Consumer Advertising Law Blog

Ninth Circuit Puts the Brakes on Nationwide Class of Auto Purchasers

A January 12, 2012 decision by the Ninth Circuit has established significant limits on the circumstances in which California’s consumer protection laws can apply to transactions in other states. At the same time, the decision establishes a useful precedent for defendants who seek to block certification of nationwide classes of consumers under state consumer protection laws in any jurisdiction. 

The Ninth Circuit case -- Mazza v. American Honda Motor Co. -- was brought by consumers from Florida and Maryland who purchased Acura RL cars equipped with the so-called Collision Mitigation Braking System (CMBS). The plaintiffs pointed to a product brochure, television commercials, magazine advertisements, Acura’s own website and magazine, and the owner’s manual, all of which, plaintiffs said, marketed CMBS’s functionality in a misleading way. Even though the plaintiffs bought their cars in Florida and Maryland, they argued that the advertising, which was created in California, violated California’s expansive and plaintiff-friendly consumer protection laws (the Unfair Competition Law, False Advertising Law, and Consumer Legal Remedies Act). The district court certified a nationwide class of consumers who purchased or leased new or used Acura RL cars with CMBS, finding that the plaintiffs met their burden for class certification under Federal Rule of Civil Procedure 23. 

A panel of the Ninth Circuit vacated the class in a 2-1 decision (Senior Judge Dorothy Nelson dissented), finding that the lower court misapplied the “predominance” prong of Rule 23(b)(3), which requires that the questions of law or fact common to class members predominate over any questions affecting only the individual members. As to the questions of law, the court ruled that each class member’s consumer protection claim must be governed by the consumer protection laws of the jurisdiction in which the transaction took place, not only California. The court pointed to material conflicts between the consumer protection laws of California and other states (such as a scienter requirement of some state consumer protection laws but not others). Then, with sweeping language, the court explained why each state has an interest in having its own consumer protection laws apply to conduct within its borders:

More expansive consumer protection measures may mean more or greater commercial liability, which in turn may result in higher prices for consumers or a decrease in product availability. . . .  As it is the various states of our union that may feel the impact of such effects, it is the policy makers within those states, within their legislatures and, at least in exception or occasional cases where there are gaps in legislations, within their state supreme courts, who are entitled to set the proper balance and boundaries between maintaining consumer protection, on the one hand, and encouraging an attractive business climate, on the other hand.

The Ninth Circuit further drew upon the principles of federalism underlying the enactment of the 2005 Class Action Fairness Act, and noted that, if California law were applied to the entire class, foreign states would be impaired in their ability to calibrate liability to foster commerce. As the court concluded, “[t]he district court’s reasoning elevated all states’ interests in consumer protection to a superordinate level, while ignoring or giving too little attention to each state’s interest in promoting business.”  These words will no doubt be music to the ears of the defense bar. 

Having concluded that common questions of law did not predominate, the Court turned to whether common issues of fact predominated. In this analysis, the Court pointed to the “fairly limited” nature of the CMBS advertising. This fell short of an “extensive and long-term” advertising campaign needed to establish a common questions of fact. Thus, the court concluded, even if the class was restricted only to those who purchased or leased their car in California, common issues of fact would not predominate because the class includes members who were not exposed to, and therefore could not have relied on, Honda’s allegedly misleading advertisements.

There are two major takeaways from this decision. First, the conflict of law analysis represents a serious blow to the nationalization of California consumer protection laws. As this blog has noted before (e.g., here and here), California’s laws allowing private damages suits over even the most minor or technical omissions have made it a breeding ground for consumer class action litigation. And plaintiffs’ lawyers have worked hard to make those laws apply to consumer transactions in other states so long as the transaction has some arguable nexus to California. The Ninth Circuit’s decision should greatly curtail that trend, as it found that California’s consumer protection laws are not so far-reaching. Second, putative classes of consumers from multiple states will find it harder to have a single state’s consumer protection law cover all of their claims, which, in turn, will make it harder for the consumers to get nationwide classes certified in any jurisdiction. Undoubtedly, Mazza will be cited by product liability defendants in class certification proceedings throughout the country.

As a final observation, we find it interesting how little a role the Supreme Court’s  decision last June in Wal-Mart v. Dukes played in the decision. It seems pretty clear the panel would have viewed Mazza the same way even before Wal-Mart. Indeed, the only significant place Wal-Mart was cited was where the majority distinguished it by saying the Mazza plaintiffs, unlike the Wal-Mart plaintiffs, satisfied Rule 23(a)(2)’s “commonality” requirement, which leads one to wonder whether the Ninth Circuit fully absorbed what Wal-Mart said about commonality. When Wal-Mart came down last summer, the conventional wisdom was that it was front-loading a predominance-like inquiry into “commonality.” But Mazza -- just like another recent class action decision out of California that we recently wrote about -- seems to go on applying commonality in the same way that courts did before Wal-Mart. 

 - Matt Eisenstein and Rob Katerberg

Google Defeats AdWords Class, But Has Wal-Mart Really Sunk In?

Last week, in In re Google Adwords Litigation, a federal judge in California issued a decision on class certification in a lawsuit brought by businesses that had placed ads through Google.  The plaintiffs alleged that Google acted unfairly and deceptively by charging them for ads appearing on low-quality, low-traffic websites where not many people would see them. Last week’s decision provides a window into how the standards announced by the Supreme Court in last summer’s keynote Wal-Mart v. Dukes decision are being carried out in the lower courts.

The Google court denied certification because plaintiffs failed to clear Rule 23(b)(3)’s “predominance” hurdle (the requirement that common issues of law or fact predominate over those that would have to be resolved on an individual basis). The court acknowledged that whether Google made misleading omissions was a common question. But the issue of damages to class members was another matter entirely.

Even the threshold question of “which advertisers among the hundreds of thousands of proposed class members are even entitled to restitution would require individual inquiries” because some class members did benefit economically from the ads.  For those who were entitled to restitution, calculation of the appropriate amount would be a quintessentially individual inquiry because the prices advertisers paid were determined through a dynamic auction process that priced each ad and viewer’s click uniquely. A number of courts have previously held that individual issues solely as to the amount of damages do not preclude certification, so the California court’s focus on this issue should be helpful to the defense in future consumer fraud and antitrust cases involving industries and products where pricing is individualized.

So this decision shows Wal-Mart is having an impact, right? Well, maybe, maybe not. The court’s “predominance” analysis relied mostly on pre-Wal-Mart jurisprudence and concepts (not surprisingly, as Wal-Mart was a (b)(2) class action where predominance was not required). Ironically, on the precise legal point where Wal-Mart really moved the needle – the rigor of the “commonality” requirement of Rule 23(a) – the Google court seemed largely unmoved by Wal-Mart’s teachings. The Google court held the plaintiffs to a rather low bar of simply articulating a common question: “whether Google’s alleged omissions were misleading to a reasonable AdWords customer.” That part of the opinion reads a lot like the check-the-box approach to commonality that lower courts routinely took before Wal-Mart’s admonition that while “any competently crafted class complaint literally raises common questions,” the real question is the “capacity of a classwide proceeding to generate common answers apt to drive the resolution of the litigation.”

