  But the court in the Nutella litigation did not even consider the issue.  Nor did it consider how class members would provide objective proof at the outset of the litigation that they are class members.  Ascertainability, too, is a problem for this class.

The bright side, to the extent that there is one, is that the district court clearly recognized that the consumer protection laws of the 50 states are far too different for a nationwide class to pass muster under the predominance requirement, and California could not properly impose its consumer protection statutes on transactions that occurred outside its borders involving nonresidents.  Slip op. at 10-11.  Thus, the court certified a California-only class.  And it limited the class period to the start of the defendant's advertising campaign in August 2009, rather than the January 2000 start-date the plaintiffs had requested.

Still, that means that the maker of Nutella must endure merits discovery and a classwide trial over the claims of many Californians who have not experienced an injury or suffered any damages.  Here's hoping they have the fortitude to stick it out and put the "class" to its proofs.

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For those interested in charting the effects of AT&T Mobility LLC v. Concepcion, 131 S, Ct. 1740 (2011), see the new opinion by U.S. District Judge William Alsup in Arellano v. T-Mobile USA, Inc., 2011 WL 1842712 (N.D. Cal. May 16, 2011).

In Arellano, the plaintiffs had sued the defendants for injunctive relief under, inter alia, California's Unfair Competition Law, the Consumer Legal Remedies Act, and the False Advertising Act.  California's Supreme Court previously had held that suits for injunctive relief under those statutes were not subject to arbitration as a matter of public policy.

The defendant moved to compel arbitration, and the plaintiffs resisted, citing the California precedents.  The court held that Concepcion compels a finding that the Federal Arbitration Act preempts the state court decisions because it "decided that states cannot refuse to enforce arbitration agreements based on public policy."  Id. at *2.  Thus, "despite public policy arguments thought to be persuasive in California, Concepcion has trumped these considerations, at least for cases in federal court."

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A putative class action over "Cobra Sexual Energy" once again raises the issue of whether a plaintiff with claims for economic loss only can represent a class that includes people who may have claims for personal injuries.  In Peviani v. Natural Balance Inc., 2011 WL 1648952 (S.D. Cal. May 2, 2011), a woman who bought for her husband a male aphrodisiac from CVS brought a putative class action, claiming not only that the product didn't work (sorry, Mr. Peviani), but also that it puts those who take it at risk of developing hypertension, stroke, cardiac arrythmia, manic-like symptoms, suicidal tendencies, and missed diagnosis of prostate cancer.  Id. at *1.

What causes one to make a federal case out of frustrated expectations?  Apparently, the packaging.  This "dietary supplement" claimed to be a "powerful men's formula" that "provides 'sexual energy' by '[s]cientifically blending select, high-quality herbs, like "horny goat weed" and "other organic substances."  It also, apparently, made claims of providing numerous health benefits.

Plaintiff -- a resident of (where else?) California -- brought on behalf of a nationwide class claims for violation of California's Unfair Competition Law, False Advertising Law, and the Consumer Legal Remedies Act.  Interestingly, she apparently made no breach of warranty claims.

The class was defined broadly as "all persons . . . who purchased, on or after November 30, 2006, Defendant's Cobra Sexual Energy in the United States for household use rather than resale or distribution."  Id. at *1.

The court considered plaintif's motion to certify a class under Rules 23(b)(2) and 23(b)(3).  Citing the Ninth Circuit's decision in Dukes v. Wal-Mart Stores, Inc., 603 F.3d 571 (9th Cir. 2010), U.S. District Judge Anthony Battaglia recognized that he must subject the motion to "rigorous analysis" and consider facts relating to the underlying merits if necessary to make findings under Rule 23.  2011 WL 1648952 at *2.

The court held that Mrs. Peviani failed the typicality requirement for this class of purchasers of a male aphrodisiac because she had not actually taken the product and thus had not experienced and was not at risk of experiencing the physical symptoms that formed part of her claim.  The court concluded that "[i]n this significant respect, Plaintiff's interests are not aligned with the claims of male consumers, specifically those males experiencing the serious health consequences alleged by Plaintiff."  Id. at *3. 

The court acknowledged that she had standing to bring her claim for economic loss based on her reliance on the allegedly deceptive statements in deciding to purchase the product, but held that such economic loss "alone is insufficient to certify a class under Rule 23(a)(3) inasmuch as class members that consumed Cobra would likely have causes of action unavailable to the Plaintiff.

For similar reasons, the court held that Mrs. Peviani was an inadequate representative of males who, like Mr. Peviani, consumed Cobra and may suffer differing injuries and have differing causes of action.  Id. at *4.

Peviani is a classic example of courts rejecting a class that risks res judicata on absent class members' personal injury claims while prosecuting only economic loss claims.  Admittedly, however, this class definition was not as artful as some, in that it did not attempt to carve out of the class those people who had suffered actual personal injury from the Cobra product.  Still, it seems clear that Mrs. Paviani's experience of the product was quite different from that of the rest of the class, and that Judge Battaglia likely would have had ruled the same way on typicality and adequacy of representation even if the class definition had expressly carved out personal injury claims.

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A number of commentators, including the UCL Practitioner and Bailey Class Action Dailey, were quick to report the California Supreme Court's recent decision holding that a plaintiff who pleads that he read a misrepresentation, relied on it in buying a product, and would not have bought the product but for the misrepresentation, has pled sufficient facts to establish standing to bring a claim under California's Unfair Competition Law.  See Kwikset Corp. v. Superior Ct., No. S171845 (Cal. Jan. 27, 2011).  A number of defense firms have issued client alerts, some of which sound like the sky is falling.

Although I obviously don't agree with the California Supreme Court's statutory analysis, I am a "glass-half-full" kind of guy, and there are some details of the opinion that give me some encouragement on the issue of UCL class actions for restitution.

In Kwikset, the plaintiff had bought a lock labelled "Made in the USA."  Some of the screws or pins had been made in Taiwan.  And for some of defendant's products, the latch subassembly had been performed in Mexico.  But the lock itself had been assembled in the good ole US of A.  This is the stuff of class actions, you ask?  It is in California.

