“pregnancy center” wasn’t commercial speaker and couldn’t be forced to disclose anti-abortion stance via mandatory label

Greater Baltimore Center for Pregnancy Concerns, Inc. v.
Mayor of Baltimore, 2018 WL 298142 (4th Cir. Jan. 5, 2018)
The court of appeals affirmed the invalidation of an
ordinance requiring pregnancy clinics that do not offer or refer for abortions
to disclose that fact through signs posted in their waiting rooms: “The City
has considerable latitude in regulating public health and deceptive
advertising. But Baltimore’s chosen means here are too loose a fit with those
ends, and in this case compel a politically and religiously motivated group to
convey a message fundamentally at odds with its core beliefs and mission.”
As applied to the Center at issue, the ordinance didn’t
regulate commercial speech.  Its speech
didn’t propose a commercial transaction, certainly not “in the waiting room
where the disclaimer would appear. Even if pregnancy-related services are
discussed there, the Center collects no remuneration of any kind, including
referral fees from physicians. A morally and religiously motivated offering of
free services cannot be described as a bare ‘commercial transaction.’” The fact
that the Center advertised its services, some of which had commercial value in
other context, didn’t itself transform the Center’s ideological and religious
advocacy into commercial activity.  This
distinguished the ordinance from the application of general false advertising
laws to actual advertising by similar clinics; the ordinance applied to
pregnancy centers regardless of whether they advertised at all. The record
didn’t show that the Center had an economic motivation for its speech; even if
its fundraising depended on the ability to attract clients, speculation about
that fact, without more, was too attenuated to be an economic motivation.
The court of appeals also rejected the attempt to defend the
ordinance as a regulation of professional speech.  Professional speech regulations are subject
to sliding-scale review, depending on where the speech is placed on the
continuum from public dialogue on one end to regulation of professional conduct
on the other.  This review “applies to
traditional occupations, such as medicine or accounting, which are subject to
comprehensive state licensing, accreditation, or disciplinary schemes,” and at
its core is when “the speaker is providing personalized advice in a private
setting to a paying client.”
The Center wasn’t like that. 
Maryland doesn’t require pregnancy centers to be licensed or otherwise
subject to a state regulatory scheme.There was no medical or professional board
that certified the Center’s employees, nor any disciplinary panel that
regulates their conduct. The Center had a volunteer “medical director” who was
a licensed physician, but she was “very rarely” on site and didn’t meet
directly with clients. Thus, no one in the Center practiced a “profession” “in
the traditional sense contemplated by our First Amendment jurisprudence.”
Although the Center “provid[es] personalized advice in a private setting,” its
clients weren’t paying.  [I take it that
the court of appeals isn’t saying that pro bono medical/legal services couldn’t
be regulated by professional licensing bodies—but now how do we decide what is
unauthorized practice of law/medicine in individual consultations?]
In a footnote, the court of appeals distinguished the Ninth
Circuit’s decision in Harris, 839 F.3d 823, cert. granted, No. 16-1140 (U.S.
Nov. 13, 2017). That law, which was upheld by the Ninth Circuit, required only licensed clinics to post a notice
informing women of the availability of state-sponsored services, including
abortion, and a phone number to call for more information.  That disclaimer was “markedly” different in
who it covered, and thus in the scrutiny that it received, as well as in
content.  Unlicensed clinics simply had to post a notice stating that their
facilities weren’t licensed by the state; because that compelled speech didn’t
mention abortion, “the burden on the speaker—and therefore the First Amendment
analysis—was different in kind.”
Anyway, because of this noncommercial/nonprofessional context,
the disclosure requirement was subject to strict scrutiny, and failed. Although
the compelled speech was “essentially factual,” that didn’t “divorce the speech
from its moral or ideological implications.” Here, the compelled speech was
particularly troubling because “the disclaimer portrays abortion as one among a
menu of morally equivalent choices. … The message conveyed is antithetical to
the very moral, religious, and ideological reasons the Center exists.”  [Of course, this reasoning will not regularly
be applied to mandatory disclosures of facts/non-facts by clinics that provide
abortion services, because abortion doesn’t get ordinary First Amendment
treatment.]  The court of appeals
cautioned that the Center’s anti-choice mission gave it “no license at all to
lie to women, … [b]ut it does provide some latitude in how to broach a
sensitive topic.”  
Baltimore’s interests in fighting deceptive advertising and
preventing the health risks that can accompany delays in abortions were
“plainly important.” However, the court of appeals agreed with the district
court that “there is insufficient evidence to demonstrate that deception
actually takes place and that health harms are in fact being caused by delays
resulting from deceptive advertising.”  After
seven years, Baltimore didn’t identify “a single example of a woman who entered
the Greater Baltimore Center’s waiting room under the misimpression that she
could obtain an abortion there.” [Note the implicit suggestion that the
evidence must be about the particular entity at issue.  Query whether the same logic could be applied
against a clinic just starting up?  What
about against the FTC’s Franchise Rules, which require a lot of disclosures
based on experience with franchises in general? 
Commercial speech doctrine presently should distinguish that last
example, though rumblings from the DC Circuit suggest otherwise.  My own opinion is that one could coherently say
“generalization from a record of bad behavior within this field is allowed
where the speech is commercial, but must be individualized where the speech is
Plus, Baltimore wasn’t using the most narrow means:
It is scrutiny of means that helps
identify the point on the spectrum where valid disclosures slip silently into
the realm of impermissible compelled speech. Particularly troubling in this
regard is (1) that the ordinance applies solely to speakers who talk about
pregnancy-related services but not to speakers on any other topic; and (2) that
the ordinance compels speech from pro-life pregnancy centers, but not other
pregnancy clinics that offer or refer for abortion.
Thus, the regulation was neither content nor viewpoint
neutral.  [Compare: the Franchise Rules
apply solely to speakers who offer franchises, but not speakers on any other
topic, and the ordinance compels speech from franchisors, but not other
businesses that refuse to franchise/sell things that aren’t franchises.  Without commercial speech doctrine, these are
the same situations, and it seems that only generic fraud law would be constitutional,
even if there are specific industries in which prophylactic and
information-providing measures would be helpful.]
The court of appeals was also unpersuaded that less
restrictive means were unavailable. The government itself could inform citizens
about the scope of services offered at various facilities “through a public
advertising campaign,” and it could enforce laws against misleading
advertising. More fundamentally, there was “only a loose fit between the
compelled disclosure at issue and the purported ills identified by the
government.”  If the problems are deceptive
advertising and consequent delays in abortion services. In that respect the
ordinance is quite overinclusive, it’s overinclusive to apply to pregnancy
centers “without regard to whether their advertising is misleading, or indeed
whether they advertise at all.”