Even so, the ultimate result the court reached is certainly consistent with Wal-Mart’s tenor.  No doubt we will have many more opportunities in the months ahead to see how Wal-Mart is playing into lower court class certification decisions.    

- Robert Katerberg

2011: Consumer Protection and Advertising Year-in-Review

From celebrity misappropriation suits to blockbuster class action rulings in the Supreme Court, 2011 was another exciting year in consumer advertising law. As we look forward to 2012, here’s a look at eleven of the top stories from the year that was. If you have your own nominees for 2011’s top eleven, send an email (randal.shaheen@aporter.com) and we’ll try to post our readers' list later this month. 

11. Maybe It’s Maybelline … or Maybe It’s Airbrushed

Beauty enhancements should come from products, not post-production! So said the UK’s Advertising Standard Authority in 2011, when it banned advertisements [Aug. 2, 2011] depicting Julia Roberts and Christy Turlington on the basis that the images had been digitally altered.

10. 2011.xxx

Many a legitimate enterprise found itself registering a .xxx domain name in 2011, as a new top level domain was launched for adult content on the Internet. These companies blushingly took advantage of the Sunrise B [Oct. 11, 2011] time period during which non-adult-industry trademark owners could defensively register their marks, thereby eliminating them from the pool of available .xxx domains.

9. There’s No Such Thing as a Free Lunch

It seems like the battle against the bulge is never-ending and so is the FTC’s battle against companies advertising misleading weight loss remedies. In 2011 the FTC reached a $25 million settlement [Oct. 4, 2011] with Reebok over ads for toning shoes that promised “a better butt and better legs with every step.”

8. She Looks Like Kim Kardashian

It’s well known that misappropriation suits are de rigueur for any self-respecting celebrity du jour.  See e.g., Paris Hilton’s 2009 suit against Hallmark (for use of the phrase “that’s hot”); Lindsay Lohan’s 2010 suit against E*Trade (for portraying a baby named Lindsay as a “milkaholic”). 2011 was no exception, as Kim Kardashian sued Old Navy [Aug. 4, 2011] for allegedly using a model resembling her in a TV advertisement.   

7. Made in Havana, Puerto Rico

The rule that literally true statements can be challenged as impliedly false took a hit this year [Oct. 10, 2011] when the Third Circuit held that survey evidence showing that the name “Havana Rum” gave the impression the rum was made in Cuba could be excluded because the statement on the bottle that the rum was “made in Puerto Rico” was objectively verifiable.

6. The Meaning of “Natural” 

The trickle of cases alleging deceptive use of the term “natural” on labeling or in advertisements became a torrent in 2011, with new suits [Oct. 3, 2011] against Conagra, Kellogg, and Skinny Girl, to name just a few.

5.Protecting Children in the US -- Standards for Food Advertising

We have been following FTC efforts to establish principles for marketing food to children for some time. In 2011, these efforts culminated in initial recommendations [May 16, 2011] published by the Interagency Working Group on Food Marketed to Children. These recommendations met with heavy resistance in the form of an industry coalition, [Aug. 9, 2011] which is seeking legislative action on the basis that the proposed standards are overbroad and anti-business.     

4. Protecting Children in the UK -- Standards for Decency 

The UK advertising regulator, the Advertising Standards Authority, was also active in protecting children in 2011, finding ad campaigns directed at children [Oct. 24, 2011] or portraying children (here and here) [Aug. 18 and Dec. 19, 2011] to violate UK standards for responsible advertising.

3.COPPA 

The FTC proposed changes [Sept. 23, 2011] to rules implementing the Children’s Online Privacy Protection Act (COPPA), which provides parents control over what personal information web sites may collect from children under 13 years old. These proposals are significant, particularly because FTC enforcement has made COPPA compliance a serious consideration [Nov. 23, 2011] for all web site operators.

2. Concepcion

In AT&T Mobility LLC v. Concepcion [May 4, 2011], the Supreme Court held that arbitration provisions prohibiting class-wide arbitrations can be enforced, and that the California Supreme Court’s decision in Discover Bank finding such provisions unenforceable is preempted by the Federal Arbitration Act. The full ramifications of Concepcion have yet to play out, but at least one court has found that such clauses can still be unconscionable. [Nov. 14, 2011]

1. Wal-Mart v. Dukes

The top spot on our list goes to the Supreme Court’s watershed decision [June 28, 2011] on class certification, the first of its kind in many years. Wal-Mart embraces a rigorous analysis of the elements of class certification, and substantially raises the bar for showing that the commonality element of Rule 23 has been met. Commentators were quick to predict that Wal-Mart would shape class action law for years to come, and early indications [Aug. 24, 2011] suggest that might be an understatement. [Nov. 15, 2011]

- George Langendorf, Randy Shaheen, and Amy Mudge

Seventh Circuit Announces Heightened Scrutiny of Class Action Counsel’s Conduct

In a decision last week called Creative Montessori v. Ashford Gear, the Seventh Circuit vacated a district court order certifying a class in a “junk fax” case under the Telephone Consumer Protection Act.  The appellate court rested that action on the relatively rare basis that alleged misconduct by plaintiffs’ counsel made them inadequate representatives of the class. The decision, written by influential judge Richard Posner, may augur more rigorous scrutiny of class counsel’s litigation conduct in future cases, giving defense counsel a new weapon against certification.

At issue in the case was defendant Ashford Gear’s use of mass faxes to advertise its goods, which allegedly violated the Act with its $500-per-fax damages provision. It is usually relatively simple and routine to get these cases certified. But this time, there was a problem. According to the Seventh Circuit, the law firm bringing the case had engaged in some questionable practices in recruiting the named plaintiff, a private school. First, the law firm allegedly tricked a marketing agent into disclosing the defendant’s identity. Second, when the law firm contacted the named plaintiff, it said “you are likely to be a member of the class,” which the Seventh Circuit found misleadingly implied there was already a certified class.

The Seventh Circuit was very troubled by these practices, finding “a lack of integrity that casts serious doubt on [the lawyers’] trustworthiness as representatives of the class.” This concern is at its zenith, the court said, “when the class members are consumers, who ordinarily lack both the monetary stake and the sophistication in legal and commercial matters that would motivate and enable them to monitor the efforts of class counsel on their behalf.”