In 2004 the trial court had conducted a bench trial and entered judgment against the defendant.  It found that the defendant violated California's Made in the USA statute (yes, there's a statute for that in California), it's "Geographic Origin" statute (ditto), the UCL, and the False Advertising Law.  The trial court enjoined the defendant "from labeling any lockset intended for sale in the State of California 'All American Made,' or 'Made in the USA,' or similar unqualified language, if such lockset contains any article, unit, or part that is made, manufactured, or produced outside of the United States."  Slip op. at 3.  Using its equitable powers, the trial court also ordered the defendant to notify its retailers and distributors about the falsely labeled products and give them a chance to return them for refund or replacement.

Interestingly, the trial court denied the plaintiff's request for restitution to consumers/end purchasers.  The trial court:

concluded restitution "would likely be very expensive to administer, and the balance of the equities weighs heavily against such a program" where the violations had ceased and "the misrepresentations, even to those for whom the 'Made in the USA' designation is an extremely important consideration, were not so deceptive or false as to warrant a return and/or refund program or other restitutionary relief to those who have been using their locksets without other complaint.

Slip op. at 4.

During the appeals process, California's voters passed Proposition 64, which requires a UCL claimant to have an "injury in fact" and have "lost money or property" as a result of the alleged unfair business practice.  (My problem with the majority's opinion in Kwikset is that it equates the two separate requirements and does not give the phrase "lost money or property" its ordinary meaning.  Instead, the majority assumes money or property is lost when a claimant buys a product that she otherwise would not have bought.  But what if the product she bought performs perfectly and is cheaper than what she would have bought had she known about the Taiwanese screws?  I would argue -- as Justice Chin did in the dissent -- that there is no loss of money or property, even though there may otherwise be an injury in fact that might meet the first element.)

Having passed Prop 64, there was lots of wrangling in California over whether it applied to pending cases.  Ultimately, the Supreme Court held that it did, and that for such cases plaintiffs should be given leave to replead.

In Kwikset, the plaintiff was allowed on remand to add plaintiffs and replead the complaint to state that plaintiffs saw the misrepresentations, relied upon them in buying the products, and would not have bought the products but for the misrepresentations.  The defendant demurred, arguing that plaintiffs had no standing under Prop. 64 because they did not adequately plead that they lost money or property.  The trial court rejected that demurrer.  But on appeal, the Court of Appeal reversed.  Plaintiffs' "patriotic desire to buy fully-American-made products was frustrated," but they otherwise got what they paid for and thus did not experience a loss of money or property as the UCL now requires, the Court of Appeal held.  This was the conclusion that the California Supremes reversed.

But in finding that the plaintiffs had pled standing, the California Supremes were clear that reliance and causation were factual issues that plaintiffs would still bear the burden of proving in order to recover under the UCL.  Citing their earlier decision in In re Tobacco II Cases, the Kwikset Court reiterated that a UCL plaintiff relying on the fraud prong of the statute "must demonstrate actual reliance on the allegedly deceptive or misleading statements."  Slip op. at 16; see also id. at n.11 ("At succeeding stages, it will be plaintiffs' obligation to produce evidence to support, and eventually to prove, their bare standing allegations.  If they cannot, their action will be dismissed.").

Interestingly, the California Supremes never once in the Kwikset opinion criticize the trial court's refusal to grant a restitution remedy or its reasoning therefor.  Indeed, much of what the Supreme Court says seems to indicate that the proof for restitution would need to be individual.  For example:  "For each consumer who relies on the truth and accuracy of a label and is deceived by misrepresentations into making a purchase, the economic harm is the same."  Slip op. at 20.  Of course, the inverse would be that consumers who do not rely on the label or who are not deceived by the representations do not suffer the economic harm, which the court describes as making a purchase they otherwise would not have made. 

Put differently, by affirmatively stating that the harm must flow from actual deception that causes the consumer to enter a transaction she otherwise would not enter (slip op. at 21), the court makes it plain that any entitlement to restitution is going to be subject to individualized inquiries into whether any putative class member saw the alleged misrepresentation, actually relied on it, and wouldn't have entered the transaction without it.  Otherwise, there is no economic harm, under the Kwikset Court's own reasoning.

Notably, the Court instructs in a footnote that once the threshold issue of standing is addressed,

it will remain the plaintiff's burden thereafter to prove the elements of standing and of each alleged act of unfair competition, and the trial court's role to exercise its considerable discretion to determine which, if any, of the various equitable and injunctive remedies provided for by sections 17203 and 17535 may actually be warranted in a given case.

Slip op. at 22 n.15.

In rejecting the standards for restitution as the standard for standing (slip op. at 29-31), the Court made it plain that "[r]estitution under section 17203 is confined to restoration of any interest in 'money or property, real or personal, which may have been acquired by means of such unfair competition.'"  Slip op. at 30 (citation omitted).  Without proof of loss of money or property caused by the alleged deception, a claimant is not entitled to restitution.

In sum, although the Kwikset decision may have held that "ineligibility for restitution is not a basis for denying standing" under the UCL, it certainly did not change California's restitution prerequisites or the UCL to make it easier to certify a class action for restitution under the UCL.  In fact, if anything, Kwikset highlights that entitlement to restitution is still a highly fact-specific, individualized inquiry into what claimants saw, relied upon, and what they would have done absent the challenged conduct.

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In In re Sony Frand Wega KDF-E A 10/A20 Series Rear Projection HDTV Television Litigation, Lead Case No. 08-CV-2276-IEG (WVG), Slip op. (S.D. Cal. Nov. 30, 2010) (Gonzalez, J.) (Law360 subscription required), the plaintiffs alleged that the technology used in Sony's rear projection televisions was defective and tended to generate color spots and blemishes after more than a year of use.  The limited warranty that came with the televisions, however, was only one year in duration.  Plaintiffs sued under a variety of California statutes (the Unfair Competition Law, the False Advertising Law, the Consumer Legal Remedies Act, and the Song-Beverly Consumer Warranty Act), the consumer protection statutes of other states, the federal Magnuson-Moss Warranty Act, and breach of express warranty and breach of implied warranty.  The defendant moved to dismiss, and the court granted the motion with prejudice.

The court began by analyzing the common elements of the UCL, FAL, and CLRA.  It held that plaintiffs failed to allege fraud with suffidient specificity under Federal Rule of Civil Procedure 9(b).  Basically, plaintiffs alleged that Sony knew its TVs would eventually exhibit color spots and blemishes, but it didn't tell customers and instead advertised the TVs as being of "high," "superior" and "excellent" quality. 

