malt “cocktails” with no wine or spirits were plausibly misleading

Posted on August 17, 2021 by rtushnet

Cooper v. Anheuser-Busch, LLC, 2021 WL 3501203, No. 20-CV-7451
(KMK) (S.D.N.Y. Aug. 9, 2021)

Plaintiffs alleged that the labels on the “Ritas” line of
beverages (Lime-A-Rita Sparkling Margaritas, Sangria Spritz Sparkling Sangria
Cocktail and Rosé Spritz Sparkling Rosé Cocktail, and Mojito Fizz Sparkling
Cocktail) were deceptive and misleading, generating claims for (1) violations
of §§ 349 and 350 of the New York General Business Law, (2) breach of express
warranty, (3) common law fraud, and (4) unjust enrichment. The court partially
granted and denied the motion to dismiss.

The Margarita Products allegedly prominently display
“LIME-A-RITA” and “SPARKLING MARGARITA,” with an image of a margarita served
with a salted rim and lime wedge in the fornt, but do not contain tequila;
plaintiffs allege that a reasonable consumer expects tequila in a margarita. The
fact that the products are malt beverages flavored to resemble a margarita are
only disclosed in “a small font statement” on the bottom panel of the
packaging. The allegations for the other products are similar. For example,
plaintiffs alleged that the term “Spritz” is “well known as a wine-based
cocktail.” The Mojito Products say “SPARKLING COCKTAIL,” and also have, e.g., small
images of Collins cocktail glasses and a martini glass next to a number
indicating how many cans of each flavor come in the package. (I have to admit,
as a cocktail fan, I’m offended.)

“sparkling margarita”

“sparkling classic cocktails” (mojito, cosmo)

“Spritz”: sangria, rosé

The plaintiffs also alleged that the misleadingness was enhanced
by the market context. Other companies allegedly sell canned beverages with
labeling such as “SPARKLING MARGARITA” (Jose Cuervo), “CLASSIC Margarita”
(Salvador’s), or “Perfect Margarita” (BuzzBox), but they do have tequila.
So too for canned mojitos, canned sangria, and canned rosé.

An actual canned margarita

The misleadingness arguments were not “patently implausible”
or “unrealistic.” “To the contrary, Plaintiffs have cogently explained how
reasonable consumers might be misled into thinking that the Products were canned
cocktails, instead of ‘Flavored Malt Beverage[s].’ Such a mistake is not hard
to imagine.” The dictionary agrees that a cocktail is a “usually iced drink of
wine or distilled liquor mixed with flavoring ingredients,” a “margarita” is as
“a cocktail consisting of tequila, lime or lemon juice, and an orange-flavored
liqueur,” “rosé” is as a type of wine, “sangria” is a wine-based “punch,” and a
“mojito” is a cocktail containing rum. It was “more than plausible” that a
reasonable consumer viewing a package labeled “SPARKLING MARGARITA” would
assume the beverage inside contained tequila, and so on. The imagery on the
packages did little to dispel misconceptions and, if anything, would reinforce
the impression of liquor/wine content.

Defendant argued that consumers would understand these merely
as “flavor designators.” That didn’t work at this stage.

Alleged misrepresentations of quantitative aspects may be
more easily dispelled by disclaimers than with qualitative characteristics.
What about the “truffle oil” case? Well, that was nonprecedential, and also in
the special context of “the most expensive food in the world.” Although the
ingredient list was a factor, it wasn’t dispositive, and binding Second Circuit
precedent says “[r]easonable consumers should not be expected to look beyond
misleading representations on the front of [a] box to discover the truth from
the ingredient list in small print on the side of the box.” Nor are the recent
vanilla cases similar, despite defendant’s argument that these too are merely
flavors with non-liquor/wine sources. Fairly construed, plaintiffs alleged that
the whole beverage “purports to be something—a ‘margarita’—which it is not,”
etc. Margaritas and mojitos can be distinguished from vanilla, “which generally
serves as a flavoring agent in other products, as opposed to a discrete item
one might order in a bar or restaurant.”
Defendants argued that context made deception implausible, including (1)
federal regulations, (2) the “full context” of the packaging, (3) the setting
in which plaintiffs purchased them, and (4) the labels of the comparator
products.

