Ninth Circuit Puts a Cap on Coca-Cola Class Certification Order

 

By: Alexander M. Smith

SodaA new decision in the Ninth Circuit significantly limits which consumers may have standing to seek an injunction against false advertising or labeling. For the past several years, the law in the Ninth Circuit was that a “previously deceived consumer may have standing to seek an injunction against false advertising or labeling, even though the consumer now knows or suspects that the advertising was false at the time of the original purchase,” because a consumer’s “[k]nowledge that the advertisement or label was false in the past does not equate to knowledge that it will remain false in the future.” Davidson v. Kimberly-Clark Co., 889 F.3d 956, 969 (9th Cir. 2018). But in August 2021, the Ninth Circuit significantly limited this holding by clarifying that a consumer’s “abstract interest in compliance with labeling requirements” or desire for a manufacturer to “truthfully label its products” does not suffice to establish Article III standing under Davidson. Engurasoff v. Coca-Cola Refreshments USA, Inc., No. 25-15742, 2021 WL 3878654, at *2 (9th Cir. Aug. 31, 2021).

Engurasoff arises out of a long-running multidistrict litigation in which the plaintiffs alleged that Coke, Coca-Cola’s signature cola, is mislabeled as having “no preservatives” and “no artificial flavors” because it contains phosphoric acid, which allegedly functions as both an “artificial flavor” and a “chemical preservative.” In February 2020, the district court granted the plaintiffs’ motion to certify an injunctive relief class under Rule 23(b)(2) and held that they had established standing to seek injunctive relief under Davidson. In reaching this conclusion, the district court reasoned that consumers could satisfy Davidson by alleging either (1) that “their inability to rely on the labels would cause them to refrain from purchasing a product that they otherwise would want” or (2) that they would “purchase the product in the future, despite the fact that it was once marred by false advertising or labeling, because they may reasonably, but incorrectly assume the product was improved.” In re Coca-Cola Mktg. & Sales Practices Litig., No, 14-2555, 2020 WL 759388, at *5 (N.D. Cal. Feb. 14, 2020) (citation and internal quotation marks omitted). The district court agreed with Coca-Cola that the plaintiffs did not satisfy the second test because there was no reasonable possibility that Coca-Cola would stop using phosphoric acid as an ingredient in Coke, whose formula—leaving aside the ill-fated rollout of New Coke—has remained largely unchanged for over a century. But the district court nonetheless found that the plaintiffs had satisfied the first test by alleging that they would purchase Coke in the future, even if it continued to contain phosphoric acid, so long as the labeling either disclosed the presence of phosphoric acid or refrained from representing that Coke was free of preservatives and artificial flavors. See id. at *7-9.

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Customers Cannot Assert a Claim Based on Starbucks’s Alleged Failure to Provide the “Perfect” Coffee Experience

   

By: Kate T. Spelman

CoffeeOn August 27, 2021, the Second Circuit upheld dismissal of a putative class action brought by Starbucks customers under New York consumer protection statutes. The plaintiffs alleged that Starbucks’s marketing materials promoting the quality of its coffee – including claims such as “the finest whole bean coffees,” “Best Coffee for the Best You,” and a “PERFECT” coffee experience – were misleading due to the chain’s alleged use of pest-control pesticides in some of its Manhattan stores. The district court disagreed, dismissing the complaint on the basis that the plaintiffs did not allege “any statements likely to mislead reasonable consumers.” George v. Starbucks Corp., No. 19-6185, 2020 WL 6802955, at *2 (S.D.N.Y. Nov. 19, 2020). The court found that the vast majority of the challenged statements were patently puffery, while the only statement that could conceivably support a claim for deceptive business practices – that Starbucks baked goods contain “no artificial dyes or flavors” – was not rendered false or misleading by the alleged use of pesticides in Starbucks’s stores. Id.

Undeterred, the plaintiffs appealed to the Second Circuit, arguing that Starbucks’s advertising implied quality and purity inconsistent with the use of pesticides. Again, the plaintiffs were rebuffed by the court. In a short summary order, the Second Circuit agreed with the district court’s reasoning and held that “almost all of Starbucks’s statements referenced in the amended complaint constitute puffery.” George v. Starbucks Corp., No. 20-4050-CV, 2021 WL 3825208, at *1 (2d Cir. Aug. 27, 2021). Those that were “specific enough to be more than puffery” referred only to “how Starbucks sources its products and crafts its coffee and the ingredients it uses in its baked goods” such that “[n]o reasonable consumer would believe that these statements communicate anything about the use of pesticide[s] in Starbucks’s stores.” Id. at *2.