The court held that the claims under the statutes -- including the consumer protection statutes of the various states -- failed "because the alleged misrepresentations are nothing more than mere puffery" that cannot form the basis for a fraud claim.  Slip op. at 8-9.  Moreover, the court held, a product that performs throughout its warranty period cannot form the basis of a fraud claim, because "[w]here a manufacturer has expressly warranted a product, consumers can only expect that product to function properly for the length of the manufacturer's express warranty."  Third, the court held that plaintiffs failed to plead with sufficient particularity that Sony was actually aware of the alleged defect at the time the plaintiffs bought the TVs.

Going statute-by-statute, the court then explained additional reasons why the UCL claims should fail.  First, it held that plaintiffs had not established that a law was broken to support an "unlawfulness" prong.  Second, the unfairness prong could not be met as a mater of law where the product functioned as warranted throughout the warranty period.  Slip op. at 12.  Third, the fraud prong of the UCL was not satisfied because plaintiffs did not sufficiently plead that the representations were false when made, they only pled non-actionable puffery, and the representations did not relate to the claimed defect, thus meaning that plaintiffs could not sufficiently allege reliance.  Id. at 13-14.

Similarly, the plaintiffs' FAL claim failed because plaintiffs failed to identify specific ads, when and where they enountered them, and why the ads were untrue or misleading.  Id. at 15.  And the statements identified were puffery and were not shown to be false when made.

The court also dismissed the CLRA claim because the identified representations are mere puffery and "Plaintiffs have not claimed that Sony made any representations that run counter to the allegedly omitted fact:  that the televisions' optical block wore out over time."  Slip op. at 16.  The court also held that Sony had no independent duty to disclose:  "a manufacturer's duty to disclose information related to [a] defect that manifests itself after the expiration of an Express Warranty is limited to issues related to product safety."  Id. at 17.

The court dismissed the claims asserted under other states' laws for the same reasons it dismissed the UCL claim.  And it dismissed the SBCWA claim because plaintiffs failed to plead that they bought their TVs at retail, and that they tendered them for repair within the express Warranty period.  Id. at 20-21.

As for the express warranty claim, the court dismissed the claim because a warranty does not cover repairs that are necessary only after the warranty period has expired.  Id. at 22.

Because plaintiffs did not adequately plead a Song-Beverly Act claim, vertical privity was still a requirement for the implied warranty count.  And the durational limit on the express warranty applied to the implied warranty with equal vigor.

Finally, the MMWA claim failed because all of the state law claims failed, too.

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This is yet another case that serves as a reminder to defense lawyers not to neglect the class definition requirements -- which are not articulated in the class action rule -- when challenging class certification.

In Sevidal v. Target Corp., 2010 WL 4260891 (Cal. App. -- 4th Dist. Oct. 29, 2010), the plaintiff sued Target because he bought two pairs of running shorts and a tie that had been described on Target's website as "Made in the U.S.A.," when in fact they were not.  Plaintiff claimed this violated California's Unfair Competition Law, False Advertising Law, and Consumer Legal Remedies Act, as well as constituted fraudulent concealment and unjust enrichment.  He sought certification of a statewide class of:

any California consumer who purchased any product from Target.com on or after November 21, 2003 which was identified on Target.com as 'Made in the USA,' when such product was actually not manufactured or assembled in the United States.

Id. at *2. 

The trial court denied class certification, and the Court of Appeal affirmed on two grounds.  First, it held that the class was unascertainable.  Second, it held that the class was impermissibly overbroad.

The ascertainability determination turned, in part, on the facts involving Target's website.  The "Made in the USA" designation was not seen by all users of the website who viewed the affected items.  Rather, it was in a subroutine of a subroutine of the program.  In other words, once one clicked on the product, one had to click on "View Details" and then "Additional Info" before the "Made in the USA" designation would appear.  Based on Target's 5-month test, 80% of customers did not click on the "Additional Info" tab at all and thus never could have seen the "Made in the USA" designation.

Moreover, the mis-designation as "Made in the USA" was the result of a computer bug that only sometimes would cause the mis-designation to appear.  In other words, sometimes the information displayed in "Additional Info" was correct, and sometimes it wasn't.  And Target had no record of who saw what.  Plaintiffs argued that this was Target's fault and should not impair a class, but the court observed that "Target had no contractual or statutory duty to maintain records pertaining to a consumer's selection of the 'Additional Info' icon."  Id. at *10.

Plaintiff relied heavily on In re Tobacco II Cases (2009) 46 Cal.4th 298, which held that absent class members subjected to a pervasive advertising campaign do not have to demonstrate reliance to obtain relief in a UCL class action.  The importance of Sevidal lies in its holding that Tobacco II does not excuse a UCL class action from meeting the other class action requirements, including ascertainability.  The court explained:

A class representative has the burden to define an ascertainable class.  Although the representative is not required to identify individual members, he or she must describe the proposed class by specific and objective criteria. Ascertainability is achieved "'by defining the class in terms of objective characteristics and common transactional facts making the ultimate identification of class members possible.'" . . .

"'Ascertainability . . . goes to the heart of the question of class certification," and "'requires a class definition that is precise, objective, and presently ascertainable . . . .'"  The purpose of the ascertainability requirement is to ensure it is possible "'to give adequate notice to class members'" and "'to determine after the litigation has concluded who is barred from relitigating.'"  The ascertainability requirement is satisfied if "the potential class members may be identified without unreasonable expense or time and given notice of the litigation, and the proposed class definition offers an objective means of identifying those persons who will be bound by the results of the litigation."

Sevidal, 2010 WL 4260891 at *7-*8 (citations omitted).

The Court of Appeal held that because the computer glitch did not consistently misidentify the goods as "Made in the USA," and because there was no record of who received the misidentifications, and because a substantial majority of those who used the website never visited the portions of the website where misidentifications could occur, the court held that the trial court was correct in finding that the class was unascertainable and thus could not be certified.  And the Court of Appeal observed that "[t]hese conclusions are fully consistent with Tobacco II's holding that UCL claims brought as class actions remain subject to the statutory class certification rules, including the requirement that the plaintiff show an ascertainable class."  Id. at *10.