Defendants argued that federal regulations allowed it to use
“a cocktail name as a brand name or fanciful name.” But the regulations
prohibit a malt beverage label from containing “[a]ny statement, design,
device, or representation that tends to create a false or misleading impression
that the malt beverage contains distilled spirits or is a distilled spirits
product.” They don’t ban “[t]he use of a cocktail name as a brand name or
fanciful name of a malt beverage, provided that the overall label does not
present a misleading impression about the identity of the product.” Thus,
plaintiffs’ theory was fully consistent with federal regulations. The target of
this Action is not Defendant’s use of “a cocktail name as a brand name or
fanciful name.”

What about the full context of the packaging?  References to (1) “Ritas,” (2) “ ‘sparkling’
drinks,” and (3) a “wide variety of flavors in both words and images” did not
make it “obvious” that these were malt beverage. Anheuser-Busch suggested that
because it was “synonymous with beer,” reasonable consumers would conclude that
there was no wine or liquor in the products. [Hmm, I wonder if it wants to be
bound by that argument at the TTAB?] First, the court wasn’t about to accept
that claim as fact at this stage. Second, “Anheuser-Busch” or “A-B” didn’t
appear in the images in the complaint, so how would consumers know? Third, “Ritas”
and the other flavors/images in the packages wouldn’t obviously mean “no liquor/wine.”

What about the fact that NY doesn’t allow sales of wine and
liquor in convenience and drug stores like those in which plaintiffs purchased
the products? Although “reasonable consumer[s] do[ ] not lack common sense,” at
this stage, the court wasn’t going to resolve questions regarding “the
background knowledge, experience[,] and understanding of reasonable consumers”
as a matter of law. What consumers know about alcohol regulations “cannot be
resolved without surveys, expert testimony, and other evidence of what is
happening in the real world…. A consumer’s mistaken assumption that she can
purchase a beverage containing wine or distilled liquor in a drug or
convenience store is not comparable to a consumer’s putative belief that an ‘Angus’
breakfast sandwich sold for under $5 at Dunkin Donuts is an actual, ‘intact’ steak,
or that a ‘mass produced, modestly-priced olive oil [is] made with ‘the most
expensive food in the world.’ ” Contextual discrepancy based on price is
different from contextual discrepancy based on state alcohol laws, “something
that may be far less obvious to the reasonable consumer.”

Comparator products “expressly state that they contain
spirits and wine.” Thus, defendant argued, reasonable consumers expect a
product that does have liquor/wine to state as much explicitly. Surprising me,
the court is most sympathetic to this argument, but it still can’t be resolved
on a motion to dismiss. (I would think that instead, the fact that there are
actual canned cocktails out there means that consumers are far less likely to
read through the full label to see that this “mojito” is not.)

And, of course, putting “flavored malt beverage” on the
bottom of the package isn’t enough at this stage. The court wasn’t persuaded
that “disclosures aren’t dispositive” only applies when there’s an express
claim about ingredients or a suggestion that a particular ingredient dominates;
there’s no coherent distinction between those situations and these ones.

Materiality: Under GBL §§ 349–50, a material
misrepresentation is one that is “likely to mislead a reasonable consumer
acting reasonably under the circumstances.” “In other words, the materiality
requirement is incorporated in the legal standard courts use when evaluating
whether plaintiffs have adequately pled the second element of a deceptive
labeling claim. It does not form some quasi-distinct element that plaintiffs
must separately satisfy.” Certainly the court couldn’t say that the type of
alcohol was immaterial to a reasonable consumer.

Injury: Plaintiffs alleged that, had they known the products
were merely flavored malt beverages that did not contain tequila, wine, or rum,
they would not have purchased the them, or would have paid considerably less
for them. Defendant argued that more should be required here, especially since
plaintiffs brought comparator brands into the complaint without disclosing
their prices. At this stage, the allegations of a price premium were enough.  “Although plaintiffs sometimes point to
comparators in support of a price premium claim, a plaintiff is not required to
do so in order to allege injury.”

The breach of express warranty claims failed for lack of
sufficient pre-suit notice, and unjust enrichment was duplicative.

