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January 29, 2018 Practice Points

Are Establishment Claim Challenges Really Dead in California Class Actions?

So many people were making Kwan out to be a big deal that I wondered, is it really a big deal?

August T. Horvath – January 29, 2018

Ever since the decision in Kwan v. Sanmedica International, 854 F.3d 1088 (9th Cir. 2017), came out in April, I have been reading and hearing about what a sea change it represents in the law of California false-advertising class actions. So many people were making it out to be a big deal that I wondered, is it really a big deal?

Kwan has been accepted as standing for two propositions. The first is that in private suits brought under California’s Unfair Competition Law (UCL) and Consumer Legal Remedies Act (CLRA), a plaintiff must allege and ultimately prove that the offending advertising claim is false, not merely unsubstantiated. Most commentators have recognized that this finding is unremarkable. As the Ninth Circuit noted, this was “firmly established” by the California Court of Appeal, Second District, in National Council Against Health Fraud, Inc. v. King Bio Pharmaceuticals, Inc., 107 Cal. App. 4th 1336, 133 Cal. Rptr. 2d 207 (2003), and the court was not presented with any "convincing evidence" to decide otherwise. King Bio has been deployed many times by defendants against California cases alleging merely unsubstantiated claims.

Now for the wrinkle that has made Kwan v. Sanmedica news. This case concerned whether Sanmedica’s SeroVital dietary supplements can spur the body’s production of human growth hormone (HGH). After her original case, nakedly alleging merely unsubstantiated claims, bounced like a bad check in the district court on the defendant’s first motion to dismiss, Kwan came back with additional allegations that Sanmedica’s statement, “SeroVital is clinically tested to boost [HGH] by a mean of 682%,” is provably false. In other words, Kwan tried to convert her claim to an establishment claim. Not buying it, the district court dismissed with prejudice this time, prompting the appeal to the Ninth Circuit.

The Ninth Circuit, affirming, refused to “incorporate Lanham Act provisions into California's unfair competition and consumer protection law by distinguishing between ‘establishment’ and ‘non-establishment’ claims.” 854 F.3d at 1097. The court’s language there is unfortunate; there are no “provisions” of the Lanham Act or any other false-advertising statute that define establishment claims. The concept is entirely a creature of case law. Perhaps partly for that reason, the doctrine of establishment claims is misunderstood by practitioners, judges and arguably the Ninth Circuit in this decision. Advertising lawyers casually speak of establishment claims as reversing the burden of proof, such that the defendant-advertiser now bears the burden of substantiating its efficacy claim. This may be the practical effect of an establishment claim in some cases, but it is not technically true. The burden of proof as to all elements of a civil claim rests with the plaintiff, and the burden for disproving an establishment claim is no different than for any other claim. The point of an establishment claim is that it is a different claim than a general claim about a product’s efficacy. The establishment claim can be easier to disprove, because it points to a specific level of substantiation, and often to specific tests, that can be affirmatively refuted. When the plaintiff carries its burden to prove an establishment claim false, it has not necessarily proven that the product does not work, just that it does not have the level of support its advertiser says it has.

It appears from the decision that Kwan made several errors in pleading an establishment claim in her second complaint. The first error was not having pled it in her first complaint. Given the procedural history of the case, it was obvious to both the district court and the Ninth Circuit that the establishment claim in this instance was pled as an afterthought to rescue what was really a non-viable claim for lack of substantiation. Second, according to the Ninth Circuit, Kwan pressed the establishment claim too far by alleging not only that Sanmedica explicitly claimed a 682 percent HGH increase in one study, but that this and other claims “falsely implied that the marketing claims of SeroVital's health benefits were clinically proven by credible scientific proof.” This more general implied establishment claim was the one on which Kwan principally relied. Here, Kwan was caught in a Catch-22 of her own making. If Kwan had limited her allegations in her second complaint to challenging the 682 percent result from the one study, she might have been allowed to proceed. But to what effect? Who cares whether Sanmedica misrepresented one study? Kwan would have had to show that this one false statement about the 682 percent result, and not any other claims made by Sanmedica about the efficacy and general clinical support for its product, caused all of the class-wide injury Kwan was seeking. This would have been impractical; the narrow claim is not likely that material. In her allegations, Kwan had to go big or go home, so she was sent home.

But the biggest error Kwan made was not teaching the Ninth Circuit what an establishment claim is: that it is not a burden-shifting doctrine, but just a disprovable factual claim like any other. The Ninth Circuit did not seem to realize that an “establishment claim” is not really a burden-shifting “standard” or “analysis,” but just a characterization of a class of claims, such as “comparative claim” or “taste preference claim.” It declared that this “standard” should not be imported from the Lanham Act into the California UCL and CLRA. But because there is really no different “standard,” what has the Ninth Circuit really done? Does this mean no California plaintiff can any longer attack a claim such as “SeroVital is clinically tested to boost [HGH] by a mean of 682%?” Has the court immunized any claim that references a test or study from legal challenge?

It seems unlikely. Consider this hypothetical: Maker of Detergent A starts advertising that a test by Acme Labs shows Detergent A to clean twice as well as less expensive Detergent B. This test becomes the centerpiece of a major campaign by Detergent A and is very successful at wooing consumers from Detergent B. Stipulate that most members of a class of consumers have paid a premium for Detergent A because they are so impressed with the advertised test. Class action plaintiffs’ attorneys investigate and discover that there is no such test, nor even an Acme Labs. Can they challenge the claim about the test, or must they always go underneath a “tests prove” claim to disprove the claimed result with tests of their own? In cases where a specific, explicit establishment claim really is material to consumers, it might still be open to challenge—just maybe don’t call it an “establishment claim”! In cases like Kwan, where an establishment claim just asserts a general level of support and may even only be implied, and is mixed in with inappropriate allegations that claimed product benefits are unsubstantiated, the case will fall—as it always should have.

Indeed, Lanham Act courts might profit from having a closer look at the Kwan reasoning. Too often, these courts have treated establishment claims as if they were a burden-shifting doctrine. When an establishment claim is challenged in a Lanham Act case, courts should separate the establishment claim from the underlying benefit claim and force the complaining competitor to prove how much the claim about the testing, as distinct from claims of the product’s underlying performance, was likely to shift sales and cause injury to itself. They should not act as if merely inserting the words “tests prove” in an advertisement makes the advertisement all about the testing. The defendant should have the opportunity to show, for example with a survey having the “tests prove” language present in one condition and removed in the other, that the establishment language contributes little to the impact of the ad. This could reduce the tendency of establishment claims to be treated as if they shifted the burden in advertising cases of all kinds.


August T. Horvath is a partner with Foley Hoag LLP in New York.

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