The Court of Appeal separately held that the class was not certifiable because the class definition was overbroad.  The plaintiff argued that Tobacco II removed any causation requirement that absent class members demonstrate a loss caused by misconduct in order to be entitled to restitution under the UCL.  The Court of Appeals, in rejecting plaintiff's conclusion, focused on the language of Cal. Bus. & Prof. Code section 17203, which provides that parties are entitled to restitution "to restore to any person in interest any money or property, real or personal, which may have been acquired by means of the unfair practice."  Here, the court reasoned, the vast majority of the class never saw the misidentification of the goods because they never viewed the "Additional Info" area for a product on the website.  Thus, they definitively are not people from whom money "may have been acquired by means of the unfair practice," and thus cannot properly be part of the class.  As the court explained:

But the Tobacco II court did not state or suggest there are no substantive limits on absent class members seeking restitution when a defendant has engaged in an alleged unlawful or unfair business practice.  Instead, the court recognized that under the UCL's statutory language, a person is entitled to restitution for money or property which may have been acquired by means of the unfair or unlawful practice. . . .  Even after the Tobacco II decision, the UCL and FAL still require some connection between the defendant's alleged improper conduct and the unnamed class members who seek restitutionary relief.

Id. at *12.  The court relied heavily on Pfizer, Inc. v. Superior Ct. (2010) 182 Cal. App. 4th 622, 631, which held that "one who was not exposed to the alleged misrepresentations and therefore could not possibly have lost money or property as a result of the unfair competition is not entitled to restitution" under the UCL.

Because the class definition included primarily people who were not entitled to recovery under the UCL, it was impermissibly overbroad and the class could not be certified.

Sevidal is an important reminder that -- even in the face of substantive causes of action that loosen the restrictions on causation and reliance -- the class definition is still an important first line of defense against class certification.

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I can't say much about it because I am involved in the case, but Judge Andrew J. Guilford just issued an interesting opinion dismissing claims under California's Unfair Competition Law, False Advertising Law, and Consumer Legal Remedies Act.  See Baxter v. Intellius, Case No. SACV-09-1031 AG (MLGx), Slip op. (C.D. Cal. Sept. 16, 2010).  In Baxter, the plaintiffs had signed up for membership discount programs in response to Internet offers that were made after they already had bought a product on the Internet.  The court analyzed the disclosures that accompanied the offer, as well as the methods for confirming registration in the membership programs, and held that they were not deceptive as a matter of law.  It also held that plaintiffs had failed to allege actual reliance, as required by Proposition 64.

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The Nattering Nutrition Nannies scored a victory last week in the Eastern District of New York -- a victory against beverage giant The Coca-Cola Company and, more important, a victory against common sense and personal responsibility.  Last Wednesday, the Center for Science in the Public Interest and its co-counsel persuaded a federal court to deny Coca-Cola's motion to dismiss a putative nationwide consumer fraud class action challenging the beverage "vitaminwater" made by Coca-Cola's subsidiary, Glaceau.  See Ackerman v. The Coca-Cola Company, No. CV-09-0395 (JG) (RML), Slip op. (E.D.N.Y. July 21, 2010).

In Ackerman, Plaintiffs allege that the name, "vitaminwater," along with a description of the vitamins in the water and slogans about health are deceptive because they mislead people to believe that the beverages do not have sugar or calories in them.  As the court described plaintiffs' theory:

The plaintiffs have sufficiently alleged that the collective effect of the challenged statements was to mislead a reasonable consumer into believing that vitaminwater is either composed solely of vitamins and water, or that it is a beneficial source of nutrients rather than a "food of little or no nutritional value [which has been fortified] for the sole purpose of" claiming or implying that it is "healthy."  58 Fed. Reg. 2478, 2522.

Slip op. at 32.

Of course, there's one major problem with that theory:  the nutrition facts label on every bottle of vitaminwater discloses that there are a certain number of grams of sugar in the product, and that an 8 ounce serving of the drink contains a certain number of calories.  So the fact that there is an ingredient other than vitamins and water -- namely, sugar -- is plain to anyone who can read.  Nevertheless, the court allowed this claim to survive the pleading stage, so now there will be lots of expensive discovery and motion practice on a theory that is patently ridiculous.

(An additional sign to the consumer that there is something besides vitamins and water in the product is the fact that it is sweet -- some might even complain that it is cloyingly sweet.  This has led Glaceau to release "vitaminwater 10," which has ten calories per serving, and now  "vitaminwater zero," which has -- you guessed it -- zero calories per serving.  The court ducked the sweetness argument by stating that "there is no evidence before me concerning vitaminwater's taste."  Slip op. at 35.)

The court's response to the fact that sugar is listed as an ingredient right on the label was to declare that "the presence of a nutritional panel, though relevant, does not as a matter of law extinguish the possibility that reasonable consumers could be misled by vitaminwater's labeling and marketing."  Slip op. at 34.  The court relied heavily on Williams v. Gerber Products Co., 552 F.3d 934 (9th Cir. 2008), in which the Ninth Circuit had held that the packaging of a product called "Fruit Juice Snacks" could be misleading where it pictured various fruits on the label, but did not actually contain the juice of any of the pictured fruits, and only revealed this fact on the product label.

But Ackerman is no Williams.  There were no allegations that the packaging or marketing for vitaminwater contained any false statements or pictures.  Unlike the "Fruit Juice Snacks" at issue in Williams, which did not contain the juice of the pictured fruits, vitaminwater actually contains the vitamins the marketing discusses.  And the fact that it also contains sugar is stated right on the Nutrition Facts label in close proximity to the disclosures of the percentages of the vitamins and minerals that would surely interest vitaminwater's consumers.

This complaint is as deficient on its face as the Crunchberries complaint that I discussed earlier this month.  Reasonable people should not, as a matter of law, be allowed to claim surprise at the presence of an ingredient that is clearly disclosed on the Nutrition Facts label.

Although the court in Ackerman gave lip service to the pleading requirements of Twombly and Iqbal, it ultimately held that conclusory allegations met the pleading standard.  Indeed, it credited the following as adequately pleading the fact of reliance:

Each plaintiff relied on Defendants' . . . misrepresentations that VitaminWater is a beneficial dietary supplement beverage including, but not limited to, "vitamins + water = all you need" and the name of the product itself -- "VitaminWater" -- in deciding to purchase vitaminwater.  Had Plaintiffs known the truth that the statements they relied on were false, misleading, deceptive, and unfair, they would have neither purchased VitaminWater nor paid the premium price Defendants charged for it.

