ADL/CP Updates v.306 – July-August 2022

Recent Decisions

Lanham Act and Other Competitor Actions

The U.S. Court of Appeals for the Second Circuit reverses in large part, and affirms in part, the district court’s dismissal of a complaint asserting various false advertising claims. Pursuant to the district judge’s practice rules, the parties submitted pre-motion letters, with a maximum of three pages, outlining their arguments for or against dismissal. The judge, without notice, converted the parties’ letters into a motion to dismiss and opposition, and, without giving the parties an opportunity to be heard with full briefing, dismissed the complaint in its entirety based on the letters alone. On appeal, the Second Circuit held that the district court erred. This did not fall into the rare category of cases where such abbreviated proceedings were appropriate because here, the court granted, rather than denied, a dispositive motion; the pre-motion letters were limited to a mere three pages; and the plaintiff’s arguments against dismissal did not clearly lack merit. The Second Circuit, having been fully briefed on appeal, then found it appropriate to decide the merits of the case, reaching a substantially different result than did the district court. As background, plaintiff International Code Council (“ICC”)—a non-profit that develops model building codes and standards—sued a for-profit competitor, UpCodes Inc., for false advertising under the Lanham Act and New York General Business Law §§ 349 & 350. Specifically, ICC alleged that UpCodes’ business model relied on selling and giving away unauthorized copies of ICC’s codes, and UpCodes charged its subscribers a premium to access ICC’s publications with integrated amendments. ICC also took issue with three categories of UpCodes’ claims: (1) accuracy claims— claims that its codes were “always up to date” and that the website “provides a complete understanding of relevant material;” (2) completeness claims, such as, “UpCodes hosts the adopted codes as enacted by the state or local jurisdiction;” and (3) claims of being the sole source, such as UpCodes being the “only place where all the codes are kept up-to-date with all the amendments integrated natively into the code.” In its analysis, the Second Circuit examined whether ICC sufficiently pled falsity of the challenged statements, materiality of the purportedly false representation, and that the allegedly misleading statement had been placed in interstate commerce and caused injury to the plaintiff. The court concluded that ICC adequately pled falsity with respect to all three categories of claims made by UpCodes, where some claims were found to be unambiguous and “false on [their] face,” while others were plausibly found to be “impliedly false.” Both types of falsity, sufficiently pled, were sufficient to overcome dismissal. With respect to the accuracy claims, the court disagreed with the district court’s conclusion that these claims constituted puffery, instead holding that the puffery determination is a “factual inquiry into how users interpreted UpCodes’s claims” and, thus, not appropriate to deem the statements nonactionable puffery at the pleadings stage. Specifically, the Second Circuit held that UpCodes’ statements that its products are always up to date “are not so patently hyperbolic that it would be implausible for buyers to rely on them,” and, instead, it is plausible that “a reasonable consumer would construe these claims as specific statements about the quality of UpCodes’s offerings . . .” The court also rejected UpCodes’ argument that a disclaimer on its website shielded it from liability, explaining that the sufficiency of UpCodes’ disclaimer “depends upon its effect on consumers, which raises factual questions that are not well suited for resolution on a motion to dismiss.” The single affirmation the Second Circuit gave the district court was on its conclusion that UpCodes’ claims that its website gives “a complete understanding of relevant material” constituted non-actionable puffery, albeit for a different reason than the trial court. The court held that UpCodes’ completeness claims were subjective statements of UpCodes’ opinion, and therefore, puffery. Lastly, the court found it plausible that UpCodes’ false statements were likely to influence purchasing decisions, as ICC alleged to establish materiality. Thus, ICC sufficiently alleged materiality to withstand a motion to dismiss. In conclusion, the Second Circuit held that ICC’s claims, with respect to all of UpCodes’ statements—except those suggesting users will obtain a complete understanding of relevant code, which were found to be puffery—were sufficiently pled to withstand dismissal. (Int’l Code Council, Inc. v. UpCodes Inc., 2022 WL 3008706 (2d Cir. July 29, 2022)).