In the past, courts have often treated class action lawyers more leniently, as did the district court in this case, relying on a 1972 Seventh Circuit precedent that had said “only the most egregious misconduct” could justify denying certification. No longer. Last week’s decision jettisons that old standard and serves notice on the plaintiffs’ bar that their conduct -- particularly in connection with ginning up the class action in the first instance -- will be open to scrutiny and may preclude certification.

So here we have yet another federal decision tightening up standards for class certification in federal courts. Indeed, just as Wal-Mart v. Dukes breathed new life into the so-called “commonality” requirement of Rule 23(a)(2), Creative Montessori could be seen as reinvigorating the adequacy-of-counsel requirement of Rule 23(a)(4) and (g), which had seldom been a major battleground in previous class certification wars. Defense counsel may also have more leeway now to take discovery of the circumstances of plaintiffs’ counsel’s identification and recruitment of the named plaintiffs, an area that has sometimes been off limits to them in the past.

- Robert Katerberg

Seventh Circuit Holds State AG Parens Patriae Actions Not Removable Under CAFA

To curb class action abuse, the Class Action Fairness Act of 2005 expanded the circumstances in which class actions filed in state court can be removed to federal court.  Over the past few years, a hotly debated issue has been whether certain “parens patriae” suits by state attorneys general -- in which the state seeks to recover damages on behalf of a large number of its citizens -- are removable as the functional equivalent “class actions” or “mass actions” under CAFA.  Last Friday, in LG Display v. Madigan, the Seventh Circuit added its voice to a growing chorus of appellate courts answering “no” to that question.

In LG Display, the Illinois Attorney General sued eight manufacturers of LCD panels for allegedly fixing prices of LCD panels.  Notably, the AG not only sought relief on behalf of the State of Illinois itself as a purchaser of the allegedly impacted products, but also pursued treble damages for all Illinois residents who had purchased the products.

In the latter respect, the parens patriae action seems the functional equivalent of a class action because a single entity gets to represent a massive class and try to win damages for them.  Yet parens patriae suits are not technically class actions.  They do not get “certified,” and do not have to meet the strictures of Federal Rule of Civil Procedure 23 or state equivalents. Courts have therefore puzzled over how exactly this unique animal should be treated under CAFA.

Before Friday,

• The Fifth Circuit had held that a suit by the Louisiana AG against the insurance industry seeking damages for insurance policyholders was removable under CAFA.
• A Pennsylvania district court followed the Fifth Circuit's logic in upholding removal of a suit by the West Virginia AG on behalf of individual cable subscribers against Comcast. 
• West Virginia’s home Circuit, the Fourth, disagreed earlier this year, holding that a different parens patriae suit by the West Virginia AG -- this time the target was the retail pharmacy industry -- was not removable under CAFA. 
• And just last month, in a different set of LCD panel antitrust cases (small world), the Ninth Circuit held that parens patriae suits by the AGs of Washington and California on behalf of indirect purchasers in those states should stay in state court.

So for those keeping score at home, the count is now 3-2 in favor of parens patriae actions being non-removable under CAFA, with all three of the most recent decisions having gone that way. Only time will tell whether the Seventh Circuit’s breaking the tie generates momentum for the rest of the Circuits to fall into line with what now seems the majority position, or is merely the latest ebb in a debate that may eventually have to be settled by the Supreme Court. 

- Robert Katerberg

 

Supreme Court Declines to Rule On Whether Disclaimers of Damages Above $5 Million Prevent CAFA Removal

Last week, the Supreme Court passed up an opportunity to weigh in on an issue of growing importance in consumer class actions:  whether plaintiffs can keep a class action in state court by purporting to disclaim damages above $5 million, the amount in controversy threshold for removal under the Class Action Fairness Act (CAFA).

CAFA, passed in 2005, was designed to curtail class action abuses by channeling more class actions into federal court. It allows defendants to remove many state court class actions to federal court if there is minimal diversity of citizenship and the amount in controversy exceeds $5 million. In the past few years, many plaintiffs’ counsel have tried to avoid CAFA removal, even where an objective estimate of the amount in controversy would surpass $5 million, by including language in the complaint saying that the class waives or disclaims any damages above that amount. After Wal-Mart v. Dukes, plaintiffs’ counsel now have more of an incentive than ever to use all possible means to keep their cases in state court, where Wal-Mart’s heightened standards for certification may not necessarily apply.

This tactic has been fraught with controversy. As Judge Easterbrook on the Seventh Circuit recently held, a class plaintiff “has a fiduciary duty to its fellow class members. A representative can’t throw away what could be a major component of the class’s recovery.” There are serious questions about whether such a waiver can bind a putative class, and whether a class plaintiff who would waive his fellow class members’ rights at the outset can possibly be an “adequate representative.” In any event, the practice smacks of the type of gamesmanship that led Congress to enact CAFA in the first place.

In the case the Supreme Court declined to take up last week, plaintiffs brought a class action against shoe company Skechers in Arkansas state court for alleged false and misleading claims about health benefits of wearing Skechers shoes. Although Skechers submitted proof that the potential damages could reach $38 million, its attempt to remove the case to federal court under CAFA failed because plaintiffs included language purporting to waive class damages above $5 million. The Eighth Circuit denied review.  Despite compelling amicus briefs by the US Chamber of Commerce and the Center for Class Action Fairness spelling out the profound ramifications, and what appears to be an emerging circuit split, so now has the US Supreme Court.

A denial of certiorari of course does not signal anything about the Court’s view of the merits. So the class action bar will have to wait another day for a definitive national resolution of this important question. With the circuits divided and the incentives for plaintiffs to keep their cases in state court mounting, it is a good bet that day may come sooner rather than later.

- Robert Katerberg

Sixth Circuit: Early Preemptive Strike Upheld in Dismissing Class Action

The Sixth Circuit Court of Appeals last week affirmed a denial of class certification in Pilgrim v. Universal Health Card, one of the first appellate opinions in the country relying on the Supreme Court’s watershed class certification opinion of Wal-Mart v. Dukes in a consumer class action. In the process, the Sixth Circuit may have also given new traction to a potent but rarely used tactic in the defense playbook, the early preemptive motion to deny class certification or strike class allegations.

The defendant company in Pilgrim marketed a healthcare discount program. Members were supposed to receive, in exchange for a membership fee, discounts at health care providers in the program’s network.  Two individuals found the program wanting because of a lack of participating providers in their area.  They sued claiming the companies’ advertising was deceptive, and sought certification of a nationwide class of about 30,000 people. Not long after answering, the defendant filed a motion to strike the class allegations. The district court granted that motion, and then dismissed for lack of subject matter jurisdiction because, stripped of class allegations, the named plaintiffs’ own claims fell short of amount-in-controversy requirements for federal jurisdiction.