Fraud claims failed because the allegations didn’t establish
a “strong inference” of fraudulent intent. “[S]imply alleging a defendant’s
self-interested desire to increase sales does not give rise to an inference of
fraudulent intent,” and the complaint didn’t allege “strong circumstantial
evidence of conscious misbehavior or recklessness,” though this was a closer
call. Plaintiffs alleged that defendant ran an ad in which the speaker appears
in front of a wine cellar, but that wasn’t enough. 

“The outcome might be
different, for example, if Plaintiffs had plausibly alleged that Defendant was
aware of consumers’ preferences for beverages with distilled liquor or wine,
and then deliberately marketed the Products as such in order to capitalize on
that market,” or that “Defendant was losing market share because of competition
from canned cocktail manufacturers, and then decided to market its malt
beverages deceptively as ‘cocktails’ to salvage its position in the market for
alcoholic beverages.” So maybe they’ll replead.

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Bank had no duty to disclose limits to PPP loan applicants

Posted on August 17, 2021 by rtushnet

Elizabeth M. Byrnes, Inc. v. Fountainhead Commercial
Capital, LLC, 2021 WL 3501518, No. CV 20-04149 DDP (RAOx) (C.D. Cal. Aug. 6,
2021)

The CARES Act, among other things, established the Paycheck
Protection Program, a $349 billion loan program through which small businesses
could obtain forgivable loans backed by the Small Business Administration, but
administered by private lenders. As soon as it was enacted,

Fountainhead advertised that it
would “soon be tackling the loan inquiries lined up in our queue, providing
business owners with capital they need within days.” The next day, Plaintiff
submitted a PPP loan application to Fountainhead for a loan of less than
$25,000. Fountainhead responded with an e-mail stating that Plaintiff was “in
the queue,” and that “[h]elp is on the way,” and asking her to gather certain
documentation. The next day, Fountainhead told Plaintiff to expect “an
invitation to a secure portal for document upload within the next 48 business
hours.” Plaintiff did not receive any such invitation.

Fountainhead continued to promote
PPP loans, encouraging applications and stating that it “hope[d] to make these
loans within days.” Fountainhead executives made statements touting its
advantage over other, bank-based lenders, such as Fountainhead’s ability to
approve loans “within a few hours.” Fountainhead further represented that it
“require[d] no[ ] prior relationship, no special (money-making) criteria, and
[was] processing first come, first serve … no prioritization.”

Despite followup (and reassurance from Fountainhead) nothing
happened. Plaintiff alleged that, on the basis of its representations, it gathered
the requested documents, waited for the opportunity to upload them, refrained
from submitting a loan application to other lenders, and made other related
decisions regarding its small business.

Plaintiff alleged that Fountainhead was not even licensed to
engage in lending activities in California until April 21 and had not secured
any funding prior to that time, and therefore could not possibly have extended
loans “within days.” It also alleged that Fountainhead did prioritize favored
customers and higher-value loans that would yield higher fees to Fountainhead
than would relatively small loans, such as the one it sought. It sought to
represent a class bringing state law claims for fraudulent concealment, unfair
business practices, and false advertising.

The court granted the motion to dismiss.

There was no fraudulent concealment because Fountainhead
lacked any duty to disclose to the plaintiff.

A duty to disclose may arise in four circumstances: “(1)
when the defendant is in a fiduciary relationship with the plaintiff; (2) when
the defendant had exclusive knowledge of material facts not known to the
plaintiff; (3) when the defendant actively conceals a material fact from the
plaintiff; and (4) when the defendant makes partial representations but also
suppresses some material facts.” Although plaintiff alleged (2)-(4), all three
“presuppose the existence of some other relationship between the plaintiff and
defendant in which a duty to disclose can arise.”

The UCL and FAL claims were equitable, and under Sonner v.
Premier Nutrition Corp., 971 F.3d 834 (9th Cir. 2020), the plaintiff needed to
allege that it lacked an adequate remedy at law, which it did not allege.