In what one might read on commentary on present matters
beyond abortion, the court of appeals concluded, “[w]eaponizing the means of
government against ideological foes risks a grave violation of one of our
nation’s dearest principles: ‘that no official, high or petty, can prescribe
what shall be orthodox in politics, nationalism, religion, or other matters of
opinion or force citizens to confess by word or act their faith therein.’” 

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Natural/organic cigarette claims might be deceptive (with bonus First Amendment talk)

In re Santa Fe Natural Tobacco Co. Mkting & Sales
Practices & Prods. Liab. Litig., 2017 WL 6550897, No. MD 16-2695 (D.N.M.
Dec. 21, 2017)
Lots of claims here against Natural American Cigarettes.
Ultimately, the court allows consumer protection claims to proceed against the
use of the terms “natural,” “organic,” and “additive-free” for cigarettes, on
the theories that they could mislead a reasonable consumer into believing that
the cigarettes were healthier or safer than other cigarettes, because decades
of marketing have equated those terms with healthy products; and that the menthol
cigarettes had no additives, because menthol is a substance that a reasonable
consumer would not know much about; the court rejected a deception theory based
on the processing of the cigarettes.  In
the process, it rejected some First Amendment defenses.

Natural American advertisements from 2013 through 2015
included images of water and plants, along with statements like: “When you work
with the best materials, you don’t need to add anything else. That’s why we use
only tobacco and water. We stick with premium quality, whole leaf natural
tobacco that’s 100% additive-free for a very simple reason — it’s all we
need.” Ads also stated in large bold writing, “100% ADDITIVE-FREE NATURAL
TOBACCO,” and included, in smaller writing, “No additives in our tobacco does
NOT mean a safer cigarette.” Natural American cigarettes are the most expensive
major brand of cigarette; despite this sales increased eighty-six percent from
2009 through 2014, while cigarette sales in the US declined overall by
seventeen percent. Its market share more than doubled, increasing over
twenty-one percent between 2014 and 2015 alone. 
Numerous studies have examined the popularity and consumer
perceptions of cigarettes branded as “natural,” and in 2015 the FDA sent a
letter to Santa Fe Tobacco asserting that some of its labeling practices
“explicitly and/or implicitly” represent that Natural American cigarettes pose
less of a risk than other tobacco products. Santa Fe Tobacco had previously
entered into a Consent Order with the FTC regarding its advertising practices, requiring
the display of the disclaimer: “No additives in our tobacco does NOT mean a
safer cigarette” “[i]n the same style and type size as that required for health
warnings for tobacco cigarettes.” A later “Assurance of Voluntary Compliance” added,
for organic products, “Organic tobacco does NOT mean a safer cigarette.”
Nobody contends that Natural American cigarettes are in any
way safer than other cigarettes. Santa Fe Tobacco also adds menthol to certain varieties; the cigarettes
are also “flue-cured,” meaning processed with heat to secure the sugars, which
synthetically lowers the cigarette smoke’s pH and makes it easier to inhale.
The tobacco is allegedly artificially blended and modified, much like other
cigarettes in the industry.
The court applied the reasonable consumer standard to the
consumer protection laws of fourteen states.  Defendants argued that it was implausible for
consumers to expect a safer cigarette, because a reasonable consumer would read
the disclaimer stating that “no additives does NOT mean a safer cigarette.” Likewise,
they argued that a reasonable consumer knows that menthol cigarettes contain
menthol, so would understand that the no-additive term didn’t cover menthol. Finally,
they argued that a reasonable consumer would know that Natural American
cigarettes are subjected to engineering processes.
The first theory (safer cigarettes) survived.  The court didn’t rely on the
plaintiffs’ submitted studies, though one concluded that “[n]early 1 million US
adult smokers prefer” Natural American cigarettes and they “are 22 times more
likely than other smokers to believe that their brand is less harmful than
other cigarette brands,” leading the study authors to conclude that Natural
American smokers may choose that brand because of the “descriptors organic,
natural, and additive free on product packaging and advertising.” “As surely as
a Ph.D. cannot be swapped for an Article III commission, an academic study
cannot take the place of the Court’s judgment on a rule 12(b)(6) motion.” Maybe
all of the consumers studied were unreasonable consumers, and “the subjective
beliefs of the consumers studied, even if those consumers are generally
reasonable, cannot blindly be swapped for the reasonable consumer’s beliefs.” (What
does that even mean?  If a substantial
number of reasonable consumers receive a message, that message is conveyed to a
substantial number of reasonable consumers—and if a substantial number of
consumers receive a message, that’s good evidence that it’s reasonable for them
to receive it.  Substituting one’s own
judgment about what consumers should
do, when confronted with evidence of what they actually do, is dangerous business.)
Still, the allegations made the safer cigarette theory
plausible. “The terms natural and organic have long been used across the
country to convey products’ health benefits” (citing, inter alia, a court
relying on its own “common sense,” so I guess an Article III commission can
indeed be swapped for a Ph.D. in some circumstances). Likewise, additives “have
also long been known to or believed to potentially increase health risks.” Under
these circumstances, “the reasonable consumer is not expected to defy decades
of marketing, which has conveyed that natural, organic, and additive-free
products are healthier.” Similarly, the FDA and the FTC both determined that
the defendants’ descriptors conveyed a message that their cigarettes were less
harmful than other cigarettes.
The defendants didn’t fight this conclusion, but argued that
the disclaimer cured any deception.  The
plaintiffs responded that the disclaimer was hidden from consumers and
unhelpful.  However, the disclosure wasn’t
buried in an ingredients list, and, “unlike an ambiguous ingredient term, the
disclosure is a clear statement that ‘no additives does NOT mean a safer
cigarette.’” A reasonable consumer would look on the packages’ sides and top for this
type of disclosure, since product packaging commonly has additional information
about the product on the back and sides. 
Even though a reasonable consumer isn’t expected to understand every
piece of information disclosed on a package’s sides, there was no ambiguity here.  The court partially agreed with plaintiffs