The Sixth Circuit affirmed in last week’s decision, written by Judge Jeffrey Sutton, an influential jurist reputed to be on the short list for a Supreme Court nomination in a Republican administration, and whose views will carry weight with judges in other Circuits. The court first held that Rule 23(b)(3)’s requirement that common issues of law or fact predominate was not met because “each class member’s claim would be governed by the law of the State in which he made the challenged purchase, and the differences between the consumer-protection laws of the many affected States would cast a long shadow over any common issues of fact plaintiffs might establish.” In so holding, the Sixth Circuit echoes other courts (like In re Bridgestone/Firestone and Castano v. American Tobacco) that have been skeptical of nationwide class actions that try to join together claims under fifty different states’ laws, which often vary in material respects. How, after all, would the court possibly instruct a jury on all those different states’ laws?

Concepcion Not a Cure All for Avoiding Consumer Class Actions

Since the Supreme Court handed down AT&T Mobility LLC v. Concepcion, many consumer product and services companies have hoped to insulate themselves from consumer class actions by including a mandatory non-class arbitration provision in their sales and services contracts. Such companies expect that, if faced with a class action complaint, they can move to compel arbitration by relying on the takeaways from Concepcion, that state laws banning class waiver provisions as unconscionable are preempted by the FAA and that class waiver provisions in arbitration agreements must be enforced according to their terms.  If all goes according to plan, the court will dismiss the case and compel the consumer to arbitrate in an individual capacity, destroying the possibility of a class action swiftly and efficiently. 

A recent California Court of Appeal decision illustrates how this plan can go awry. In Sanchez v. Valencia Holding Company, LLC, a purchaser of a used Mercedes-Benz sued the dealership that sold him the car, asserting that the dealer made numerous false representations in connection with the purchase.  The consumer brought a purported class action and alleged various violations of state law.  The dealership moved to compel arbitration, pointing to Concepcion and a class action waiver in the arbitration agreement the consumer signed.  The Court of Appeal rejected the dealership’s argument.

As the Court of Appeal explained, Concepcion left open the possibility arbitration provisions could be invalid under the doctrine of unconscionability. In fact, the Court of Appeal stated, Concepcion is inapplicable where a court’s decision does not address a class action waiver or a judicially imposed procedure that conflicts with the purposes of the FAA. The Court went on to find that the dealership’s arbitration provision was unconscionable in numerous respects.  The provision was procedurally unconscionable because the dealership presented the provision on a take-it-or-leave-it basis, and it appeared on the back of the last page of the agreement in a small font with reduced line spacing.  The provision was substantively unconscionable because it imposed the following facially-neutral terms that in reality favored the dealership: (1) either party may appeal an award exceeding $100,000; (2) either party may appeal an award of injunctive relief; (3) the appealing party must advance the filing fee and any arbitration costs; and (4) self-help remedies, including the right to repossession, are excluded from arbitration.

It is unclear that other courts would have reached the same results. Indeed, some post-Concepcion decisions have upheld arbitration provisions with class action waivers, without considering much more than whether the consumer signed the contract. Other decisions have compelled arbitration, after lamenting how Concepcion rejected the idea that arbitration agreements are per se unconscionable when found in adhesion contracts. Yet, as the Sanchez decision shows, not all courts will shy away from a rigorous analysis of an arbitration provision under the unconscionability doctrine. Consumer product and services companies that intend to rely on Concepcion to defeat class actions by compelling arbitration should consider whether their arbitration agreements are sufficiently balanced to survive such an analysis.

- Matthew Eisenstein

Foreign Holding Company Makes the Cut in California Class Action, Surviving Defendant’s Personal Jurisdiction Challenge

The federal judge presiding over multidistrict litigation of unfair competition and personal injury claims against the makers and distributors of a popular dietary supplement products has denied the defense motion to dismiss for lack of personal jurisdiction. In the order, Judge Moskowitz of the Southern District of California ruled that the parent company could be sued in all of the states in which its US subsidiary was selling products.

In In re Hydroxycut Marketing and Sales Practices Litigation, 20 named plaintiffs filed a class action complaint, and numerous individual plaintiffs filed personal injury claims, alleging that a holding company, its subsidiaries, and several retailers marketed and sold the Hydroxycut products as being safe and effective for weight loss, when the claims were not clinically proven and were associated with serious health risks.

Although the Court dismissed several claims earlier in the year, the plaintiffs scored a victory by making a prima facie showing that the parent exercised sufficient control over its subsidiary to impose personal jurisdiction on the parent company, based on theories of agency and alter ego. Taking the plaintiffs’ version of the facts as true and quoting from an extensive factual record, the Court found the parent, rather than acting as a mere holding company in the business of managing its investments, was instead “in the business of developing and selling diet and nutritional supplements” through its subsidiaries. Based on the sole owner’s extensive day-to-day involvement with the manufacturers, distributors, and retailers for Hydroxycut on pricing, sales, promotions, credit, formulations, labelling and other activities, the Court found the parent “exercised pervasive domination and control over the subsidiaries,” sufficient to impute their activities to the parent. The Court’s findings were bolstered by allegations that a parent-owned website promoted the Hydroxycut products, and the holding company structure had recently been changed following an FDA statement that the products presented health hazards.

The Court’s ruling allows plaintiffs to proceed with the multidistrict litigation against the parent company for the acts of its subsidiaries. Plaintiffs’ detailed allegations served them well at this stage of this litigation, and led the Court to find personal jurisdiction based on operational control, despite concluding that the companies had complied with corporate formalities, did not commingle funds, and were not undercapitalized -- the other traditional earmarks of alter ego liability.

- Brian Condon and Anita Kalra

Dukes Helps Car Manufacturer Drive Out a Putative Class Action

Recently, Judge Gary Klausner of the Central District of California issued one of the first opinions in a consumer case applying the heightened class certification standards handed down by the Supreme Court in Wal-Mart v. Dukes. In Kruszka v. Toyota Motor Corp., et al., a case accusing Toyota of selling vehicles with shoddy paint in violation of California consumer protection and competition laws, Judge Klausner held that the plaintiff failed to demonstrate that the putative class of vehicle purchasers satisfied the commonality prerequisite for class certification as articulated in Wal-Mart.

In Wal-Mart, discussed in-depth in this advisory, the Supreme Court held that Federal Rule 23, setting forth the requirements for class certification, is not “a mere pleading standard.” Rather, parties seeking certification must “be prepared to prove” that Rule 23’s prerequisites are in fact met. Among these is the requirement of commonality, or the existence of “questions of law or fact common to the class.” Commonality, as expounded by the Court, requires that class members have “suffered the same injury.” According to Judge Klausner, this was not sufficiently demonstrated in Kruszka.