Slip op. at 40. 

The court refused to dismiss causes of action under California's Unfair Competition Law, False Advertising Law, and the Consumer Legal Remedies Act, as well as under New York's General Business Law sections 349 and 350.  It also refused to dismiss plaintiffs' common law misrepresentation claims for NY and CA plaintiffs and the unjust enrichment claims for all plaintiffs. 

Notably, the court was forced to conclude that plaintiffs' claims under the New Jersey Consumer Fraud Act failed to state a claim because they failed to plead enough specifics as required by Federal Rule of Civil Procedure 9(b). 

The court also held that plaintiffs failed to plead a claim for breach of express warranty because they failed to set forth any statement made about the product that the product failed to meet.  In addition, the court dismissed the implied warranty claims because -- even crediting the complaint as true -- "plaintiffs cannot establish that vitaminwater failed to constitute a merchantable product."  This, of course, begs the question:  if, as a matter of law, everything the defendant said was true (such that it did not constitute a breached warranty), and the sugar content was listed on the product itself and did not make the product unmerchantable, how could the packaging and marketing be "fraudulent"? 

The first half of the court's opinion is comprised of a recitation of the regulatory history regarding adding nutrients to foods and beverages.  Ultimately, the court rejected the defendants' arguments that the lawsuit was expressly and/or impliedly preempted by statutes and regulations preventing states from imposing labeling requirements that are different from those imposed by the FDA.  See, e.g., Slip op. at 27.  The court concluded that although plaintiffs' claims were premised on violations of the federal statutes and regulations, they were not preempted because they sought to impose "identical" requirements under state law as those imposed by the federal scheme.  The court also rejected the defendants' primary jurisdiction argument, stating that the question of what could mislead a reasonable consumer is one courts typically handle, and reasoning that the "FDA is aware of plaintiffs' concerns but lacks the resources to take enforcement action in every instance in which its policies are violated."  Slip op. at 30.

But plaintiffs legal assault on the fortified beverage industry ignores one important fact:  the public wants nutritionally-enhanced foods and beverages.  Indeed, fortified beverages are one of the fastest-growing market segments.  Consumers are capable of reading nutrition labels and ingredients and making dietary choices for themselves, and they do not need the FDA or self-appointed nutrition nannies like CSPI to limit the products from which they can legitimately choose.  Although the FDA has articulated policies about adding nutrients to foods and beverages, it has not acted to eliminate the category of nutritionally-enhanced products from the market.  One benefit of limited regulatory resources is prioritization, and instances of actual fraud should take (and generally have taken) enforcement priority. 

The Ackerman court's opinion on express and implied warranties makes it clear that there is no real fraud or misrepresentation in the marketing or packaging of vitaminwater.  The label clearly discloses the product's sugar content.  As such, CSPI should move on to lawsuits that fight actual fraud, rather than trying to co-opt the courts into doing what the FDA to date has refused to do.

To read CSPI Litigation Project Director Steve Gardner's take on the decision, click here.

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This seems to be turning into food and beverage week at Ye Olde Consumer Class Actions Blogge.  First, we had our Tort Twits suing Yoo-hoo out the ying-yang.  And now these two decisions, which demonstrate a judicial willingness -- even on a motion to dismiss -- to employ some common sense and dismiss claims that obviously fail to plead a plausible fraud.

The first decision -- Werberl v. Pepsico, Inc., 2010 WL 2673860 (N.D. Cal. July 2, 2010) -- was covered earlier this week by Sean Wajert over at Mass Tort Defense.  I won't completely rehash the case here, other than to note that Werberl is an excellent example of a jurist who does not feel compelled to check her brain at the door when adjudicating Rule 12 motions.  In Werberl, plaintiff alleged that the packaging for Cap'n Crunch's Crunch Berries cereal -- which is delicious and was a favorite of mine growing up -- is deceptive because the name and the pictures lead one to believe that it has actual berries in it when it does not.  Of course, anyone who has ever seen a box of Crunch Berries knows that this allegation is pure horse puckey.  (As does anyone who has actually tasted the cereal.)

Many judges faced with such a ridiculous theory still might hesitate to dismiss such claims pled under California's pro-plaintiff Unfair Competition Law, Consumer Legal Remedies Act, and False Advertising Law.  They might be tempted to allow some discovery, or say the theory presents a jury question.  But not Judge Saundra Brown Armstrong!  She began her analysis by noting that although the question whether a business practice is deceptive is generally a question of fact not suitable for resolution in a motion to dismiss, "where a court can conclude as a matter of law that members of the public are not likely to be deceived by the product packaging, dismissal is appropriate."  Id. at *3.

She then looked to the facts pled in the putative class action to conclude as a matter of law that there was no deception here:

[T[here are no pictures or images of any berries or any other fruit depicted on the Cap'n Crunch cereal box.  Nor are there any representations that the cereal is made with real fruit or is nutritious.  Rather, the Crunch Berries -- which are not fruit -- are described as a "SWEETENED CORN & OAT CEREAL" and shown as brightly-colored balls of cereal that no reasonable consumer would believe are made from real berries. . . . [T]here simply is nothing in the Cap'n Crunch packaging that would lead a reasonable consumer to believe that the brightly-colored cereal balls depicted on the product cover and described as Crunch Berries are, in fact, made or derived from berries or fruit.

Id. at *4.  Accordingly, the court dismissed the UCL, CLRA, and FAL claims.  It also dismissed the intentional misrepresentation claims for lack of a misrepresentation and because any reliance by the consumer to conclude that the cereal had real berries would be unreasonable per se.  The court also dismissed the breach of express and implied warranties as frivolous because there was no express or implied representation on the packaging that Crunch Berries contain real fruit.  The court even refused to grant leave to amend the complaint because no amendment could cure the fact that the packaging was not deceptive as a matter of law.

Judge Armstrong's analysis is an excellent example of a court that -- faced with a motion to dismiss a ridiculous claim -- was not hamstrung by the rules to avoid applying basic common sense to a consumer fraud claim.  We need more judges like that.