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Models’ false endorsement claims fail for want of recognition, bad survey

Posted on August 17, 2021 by rtushnet

Souza v. Exotic Island Enterprises, Inc., No. 18-CV-9448
(KMK), 2021 WL 3501162 (S.D.N.Y. Aug. 9, 2021)

Another in the burgeoning genre of models suing “adult”
clubs for using unauthorized images in online ads for the clubs. As this case
shows, the Second Circuit is not as favorable a jurisdiction for these claims
as some others, given the short ROP limitations period and the skepticism about
non-ROP claims. Lexmark has crept into §43(a)(1)(A) via false
endorsement; it will be interesting to see whether courts recognize that other
trademark claims are likewise subject to a proximate cause requirement by that
logic.

Facts in the light most favorable to the plaintiffs: Each of
the plaintiffs has a significant number of followers on various social media
platforms, ranging from greater than ten thousand to several million, and most
are “considered social media influencers.” “Because they rely on their
reputation to get work, Plaintiffs are selective about the jobs they take, and
exercise ‘complete control’ over the use of their images and likenesses,”
especially given the persistence of images online. Mansion runs a club where
nude or semi-nude women offer entertainment; “[p]romotions containing
Plaintiffs’ images were without Plaintiffs’ permission posted to Mansion’s
social media pages.” Plaintiffs sued for false advertising and false
endorsement under the Lanham Act, violation of their right to publicity,
deceptive trade practices under New York GBL Section 349, and defamation. 

The court was guided by Electra v. 59 Murray Enterprises,
Inc., 987 F.3d 233 (2d Cir. 2021), which considered all these claims except for
false advertising. Electra found that, even where models had transferred
all rights in the photos to a third party, they could still bring ROP claims:
the clubs didn’t claim to be beneficiaries of those agreements and the releases
didn’t constitute the necessary “written consent” for defendants’ uses, though “the
releases could provide a defense in an action against the releasees or those who
could assert lawful use by reason of assignment or license.” However, false
endorsement claims failed because they didn’t prove that they had the kind of
fame that meant that their appearance in an ad was an endorsement, as opposed
to an appearance by a model. There was no deceptive practices claim under
Section 349 because the conduct wasn’t consumer-oriented; this was “a private
dispute over a private injury visited on the individuals portrayed in the
photographs.” Defamation claims also failed: First, the ads didn’t
unambiguously indicate that the models would be appearing at the clubs and
might just indicate that they were in the ads, and second (and relatedly), plaintiffs
failed to show actual malice; at most, they failed to investigate whether
third-party contractors had the rights to the images, but that’s not actual
malice.

Given Electra, plaintiffs withdrew their GBL Section
349 and defamation claims.

False endorsement: Failed for similar reasons to the claims
in Electra. You can be really popular on social media without being
recognizable enough for the “strength” factor to favor likely confusion. Electra
quoted with approval a district court’s reasoning that “[t]he misappropriation
of a completely anonymous face could not form the basis for a false endorsement
claim, because consumers would not infer that an unknown model was ‘endorsing’
a product, as opposed to lending her image to a company for a fee.”

Plaintiffs didn’t show sufficient evidence of recognition.
Their affidavits that “[o]n any given day, regardless of where [they are] at,
[they are] recognized by complete strangers and [their] fans who follow [them]
on social media” were vague and conclusory. And their expert report was not good.
Martin Buncher’s putative testimony was based on a survey of 812 people who
were at least 21 years old living in the metropolitan area around Mansion, and
who had patronized a “Bikini Bar/Gentlemen’s Club/Strip Club” in the two years
prior to taking the survey. This survey showed that “almost half of the
respondents felt they recognized … Plaintiff[s’] images in the ads in some
manner having seen them prior to this research.” The court excluded this as
unreliable.

First, Buncher “used copies of the images annexed to the
Complaint with … [P]laintiffs’ names removed from the top, which resulted in
large parts of their faces and heads being removed.” The court found that “[s]urvey
respondents are highly unlikely to be able to accurately identify [plaintiffs]
based on photographs that do not show their face above their nose.” Yet, oddly,
his study “shows relatively uniform levels of recognition across the images of
all eight Plaintiffs, including those that show a Plaintiff’s face and those
that do not,” from 55-43% recognition. Perhaps this flaw was related to the
lack of a control group. Electra likewise rejected a Buncher survey and
his explanation that his survey was “a communications study, not a consumer
confusion study” as “insufficient to set aside the district court’s conclusion
that the Buncher Report was fatally flawed.

