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April 2017

Central District of California Chips Away at Suit Alleging Defective Car Paint

Pexels-photo-26672By Sandra Hanian

On April 13, Judge Beverly Reid O’Connell of the Central District of California dismissed a putative class action lawsuit against Hyundai for selling cars with allegedly defective paint, but allowed most of the plaintiffs leave to amend the complaint.

Fifteen named plaintiffs from across the country alleged that certain 2006-2016 Hyundai Santa Fe, Sonata, and Elantra automobiles had defective “self-healing” paint that Hyundai fraudulently concealed from its customers.  Specifically, the plaintiffs claimed that Hyundai represented that it used “state-of-the-art paint” on its vehicles that would “stand the test of time” and “protect against corrosion, rust[,] and scratches,” when in fact Hyundai used “a coating with a short lifespan of three years” without providing “any warning or disclosure.”  The plaintiffs alleged that when they informed Hyundai about the peeling paint on their cars, they were told that Hyundai would not provide any repairs because the warranty period had already expired or that the condition was just “normal wear and tear,” or Hyundai otherwise refused to assist them. 

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Ninth Circuit Revives Suit Alleging Gerber Sold “Misbranded” Baby Food

8708982582_39f4d524c4_bBy Kelly M. Morrison

On Wednesday, April 19, 2017, the Ninth Circuit (with Judge O’Scannlain dissenting in part) issued an unpublished opinion reversing and remanding several of Judge Koh’s orders in Bruton v. Gerber Products Co. 

Plaintiff Natalia Bruton alleged that the labels of several Gerber baby food products were “misbranded” under the federal Food Drug & Cosmetic Act (“FDCA”) and the FDA regulations adopted pursuant to that Act, violating several federal and California statutes, including California’s Unfair Competition Law (“UCL”), False Advertising Law (“FAL”), and Consumer Legal Remedies Act (“CLRA”), and supporting a claim for unjust enrichment.  For example, Plaintiff alleged that the labeling claims on the products at issue, such as “No Added Sugar” and “As Healthy as Fresh,” were impermissible because food manufacturers are allegedly “prohibited from making nutrient content claims with respect to food products intended to be consumed by children under two years old.”  Among other things, Plaintiff asserted a novel theory that, even if the labels were not false or misleading to a reasonable consumer, the labeling violations barred the products from being “legally sold or possessed,” rendering them “legally worthless.”  According to Plaintiff, the mere sale of a product bearing an improper label – “standing alone without any allegations of deception by Defendant, or review of or reliance on the labels by Plaintiff” – gives rise to a cause of action under California law.

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Supreme Court Determines that New York Law Governing Credit Card Surcharges Regulates Speech

Pexels-photoBy Leonard R. Powell

On March 29, 2017, the United States Supreme Court held that a New York law prohibiting sellers from “impos[ing] a surcharge on a holder who elects to use a credit card” was a regulation of speech—not conduct—but the Court remanded the case to the Second Circuit to determine whether the speech regulation survives First Amendment scrutiny.

Regulation of credit card “surcharges” and cash “discounts” dates back to the 1970s and 1980s. In 1974, Congress amended the Truth in Lending Act (TILA) to, inter alia, “prohibit[] card issuers from contractually preventing merchants from giving discounts to customers who paid in cash.” In 1976, Congress further added to TILA a ban on card surcharges. However, the existence of opposing bans demanded a method for distinguishing between them. By 1981, Congress had defined “discount” as “a reduction made from the regular price,” “surcharge” as “any means of increasing the regular price to a cardholder which is not imposed upon customers paying by cash, check, or similar means,” and “regular price” as (1) the “tagged or posted” price when only a single price is posted, or (2) the price charged to card users when either no price is posted or two prices (both a cash price and a credit card price) are posted. Despite the complicated nature of this statutory framework, the bottom line was simple: “a merchant could violate the surcharge ban only by posting a single price and charging credit card users more than that posted price.”

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Senate Commerce Committee Clears Main Street Cybersecurity Act to Help Small Businesses

By Sati Harutyunyan

Hacking-2077124_1920The full Senate will consider a bill that seeks to equip small businesses with resources to shield against and manage cybersecurity risks, following the Senate Commerce Committee’s passage of the Making Available Information Now to Strengthen Trust and Resilience and Enhance Enterprise Technology (“Main Street”) Cybersecurity Act on April 5, 2017.  The crux of the bill is a requirement that the National Institute of Standards and Technology (NIST) provide resources to small business wishing to implement the voluntary NIST Cybersecurity Framework.  The term “resources” refers to guidelines, tools, best practices, standards, methodologies, and other ways of providing information, and does not indicate financial contributions.  S. 770, 115th Cong.  § 3(a)(2) (2017).