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The Ninth and Seventh Circuits Revive Robocall Suits Under the TCPA

 

By: Lina R. Powell

Smartphone computerCourts have seen a flurry of activity in the Telephone Consumer Protection Act (TCPA) realm this year—and August was no exception. In April 2021, the Supreme Court’s Facebook v. Duguid, 141 S. Ct. 1163 (2021), settled the long-debated question of what constitutes an automatic telephone dialing system under the TCPA, 47 U.S.C. § 227. Many anticipated the Court’s willingness to narrow the scope of claims brought under the statute would narrow the number of lawsuits brought under the TCPA. But TCPA cases continue to proliferate, and two appellate courts recently revived claims based on the TCPA.

On August 10, 2021, the Ninth Circuit revived a lawsuit against Fraser Financial and Insurance Services, holding that job recruitment robocalls received by cell phones fall within the TCPA’s scope if the call “did not involve an emergency and was not made with [the consumer’s] prior express consent.” Loyhayem v. Fraser Fin. & Ins. Servs., Inc., ---F. 4th---, 2021 WL 3504057, *2 (9th Cir. Aug. 10, 2021). The TCPA generally makes it illegal to place robocalls to someone’s home phone or cell phone. The Ninth Circuit held that the district court misread the governing robocall consent standards in dismissing the action. While the plaintiff admitted that the robocalls did not involve “advertising or telemarketing”—which are prohibited under the TCPA—the Ninth Circuit rejected the argument that only robocalls involving “advertising or telemarketing” are subject to the TCPA. Id. Rather, the Ninth Circuit noted that the TCPA applies to “any call” that is “made to a cell phone using an automatic telephone dialing system or an artificial or pre-recorded voice, unless the call is made either for emergency purposes or with the prior express consent of the person being called,” and that such consent be given either orally or in writing. Id. The Ninth Circuit found that the plaintiff’s allegations that he had not consented orally or in writing to receiving Fraser Financial’s call were sufficient to survive a motion to dismiss. Id. at *3.

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A Benefytt or a Curse: Ninth Circuit Holds That Bristol-Myers Does Not Apply Before Class Certification

Supreme Court Pillars - iStock_000017257808Large

 

By: Alexander M. Smith

In 2017, the Supreme Court held in Bristol-Myers Squibb Co. v. Superior Court, 137 S. Ct. 1773 (2017), that a defendant in a mass tort action is not subject to specific personal jurisdiction as to the claims of non-resident plaintiffs whose injuries lack a sufficient connection to the forum state. The Court did not decide, however, whether its holding applied to nationwide class actions. And in the four years following Bristol-Myers, district courts in the Ninth Circuit have reached highly divergent results:

  • Some district courts have “agree[d] . . . that Bristol-Myers Squibb applies in the nationwide class action context” and have dismissed claims brought on behalf of putative nationwide classes, reasoning that “a state cannot assert specific personal jurisdiction for the claims of unnamed class members that would not be subject to specific personal jurisdiction if asserted as individual claims.” Carpenter v. PetSmart, Inc., 441 F. Supp. 3d 1028, 1035 (S.D. Cal. 2020); see also, e.g., Wenokur v. AXA Equitable Life Ins. Co., No. 17-165, 2017 WL 4357916, at *4 (D. Ariz. Oct. 2, 2017) (“The Court notes that it lacks personal jurisdiction over the claims of putative class members with no connection to Arizona and therefore would not be able to certify a nationwide class.”).

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CFPB Continues to Focus on Debt-Relief and Credit-Repair Services

By: Amina Stone-Taylor

Credit-reportIn recent years, the Consumer Financial Protection Bureau (CFPB) has focused its Bureau resources on companies offering credit repair and debt relief services.[1] In a 2019 consumer advisory, the CFPB reported that more than half the individuals who submitted a complaint to the Bureau about credit repair categorized it as “fraud/scam.”[2] The CFPB has also undertaken a number of enforcement actions focused on the credit repair industry.[3]

On June 28, 2021, the CFPB announced the proposed resolution of another enforcement matter arising from credit repair services—this time against Burlington Financial Group, LLC.  The CFPB and the Attorney General of the State of Georgia filed a joint complaint against Burlington Financial and its owners/executives, along with a proposed joint stipulation of final judgment and order. The complaint alleges that Burlington Financial misled consumers into believing the company could lower or eliminate credit-card debts and improve their credit score, and violated the Telemarketing Sale Rule (TSR) and the Consumer Financial Protection Act (CFPA) through their deceptive marketing tactics.[4] The CFPB stated, “Burlington Financial used telemarketing to solicit people with false promises that the company’s services would eliminate credit-card debts.”[5] The stipulated proposed order permanently bans Burlington Financial and its owners from providing any financial-advisory, debt relief, or credit repair services.[6] The company also will be responsible for paying a civil money penalty of $151,001.[7]

If you would like to read more about the CFPB’s claims against and resolution with Burlington Financial, please click here for access to the CFPB’s press release and filings.