that the disclosure was hidden: though representative packages in the record
contained legible disclaimers, in appropriate colors, not buried in other text,
cigarettes are often sold in a way that prevents consumers from inspecting the
packaging in detail before purchase. However, reasonable consumers wouldn’t miss
the disclosures on the ads—in the ads, the disclaimer was in a prominent
location boxed over the Surgeon General’s Warning.
Despite that, the disclaimer only addressed the lack of additives;
it said nothing about “natural” or “organic,” which independently connoted
health/safety. The defendants argued that “the disclosure plainly disclaims any
notion that Natural American cigarettes are safer than alternatives,” but that
asked for “a hefty inference in light of the disclosure’s specificity…. Specific
language communicates a specific meaning and a reasonable consumer interprets
it with that specific meaning.”
“Additive-free” on menthol cigarettes also plausibly misled a
reasonable consumer. Defendants’ contrary argument assumed “that a reasonable
consumer is so secure in her knowledge that menthol is an additive that an
express representation to the contrary, on a heavily regulated product, does
not mislead her.”  But the evidence indicated
that “[m]enthol’s properties are not commonly known, even among cigarette
users.” Before this case, the judge didn’t know much about menthol, including
whether it was a natural substance or additive. 
It was plausible that consumers wouldn’t know whether it naturally
occurred in tobacco, especially given that many goods have “naturally occurring
qualities that are prominently labeled separately on the good,” such as
caffeine. Even if a reasonable consumer knew that menthol was an additive, it was
still plausible that an additive-free descriptor “undermine[d] her knowledge,”
because menthol is an uncommon substance, compared to products such as almond
milk (with no dairy milk) and veggie bacon (no pork). Menthol’s inherent
qualities weren’t well known; faced with defendants’ descriptors, a reasonable
consumer could conclude that menthol is a type of tobacco or tobacco grown in a
specific location. 
Nor did the ingredient list on the back, which listed
menthol separately, dispel the deception, because the package lacked an
unambiguous signal (like the FTC-mandated disclosure) that the ingredients list
contradicted another representation on the package.  “[T]he reasonable consumer is not
hyper-vigilant and does not expect the product’s packaging to deceive her.” Moreover,
a reasonable consumer could conclude that there was no contradiction in the
ingredients list: she might presume that the FDA requires separate labeling of
menthol.  “Moreover, faced with
conflicting representations, one clear and the other ambiguous, the reasonable
consumer follows the clear one.”
However, “natural” didn’t plausibly mislead a reasonable
consumer into believing that Natural American tobacco was less processed than
tobacco in other cigarettes.  “Natural”
has many meanings, dependent on context, and a reasonable consumer “comes to
the market with a degree of background knowledge,” here that “tobacco undergoes
engineering processes before it is sold in cigarettes. Such awareness is clear
from visually comparing a tobacco leaf to a cigarette.” “Natural” wasn’t enough
to undermine that knowledge or suggest that the tobacco went through less
processing than other cigarettes’ tobacco. Also, since it modified “tobacco,” the
natural descriptor “says little, if anything, about the engineering processes;
it says something about the type of tobacco.”
Finally, on trademarks: the use in the brand name Natural
American Spirit would “carry less persuasive impact on a reasonable consumer
than other product labeling.  The
underlying rationale is that reasonable consumers know that brand names are
often creative and that substantive information about the product is less
likely to be located there.”  I love how well courts understand the psychology of ordinary consumers without needing evidence other than citing other courts.  (I don’t.)
The defendants argued that the First Amendment precluded
liability.   First, as to plaintiffs’ contract-related
claims, consensual contractual relations didn’t count as state action (nor did
court enforcement thereof) and couldn’t trigger First Amendment scrutiny.  Although Shelley v. Kraemer “held that court
enforcement of an agreement between private parties can, in some circumstances,
be considered governmental action,” that’s been limited to the context of
racial discrimination.  The basic rule is that “state action exists if the dispute is tort-related or if
the rights arise from a state statute, but does not exist if the dispute arises
from a contractual relationship or involves common-law property rights, unless
a non-judicial state actor is involved or if racial discrimination is
implicated.”  [If you want a way to make Shelley seem less weird, Carol Rose has a great explanation of why enforcing some contracts implicates the state in unconstitutional positions, e.g., that racial discrimination is acceptable; this one wouldn’t have that problem.]
Thus, plaintiffs’ state statutory tort claims involved state
action, as did the unjust enrichment claims, which arise from the absence of a
consensual contractual relationship. But plaintiffs’ express warranty claim
arose from a consensual contractual relationship and the First Amendment could
provide no defense.
The court then said it applied Central Hudson scrutiny to the unjust enrichment and statutory
claims because they were based on defendants’ commercial speech, but the claims
survived because the descriptors were (plausibly) inherently or actually
The Central Hudson First
Amendment framework, with its distinction between outright bannable
false/misleading commercial speech and merely potentially misleading speech,
has little relationship to false advertising doctrine as it developed either in
the Lanham Act or consumer protection context. 
The court here framed Central Hudson as providing that states can regulate
speech that is merely potentially misleading
if the government (1) has a substantial state interest in regulating the
speech, (2) the regulation directly and materially advances that interest, and
(3) the regulation is no more extensive than necessary to serve the interest.  Perhaps because of the private action
context, the court didn’t point out that the other option states have with
potentially misleading speech is to mandate disclosure; the majority of circuit
judges to consider the issue have found that disclosure regulations don’t need
to survive this three-step scrutiny.
My commentary: The private cause of action, by its nature, targets an
existing practice that it argues is deceptive. 
The potentially/inherently deceptive distinction, however, asks whether
a complementary disclosure, instead of an outright ban on the deceptive speech,