The second opinion I wanted to share in today's post was Mason v. The Coca-Cola Co., 2010 WL 2674445 (D.N.J. June 30, 2010).  In Mason, the plaintiffs brought a putative nationwide class action against Coca-Cola alleging that Diet Coke Plus was misleading under federal and state law because "'the term "Plus" connotes a more robust amount of vitamins and minerals in the product when, in fact, that was not the case at all.'"  Id. at *1.

The defendant began by invoking the primary jurisdiction doctrine and federal preemption to dismiss the claims.  The court wasn't buying it.  As for primary jurisdiction, the court concluded that the lawsuit asked the court to do what courts routinely do:  apply federal regulations.  Indeed, the court said that "[a]t its heart, this case calls for the determination of whether Plaintiffs received what they bargained for."  Id. at *2. 

The court also rejected the defendant's express preemption and conflict preemption arguments.  It quickly dispatched the express preemption argument, reasoning that plaintiffs were simply seeking a state law remedy for a violation of federal labeling requirements, and this was not expressly preempted by the Food, Drug and Cosmetics Act.  As for conflict preemption, the defendant argued that the FDA had established a regulation defining use of the term "Plus," and if the state law claim were allowed to proceed, it might result in a conflicting definition.  The court strongly rejected this argument, reasoning:

Were the Court to permit the application of implied conflict preemption in this case, it would turn regulatory definitions such as 21 C.F.R. sec. 101.54(e) into suits of armor capable of immunizing parties who mislead the public from any potential civil liability, even before it is determined whether the party complied with the definition.  Congress could not have intended such a perverse result when it granted the FDA authority to regulate in this area.

Id. at *4.

But once the court moved to an analysis of plaintiffs' causes of action, it applied basic common sense to conclude that plaintiffs had failed to plead consumer fraud.  In analyzing the claim under the New Jersey Consumer Fraud Act, the court noted that plaintiffs must plead:  (1) unlawful conduct, (2) an ascertainable loss, and (3) a causal relationship between the two.  The court began its analysis by observing that although plaintiffs say that the term "Plus" connoted more vitamins and minerals than were actually in the product, the actual amount of added vitamins and minerals were listed on the product itself.  Indeed, a warning letter sent by the FDA to defendant, which was attached to the complaint, indicated that:

the ingredient list includes the following added vitamins and minerals:  magnesium sulfate (declared at 10% of the Daily Value (DV) for magnesium in the Nutrition Facts panel), zinc gluconate (declared at 10% of the DV for zinc), niacinamide (declared at 15% of the DV for niacin), pyridoxine hydrochloride (declared at 15% of the DV for vitamin B6), and cyanocobalamine (declared at 15% of the DV for vitamin B12).

Id. at *6.  In light of these disclosures right on the product, the court held that plaintiffs had failed to allege with particularity what further expectations they had for the product or how it fell short of such expectations.  Thus, they had failed to plead the first element of an NJCFA claim. 

The court held that they also failed to plead the ascertainable loss element of such a claim because they do not plead how what they received was of a lesser value than what they were promised.  They bought a tasty beverage, they drank a tasty beverage.  They don't allege that they paid more for it than other beverages.  And they don't allege that they would not have bought the Diet Coke Plus but for the allegedly fraudulent misrepresentations.  Thus, they failed to plead an ascertainable loss under the NJCFA.  Id. at *6-*7. 

The court held that, for the same reasons, plaintiffs failed to state a claim for negligent or intentional misrepresentation.  Id. at *7.  And it dismissed plaintiffs' unjust enrichment claim because New Jersey does not recognize unjust enrichment as a separate tort cause of action, and where the underlying tort claims fail, the unjust enrichment claim should be dismissed as well.  Id.

Unlike the court in Werberl, the court in Mason gave plaintiffs an opportunity to re-plead their claims.  But given the fact that the added vitamins and minerals were fully disclosed on the Nutrition Facts section of the product label, plaintiffs will have a very difficult time pleading anything that could give rise to a fraud or misrepresentation claim.

Taken together, Werberl and Mason provide strong encouragement for courts to throw out consumer fraud claims where the contents of the food or beverage product are apparent from the product's packaging and labeling.

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Loyal reader Fred Burnside at Davis Wright Tremaine has sent along news of two wins his firm received for T-Mobile from the Ninth Circuit.  Both cases involve class action challenges to the defendant passing along charges to customers, specifically charges for the Universal Service Fund and the Regulatory Programs Fee.

In Lowden v. T-Mobile USA Inc., No. 09-35201, Slip op. (9th Cir. May 10, 2010), the court explained that the USF subsidizes telecommunications service for low-income and rural consumers.  The FCC expressly permits companies to recover their mandatory contributions from consumers as line-item charges.

The RPF is charged to carriers to cover government mandates like wireless number pooling, local number portability, and enhanced 911. 

In Lowden, plaintiffs argued that passing along these charges to consumers on the bill was a breach of contract and a violation of the State of Washington's Consumer Protection Act.  The district court had held that plaintiffs lacked standing to bring these claims.  The Ninth Circuit declined to address the standing issue, instead holding that plaintiffs had failed to state a claim under Rule 12(b)(6).  It reasoned that the carrier's contracts "adequately disclosed that it would pass along regulatory fees such as the USF fee and the RPF to its customers.  Moreover, until 2005 the FCC expressly excluded wireless providers from the requirement that 'charges contained on telephone bills must be accompanied by a brief, clear, non-misleading, plain language description of the service or services rendered.'"  Slip op. at 4.

In Janda v. T-Mobile USA, Inc., No. 09-15770, Slip op. (9th Cir. May 10, 2010), two California residents brought the same claim, asserting violations of California's Unfair Competition Law, False Advertising Law, and Consumer Legal Remedies Act, as well as breach of contract.  The Ninth Circuit was not buying plaintiffs' claim here, either. 

The court held that the complaint failed to allege above a speculative level that any advertising was likely to deceive members of the public.  Moreover, the service agreements and terms and conditions of sale were clear:  regulatory charges could be recovered.  The court considered each of the three prongs of the UCL, ultimately concluding that no UCL violation was adequately alleged.  The court also noted that plaintiffs failed to give proper pre-suit notice under the CLRA, and held that plaintiffs had not alleged a representation "likely to deceive a reasonable consumer."  Slip op. at 7.