The plaintiff in Kruszka had purchased a new 2010 Lexus IS250 and alleged that its paint began immediately “chipping, scratching, and marring,” due to an alleged defect in the defendant’s paint and manufacturing process. He asserted that this defect affected all recently manufactured Lexus vehicles and sought to certify a class of “[a]ll current owners or lessees of model year 2007-2010 Lexus automobiles in the United States.” To demonstrate commonality, the plaintiff asserted that a “veritable library of internet sites have arisen dedicated to reporting and cataloging the ‘Lexus paint problem’” and a provided list of twelve internet posts on the topic. Judge Klausner, in following the Supreme Court’s directive to conduct “rigorous” Rule 23 analysis, held this “small number of internet posts ascribed to individuals identified only through usernames such as ‘draperysewer,’ ‘Carhop1,’ and ‘roadrunner4’” was insufficient to prove that all members of the class had suffered from the defendant’s alleged paint defect.

It remains to be seen whether it will be business as usual for class action counsel and courts will cabin Dukes as limited to the employment law context or whether Dukes will mean a sea change in narrowing the appropriate uses of Rule 23 in federal cases. Kruszka shows one lower court embracing the Supreme Court’s exacting class certification standards. At the very least, it is clear that defendants should be able to defeat class certification where plaintiffs offer nothing more than broad generalizations or isolated anecdotes to establish a common injury -- as it should be.

- Amy Mudge and Anita Kalra

Make New Friends But Keep the Old - Suit Against Facebook Fails to Strike Gold

Late last month, Judge Seeborg dismissed Cohen v. Facebook, Inc., a class action suit brought in the Northern District of California. Cohen involved one of Facebook’s newest services, Friend Finder, which provides suggested new “friends” to current Facebook users. Friend Finder searches users’ email databases for new contacts and common contacts among users. Friend Finder then solicits new users and suggests new friends to current users, increasing the Facebook network. Facebook promotes the service by displaying the names and photos of users who have purportedly found new friends via Friend Finder on its website. The Cohen decision will allow Facebook to continue promoting its Friend Finder service for the foreseeable future, but leaves open the door for future claims of misappropriation and perhaps false endorsement and unfair competition.

Plaintiffs in Cohen alleged that Facebook used their names and likenesses without consent or knowledge to advertise Friend Finder, thus increasing the Facebook network and boosting commercial advertisement sales. Plaintiffs brought suit alleging misappropriation in violation of the common law right to privacy and Cal. Civ. Code § 3344 , as well as false endorsement in violation of section 1125(a)(1) of the Lanham Act and unfair competition under Cal. Bus. Code. § 17200 .

In its motion to dismiss, Facebook argued that plaintiffs consented to the use of their names and likenesses as part of Facebook’s terms and conditions. Although the court ultimately dismissed all four counts with leave to amend, it refused to accept that plaintiffs had consented to the use of their names and likenesses for an endorsement of a Facebook service. Rather, the court relied on plaintiffs failure to allege any injury, noting that had they at least pled mental anguish the misappropriation claims might have gone forward. The Cohen court also dismissed the claims of false endorsement and unfair competition due to the plaintiffs lack of “commercial interest” in their names and likenesses, noting that it was “not clear how this defect could be cured” for future claims (absent adding Brad Pitt or Angelina Jolie as plaintiffs.) Thus, future plaintiffs may have viable claims against Facebook for its promotion of Friend Finder under a misappropriation theory, but claims of false endorsement and unfair competition appear to be limited to celebrities.

- Randy Shaheen and Jocelyn Wiesner

Supreme Court To Class Action Plaintiffs’ Bar: If At First You Don’t Succeed, Try, Try Again

While there is no disputing Wal-Mart v. Dukes’ status as the premier class action decision of this past Supreme Court Term, the Court’s less publicized decision in Smith v. Bayer is also highly relevant to class action practice, particularly in the consumer protection field.  In Smith, the Court curtailed the growing defense use of injunctions or collateral estoppel to prevent serial relitigation of class certification in new fora after an initial denial of certification.

Smith involved consumer protection claims against Bayer by purchasers of Bayer’s drug Baycol.  A class action called McCollins was brought in West Virginia state court on behalf of a purported class of West Virginia purchasers; that litigation was removed to federal court, from whence it was transferred to an MDL in Minnesota.  The Minnesota federal district court denied certification because the necessary showing of harm varied from purchaser to purchaser and therefore individual issues predominated over the common ones.

But Bayer’s victory in McCollins proved pyrrhic, as meanwhile a duplicative class action had been brought by a second West Virginia purchaser, Smith, in West Virginia state court, on behalf of the same putative West Virginia class. Unlike McCollins, Smith’s lawyers made that case removal-proof by naming in-state defendants, so it stuck in West Virginia. (Both McCollins and Smith predated the Class Action Fairness Act (CAFA), which now makes it somewhat easier to remove class actions from state to federal court.)

Faced with this repetitive litigation and the “heads I win, tails you lose” dynamic it creates, Bayer sought and obtained from the Minnesota federal court an injunction prohibiting Smith from continuing to prosecute the West Virginia case on behalf of the same class for which certification had been denied.  This strategy had been used by other defendants facing complex multi-forum class litigation.  It had enjoyed particular success in the Seventh Circuit, which recently barred lawyers from refiling the same deceptive advertising case against Sears in California on behalf of a new plaintiff after an Illinois district court had denied certification.  (The Supreme Court has now vacated that ruling and returned it to the Seventh Circuit for reconsideration in light of Smith.)

But the Supreme Court, in a 9-0 opinion by Justice Kagan, has now removed this weapon from defendants’ arsenal. Its precise holding was that the Anti-Injunction Act barred the injunction against the West Virginia state case, but the implications of Smith transcend injunctions.  The Court held more generally that the Minnesota denial of certification simply had no preclusive effect -- in an injunction context or any other -- because West Virginia’s state version of Rule 23, which would govern in the state case, might not necessarily be interpreted coextensively with Federal Rule of Civil Procedure 23, which the Minnesota court had applied in denying certification.  This rationale may take on heightened importance after Wal-Mart, as state courts may not fall into line with the new standards the Supreme Court has enunciated for (b)(2) cases.

Further, and perhaps more important, the Court explained that Smith could not be bound by the Minnesota court’s denial of certification because Smith himself was not a party to the earlier proceeding.  This treatment of the individual named plaintiff as the real party in interest may strike some who labor in the trenches of class action practice as quaint. In most damages class actions, the lawyers are really behind the case, and the named plaintiff -- who in a typical consumer case may have a claim of only a few dollars -- is recruited by those lawyers to play a purely nominal or symbolic role. It would be rare for such a named plaintiff to have decided on her own to bring a class action suit. And no one was arguing that Smith’s right to bring his own claim and recover for his own injury should be precluded, only that his lawyers should not be able to prosecute a class action that another court had already rejected.

