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

Introduction

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.

By: Lindsey A. Lusk

A legal battle over a charter to allow Fintech companies to become special purpose national banks has been put on pause. But for how long will the future of the charter remain in limbo? On June 16, 2021, the Conference of State Bank Supervisors (the CSBS) and the Office of Comptroller of the Currency (OCC) agreed to stay the litigation, and the district court approved a motion formalizing the parties’ agreement to put the litigation on hold for 90 days,[1] though some analysts have warned that the fate of the charter still may not be easily resolved.[2]

The pause follows the recent dismissal of a similar case in the Southern District of New York. In Lacewell v. Office of the Comptroller of the Currency, the New York Department of Financial Services (DFS) was attempting to block the OCC’s special purpose national bank charter (the “Fintech charter”). The Fintech charter would allow certain non-depository Fintech companies to operate as “special purpose national banks” under the National Bank Act (NBA). Accordingly, the Fintech companies would not be subject to state-by-state regulation and licensing. DFS argued that the charter is unlawful because it exceeds the OCC’s authority under the NBA.[3]

The case had been pending on appeal in the Second Circuit since April of 2020, after the district court denied the OCC’s motion to dismiss and found that DFS had standing to sue.[4] The Second Circuit heard oral argument in March 2021, and reversed the lower court’s ruling on June 3, holding that DFS lacked standing to challenge the Fintech charter.[5] It remanded the case to the district court with instruction to dismiss without prejudice.[6]

By: Elizabeth Avunjian

Earlier this month, and just two days apart, the Ninth and Eleventh Circuits reached opposite conclusions regarding two class action settlements: the Ninth Circuit overturned approval of a class settlement related to the alleged mislabeling of cooking oil in Briseno v. Henderson, while the Eleventh Circuit upheld all but one element of a class settlement related to the 2017 Equifax data breach in In Re Equifax Inc. Customer Data Sec. Breach Litig. Despite the courts’ divergent holdings, their analyses provide insight into how federal courts review fee awards in assessing the reasonableness of class settlements.

Notably, the Ninth Circuit took one step further than the Eleventh Circuit in applying newly-revised Federal Rule of Civil Procedure 23(e)(2) to impose a “heightened inquiry” obligation on district courts “to scrutinize attorneys’ fees for potential collusion that shortchanges the class, even in post-class certification settlements.” Briseno v. Henderson, No. 19-56297, 2021 WL 2197968, at *6, 13 (9th Cir. June 1, 2021).

By: Madeline Skitzki

On June 14, 2021, Judge Jeffrey S. White of the Northern District of California dismissed yet another lawsuit challenging representations about vanilla on food products.  In that lawsuit—Lisa Robie v. Trader Joe’s Company, Case No. 4:20-cv-07355-JSE—the plaintiff alleged that Trader Joe’s mislabels its Almond Clusters cereal as “Vanilla Flavored With Other Natural Flavors,” when in fact (1) the cereal contains only trace amounts of real vanilla, and (2) the predominant source of the vanilla taste is from the artificial flavors vanillin and ethyl vanilla.

The court dismissed the claims on several grounds, with leave to amend. First, the court found that, to the extent the plaintiff challenged the product’s flavors—as opposed to its ingredients—as unnatural, those claims were preempted by the FDA’s flavor regulations. Second, the court found that the statutory and common law claims failed as a matter of law because the plaintiff did not plausibly allege that a reasonable consumer would interpret the “vanilla” representation to mean that the product’s flavor is derived exclusively from the vanilla plant. In so holding, the court found that the plaintiff failed to plausibly allege that the vanillin in the cereal is necessarily artificial. The court also noted that the label did not include any words or pictures suggesting the cereal’s vanilla flavor is derived exclusively from the vanilla bean or plant. And even if the label’s reference to “vanilla” would lead consumers to believe that the product contains vanilla from the vanilla plant, the court found no deception because the plaintiff conceded that the product does contain some real vanilla. The court also dismissed the plaintiff’s equitable claims because she had not alleged that she lacked an adequate remedy at law.

By: Lindsey A. Lusk

Consumers seeking to hold companies accountable for differential pricing of allegedly materially identical products have recently faced push-back from several federal courts. In May 2021, two federal courts dismissed consumer-protection claims based on price differentials between such products.

In Schulte v. Conopco, et al., the Eighth Circuit affirmed the Missouri district court’s dismissal of a Missouri Merchandising Practices Act (MMPA) claim premised on allegedly discriminatory price differentials between women’s and men’s deodorant products (a so-called “pink tax” claim). 2021 WL1971957 at *1 (8th Cir. May 18, 2021). The appellate court held that the plaintiff failed to meet the plausibility pleading standard and was mistaking “gender-based marketing for gender discrimination.” Id. The court also noted that the plaintiff was “conflate[ing] marketing targeted to women with enforced point-of-sale pricing by gender,” and that the plaintiff’s choice not to purchase men’s antiperspirant “illustrates a difference in demand based on product preferences.” Id. Because “preference-based pricing is not necessarily an unfair practice,” the court held that the MMPA did not prohibit the defendants’ differential pricing.

By: Matthew G. Lawson

1. Introduction

According to a report released in February 2021 by the organization Safer States, at least 27 US states will consider proposed legislation to regulate toxic chemicals in 2021. While a large driver of the proposed state laws is growing public concern over drinking water contamination from “emerging contaminants,” including PFAS (per- and polyfluorinated alkyl substances) and 1,4-dioxane, a secondary focus has been to minimize the risk of adverse human health effects from exposure to these toxic chemicals in cosmetics and personal care products. Two states—New York and California—are spearheading these efforts through recently enacted laws to limit or prohibit certain toxic chemicals in cosmetics and personal care products that are set to take effect in 2022 and 2025, respectively. As other states consider their own bills to enact similar regulation of chemicals in cosmetics and personal care products, heightened attention will likely be paid to what extent the existing federal regulation of these products may preempt this new wave of state legislation.

2. Federal Regulation of Chemicals in Cosmetics and Personal Care Products

At the federal level, chemicals used in cosmetics and other personal care products are primarily regulated by either the Toxic Substrates Control Act (TSCA) or the Federal Food, Drug, and Cosmetic Act (FD&C Act). While TSCA broadly applies to any “chemical substance,” certain chemicals or uses of chemicals are exempt from TSCA if they are regulated by other federal statutes. Such products include “cosmetics” regulated by the FD&C Act, which are defined as “articles intended to be rubbed, poured, sprinkled, or sprayed on, introduced into, or otherwise applied to the human body...for cleansing, beautifying, promoting attractiveness, or altering the appearance.” While the distinction between a cosmetic and personal care product may not always be apparent to the consumer, the difference is crucial with respect to federal oversight of the chemicals contained in the product.