can sufficiently cure the deceptiveness of the speech standing alone. In a
private cause of action, that is a question of remedy, not of the inherent
nature of the deceptiveness. 
Anyhow, inherently misleading speech is “incapable of being
presented in a way that is not deceptive.” If the speech could possibly be
truthful, the court reasoned, it could not be inherently misleading. Thus, the
“natural,” “organic,” and “additive-free” descriptors here weren’t inherently
misleading as to the safety theory, because none of them “inherently” meant
healthy or safe, and likewise the processing claims weren’t inherently
misleading.  (Insert distant anguished
screams of linguists about “inherent” meaning in language—even onomotopoeia
varies across languages.)  It would be
possible for another manufacturer to truthfully produce natural, organic, and
additive-free tobacco, by picking it, rolling it up, and selling it.  (Note the absence of any explanation about
how the advertising would make
different claims.)  But the menthol theory
involved inherent misleadingness, because “additive-free’s meaning exists in
direct conflict with the menthol’s presence in the cigarette.… It is not
possible for some other cigarette manufacturer to produce a menthol cigarette
that is additive free and truthfully
advertise it as such
” (emphasis added).
Defendants argued that the menthol was added to the
cigarette filters, and not the tobacco, so the additive-free natural tobacco
label was truthful, but when the cigarette is smoked, inevitably the menthol
intermingles with the tobacco, making the claim inherently misleading. “The
Defendants’ final argument that any misunderstanding could be dispelled through
a new disclosure misapprehends the inherently misleading test. The Court cannot
assume in new disclosures otherwise no speech would be inherently misleading.
Any assumed disclosure could cure deception with a simple explanation that the
inherently misleading speech is a lie.” 
[Again, both a good point about the unworkability of the current
“inherently” misleading test under First Amendment doctrine and a good demonstration that the test isn’t set
up to judge tort claims.]
However, the rest of the Central
test can also be skipped, and the speech at issue banned outright,
if the speech is “in fact, misleading.” The standard here is not that of a
reasonable consumer, but a subjective standard. 
The plaintiffs alleged that the products’ labeling was uniform,
justifying the inference that they saw the claims, and they also alleged the
existence of a study showing that “smokers … frequently concluded that
‘natural’ cigarettes must be healthier or safer than cigarettes containing
chemicals.” Another study concluded that over sixty percent of Natural American
smokers believed their brand was less harmful than other cigarette brands. Thus,
it was plausible that consumers actually were deceived.  The disclosures didn’t correct this problem
for reasons discussed above.
[In the court’s formulation of the reasonable
consumer test as an objective one not based on actual consumers, state consumer
protection laws have apparently decided to allow some commercial speech that is
(1) completely unprotected by the First Amendment and (2) actually deceptive,
simply because (3) the court concludes that reasonable consumers shouldn’t be fooled by it.  I respectfully submit that this idea is
inconsistent with the history and logic of consumer protection law, which was
designed to remove many of the traps for the unwary of the old caveat emptor regime.  The better way to harmonize the idea of an
“objective” standard with the idea of what consumers actually believe (which
the court seems to think of as “subjective” on an individual basis) is the
venerable concept of a “substantial number of reasonable consumers.”  The fact that a substantial component of the
customer base is deceived is evidence that their conclusions are reasonable (as
opposed to idiosyncratic), and objective things can be said about the aggregate
of consumers.]
Likewise, even if the menthol representations weren’t
inherently misleading, they were plausibly in fact misleading. So too with the
unprocessed cigarette theory: it was plausible that these plaintiffs, though
not reasonable consumers, would believe that the term natural meant that
Natural American cigarettes were subjected to fewer engineering processes than
other cigarettes.
Even if the plaintiffs’ theories of deceptions didn’t
involve inherently or actually misleading speech, their theories satisfied Central Hudson’s remaining three
prongs.  Marching through: there’s a
substantial governmental interest in protecting consumers from misleading
speech.  Defendants argued that “natural”
had no ascertainable meaning, but “the government has an interest in regulating
a word with an underdeterminate meaning. Although perhaps less dangerous than
representations that are demonstrably false, words with many meanings or
unclear meanings have a capacity to mislead, because consumers can interpret
them in ways that do not reflect reality.” 
Does the speech restriction directly and materially advances
the asserted government interest?  This
step requires more than just “mere speculation or conjecture” that the speech
restriction will advance the interest: “[R]ather, a governmental body seeking to sustain a restriction on commercial
speech must demonstrate that the harms it recites are real and that its
restriction will in fact alleviate them to a material degree” (emphasis
added).  There doesn’t need to be a
“surfeit” of empirical background, however; studies and anecdotes can suffice,
as well as history, consensus, and “simple common sense.” The evidence of
deceptiveness alleged by plaintiffs was sufficient, meaning that enjoining use
of the challenged terms or awarding money damages, which would likely cause
defendants to remove or change their ads, would advance the government’s
interest in protecting consumers from deceptive speech.  Defendants argued that this wasn’t true
because of the already-existing disclosures, but see above; “in light of the
disclosures’ placement underneath the barcode and divorced from the Surgeon
General’s warning, money damages or an injunction would materially advance the
state’s interest even as to the ‘additive-free’ term, because a substantial number
of consumers would not think to look there for that disclosure, or would not
even see the disclaimer until after they were deceived into paying a premium
for Natural American cigarettes.”
Was the regulation no more extensive than necessary?  Money damages satisfied this requirement,
because they’d “encourage” defendants to improve disclosures; but moving or
adding disclosures might not be enough to protect consumers, so an injunction
might also meet this requirement. Certainly you can’t tell from the pleadings
The court also ruled on a slew of other state- and
claim-specific issues, which I will not go over.