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Consumer Financial Protection Bureau Releases Its 2020 Supervisory Highlights Report

By: Felicitas L. Reyes

New-Development-IconThe Consumer Financial Protection Bureau (CFPB) recently released the latest version of its Supervisory Highlights report, which summarizes the findings of the Bureau’s supervisory examinations in 2020. The CFPB identified four findings from the report as “particularly concerning”:

  1. Consumer Reporting Companies’ Use of Data From “Unreliable” Furnishers: The CFPB reported that its examiners found that consumer reporting companies have accepted and reported consumer data received from third-party furnishers, while ignoring signs that the data furnishers were unreliable. The CFPB warned that it “will remain diligent and consumer reporting companies are on notice with respect to risks posed by accepting data from furnishers where there are indications of unreliability.”

  2. Redlining: The report states that CFPB examiners found evidence of redlining, including direct mail marketing materials showcasing pictures of only white people and locating credit loan offices “almost exclusively” in majority-white neighborhoods. CFPB examiners found that these actions “lowered the number of applications from minority neighborhoods relative to other comparable lenders.”

  3. Regulation X Foreclosure Issues: The report states CFPB examinations identified “several violations” by mortgage servicers of the servicing rules in Regulation X, including filing for a foreclosure before evaluating borrower’s appeals or initiating a foreclosure prior to the date that they told consumers they would.  On June 28, 2021, the CFPB issued a final rule that it contends will help consumers avoid foreclosures as the emergency federal foreclosure protections expire.

  4. Student Loan Servicing for the PSLF Program: CFPB examiners found violations in the type of information that student loan servicers gave consumers about the Public Service Loan Forgiveness (PSLF) program. Examiners found that student loan servicers were giving consumers incorrect information that could potentially bar access to the program and could result in thousands of dollars lost for these consumers.

If you would like to read more about the areas mentioned above and other consumer law violations that the CFPB report discusses, please click here for access to the full supervisory highlights report and press release. 


EU Guidance on Forced Labour in Supply Chains

   

By: Paul FeldbergLucy Blake, and Karam Jardaneh

New-Update-IconIntroduction

Earlier this week, the European Commission published its Guidance “On Due Diligence For EU Businesses To Address The Risk Of Forced Labour In Their Operations And Supply Chains”. 

The document, which is not legally binding, provides practical guidance on how to use existing international, voluntary, due diligence guidelines and principles when dealing with the risk of forced labour in supply chains.

The European Commission made clear in its press release, that the Guidance forms part of the EU’s wider strategy to defend human rights and strengthen the resilience and sustainability of the EU supply chain. The European Commission sees the Guidance as encouragement for EU businesses to take appropriate measures regarding their supply chains ahead of the EU’s introduction of a mandatory due diligence duty for businesses operating in the EU. As set out in our previous Client Alert, the due diligence duty will require certain businesses operating in the EU to identify, prevent, mitigate and account for adverse human rights and environmental impacts in their operations and supply chains. We will also cover this in more detail as well as other developments in Europe in a separate Client Alert. 

Who should consider the Guidance? 

Although the Guidance is directed at EU companies, it is based on international instruments aimed at companies globally. This includes the OECD Due Diligence Guidance For Responsible Business Conduct (the OECD Guidelines) and the UN Guiding Principles on Business and Human Rights (UNGPs). While the UNGPs are not “legally binding” and are often referred to as “soft-law”, there are growing expectations for companies worldwide to adhere to them. This “soft law” has been evolving into “hard law” in multiple jurisdictions (the anticipated EU mandatory due diligence laws being a prime example). Therefore, we believe that this Guidance will be a helpful resource for companies globally.