That the results bunch around 50%
recognition for each Plaintiff, regardless of whether her whole face is shown,
supports the view that many respondents were guessing. Another possibility is
that respondents—generally agreeable people who agreed to participate in the
survey—were yea-saying. Because Buncher made no effort to control for these
possibilities, he lacks good grounds for his conclusion that Plaintiffs were
recognizable, and the Court will not permit him to testify to this point based
on these survey questions.

Separately, the recognition questions were independently
defective because they “provided no opportunity for respondents either to
express uncertainty or to provide the identity of the [p]laintiff.” “As a
result, the Court has no way to verify whether respondents truly recognized any
of the Plaintiffs.” Yeah, that seems bad. Indeed, the survey responses didn’t
identify any plaintiff by name. That wasn’t absolutely required; a number of the
plaintiffs had modeled for Playboy, and there were at least 11 references to
Playboy in the responses, but “Playboy itself is a strong brand. No reasonable
jury could find that these references suggest that respondents recognized
Plaintiffs from their work with Playboy.”

Buncher has been allowed to testify with similar surveys in
other district courts, but those courts are in circuits that like to admit
surveys and then discount their probative value, almost whatever their flaws.
The Second Circuit is more discerning.

It was not enough for each plaintiff to be a “successful
model” with “substantial followers on their social media accounts.” In Electra,
while the successful Carmen Electra earned over $5 million modeling between
2009 and 2012, the unsuccessful plaintiffs made annual modeling incomes ranging
“from $400 … to $92,000,” and those amounts weren’t significant enough to
favor a finding of recognizability.  Electra
had “not just appeared in popular movies and television shows, but had regular and
starring roles in them.” While the other plaintiffs had “participated in
promotional campaigns for a wide variety of brands and appeared in magazines,
TV shows, and movies, their resumes [were] devoid of evidence that they
actually garnered recognition for any of their appearances.”

Here, plaintiffs didn’t establish their income, which was
their burden to do if they wanted it to weigh in their favor. In discovery, they
produced evidence that ranged from $107,000 in one year, when the plaintiff
earned $100,000 as Playmate of the Year, to “up to” $7000 for two roles. Nor
was the other evidence of prominence strong; though they provided “an extensive
list of the magazines and ad campaigns in which they were featured,” “[s]imply
listing brands or magazine titles is insufficient.” They were also seen in
additional roles, but their “resumes are devoid of evidence that they actually
garnered recognition for any of their appearances.” Only two showed a “starring
role[ ]” in something, but neither made any showing that these productions were
“popular” or that they had “regular” starring roles. No reasonable jury could
find that these facts supported strength. The court reasoned similarly with
respect to social media followings at the time the images at issue were
published.

Given their relatively weak marks, the absence of actual
confusion evidence was significant.

Plaintiffs relied on the Buncher report, which concluded
that “62% of survey respondents believed each Plaintiff had some affiliation,
connection[,] or association with Mansion; 75% believed Plaintiffs agreed to
sponsor, promote[,] or endorse Mansion; and 76% of respondents believed
Plaintiffs approved Mansion’s use of their images.” But that was excluded.

Buncher showed photos from the social media posts at issue,
and asked:

Considering that these are actually
real women shown in these ads and not just fictitious drawings, please indicate
using your strangest (sic) impression for each pair of opposing statements the
one you think is true based on your personal feelings. Remember, we want your
response based only on these ads you are seeing, and nothing else you might
have seen or heard previously.

• All of the women shown in these
ads have some affiliation, connection or association with those clubs in whose
ad they appear

• All of the women shown in these ads
do not have any affiliation, connection or association with those clubs in
whose ad they appear

[similar binary “all of the women” sponsorship/endorsement/approval/participation in the club events/women were paid to be in the ad questions]

It’s like a list of what not to do in surveys! There was no
anti-guessing instruction or “not sure” or “no opinion” options. These omissions
made the survey leading. Each question forced the respondent into binary
answers about “all” of the women. But there were three relevant possibilities:
(1) the ads suggest affiliation; (2) the ads suggest lack of affiliation (etc);
(3) the ads don’t suggest anything one way or another about affiliation. “By
failing to provide the third option, Buncher’s survey led respondents to
answers favoring Plaintiffs.” The court pointed out that (3) was the most
obvious answer for respondents who weren’t confused. “It is logically difficult
to see a person in an ad and draw the affirmative conclusion that she has no
affiliation whatsoever with the advertiser.” So a respondent who wasn’t confused
would especially need option (3).