State Consumer Protection Laws

The U.S. District Court for the Southern District of Texas grants defendant NeoGenis Labs, Inc.’s (“NeoGenis”) motion to dismiss claims alleging violations of the Texas Deceptive Trade Practices Act (“DTPA”) and common-law fraud. Plaintiff claimed that NeoGenis falsely and deceptively marketed one of its products—"Soft Chews”—as if the supplement contained the same formula as another one of its products called “SuperBeets Powder.” Additionally, the plaintiff alleged that NeoGenesis’s advertising convinced him to purchase the Soft Chews because NeoGenis advertised that it had the exact same health benefits as the original SuperBeets products. While motions to dismiss for failure to state a claim are rarely granted, here, the plaintiff had to satisfy the heightened pleading requirements of Fed. R. Civ. P. 9(b). The court found that the plaintiff failed to meet this standard because he could not identify the specific advertisements on which he relied, what they stated, or when they were circulated. Rather, he vaguely mentioned a nebulous advertising campaign at a high level of generality. Where the plaintiff did provide screenshots of ads to support his case, the court found that his claims were “demonstrably false” and “confuted by the posts themselves.” Therefore, the court dismissed the complaint with prejudice. (Sharifan v. NeoGenis Labs, Inc., 2022 WL 3043409 (S.D. Tex. Aug. 2, 2022)).

The U.S. District Court for the Southern District of New York grants defendant Nestlé Waters North America, Inc.’s motion to dismiss. The front label of the defendant’s “Poland Spring” branded sparkling water stated, “Sparkling Poland Spring with a twist of raspberry lime,” the back label stated “Taste the Real,” and the label showed pictures of raspberries and limes. Plaintiff alleged, inter alia, violation of New York’s General Business Law §§ 349 and 350 (“GBL claims”), fraud, and negligent misrepresentation based on the theory that the defendant’s labeling falsely implied that the beverage contained a non-de minimis amount of raspberry and lime ingredients when it, in fact, contained only trace amounts. The court dismissed the GBL and fraud claims because the complaint did not adequately allege that the defendant engaged in deceptive or materially misleading acts or practices. According to the court, the phrase “with a twist of raspberry lime”—as distinct from the phrase “made with raspberry and lime”—merely referred to the product’s flavor. If anything, the phrase “with a twist of raspberry and lime” was ambiguous, but the ingredient list dispelled any confusion created by that ambiguity. Similarly, the phrase “Taste the Real” was not misleading, particularly because, directly beneath that statement, the label referred to “Real Raspberry Lime flavor.” The court dismissed the negligent misrepresentation claim, finding that the plaintiff did not plausibly allege the existence of a special relationship with the defendant manufacturer. (Oldrey v. Nestlé Waters N. Am., Inc., 2022 WL 2971991 (July 27, 2022)).

The U.S. District Court for the Western District of New York grants the defendant’s request for judicial notice and its motion to dismiss plaintiff’s complaint, alleging state law false advertising claims arising out of purported misrepresentations on packaging for tortillas that the plaintiff claimed to believe were made in Mexico based on “references to the Mexican flag, the phrase ‘A Taste of Mexico!’, the brand name ‘La Banderita,’ and the word ‘Authentic.’” Defendant contended that a “reasonable consumer,” when looking at the package’s express statement “Made in U.S.A.,” would not “credibly believe” that the tortillas were made in Mexico from the package’s “Mexican-themed advertising” and a “few Spanish words.” Plaintiff insisted that he must only show that the defendant’s packaging would likely deceive reasonable consumers. The court disagreed, finding that a reasonable consumer would not be misled on the country of origin because “the packaging as a whole is clear about the country of manufacture—the United States.” The court was unconvinced because the representations did not say anything on the “country of origin,” which was on the back side of the packaging in an express statement. The court concluded that, even if the front-label representations made the packaging ambiguous, they were not “outright false” and reviewing the advertising as a whole, “reading the clear country of manufacture on the back of the package[,]” resolved the matter. (Hardy v. Ole Mexican Foods, Inc., 2022 WL 2906395 (W.D.N.Y. July 21, 2022)).