The Ninth Circuit also dismissed the breach of contract for failing to meet the one-year statute of limitations contained in the agreement.  The court explained that "[e]ven if a contract is one of adhesion, a provision shortening the applicable statute of limitations is enforceable so long as the limitations period is substantively reasonable."  Slip op. at 8.

Congrats, Fred, on two opinions that use the clarity of contractual disclosures to dismiss putative consumer fraud class actions.

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The last post involved a case that refused to fully enforce a disclaimer.  This one is the polar opposite:  it enforces contractual provisions to prevent a class action.

In Leong v. Square Enix of Am. Holdings, Inc., 2010 WL 1641364 (C.D. Cal. Apr. 20, 2010), the defendant was the developer of the online role-playing game "Final Fantasy XI Online."  To play the game, one must buy the software, create an online user's account, pay a monthly subscription fee, and buy one or more game characters that explore the game's virtual world on various "quests" and collect items. 

As you might imagine of role-playing gamers, they become pretty attached to the characters and items they collect.  As you also might imagine, a number of them have trouble paying their monthly subscription fees because they really ought to get a job instead of playing role playing games all day.  The user's agreement that comes in the package with the software takes this into account, providing that the failure to pay the monthly subscription fee for three months will result in the deletion of the user's account and the characters and items they have collected.  Deadbeat role-playing gamers don't like this, so they filed a putative consumer fraud class action alleging violations of California's False Advertising Law, the Consumer Legal Remedies Act, the Unfair Competition Law, section 1671 of the California Civil Code, and unjust enrichment.

The deadbeats argued that despite the fact that they must accept the terms of the user's agreement before establishing an online account, they should not be bound by the user's agreement because it was contained within the shrink-wrapped software package and its "onerous" terms were not disclosed prior to sale.  Indeed, they argued that because retailers would not take a return of the gaming software once the package had been unwrapped, they had been the victims of fraudulent concealment. 

The problem was, according to the court, none of the named plaintiffs had actually attempted to return the software, and each of them proceeded to open online accounts by accepting the terms and conditions of the user's agreement after they had opened the software and presumably read the user's agreement.  Accordingly, the court held, they had no standing to sue on fraud-based claims like the FAL and the CLRA, because they could not establish their "individual reliance upon the nondislcosures in making their initial purchasing decision."  Id. at *3.

As for the section 1671 claim, that provision generally prohibits liquidated damages for breach of contract.  Plaintiffs argued that the forfeiture of their accounts and characters was the forfeiture of property without any relation to compensating Defendant for the breach of contract.  The court rejected this approach because the user's agreement clearly states that users do not own the game data, like their accounts, characters, and accumulated items.  Thus, plaintiffs did not forfeit any of their property, and there was no illegal penalty.  Id. at *6.

The court also dismissed the plaintiffs' UCL claims.  Their claim under the UCL's illegality prong was premised on violation of section 1671, so it was easily dismissed.  Their claim under the unfairness prong was that the forfeiture of game characters -- and the requirement of payment of a premium for reinstatement -- was "immoral, unethical, oppressive, unscrupulous, or substantially injurious to consumers."  The court disagreed:  "Defendants provide a for-profit service to users, and Plaintiffs fail to provide any facts that suggest they were in any way coerced or forced to spend any money at all by Defendants."  Id. at *7.  The fraud prong of their UCL claim was barred for lack of standing, the court concluded, citing In re Tobacco II Cases.

Plaintiffs also asserted a claim of unconscionability under the CLRA, arguing that the user agreement is "'hidden in small print at the end of a 144-page manual'" and that the forfeiture clause "'shock[s] the conscience.'"  Once again, the court disagreed:

However, the Court does not find the revocation of accounts of non-paying users sufficiently shocking.  Indeed, as argued Defendants, "[i]f such a clause were unconscionable, Square Enix and all of its competitors would be forced to make their games available in perpetuity, or face class action suits for loss of data."

Id. at *10.

The decision in Leong is a strong example of how clearly-worded contractual provisions can form the basis of a motion to dismiss on the pleadings.

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When I teach Product Safety and Liability, I often find that one of the most difficult questions to answer is who -- or really, what branch of government -- should be making a decision on a particular issue.  Institutionally, courts have inherent limitations.  They work within the confines of actual disputes between individuals; they are not legislators and have no broad factfinding powers.  They often have limited capabilities when it comes to questions of science and require expert testimony.  And when the causes of action at issue allow for a jury trial, a group of individuals who are "scientifically challenged" may be the ones actually charged with finding the facts. 

Regulatory agencies, too, have their limitations.  But often when the question is one of pure science, I often find myself advocating that the question is better left to regulators to decide.  You can make that argument in a number of ways.  For example, you may in certain circumstances be able to argue that Congress itself made that determination by preempting state law claims.  But where preemption is not an option, one can appeal to the judge's inherent discretion under doctrines such as equitable abstention or primary jurisdiction. 

Usually, my colleagues give such arguments about a snowball's chance in Hell of prevailing.  But a decision reported by Law360 today demonstrates that climate change occasionally affects Hades as well.

In Gordon v. Church & Dwight Co., No. C 09-5585 PJH, Slip op. (N.D. Cal. Apr. 2, 2010) (Law360 subscription required), plaintiffs sued the makers of Trojan-Enz condoms, alleging that the spermicidal lubricant Nonoxynol-9 (which is used in some condoms) can increase the risk of HIV infection.  Plaintiffs sued to impose warnings on the products under California's False Advertising Law, its Unfair Competition Law, and its Consumer Legal Remedies Act. 

As U.S. District Judge Phyllis J. Hamilton explained, the Food and Drug Administration has been considering the issue of whether to alter the FDA-required warnings on N-9 lubricated condoms to account address this issue.  Slip op. at 3.  Indeed, FDA already has required that labeling for over-the-counter vaginal contraceptives containing N-9 include the following warnings:

Studies have raised safety concerns that products containing the spermicide nonoxynol 9 can irritate the vagina and rectum.  Sometimes this irritation has no symptoms.  This irritation may increase the risk of getting HIV/AIDS from an infected partner.

. . .

Use a latex condom without nonoxynol 9 if you or your sex partner has HIV/AIDS, multiple sex partners, or other HIV risk factors.