At most, the evidence showed a possibility, not a
probability, of confusion.

Bad faith: In Electra, the Second Circuit held that
the plaintiffs “failed to establish … bad faith” where “the record merely
show[ed] that [the defendants] failed to investigate whether the third-party
contractor responsible for the advertisements secured legal rights to use [the
plaintiffs’] pictures in the promotional images—not that [the defendants]
intended to use the pictures without legal right to do so.” So too here.

Even if a reasonable jury could find that the remaining Polaroid
factors favored plaintiffs, they’d still lose, as in Electra.

Plaintiffs argued that they could still win on affiliation
confusion even if they failed to show endorsement confusion. First, Electra
was controlling. Second, “Plaintiffs’ distinction is immaterial.” It’s all Polaroid.
“The Court’s analysis applies with equal force to the claim that consumers were
likely confused about Plaintiffs’ association with Mansion as it does to the
claim that consumers were likely confused about Plaintiffs’ endorsement of
Mansion.”

False advertising: Plaintiffs didn’t come within the zone of
interests protected by §43(a)(1)(B). Their alleged harm, lost licensing fees,
was not the requisite type of harm—lost business to the defendants.The plaintiffs
argued that they directly competed with defendants, because “both seek to
attract customers and vie for the same dollar via the use of an image of a
beautiful woman.” But while they share a marketing strategy, Plaintiffs and
Defendants “each perform different functions within the marketplace.” “That two
products are sufficiently related that consumers could be confused about the
association between them does not suggest that these two products are direct
competitors.”

They didn’t show cognizable injury by asserting a right to
compensation from use of their images. “This assertion misunderstands the
nature of a false advertising claim, which is focused on how false assertions
in the market harm a plaintiff’s present and future prospects.” Lost wages “are
not within the zone of interests that the Lanham Act protects.”

Plaintiffs also alleged that use of their images hurts their
reputation and business. But the burden was on them to show that this was true,
and they did not. Evidence of lost opportunities wouldn’t be required if they
could show “other evidence of reputational or competitive harm,” but they didn’t.

Plaintiffs relied on Lexmark for the proposition that
“when a party claims reputational injury from disparagement, competition is not
required for proximate cause” and that “a defendant who seeks to promote his
own interests by telling a known falsehood to or about the plaintiff or his
product may be said to have proximately caused the plaintiff’s harm.” But that
was about proximate cause, not the zone of interests.

Finally, they argued that “a court may award a defendant’s
profits solely upon a finding that the defendant fraudulently used the plaintiff’s
mark.” But this rule requires first that a Lanham Act violation has been
established.

Finally, many but not all of the state ROP claims were
barred by a one-year statue of limitations (as established in Electra).
The court declined to exercise jurisdiction over the two remaining plaintiffs’
claims, which is an extra yikes. First, the court found that it lacked diversity
jurisdiction since the amount in controversy for each plaintiff didn’t exceed
$75,000. And because it was kicking out the federal claims, it declined to exercise
supplemental jurisdiction despite how far the litigation had progressed.

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data breaches can lead to a potpourri of claims

Posted on August 17, 2021 by rtushnet

In re Blackbaud, Inc., Customer Data Breach Litig., No.
3:20-mn-02972-JMC, MDL No. 2972, 2021 WL 3568394 (D.S.C. Aug. 12, 2021)

Query whether this kind of case will come out differently as
TransUnion v. Ramirez gets further assimilated into the law.

Blackbaud (good name!) “provides data collection and
maintenance software solutions for administration, fundraising, marketing, and
analytics to social good entities such as non-profit organizations,
foundations, educational institutions, faith communities, and healthcare
organizations.”

It stores both PII and Protected Health Information from its
customers’ donors, patients, students, and congregants. Plaintiffs “represent a
putative class of individuals whose data was provided to Blackbaud’s customers
and managed by Blackbaud,” thus they weren’t direct customers of Blackbaud.