The U.S. District Court for the Northern District of California denies defendant Williams-Sonoma, Inc.’s motion for summary judgment. Plaintiff purchased sheets from Williams-Sonoma, but both sets of sheets ripped shortly after she began using them. Several years later, the plaintiff learned that, based on some methods used to calculate thread count, the thread count in the “PB Classic 400-Thread-Count” sheets she bought is allegedly closer to 200 threads. As a result, the plaintiff contended that Williams-Sonoma misleadingly advertised the thread count of certain bed linens and brought claims under California’s Consumers Legal Remedies Act, False Advertising Law, and Unfair Competition Law. Williams-Sonoma argued that summary judgment was appropriate because the statute of limitations barred the plaintiff’s claims. In response, the plaintiff cited the discovery rule and the fraudulent concealment doctrine to argue the limitations period was extended. The court determined that there was a dispute of material fact whether the plaintiff had or should have had inquiry notice of her claims prior to speaking to her attorney in 2018. The court reasoned that, even after her sheets ripped, the plaintiff put forward evidence to support her theory that she had no reason to suspect that the advertised thread counts were misrepresented in 2011. Because her claim was not based on the ripping of the sheets, but on the thread count that was advertised versus provided, the relevant notice inquiry was with respect to the thread count. Summing it up, based on conversations she had with Williams-Sonoma, and the plaintiff’s own research, the court credited the plaintiff’s testimony that from her “perspective, she had no reason to believe the thread count was misrepresented until she spoke to her attorney in late 2018.” The court similarly determined that there were disputes of material fact as to whether the plaintiff conducted a reasonable investigation into her claims, as that question turned on when she was on inquiry notice of her claims. Finally, the Court determined that the fraudulent concealment exception did not apply, because there was no evidence that Williams-Sonoma “affirmatively committed acts to prevent her from filing suit in time,” above and beyond the allegations in her complaint, as required. (Rushing v. Williams-Sonoma, Inc., 2022 WL 2833980 (N.D. Cal. July 20, 2022)).

Consumer Class Actions

The U.S. District Court for the Southern District New York grants the defendant’s motion to dismiss a putative class action complaint, alleging among other state law claims, those related to false advertising and deceptive business practices for marketing related to the defendant’s water bottles’ recyclability. Plaintiff alleged that defendant used a false and misleading representation that the water bottles are “100% Recyclable” with respect to the entire product, including labels and caps. Specifically, the plaintiff claimed that the bottles’ labels and certain caps were unrecyclable and that the limitations of recycling centers prevented recyclability. With respect to the false advertising and deceptive business practices claims, the parties agreed that the FTC’s Green Guides informed the meaning of “recyclable.” Under the Green Guides, the court recognized two exceptions allowing for unqualified recyclable claims, where “recycling facilities are available to a substantial majority of consumers or communities where the item is sold,” or where “the entire product or package, excluding minor incidental components, is recyclable.” Defendant argued that under the Green Guides, the plaintiff’s complaint did not sufficiently plead facts that recycling facilities were unavailable and “wrongly construes recyclability to mean actually recycled,” and that the bottles’ labels and caps were “minor incidental components,” so the “100% recyclable” claim remains accurate. The court found that, under both exceptions, the plaintiff failed to state a claim. Under the first exception, the plaintiff’s complaint lacked an allegation “that recycling facilities do not exist” in her community (e.g., New York State, New York City, or other subdivision) or are available to less than a “substantial majority” of consumers as defined under the Green Guides. Under the second exception, the court concluded that the bottle’s labels and caps were “minor, incidental components,” so statements of “100% Recyclable” did not require qualification. Thus, the court concluded that the plaintiff failed to state a claim by not plausibly alleging that defendant’s “100% Recyclable” representation was false or misleading. (Duchimaza v. Niagara Bottling, LLC, 2022 WL 3139898 (S.D.N.Y. Aug. 5, 2022)).