The Court’s opinion in Smith notes that “[n]either Smith nor McCollins knew about the other’s suit.” But it is conspicuously silent on whether the same plaintiffs’ lawyers were involved in the two parallel cases, or the two cases were coordinated in some fashion -- as in the recent Seventh Circuit case involving Sears. The Court’s reasoning suggests it may view those questions as irrelevant. It looked just at the named plaintiffs themselves, with no footnote or concurring opinion reserving the possibility of preclusion if the same plaintiffs’ counsel were behind both cases. Further litigation will be needed to flesh out whether any such limiting principles apply to Smith. The Court seemed to see practical concerns about serial relitigation as mitigated by the increased removability of state court class actions under CAFA. But, not all state class actions are removable, and the plaintiffs’ bar has become increasingly adept in techniques to make them removal-proof. 

So, after it is done licking its wounds from Wal-Mart, the plaintiffs’ bar may be emboldened by the new possibilities for recycling cases and relitigating certification that Smith seems to open up, particularly in state courts that may look more hospitable after Wal-Mart’s impact on federal Rule 23.  Class action defendants should brush up on their Whack-a-Mole game.

- Robert Katerberg

The Hazards of Dukes for Potential Classes in False Advertising Cases

Just last week, the Supreme Court overruled the Ninth Circuit and decertified a class of 1.5 million current and former female employees of Wal-Mart. Its decision in Walmart v. Dukes -- the first significant class action ruling by the Court since Amchem in 1997 -- will have far-reaching effects in many areas of litigation, including false advertising consumer class actions.

The Dukes decision raises the bar for establishing commonality under Federal Rule of Civil Procedure 23(a)(2), a threshold requirement that all class actions must meet. Traditionally, commonality was easily satisfied. After Dukes, plaintiffs will have to do more than recite alleged common questions of law and fact, and must show factually that class members “suffered the same injury” and that their claims all “depend upon a common contention.” In so holding, the Court disavowed much-quoted language from its earlier Eisen case that had led lower courts to refuse to examine the merits at the certification stage. Dukes makes clear that the “rigorous analysis” needed to determine if plaintiffs satisfy Rule 23’s requirements “will entail some overlap with the merits of the plaintiff’s underlying claim.”

False advertising class plaintiffs will thus face increased scrutiny at the class certification stage and can no longer rely on conclusory statements without evidentiary support. Under Dukes, they will have to make a much stronger showing at class certification that absent class members were actually exposed to and acted to their detriment on challenged statements. They will have to show that class members understood the challenged statements in the same way. Plaintiffs will likely argue that under some state consumer protection laws, such reliance can be presumed, but that presumption is rebuttable. All of this should require, at a minimum, a much more probing examination of the evidence at the class certification stage of consumer false advertising cases.

The Court also held that claims for monetary relief “when each class member would be entitled to an individualized award of monetary damages” must satisfy the more stringent requirements of Rule 23(b)(3), and may not be certified under the more permissive requirements of Rule 23(b)(2). In false advertising class action cases, plaintiffs often seek injunctive relief for defendants to stop a particular practice and monetary relief for damages. False advertising classes will now have to be certified under Rule 23(b)(3), with all of its procedural safeguards (predominance, superiority, notice, opt-out), rather than Rule 23(b)(2). This will make it more difficult and more expensive for plaintiffs to bring false advertising class actions.

While the true implications will not be known for years, one thing is for sure: potential false advertising class plaintiffs cannot continue “makin’ their way, the only way they know how” because, after Dukes, “that’s just a little bit more than the law will allow.”

For a more in-depth analysis of Wal-Mart v. Dukes, click here.

UPDATE (7/8/2011): On July 22, Arnold & Porter partner, Jamie Speyer, will be participating in an ABA teleconference on this decision. To find out more and RSVP, click here.

- Jamie Speyer, Angel Garganta, and McCormick Conforti

 

Court Rules Plaintiffs’ Claims Too Lean In Hydroxycut Class Action

A federal judge recently dismissed a putative class action against the manufacturers and retailers of Hydroxycut, finding that the plaintiffs failed to plead their allegations with the level of particularity required under the Federal Rules.  Representing a nationwide class of “all persons who purchased Hydroxycut-branded products,” the plaintiffs alleged violations of various state consumer protection laws, breach of warranty, and unjust enrichment.  The complaint, filed December 22, 2009, sought to hold liable not only the makers of Hydroxycut, but also several national retailers that sold the weight-loss products.  The dismissal highlights the increased difficulty plaintiffs face in challenging advertising as false and misleading where plaintiffs do not have the particular details to support each of their claims.  It also has implications for retailers who make representations about the products they sell.

The plaintiffs did not allege any physical injury stemming from their use of the Hydroxycut products.  Rather, the plaintiffs claimed that the products were marketed as safe and effective, when later reports suggested those claims to be untrue.  Among other reports, the complaint cited a 2009 FDA press release that warned consumers to discontinue using the products due to reported health concerns.  Plaintiffs claimed that they failed to get the benefit of their bargain when they purchased what they believed to be a safe and effective weight-loss product, but later learned of the products’ negative health implications.  The court denied the defendants’ motion to dismiss on standing grounds, finding this type of economic injury was sufficient at the pleading stage.

In line with a trend that we have previously reported on, the court construed the plaintiffs’ misleading advertising claims as being “sounded in fraud” and thus subject to the higher pleading standard of Rule 9.  That standard requires the plaintiffs to explain the who, what, where, when, and how of the alleged misrepresentations.  Importantly, that standard does not permit plaintiffs to lump multiple defendants together -- instead, plaintiffs must differentiate their allegations among the multiple parties being sued.  In this case, although the complaint stated that the plaintiffs were exposed to and read defendants’ advertising claims, the complaint failed to allege the specific representation that each of the 20 named plaintiffs saw or read.  In addition, although the complaint provided examples of some of the defendants’ representations that were made online, on television, and on the product packaging, the plaintiffs failed to describe whether those same representations were made on each of the 14 Hydroxycut products covered by the complaint.  Such barebones allegations, according to the court, were insufficient under the Federal Rules.

The complaint also attempted to hold several retailers, including national drug and vitamin chains as responsible for the underlying representations of the Hydroxycut maker.  With one exception, the retailers did nothing but place the Hydroxycut products on the shelf.  According to the court, that conduct alone was insufficient to hold the retailers liable under the plaintiffs’ consumer protection, warranty, and unjust enrichment claims.  Unless the retailers had participated in, controlled, or adopted the allegedly misleading advertising, the claims against the retailers failed.

The only allegation that a retailer promoted or marketed the products concerned statements made on one vitamin seller’s website.  According to the complaint, these representations included claims that Hydroxycut was “the most extraordinary powerful fat burner ever developed” and that it contained “key components that have been scientifically proven to help you lose weight fast.”  The court ultimately dismissed the claims against the retailer because the complaint failed to state which plaintiffs, if any, had seen these specific representations on the website or had relied on them in purchasing the product.  Nevertheless, because the court acknowledged that these representations “could potentially support a consumer protection claim,” the court’s order should serve as a reminder to retailers to tread cautiously when making claims about the products they sell.