The bill proposes that that NIST must, under the Cybersecurity Enhancement Act of 2014, facilitate and support a voluntary public-private partnership that is crucial to reducing cybersecurity risk and making U.S. cyberspace safer.  Id. at § 2.  In an apparent effort to promote that partnership, the bill requires NIST to consult with heads of federal agencies and disseminate clear and concise resources for small businesses to help reduce their cybersecurity risks.  Id. at § 3(c)(1) (2017).  In designing the resources, NIST must tailor them to fit the nature and size of the small business implementing the Cybersecurity Framework.  Id. at § 3 (c)(2)(B) (2017).  Moreover, NIST must ensure that all resources are technologically neutral and implementable using commercial and off-the-shelf technologies.  Id. at § 3 (c)(2)(D) (2017).  Finally, the bill clarifies that the use of the disseminated resources by small businesses is to be voluntary.  Essentially, the bill is designed to help small businesses help themselves, and to ensure that the NIST Framework evolves to incorporate the needs of small businesses.  Previous cybersecurity legislation (including the Cybersecurity Act of 2015) have focused on owners and operators of critical infrastructure industries, given their heightened obligations for security.  This bill’s focus on small business demonstrates that cybersecurity should be a priority for all companies, and that there should be improved ways to assist small businesses in increasing their own cybersecurity. 

A date for full consideration has not yet been scheduled.

D.C. Circuit Strikes Down FCC Rule Requiring Opt-Out Notices on Solicited Faxes

By Alexander M. Smith

Printer-2178752_1920In November 2016, this blog reported that the D.C. Circuit appeared “sympathetic” to the position that the Telephone Consumer Protection Act (“TCPA”), which regulates “unsolicited” fax advertisements, did not empower the FCC to require opt-out notices on solicited fax advertisements.  Last Friday, a divided panel of the D.C. Circuit issued an opinion striking down the FCC’s 2006 rule requiring opt-out notices on solicited fax advertisements. 

In 2010, a group of businesses facing class action lawsuits involving solicited faxes without opt-out notices sought a declaratory ruling from the FCC clarifying that the TCPA does not require an opt-out notice on solicited fax advertisements.  The FCC responded to their petition by reiterating its position that the TCPA authorized it to require opt-out notices on solicited faxes, but it stated that it would waive application of this rule to businesses that sent solicited faxes before April 30, 2015.  The petitioners then sought review from the D.C. Circuit.  (A separate group of class action plaintiffs also appealed the FCC’s decision to grant a retroactive waiver.) 

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Southern District of California Dismisses Serial Plaintiff’s Suit Challenging Discount Prices

930660427_f9b535e230_oBy Sandra Hanian

On March 22, Judge John A. Houston of the Southern District of California dismissed one of the latest in a long line of putative class action lawsuits against retailers for allegedly deceptive pricing practices at outlet and factory stores, but allowed the plaintiff leave to amend the complaint.

The plaintiff Randy Nunez — who had previously filed putative consumer class actions against Best Buy, Microsoft, ConAgra, and others — alleged that Saks Incorporated advertised false comparable prices and false price discounts for the retailer’s branded merchandise sold at Saks Fifth Avenue OFF 5th stores and on the website.  Specifically, he claimed that he purchased a pair of Saks-branded shoes advertised with a “market price” of $145.00 and sold at a discounted sale price of $79.00, but that this and advertised discounts for other products were “nothing more than mere phantom markdowns because the represented market prices were artificially inflated and were never the original prices” for the items sold.  Amended Complaint at ¶¶ 2, 10, Nunez v. Saks Inc., No. 15-02717 (S.D. Cal. Jan. 15, 2016), ECF No. 8.  Further, the plaintiff asserted that the represented “market” prices were not the prevailing market retail prices within 90 days preceding the publication of the advertised former prices, as required by California law.  Nunez alleged that Saks’ pricing practices violated California’s Unfair Competition Law (“UCL”) False Advertising Law (“FAL”), and Consumer Legal Remedies Act (“CLRA”), as well as the Federal Trade Commission Act.

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