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Ninth Circuit Not Sweet on Plaintiffs’ Interpretation of Trader Joe’s Honey Label

 

By: Alexander M. Smith

HoneyOn July 15, 2021, the Ninth Circuit issued a published decision in Moore v. Trader Joe’s Company in which it affirmed the dismissal of a lawsuit alleging that Trader Joe’s mislabeled its Manuka honey as “100% New Zealand Manuka Honey.” While the plaintiffs alleged that this statement was misleading because the honey was derived from floral honey sources other than Manuka flower nectar, the Ninth Circuit found that the labeling was not likely to mislead a reasonable consumer because it satisfied the FDA’s regulations governing the labeling of honey. Because “Trader Joe’s Manuka Honey is chiefly derived from Manuka flower nectar,” the Ninth Circuit concluded that “Manuka is therefore the chief flower source for all of the product’s honey under the FDA’s definition, even if some of it is derived from nectar from other floral sources.” Thus, “there is no dispute that all of the honey involved is technically manuka honey, albeit with varying pollen counts.”

The Ninth Circuit also rejected the plaintiffs’ argument “that ‘100% New Zealand Manuka Honey’ could nonetheless mislead consumers into thinking that the honey was ‘100%’ derived from Manuka flower nectar.” Although it acknowledged that “there is some ambiguity as to what ‘100%’ means in the phrase, ‘100% New Zealand Manuka Honey,’” the court nonetheless found that this ambiguity was unlikely to mislead a reasonable consumer, as “other available information about Trader Joe’s Manuka Honey would quickly dissuade a reasonable consumer from the belief that Trader Joe’s Manuka Honey was derived from 100% Manuka flower nectar.” 

This decision builds upon other recent decisions in which the Ninth Circuit has rejected product mislabeling claims based on decontextualized and therefore implausible interpretations of product labels. See, e.g., Becerra v. Dr Pepper/Seven Up, Inc., 945 F.3d 1225 (9th Cir. 2019) (holding that a reasonable consumer would understand the word “diet” on a soda label in context to make a comparative claim only about the product’s caloric content, not to make a claim that the soda promotes weight loss generally). Although the Ninth Circuit has historically been viewed as friendly to plaintiffs in food-labeling litigation, Becerra and Moore signal that courts in the Ninth Circuit are becoming increasingly skeptical of these claims.


Supreme Court Limits Article III Standing for Class Action Plaintiffs: Implications for Data Breach Class Actions

   

By: Clifford W. BerlowAlexander E. Cottingham, and Lindsay C. Harrison

SCOTUSIntroduction

On June 25, 2021, the US Supreme Court in TransUnion LLC v. Ramirez[1] narrowed the scope of Article III standing for plaintiffs who allege the violation of a statute but cannot show they otherwise suffered harm. Though decided in the context of a Fair Credit Reporting Act (FCRA) class action, the decision has major implications for parties litigating state and federal statutory claims of all varieties in federal courts. In particular, TransUnion seems poised to limit the viability of class actions arising from data breaches. The decision likely means, for example, that plaintiffs lack Article III standing when their information may have been accessed but was not misused in a manner causing concrete harm—a subject on which the courts of appeals previously had split. The decision also will limit plaintiffs’ ability to assert Article III standing merely based on the violation of privacy statutes alone without any resulting harm. 

Defendants litigating data breach class actions can take advantage of this new precedent in federal court to seek dismissal of data breach class actions for lack of Article III standing. But doing so is not without consequence. If federal courts are not available to adjudicate these claims, plaintiffs likely will pursue them in state courts, where standing precedent may be more lenient for plaintiffs. Defendants thus will need to be strategic about how aggressively they pursue TransUnion-based dismissals.

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Supreme Court Gives More Tools for Defendants to Challenge Class Certification in Securities Fraud Cases

   

By: Ali M. Arain, Stephen L. Ascher, Howard S. Suskin, and Reanne Zheng

Supreme Court PillarsIntroduction

On June 21, 2021, the US Supreme Court issued its decision in Goldman Sachs Group Inc. v. Arkansas Teacher Retirement System,[1] providing guidance to lower courts regarding class certification in securities fraud class actions. On balance, the opinion favors defendants, and potentially signals a backlash against the tide of securities fraud class actions based on vague and generic misstatements. Importantly, the Court instructed that all relevant evidence should be considered when making the class certification decision, sending a message that lower courts must grapple with and cannot ignore relevant evidence at the class certification stage simply because it overlaps with the merits-related evidence. The Court also stressed that the generic nature of a misrepresentation is often important evidence of lack of price impact, which lower courts should consider when deciding whether to grant or deny a class certification motion. 

Although the Supreme Court’s decision was not as sweeping as the defendants wanted, it does signal the Supreme Court’s concern that companies are too frequently held liable for securities fraud as a result of adverse legal or business developments, even where the company had never made any specific statements about the matters in question.

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