As to both the manufacturers and the retailers, the court’s dismissal gives the plaintiffs another chance to fatten up their claims.

- Amy Mudge & Allyson Himelfarb

Coming Soon to a Consumer Contract Near You: Mandatory Individual Arbitration

The consumer class action pendulum swung back toward defendants last week with the Supreme Court’s decision in AT&T Mobility LLC v. Concepcion. In Concepcion, the Court held that arbitration provisions prohibiting class-wide arbitrations are enforceable, and that Discover Bank v. Superior Court, a California Supreme Court decision finding such provisions unconscionable and unenforceable, is preempted by the Federal Arbitration Act.

In an analysis reminiscent of the distinction between facial and “as applied” unconstitutionality, the Court reasoned (in a 5-4 decision written by Justice Scalia) that even though the FAA says arbitration agreements can invalidated by laws of general application (duress, fraud, etc.) “the inquiry becomes more complex when a doctrine normally thought to be generally applicable, such as . . . unconscionability, is alleged to have been applied in a fashion that disfavors arbitrations.” It cannot be the case, the Court explained, that attributes such as reduced or nonexistent discovery, which are fundamentally why arbitration is different from litigation, can also be the reason why an arbitration agreement is unconscionable. Similarly, the court reasoned, because class-wide representation and arbitration are incompatible (the former raising the stakes while the latter streamlines the process and eliminates layers of review), a prohibition on class-wide representation cannot underpin a finding that an arbitration is unconscionable.

The dissent argued that individual arbitrations provide no deterrence (i.e., that “the realistic alternative to a class action is not 17 million individual suits, but zero individual suits, as only a lunatic or a fanatic sues for $30”), and Justice Breyer, in that dissent, took the opportunity to play the federalist (“We do not honor federal principles in their breach.”).

The implications of Concepcion are uncertain and will doubtless be clarified by future decisions, the first of which is already in the offing. On May 2, 2011, the Supreme Court granted certiorari in CompuCredit Corp. v. Greenwood, to determine whether parties may agree to arbitrate claims under the Credit Repair Organization Act. The Compucredit decision may shed light on whether Concepcion will stand alone or be part of a broader interpretation of the FAA.

For now, though, that pounding of feet and scratching of quill you hear is business lawyers furiously updating terms and conditions to prohibit class-wide arbitrations, so the day goes emphatically to the defense.

For a more detailed analysis of the decision, click here.

- Angel Garganta, Trent Norris, Eric Rubel, James Speyer, and George Langendorf

 

 

 

The Madness! Over Final Four Tickets Ends

The Supreme Court of Indiana, in a unanimous decision, has ruled in favor of the NCAA, dismissing a class action lawsuit challenging the NCAA’s Basketball Tournament ticket-distribution contest.(For background, we previously blogged about this case here and here). The Court determined that the NCAA contest, whereby the NCAA randomly allocated Final Four tickets to applicants who had offered to purchase tickets by submitting the face value of the tickets along with a non-refundable handling fee, was not an illegal lottery under Indiana law because no prize was awarded to those applicants who received the opportunity to purchase tickets.

In determining that the NCAA contest was legal, the Indiana Supreme Court made the following observations: (i) under Indiana law a lottery is defined as “a scheme for the distribution of prizes by lot or chance among those who provided or promised to provide consideration”; (ii) “in this case, there was no ‘prize’ and hence no ‘lottery’ because, at the time applicants submitted to the NCAA their offers to purchase tickets, the market value equaled the face value of the tickets”; and (iii) the decision “would not prevent a prosecutor or plaintiff from attacking a similarly structured scheme that is merely a ruse for a traditional lottery.”

The Indiana Supreme Court’s decision follows the decision issued in October 2010 by the US Court of Appeals for the Seventh Circuit, in which the Court of Appeals reversed its earlier ruling that the lawsuit could proceed and certifying issues to the Indiana Supreme Court. In issuing that decision, the Court of Appeals noted that the question of whether the NCAA’s

“ticket-distribution system constitutes a lottery under Indiana law is a close one, and our holding could have far-reaching effects on sports-ticket distribution systems utilized by the NCAA and others. At this juncture, we believe that affording the Indiana Supreme Court the opportunity to interpret the application of the Indiana statutes involved here appears to be the most prudent course of action.”

Prior to its October 2010 decision, the Court of Appeals, in July 2010, had reversed the decision of Judge William T. Lawrence of the Southern District of Indiana dismissing the case — determining that the plaintiffs had sufficiently pled a cause of action for violation of Indiana’s illegal lottery law by claiming that the NCAA’s contest involved the distribution of a prize, by chance, among persons who were required to pay valuable consideration to enter.

The Indiana Supreme Court’s unanimous decision, in addition to upholding the NCAA’s ticket-distribution contest, could have far-reaching effects on sports ticket distribution schemes, as well as other non-sport related ticket-distribution contests involving the payment of indirect fees to enter.

- Alan Veronick

A “Hairy” Class Certification Decision for Brazilian Blowout

A California district court recently issued an order certifying a nationwide class in an action against GIB, LLC (GIB) over two of its well-known hair straightening products, Brazilian Blowout Solution, and Brazilian Blowout Acai Professional Smoothing Solution. Plaintiffs’ case rests primarily on the assertion that GIB “failed to disclose that these [two] products contained formaldehyde” and “affirmatively represented these products were ‘formaldehyde free’.” Stemming from this conduct, plaintiffs allege claims for breach of contract, common law fraud and misrepresentation, and violation of California’s Unfair Competition Law (UCL) and False Advertising Law (FAL).

Plaintiffs sought certification of a broad nationwide class consisting of “all persons and entities within the United States who purchased Brazilian Blowout Solution or Brazilian Blowout Acai Professional Smoothing Solution.” Normally, a class like this, involving a large number of purchasers with different reasons for buying the products, who are asserting claims for fraud and misrepresentation, would present tangled and twisted class certification issues. But, in a decision that could make the hair of many a defendant stand up straight, the court brushed past all of these issues.

Focusing initially on Rule 23(a), the court easily found the numerosity, commonality, and adequacy of representation factors satisfied. The factor which gave the court the most pause was typicality. GIB argued that the named plaintiffs had not shown reliance on any of its advertising in purchasing the products, and so their claims were not typical of the class. The court blew right past this argument. The court acknowledged that the named plaintiffs had testified that they did not first learn of the products through GIB advertising. Nevertheless, there was also testimony that both plaintiffs had ultimately viewed the advertising, and that they purchased the product believing it was formaldehyde free. The court explained that, under the standard articulated by the California Supreme Court in In re Tobacco II, reliance can be proven by a showing that the advertising played a “substantial part” in the purchase, which plaintiffs testimony did here. This Court’s finding is an example of how courts may now assess reliance under California law.