Injunctive relief wasn’t moot, even though a Memorandum of
Agreement with the FDA required them to cease using those terms, except for the
natural term in their brand name. But the plaintiffs wanted to enjoin the
Natural American brand name, and the Memorandum of Agreement was subject to an
ongoing lawsuit in federal district court which could vacate the agreement.
Still, defendants represented that “Santa Fe is no longer utilizing the phrases
‘Additive Free’ and ‘Natural’ in the NAS cigarette product labels, labeling,
advertising, and promotional materials … and Santa Fe is in compliance with
the [Memorandum of] Agreement.”  Given
the ongoing challenge to the MOA, defendants’ promise to remove the terms was
only a promise, and they didn’t carry the “formidable burden of showing that it
is absolutely clear the allegedly wrongful behavior could not reasonably be
expected to recur.”  So injunctive relief
claims could proceed.

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Arbitral immunity doesn’t extend to arbitral advertising

Hopper v. American Arbitration Association, Inc., 2017 WL
6569571, No. 16-55573 (9th Cir. Dec. 7, 2017)

The district court dismissed Hopper’s false advertising
claim against AAA based on arbitral immunity, and the court of appeals
reversed.  “Arbitral immunity extends to
claims that arise out of a decisional act and exists to ‘protect the
decision-maker from undue influence and protect the decision-making process
from reprisals by dissatisfied litigants.’” But the false advertising claim was
“predicated on AAA’s descriptions of its arbitrators disseminated through its
website and direct mail. Commercial advertisement, designed to sway individuals
to choose AAA over its competitors … is distinct and distant from the
decisional act of an arbitrator.” 
Allowing the false advertising claim to proceed wouldn’t lead to undue
influence over the arbitration process or expose arbitral decisions to

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“prevailing price” consumer protection rule isn’t unconstitutionally vague

Haley v. Macy’s, Inc., 2017 WL 6539825, No. 15-cv-06033
(N.D. Cal. Dec. 21, 2017)
Haley brought a typical putative class action, with the
usual California claims, alleging that Macy’s mislabeled its merchandise with
false or inflated “original” or “regular” prices to induce customers to
purchase “on sale” merchandise based on a perceived bargain.  The court found that Haley had alleged Article
III injury in fact.
Macy’s argued that several named plaintiffs couldn’t have
been deceived because they had knowledge of Macy’s pricing practices before
they bought.  One plaintiff worked at a
Michael Kors boutique in Macy’s, and another had a close relationship with
her.  At the time of the first plaintiff’s
employment, Michael Kors was involved in an unrelated false advertising case. But
that employment history didn’t “establish or even suggest that she had
knowledge of any pricing practices.” Any inference of knowledge due to online
friendship was even more attenuated. 
Likewise, the fact that Haley bought an ornament from Macy’s four days
before suing was “suggestive,” but didn’t establish knowledge of Macy’s pricing
practices.  Nor did one plaintiff’s
documentation of her purchase suggest that she was anticipating litigation.  “Consumers may research and document their
purchases and compare with other items without anticipating litigation or
having knowledge of the pricing practices at issue in this case.”  [The judge must know someone like my spouse.]
Among other things, Macy’s also argued that plaintiffs didn’t
offer a factual basis for their allegations that Macy’s didn’t sell the
products at the original or regular prices and that other merchants did not
sell merchandise of like grade and quality at Macy’s advertised prices. The
court found that the complaint was sufficient. 
It cited “an exemplar coffee maker that was advertised with a regular
price of $149.99, but which all sellers on Amazon.com and the manufacturer’s
website offered for significantly lower prices.” Other named plaintiffs noted that
the products they purchased continued to be on sale at the discounted, rather
than original price, months after purchase. Macy’s pricing policy for its
online merchandise also stated that “regular” and “original” prices “may not be
based on actual sales of the item.” This was enough at this early stage of the

Finally, Macy’s argued that California Business &
Professions Code § 17501 is unconstitutionally vague in stating: “No price
shall be advertised as a former price of any advertised thing, unless the
alleged former price was the prevailing market price …within three months
next immediately preceding the publication of the advertisement or unless the
date when the alleged former price did prevail is clearly, exactly and
conspicuously stated in the advertisement.” The statute defines “prevailing
market price” as the “worth or value” at “wholesale if the offer is at
wholesale, retail if the offer is at retail, at the time of publication of such
advertisement in the locality wherein the advertisement is published.” The
court found that this language was sufficient to provide fair warning of what
is proscribed, given the context of the FAL more generally and its aim of
preventing “unfair, deceptive, untrue, or misleading advertising.” The OED
defines “prevailing” as “[p]redominant in extent or amount” and “most widely
occurring or accepted.” That wasn’t unconstitutionally vague. 