73 Fed. Reg. 66522 at n.1.

Judge Hamilton ultimately concluded that it was the FDA -- rather than a court -- that should be making the determination at issue in plaintiffs' suit, and thus she granted the defendant's motion for dismissal without prejudice under the "primary jurisdiction" doctrine.  As Judge Hamilton explained, primary jurisdiction is a prudential doctrine in which a court may defer initial decisionmaking where a regulatory agency is considering the question.  Courts apply 4 factors in determining whether to apply the doctrine:  "'(1) the need to resolve an issue that (2) has been placed by Congress within the jurisdiction of an administrative body having regulatory authority (3) pursuant to a statute that subjects an industry or activity to a comprehensive regulatory authority that (4) requires expertise or uniformity in administration.'"  Slip op. at 2 (citation omitted).

The court noted that FDA has exerted regulatory authority over condoms as medical devices, including regulating the substance of the warnings, instructions, and statements of use.  Judge Hamilton concluded that the primary jurisdiction doctrine was appropriate here:

The issue of medical device labeling requires expertise as well as uniformity in administration.  The plaintiffs' claims involve a technical area over which the FDA has more expertise than the courts; and, while the claims are based on state law, their effect is to challenge the wording in the warnings that are required to be included in the latex condom packaging pursuant to federal law.

The court notes in particular that the FDA has stated that it is still considering public comments and other data in connection with warnings similar to those that plaintiffs seek to have the court impose on C&D.  Thus, this issue remains under review.  It would be inappropriate for this court to assume the FDA's regulatory role, and to interpret scientific studies or other evidence to determine whether the labeling of the N9 latex condoms should be changed to include an additional warning . . .

Slip op. at 3.

The Gordon decision is an excellent example of a court taking stock of its inherent capabilities and limitations and deferring to a regulatory agency to make a decision in the first instance where the agency is better able than the court to do so.  It remains to be seen how influential Judge Hamilton's decision will be in other courts.

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In the recent decision in Lyons v. Coxcom, Inc., 2009 WL 347285 (S.D. Cal. Feb. 6, 2009), the court granted a motion to dismiss, highlighting the need to plead damages resulting from wrongful conduct in actions brought under California's consumer protection statutes.

In Lyons,  the plaintiff upgraded her internet service to the defendant's "premier" service with "PowerBoost" package in order to take advantage of "blazing fast" internet service and "up to 33% faster downloads."  Plaintiff alleged that despite these advertised advantages of upgraded service, the defendant slowed or severely limited her coverage and that of a nationwide class by transmitting certain unauthorized hidden codes to prevent customers' computers from executing certain peer-to-peer filesharing. 

The defendant moved to dismiss certain counts pursuant to Rule 12(b)(1) for lack of standing, and moved to dismiss the rest of the complaint under Rule 12(b)(6).  Basically, defendant argued that although plaintiff's complaint identified representations in advertising and declared that she had upgraded her service to take advantage of increased internet speed, it failed to plead reliance or causation:  "she fails to allege that she [bought] Cox's internet service as a result of any advertisement."  Id. at *2.

The court concluded that California's Unfair Competition Law, its False Advertising Law, and its Consumer Legal Remedies Act all require that a claimant suffer an injury in fact and incur damages as a result of the challenged conduct.  Because plaintiffs' complaint did not allege that reliance/causation element, the court dismissed these counts without prejudice, giving plaintiffs a chance to replead.  The court also dismissed a count based on the consumer protection statutes from 27 other states and the District of Columbia, holding that because plaintiff could not establish standing under her own state's statutes, she (as a non-resident) could not seek relief on behalf of a class of residents of other states.  Again, plaintiff was given leave to replead.

As for the defendant's Rule 12(b)(6) motion, the court took judicial notice of the defendant's Subscriber's Agreement ("SU"), Acceptable Use Policy ("AUP"), Terms and Conditions, and Limitations of Service.  Each of these documents was mentioned in the plaintiff's complaint.  The court dismissed the breach of contract count, giving effect to the terms of the SA, which required the application of Georgia law.  The court noted that the SA and the AUP reserve to defendant the right to manage its network and to take actions against subscribers whose use impedes the use of others.  Because plaintiff failed to plead a provision of the contract in which the defendant promised to provide unlimited access without interruption or to provide unlimited use of peer-to-peer applications, the court dismissed the breach of contract count, giving plaintiff leave to amend.  The court also dismissed the count alleging a breach of the covenant of good faith and fair dealing, because Georgia law does not allow such a cause of action independent of a breach of contract claim.

The court dismissed without prejudice the count alleging violation of the federal Computer Fraud and Abuse Act because plaintiff did not allege that she personally suffered damages in an amount in excess of $5,000.

Although the court had dismissed the California statutory counts for lack of standing, it proceeded to analyze the substantive challenges to them as well.  It noted that the CLRA claim was not pled with the particularity necessary for a fraud claim because it left out the "who, what, when, where, and how" of the claim.  But the court rejected the defendant's argument that the statements plaintiff identified were non-actionable puffery.  "Plaintiff does allege statements that may be demonstrated to be true or false, such as download speeds of up to 20 Mbps and whether upload speed is indeed doubled and downloads are indeed 33% faster. . . .  Plaintiff has sufficiently pled statements likely to deceive under the CLRA."  Id. at *11.

As for the UCL claim based on fraudulent acts and practices, the court rejected the defendant's argument that Rule 9(b) applied and held that plaintiff's claim as pled had sufficient specificity to establish a likelihood to deceive and was not mere puffery.  Nevertheless, the claim remained dismissed without prejudice for failure to sufficiently allege standing.  (The court also held that two UCL counts based on "unlawful acts" and "unfair acts," respectively, failed to state a claim.) 

As for the False Advertising Law count, the court rejected the defendant's argument that a Rule 9(b) pleading standard applied, but reiterated that the count was dismissed for failure to plead standing.

The defendant also had made the argument -- somewhat akin to a preemption argument -- that the court should delay its consideration of the case because the Federal Communications Commission (which has primary regulatory authority over internet services) was in the process of deciding the appeal of a dispute involving a different provider (Comcast), which might resolve the key questions in this case.  The court refused to defer to the FCC under the defendant's "primary jurisdiction" theory, noting that where the issues involved are primarily grounded in contract, false advertising and unfair competition, they fall squarely within the court's traditional functions.

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