The U.S. District Court for the District of Massachusetts grants defendant Chobani, LLC’s motion to dismiss a putative class action alleging that Chobani vanilla yogurt is deceptively labeled as containing “vanilla,” when in fact it contains only vanilla extract and natural flavors. Plaintiff alleged that she purchased “Madagascar Vanilla & Cinnamon” yogurt, which was with images of vanilla flowers and beans, and listed the ingredients, including natural flavors and vanilla extract, on the ingredients list. Plaintiff claimed that the front label deceived consumers into believing the yogurt contained Madagascar vanilla. The court, first, assessed whether the claims were preempted, and undertook an analysis of whether the label complied with 21 C.F.R. 101.22(i). The court found that the label identified the characterizing flavor of “Madagascar Vanilla & Cinnamon.” Because the plaintiff did not contend that the yogurt contained an artificial flavor that simulates vanilla, it could be labeled by the common or usual name of the characterizing flavor, e.g., vanilla, unless two requirements were satisfied for an exception to apply: (1) the food was commonly expected to contain a characterizing food ingredient, and (2) the food contained an inadequate amount of that ingredient. The court noted that the regulation gives “vanilla” as an example of a characterizing flavor, which undermined the plaintiff’s contention that it is a characterizing food ingredient, which was dispositive. The court, then, determined that the yogurt did, in fact, contain vanilla—vanilla extract is a form of vanilla derived from a vanilla plant, and thus, the product contained some amount of naturally occurring vanilla. Thus, the court found that the yogurt complied with federal labeling regulations, and the plaintiff’s claims were preempted as an attempt to impose non-identical state-law labeling requirements. (Glazebrook v. Chobani, LLC, 2022 WL 3030598, at *6 (D. Mass. Aug. 1, 2022)).

The U.S. District Court for the Northern District of California certifies Fed. R. Civ. P. 23(b)(3) damages classes of California, Massachusetts, and New York consumers alleging false advertising against defendant Reckitt Benckiser LLC relating to purchases of “Woolite” with the phase “revives colors” on the back label, with approximately 55% of the challenged products also labeled with the phrase “color renew” on either the back and/or front label. Plaintiffs alleged that the label statements were false because Woolite does not add color back to fabrics. Defendant objected to the plaintiffs’ numerosity showing because the plaintiffs did not account for the fact that only 45% of the challenged products had a challenged statement on front-of-pack. The court addressed this issue (unsuccessfully for the defendant) as part of other Rule 23 factors, but had little trouble finding that the plaintiffs satisfied the numerosity requirement. As for commonality, the defendant argued that the plaintiffs did not demonstrate classwide exposure to and reliance on the challenged statement—again, 45% of challenged products had the alleged misrepresentation only on back-ofpack and there was no record that consumers looked there as part of the purchasing decision—or, if seen, that the challenged statement was false or material to the purchasing decision. The court rejected the arguments, holding that a showing of actual individual reliance is not required; plaintiffs are only required to prove that the general consuming public would be exposed to the challenged statement and misled. Every putative class member purchased a challenged product bearing at least one of the challenged statements and the court ruled that the statements were so similar that they may be considered a single representation. That some consumers may have purchased a product that had a challenged statement only on back-of-pack was not a problem. The court held that there is no prominence requirement associated with exposure, but, if there were, the back-of-pack statements were sufficiently prominent to support false advertising claims. For these same reasons, the court found that the typicality requirement was satisfied, even though some of the plaintiffs did not rely on or look at the back-of-pack—again, exposure was sufficient. The court rejected the defendant’s argument that plaintiffs did not have common evidence of falsity, ruling that the opinion of plaintiffs’ chemistry expert was sufficient for that purpose at the class certification stage. In short order, the court also ruled that plaintiffs and their counsel were adequate and that the class is ascertainable. Defendant argued that common issues did not predominate because the challenged statements were different and the back-of-pack labels, in context, have no ability to mislead. The court found the argument misplaced because the plaintiffs “need not show that any putative class member actually reviewed and relied on the back label.” The court rejected the defendant’s argument that the plaintiffs’ damage model was not tethered to their theory of liability, ruling that the damage model was sufficient at the class certification stage because it relied on the price increase the defendant imposed at the time it introduced the challenged statements on the label. Finally, the court found that class treatment was superior. (Prescott v. Reckitt Benckiser LLC, 2022 WL 3018145, (N.D. Cal. July 29, 2022)).