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Supplement maker can’t enjoin database changes, but avoids anti-SLAPP dismissal

Exeltis USA Inc. v. First Databank, Inc., 2017 WL 6539909, No.
17-cv-04810 (N.D. Cal. Dec. 21, 2017)
This is an interesting case about the FDA/Lanham Act
interaction. Exeltis sells prenatal vitamins that contain 1 mg of folic acid.  They aren’t available without a prescription
and are labeled and sold “by prescription only.” First Databank publishes a
database of information about pharmaceutical products, including Exeltis’s
prenatal vitamins. Medicaid and insurance providers (payors) use the database
to make reimbursement decisions.
Historically, the “class value” field in the database
signified whether manufacturers identified their products as prescription-only.
In 2016, the FDA issued guidance that medical foods cannot be properly labeled
“prescription only,” and that any such label would be false and misleading; it
hasn’t issued similar guidance for supplements. 
(Meanwhile—this will be important later—reimbursement under Medicaid is,
in most circumstances, permitted only for “covered outpatient drugs,” and all
state Medicaid programs must cover “prescription prenatal vitamins.”)
As a result, First Databank amended its “class value”
database field to “identif[y] a product’s prescription status” under federal
law. Code “F” signifies “[d]rugs that are prohibited by federal law from being
dispensed without a prescription” and code “O” signifies “[p]roducts with no
federal legal prescription requirement, including medical foods, dietary
supplements, non-prescription medical devices, and over-the-counter drugs.” For
a while, code “F” still explicitly included “prenatal vitamins labeled as
prescription.” First Databank announced that it planned to remove the reference
under “F” to prenatal vitamins and change its coding for all dietary
supplements and medical foods — including Exeltis prescription prenatal
vitamins — to “O.”
Exeltis argued that the coding decision to categorize all
prenatal vitamins as “O” instead of “F” was false and misleading, which also falsified
First Databank’s statements that its database was “robust, reliable, and
[offers] effective medication decision support solution[s].” The change
allegedly would cause “widespread denial of Medicaid and insurance coverage for
[prenatal vitamins],” thus interfering with prevention of serious birth defects
such as anencephaly and spina bifida. It could also “destroy” Plaintiff’s
business model, in which only 6% of its prenatal vitamins are paid for
out-of-pocket. Exeltis sued for violations of the Lanham Act, California’s UCL
and FAL, common-law intentional interference with prospective economic
advantage, and trade libel.
The court declined to grant a preliminary injunction.  First, the request might amount to an
unconstitutional prior restraint, requiring a heavy burden of justification.
Even assuming that the database was commercial speech, the court still the
general presumption against prior restraints, given that falsity was the key
issue in dispute and the court declined to take the risk of “erroneously
enjoining truthful, protected speech on the basis of an incomplete record.” Even
though “commercial speech may be more durable than other kinds…[s]ince
advertising is the Sine qua non of commercial profits,” the speech at issue
here wasn’t advertising, but instead concerned third-party products.
Even without constitutional doubt, Exeltis wasn’t entitled
to a preliminary injunction. The court wasn’t persuaded that the database
constituted commercial speech, a requirement for all the claims. Considering
(per Nike v. Kasky) “the speaker, the intended audience,
and the content of the message,” Exeltis argued that the database was
commercial because it was available for purchase and used by “commercial
actors” to complete “commercial transactions” among third-parties (payors,
pharmacies, and consumers). The court disagreed.  The Supreme Court hasn’t even held that false
statements about another’s product or service can be commercial speech (though
it’s hard for me to see why disparaging statements about a competitor wouldn’t
be). Under Exeltis’s interpretation, though, “any speech could be commercial if
eventually relied on by third-party actors who conduct business,” such as a
newspaper that printed information on which third parties relied in making
decisions.  “That a publisher compiles
information, or even provides its own interpretation of that information, for
commercial actors is not enough to transform it into commercial speech.”  The database wasn’t a traditional ad; First
Databank wasn’t promoting any of the products identified, nor was its
compensation contingent in any way on payors’ reimbursement decisions.  Thus, Exeltis didn’t show likely success on
the merits.
The court also was dubious about Exeltis’s falsity
theory.  Exeltis argued that payors
commonly understand the codes “F” and “O” to mean prescription and
over-the-counter respectively, making the change confusing to payors. But First
Databank’s revised definitions of “F” and “O” weren’t binary in that way.  “F” was for “[d]rugs that are prohibited by
federal law from being dispensed without a prescription” and “O” was for
everything else: “[p]roducts with no federal legal prescription requirement,
including medical foods, dietary supplements, non-prescription medical devices,
and over-the-counter drugs.”  The court
wasn’t persuaded that payors would overlook this change, even though it was
subtle; First Databank sent a letter to subscribers explaining its view that
neither dietary supplements nor medical foods were drugs subject to the FDCA’s
prescription requirement. The letter was careful to acknowledge that “the fact