The court next turned to the Rule 23(b) inquiry, and specifically whether common issues predominated over individual ones. Against predominance, GIB offered two main arguments: (1) it did not have a standardized marketing campaign and so individual inquiries would be needed to determine what, if any, advertising purchasers were exposed to, and (2) given the fraud and fraud-based claims, individual inquiries into reliance would be needed for all absent class members. In rejecting these arguments, the court emphasized that GIB offered no evidence to support the idea that these were real, and not hypothetical, individualized issues. For example, the court held that GIB made “no attempt to produce any credible evidence demonstrating that it lacked a standardized marketing campaign” and instead it was plaintiffs who had produced “substantial evidence” of a uniform campaign “centered on [GIB’s] formaldehyde free claims.” Similarly, the court found GIB produced no evidence to rebut the presumption of reliance that can arise under California law when material misrepresentations are involved. In fact, the court expressly noted “[GIB] did not produce a single declaration from any class member” showing that any reason other than advertising caused them to purchase the products.

The Court’s emphasis on GIB’s lack of evidence serves as an important lesson for defendants opposing class certification motions. While it is plaintiff’s burden to satisfy the Rule 23 requirements by a preponderance of the evidence, it can be costly to rely solely on the argument that plaintiffs have not satisfied that burden. Defendants should also carefully comb through and present their own evidence to maximize their chances of defeating class certification.

- Jamie Speyer and Christopher Tarbell

Going, Going, Gone — Court Dismisses Complaint Challenging Furniture Promotion

On April 18, 2011, the Massachusetts Appeals Court affirmed the judgment of the Superior Court dismissing a lawsuit brought by a customer of Jordan’s Furniture  alleging that its Monster Sweep promotion was an illegal lottery under Massachusetts law.

In 2008, Jordan’s ran the Monster Sweep promotion, promising customers who purchased certain furniture products from March 25, 2008 through April 27, 2008 that their purchase would be free if the Boston Red Sox swept the 2008 World Series.  The Monster Sweep promotion was a follow-up to the popular Monster promotion  Jordan’s ran in 2007 — where an estimated 30,000 customers received free furniture after the Rod Sox won the 2007 World Series.  Unfortunately for Red Sox fans, and all of the customers who participated in the Monster Sweep promotion, the 2008 Red Sox were not so fortunate, as the World Series was won by the Philadelphia Phillies.

One of the disappointed customers filed suit against Jordan’s alleging that the Monster Sweep promotion was an illegal lottery.  Under Massachusetts law, a promotion is illegal if it includes: (i) the payment of a price, (ii) a prize, and (iii) some element of chance.  There was no dispute that the Monster Sweep promotion involved a prize (free furniture) and chance (customers would win only if the Red Sox swept the 2008 World Series) — the sole issue was whether the price element was present.

On this issue, the Massachusetts Superior Court held that Plaintiff’s complaint did not “claim that any part of the purchase price of the furniture was paid for the chance to win the rebate,” concluding that the Plaintiff had “fail[ed] sufficiently to assert the element of price,” and therefore “the Monster Sweep [did] not qualify as an illegal lottery.”  The Appeals Court affirmed and, adopting the reasoning of the Superior Court, determined that Plaintiff’s complaint was “bereft of language alleging that any portion of the purchase price was paid in anticipation of the Monster Sweep rebate and, accordingly, the complaint was properly dismissed.”

This decision makes clear that in Massachusetts companies can run promotions where the chance of winning the prize is conditioned on the purchase of a product, so long as no part of the purchase price for the product was paid for the chance to win the prize (even where no alternative means of entry exists).  The applicability of this decision outside of Massachusetts, however — where the lottery statute is more narrowly tailored than the lottery statutes in other states — is suspect.

- Alan Veronick

Lady Gaga May Have Been "Born This Way", But Jury's Still Out on Snapple

Snapple has won another round in the longstanding battle over whether it is "All Natural" but that issue itself remains undecided.  The company was granted summary judgment in the Southern District of New York case blogged about here.  Plaintiffs had alleged that the use of high fructose corn syrup made Snapple's use of "All Natural" misleading (Snapple has since switched to sugar.)  The judge granted summary judgment finding that plaintiffs have failed to show injury because they were unable to offer any evidence showing that they paid a premium for the "All Natural" label.

In addition to finding that plaintiffs did not establish the actual price they paid for the product nor amount of any premium paid, the judge held that plaintiffs did not offer evidence as to the price of competing beverages that did not claim to be "All Natural."  One plaintiff testified that he thought Snapple was more expensive at the time but he hadn't actually looked at prices of comparable products.  Another could only guess at the price he paid for other products.  In short, the judge found that plaintiffs' allegations had laid an egg.

- Randy Shaheen and Deborah Birnbaum

European Developments Regarding Collective Redress - European Commission Rejects “US Style” Class Actions

In February, the European Commission issued a further consultation paper, “Towards a Coherent European Approach to Collective Redress,” which seeks to identify common legal principles on collective redress which would guide any future EU initiatives in this area. The consultation appears to respond to criticisms that previous initiatives were inconsistent and were advanced on a piecemeal basis, with separate legislative proposals being progressed in the areas of competition law and consumer protection. The Commission is therefore consulting horizontally, across a broad range of industry sectors, with the aim of developing a coherent approach to legislation relating to collective redress. The consultation runs until 30 April 2011.

While the principle aim of the consultation is to ensure that adequate mechanisms are in place so that citizens and businesses are able to seek redress on a collective basis, the consultation document acknowledges that improved mechanisms for collective redress could also assist consumers and businesses in initiating private actions against unlawful practices, thereby supporting regulatory agencies by indirectly policing breaches of EU law - whilst the role of private law actions in law enforcement is widely recognised in the US, it has not generally been acknowledged by the EU authorities as a factor influencing legislative initiatives.

The consultation seeks views on whether any changes should be made to existing laws - whether new mechanisms of collective redress would add value, how they would work and whether they should be introduced generally or in specific sectors, such as competition law and consumer law and identifies certain general principles which could guide any future EU initiatives for collective redress. It is interesting to note that the European Commission is at pains to point out that any new laws would have to include safeguards to avoid the risk of “abusive litigation”. It does not support the combination of factors present in so called “US style” class actions, including the availability of punitive damages, the absence of limitations regarding standing, the availability of contingency fees and the wide ranging discovery procedures for documentary evidence, which it considers potentially provide economic incentives to litigate unfounded claims. It seeks views on safeguards which could be introduced to prevent such “abusive litigation” including the introduction of the “loser pays” principle (which means that the losing party pays the court and lawyers fees of both parties) and restrictions on when proceedings can be commenced (for example, the need for Court approval prior to the commencement of proceedings).

- Alison Brown