The U.S. District Court for the Northern District of Illinois grants Defendant Costco Wholesale Corp.’s motion to dismiss claims that the product labeling of its chocolate-dipped vanilla ice cream bars was false, deceptive, or misleading. Plaintiff brought a putative class action asserting a claim under the Illinois Consumer Fraud and Deceptive Business Practices Act (“ICFA”) as well as claims of negligent misrepresentation, common law fraud, and others. The heart of the plaintiff’s complaint was that the product’s label was misleading because the “chocolate” in the ice cream coating allegedly was made mostly of vegetable oils rather than actual chocolate ingredients made from cacao beans. Plaintiff pointed to several sources for the definition of “chocolate,” which, purportedly, universally excludes fats from sources other than cacao ingredients, and asserted that (1) consumers expect chocolate to be made from mostly or entirely cacao bean ingredients rather than vegetable oil, and (2) that “milk chocolate and vegetable oil coating” must be disclosed prominently on the product’s front label under federal regulations. Plaintiff contended that the value he received from the product was materially less than its value represented by Costco. Under the ICFA, the plaintiff was required to show that Costco committed a deceptive or unfair act with the intent that others rely on the deception, that the act occurred in the course of trade or commerce, and that it caused actual damages. First, the court held that the plaintiff did not plausibly show that his definition of “chocolate” aligned with the expectations of a reasonable consumer. It reasoned that, even if consumers expect chocolate to be made from cacao beans as the plaintiff claimed, that does not mean that reasonable consumers expect chocolate to be made without anything else. Further, the plaintiff never alleged that the chocolate coating did not contain cacao bean ingredients at all, nor did the product label promise that chocolate would be made mostly or entirely of cacao bean ingredients. Plaintiff did submit a survey with his complaint, which found that “roughly sixty percent of respondents who viewed the Product’s front label . . . expected it would contain more cacao bean ingredients than it did and would not be made with chocolate substitutes.” The court concluded, however, that this “is not the same thing as saying that these same respondents concluded that the Product’s coating was not chocolate or that they believe chocolate must be made mostly or exclusively from cacao bean ingredients.” Second, the court held that the plaintiff’s own purported definitions of chocolate, which included sweeteners and dairy ingredients, suggested that reasonable consumers would expect chocolate to contain ingredients other than cacao, and therefore, the product label could not plausibly deceive a reasonable consumer on the theory that the product’s coating contained more vegetable oils than chocolate. Third, the court held that the product’s label was not misleading as a matter of law. As the court explained, the plaintiff failed to show that a reasonable consumer would expect chocolate to mostly or only include cacao bean ingredients at the exclusion of other ingredients, and the plaintiff’s own calculations bare out that the coating was mostly chocolate. As such, the court concluded that the label was not misleading as a matter of law and, therefore, dismissed the plaintiff’s ICFA claim. Similarly, the court dismissed the negligent misrepresentation claim because the plaintiff failed to show a “false statement” as required. Further, Illinois law holds that economic loss alone is not a sufficient basis for a negligence cause of action, except where one intentionally makes a false representation or where on who is in the business of supplying information for the guidance of others in their business transactions makes negligent representations. The court held that neither of these exceptions applied and, thus, the plaintiff’s negligent misrepresentation claim also failed because he only alleges economic damages. Finally, the court dismissed the common law fraud claim because the plaintiff failed to show that the product’s label was deceptive. (Karlinski v. Costco Wholesale Corp., 2022 WL 2867383 (N.D. Ill. July 21, 2022)).