that there is no federal requirement for a prescription does not mean an item
cannot be prescribed by a physician.” Thus, First Databank said that it would
“provide supplemental descriptive attributes for [non-drug] products…to
identify them as…‘Marketed as Prescription Prenatal Vitamin,’ etc.” The new
“class value” field definition included a text box, which noting that First
Databank “provides additional information regarding labeler representations” in
a separate table.  Thus, in context, the
statements weren’t established to be false.
Exeltis argued in the alternative that its products were in fact “subject to federal legal
prescription requirements.” The Medicaid Act requires state programs to cover
“prescription prenatal vitamins.” However, the Medicaid Act didn’t define
“prescription prenatal vitamins,” nor did it mandate which products actually
require a prescription. The Medicaid Act’s definition of “covered outpatient
drugs” generally turns on the FDA’s determination of approved “prescription
drugs” under the FDCA. However, the FDA sent a letter to First Databank stating
that it “has been made aware of patients who are losing or have lost insurance
coverage for their products marketed as medical foods” because “insurance
providers belie[ve] that the products are over-the-counter (OTC) drugs.” This
letter said nothing about the prescription requirements for prenatal vitamins. Anyway,
the FDA clearly stated throughout the letter that the FDA “does not require [medical
foods] to be dispensed by prescription” because they “are not drugs.”  
There is indeed an apparent disconnect between Medicaid
policy and the FDA; if “prescription prenatal vitamins” must be covered by
state programs, “it follows that some category of prenatal vitamins are
properly available by prescription.” Still, there was no federal law that requires Exeltis products to be
dispensed by prescription only. “That Plaintiff would prefer Defendant to
organize its information or code Plaintiff’s products differently does not
render the database false or misleading.”
Exeltis also failed to show irreparable harm to itself: harm
to third parties (pregnant women and their fetuses) wasn’t properly considered in
the irreparable harm inquiry.  Exeltis
argued that it would suffer “financial loss[es]” and an “accompanying loss of
goodwill.” It described goodwill as the company’s “reputation for quality and
its relationships with business partners,” but when pushed to explain further,
Exeltis argued that “pharmacists will stop stocking, doctors will stop
prescribing, and patients will stop using [Plaintiff’s] products.” This alleged
“goodwill” injury was merely “a lost revenue proxy.”  And economic injury alone does not support a
finding of irreparable harm.  There’d be
no competitive disadvantage because the change would affect all prenatal
vitamin supplement manufacturers.  Even
if the court found the injury not measurable by money damages, it was too
speculative, based as it was on independent decisions made by several third-parties:
Exeltis failed to explain why payors would ignore the revised definitions and
additional notes, given their independent obligations to determine which
products they must cover under federal law.  “Assuming payors misinterpret federal law and
erroneously deny coverage for prenatal vitamins, the wrongful conduct lies with
the payors, and not with Defendant. Yet an injunction against Defendant would
not control payors’ reimbursement decisions.”
However, the court also declined to grant First Databank’s
anti-SLAPP motion as to the state law claims. 
The information was a matter of public interest, even though it was only
available to paying subscribers who were sophisticated parties, given that drug
coverage/pricing and the prescription status of prenatal vitamins were matters
of public interest. “In the absence of clear directives from either the FDA or
CMS, Defendant weighed in to express its interpretation of the ‘inconsistent if
not conflicting’ legal landscape.”  Nor
was the database exempt from anti-SLAPP protections, because the commercial
speech exemption only covers “a person primarily engaged in the business of
selling or leasing goods or services” if: (1) their speech “consists of
representations of fact about that person’s or a business competitor’s business
operations, goods, or services, that is made for the purpose of obtaining
approval for, promoting, or securing sales or leases of, or commercial
transactions in, the person’s goods or services, or the statement or conduct
was made in the course of delivering the person’s goods or services”; and (2)
the “intended audience is an actual buyer or potential buyer or customer, or a
person likely to repeat the statement to, or otherwise influence, an actual
buyer or customer….”  The database didn’t
make representations about First Databank’s own products or those of a
competitor, and the statements at issue contained in the database itself, not
made in the course of selling or delivering the database.  (Query why results delivered to consumers don’t
count as “delivering” the database, but that doesn’t really matter given part
For anti-SLAPP purposes (especially given the tension between
anti-SLAPP laws and the FRCP), survival of Exeltis’s claims only required “a
reasonable probability of prevailing.” This meant “only a minimum level of
legal sufficiency and triability.” Significantly, “the trial court does not
weigh the evidence or determine questions of credibility; instead the court
accepts as true all of the evidence favorable to the plaintiff.” Under the more
lenient standard than that applicable to a preliminary injunction, Exeltis
showed the necessary “minimal merit” to survive a motion to strike.

Exeltis contended that the database was the linchpin of
payors’ reimbursement decisions, not merely a factor—the database was used to
instantly provide coverage decisions, and was designed for this use. Commercial
speech status is fact dependent, and “payors’ actual use of the database and
the database’s primacy in actually effectuating reimbursement decisions may
suggest that the database is commercial in nature.” Likewise, Exeltis made a
legally sufficient argument that the new coding was false or misleading. The
coding revision was subtle, removing “prenatal vitamins labeled as prescription”
from the F category.  “Even assuming a
reasonable payor would review these definitions in detail, the documentation
does not highlight the change on its face. It … says nothing about prenatal
vitamins or the latent ambiguity in their prescription status.” The letter to
subscribers said more, but “the Court cannot say that this stage that no
reasonable factfinder could conclude from the legal morass described in the
letter that the database misleads payors into concluding that Plaintiff’s
products are available over-the-counter and that payors should withhold
coverage on this basis.”  Ultimately, “this
is not the kind of obviously meritless or harassing case that the anti-SLAPP
statute was designed to discourage.”

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Another consumer protection case survives despite invocation of In re GNC

Racies v. Quincy Bioscience, LLC, No. 15-cv-00292, 2017 WL
6418910  (N.D. Cal. Dec. 15, 2017)
The court granted Racies’ motion for certification of a
California class against the makers of Prevagen, a supposed brain health
supplement, covering the usual California claims. Racies alleged that,
“contrary to the product’s labeling, Prevagen does not improve memory or brain
function because its only active ingredient is digested and transformed into
amino acids before it can measurably affect the brain.” Although individuals
can’t bring lack of substantiation claims, and allegations that Quincy
misrepresented Prevagen as “clinically tested” were impermissibly based on a
lack of substantiation theory, the body chemistry allegations were sufficient
to proceed.
Quincy tried to turn the original allegations into a reason
that Racies’ claims weren’t typical, because he relied on non-actionable
representations that Prevagen was “clinically tested” rather than on
representations about Prevagen’s potential brain health benefits, and also
because he didn’t take the product as directed. The court disagreed.  The evidence suggested that Racies bought
Prevagen, at least in part, because of what its ingredients were advertised to
deliver.  (Clinical testing could only
ever be support for that basic claim.)  It was enough for a misrepresentation to play
a substantial part, and so be a substantial factor, in influencing his decision.  “Because Prevagen is not marketed for uses
other than improving brain health and memory, it follows that representations
about these purported benefits were a ‘substantial factor’ in Plaintiff’s — and
all consumers’ — purchasing decision.” 
Also, the manner in which Racies took the product wasn’t at issue,
because the relevant inquiry and related injury under the CLRA/UCL occurs at
the time the consumer purchased the product based on the product label.
Racies also showed predominance by showing that a key
question was the objective one of whether the advertising was either false or
misleading.  Quincy argued that hat some
putative class members may have purchased Prevagen because the product was
clinically tested and not simply for its purported brain health benefits. Even
if that was something other than a completely “artificial” distinction, “California’s
consumer protection laws evaluate materiality under a reasonable person
standard, not on an individualized basis.”  Reliance was also no barrier to certification
because a plaintiff is entitled to a presumption of reliance if material
representations were made to class members.
Quincy then argued that proving falsity would entail
individual questions rather than common evidence about the scientific
literature. Although “[t]he falsity of the advertising claims may be
established by testing, scientific literature, or anecdotal evidence,” Quincy
argued that the scientific literature about Prevagen was “equivocal,” and
therefore incapable of establishing falsity under In re GNC. Thus, Racies would supposedly have to rely on anecdotal
evidence about class members’ individual experiences.
The court was unpersuaded by In re GNC and a subsequent California federal district court case
applying it, and didn’t believe that the California Supreme Court would agree
either.  Unfortunately, the court still used
In re GNC’s redefinition of literal
falsity as a situation where “all reasonable scientists agree” that the
explicit claims are false, whereas misleadingness comes when “the vast weight
of competent evidence establishes that those health claims are false.”  A jury could determine whether either was the
case.  [Pause to reiterate: if you were
using the Lanham Act, that wouldn’t actually be the test, despite what In re GNC said.  Literal falsity/misleadingness is a
distinction made about how a message
is conveyed.  Literal falsity is …
literal.  “This car gets 40 miles to the
gallon,” when it doesn’t.  Implied
falsity is where an ambiguous statement deceives a significant number of
reasonable consumers, e.g., “No product is better at preserving memory,” when
nobody else can do the job either.  The
truth or falsity of what message is conveyed to consumers is then
established in the ordinary course of proof, traditionally by the usual
preponderance standard.  There is zero
basis in federal or California law for the new standard invented by In re GNC, so the court should have
stayed even further away.]
Regardless, while “a plaintiff may fail to carry his burden
to prove falsity if the scientific evidence is ultimately inconclusive, the
mere existence of an expert or experts who support the defendant’s
representations should not insulate a defendant from false advertising claims
or foreclose class certification.” The court couldn’t substitute itself as
factfinder on a motion for class certification simply because both parties have
proffered scientific evidence.  

Superiority: Quincy argued that identifying class members
would be difficult because “Prevagen is primarily sold by third-party
retailers,” some individuals could be satisfied with the product, and any who
are dissatisfied could seek a refund. None of that mattered; “the Ninth Circuit
recently rejected a similar argument that plaintiffs must identify an
administratively feasible way to determine who is in the class in order to
satisfy the requirements of Rule 23.” That some individuals might like the
product was irrelevant; under Racies’ theory, the products were worthless and
any benefit was attributable to the placebo effect.  Refunds were also not superior alternatives to
adjudicating class members’ claims. 

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We’re not gonna need a bigger bucket: lawsuit against KFC dismissed

Wurtzburger v. Kentucky Fried Chicken, No. 16-CV-08186, 2017
WL 6416296 (S.D.N.Y. Dec. 13, 2017)
Wurtzburger sued KFC for alleged violations of General
Business Law §§ 349, 350 and 21 C.F.R. § 100.100 by misleading consumers into
believing that KFC’s buckets of chicken were are filled to the rim. She bought,
inter alia, $20.00 “fill-up” bucket meal of chicken that was advertised as
consisting of “an eight piece bucket of chicken” and “stated that the meal
could feed your whole family,” but the ad displayed a bucket overflowing with
chicken, and her bucket was not overflowing.
Using an objective reasonable consumer standard, the court
found no plausible claim.  Wurtzburger
didn’t claim that she received less than eight pieces, which was the amount she
bargained for. The use of a larger than necessary bucket wouldn’t be materially
deceptive or misleading “to a reasonable consumer acting reasonably under the
circumstances,” especially where the consumer “ordered, purchased, and received
the precise number of items requested.” Allegations that the phrase “the meal
could feed your whole family” was misleading were conclusory and without merit.
Wurtzburger’s allegation that she suffered personal injury/acid
reflux as a result of buying the chicken were also insufficient to establish
the injury sought to be addressed by the statutes.

21 C.F.R. § 100.100 covers branding on containers, and
provides that a food is misbranded “[i]f its container is so made, formed, or
filled as to be misleading.” A container is misleading if its contents cannot
be fully viewed and it contains “nonfunctional slack-fill,” which is further
defined by the regulation.  GBL § 349 can
encompass claims of excessive slack-fill, but it is a “complete defense that
the act or practice is … subject to and complies with the rules and
regulations of, and the statutes administered by, … any official … agency
of the United States as such rules, regulations or statutes are interpreted by
… the federal courts.” Alleging that the bucket Wurtzburger bought could hold
more chicken was insufficient to state a claim for non-functional slack-filling;
at a minimum, she needed to allege facts showing that KFC used slack-filling in
a manner outside of the enumerated permissible uses under the regulation.

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