In early 2020, “cybercriminals orchestrated a two-part
ransomware attack on Blackbaud’s systems,” copying plaintiffs’ data and holding
it for ransom. The cybercriminals then attempted but failed to block Blackbaud
from accessing its own systems. “Blackbaud ultimately paid the ransom in an
undisclosed amount of Bitcoin in exchange for a commitment that any data
previously accessed by the cybercriminals was permanently destroyed.” [Um. That
commitment seems … hard to believe?]

Plaintiffs alleged that the attack resulted from Blackbaud’s
“deficient security program” and failure to comply with industry and regulatory
standards. Its forensic report found that “names, addresses, phone numbers,
email addresses, dates of birth, and/or SSNs” were disclosed in the breach but allegedly
improperly concluded that there was no credit card data taken. Plaintiffs also
alleged that Blackbaud failed to provide them with timely and adequate notice
of the attack and the extent of the resulting data breach. In its July 2020
disclosures, Blackbaud asserted that the cybercriminals did not access credit
card information, bank account information, or SSNs. But its September 2020
Form 8-K with the Securities and Exchange Commission said that SSNs, bank
account information, usernames, and passwords might have been taken. This
litigation followed.

This opinion addresses certain statutory claims, highlighting
variation around the country in both specific data breach and general consumer
protection claims.

California Consumer Privacy Act :

The CCPA

provides a private right of action
for actual or statutory damages to “[a]ny consumer whose nonencrypted and
nonredacted personal information … is subject to an unauthorized access and
exfiltration, theft, or disclosure as a result of the business’s violation of
the duty to implement and maintain reasonable security procedures and practices
appropriate to the nature of the information to protect the personal
information[.]”

Blackbaud argued that it was not a “business” regulated by
the Act. Short answer: it was adequately alleged to be one.

California Confidentiality of Medical Information Act: One
plaintiff plausibly alleged that her “medical information” was disclosed during
the attack, and that Blackbaud plausibly qualified as a “medical provider”
under the CMIA despite its lack of direct contact with her.

Florida Deceptive and Unfair Trade Practice Act: Monetary
recovery requires “(1) a deceptive act or unfair practice; (2) causation; and
(3) actual damages.” Blackbaud’s alleged bad practices were failing to adopt
reasonable security measures and adequately notify customers and Plaintiffs of
the data breach; misrepresenting that certain sensitive PII was not exposed
during the breach, that it would protect Plaintiffs’ PII, and that it would
adopt reasonable security measures; and concealing that it did not adopt
reasonable security measures. However, the Florida plaintiffs failed to sufficiently
allege actual damages, which under FDUTPA are “economic damages related solely
to a product or service purchased in a consumer transaction infected with
unfair or deceptive trade practices or acts.” A plaintiff may not recover for
“damage to property other than the property that is the subject of the consumer
transaction.” Here, Blackbaud’s data management software was “the property that
is the subject of the consumer transaction,” not the data itself. And these
plaintiffs didn’t allege damage to that property, only to their own bank
accounts, emotional well-being, and data.

However, the Florida plaintiffs did state a claim for
injunctive relief, since FDUTPA makes “declaratory and injunctive relief
available to a broader class of plaintiffs than could recover damages,” as long
as a plaintiff is “a person ‘aggrieved’ by the deceptive act or practice.” Plaintiffs
alleged that Blackbaud’s misrepresentations and omissions about its security
efforts and the scope of the Ransomware Attack “prompted them to take
mitigation efforts out of fear that they were at an increased risk for fraud or
identity theft.”

New Jersey Consumer Fraud Act: Blackbaud argued that its
services weren’t within the scope of the NJCFA because it sells services to
sophisticated businesses and entities, not the general public. The NJCFA prohibits
a person from using an “unconscionable commercial practice, deception, fraud,”
or the like “in connection with the sale or advertisement of any merchandise or
real estate.” Merchandise is defined as “any objects, wares, goods commodities,
services or anything offered, directly or indirectly to the public for sale.” New
Jersey courts have said that the law’s applicability “is limited to consumer
transactions which are defined both by the status of the parties and the nature
of the transaction itself.” Although the NJCFA does not define “consumer,” New
Jersey courts have interpreted the term to mean “one who uses economic goods
and so diminishes or destroys their utilities.” A plaintiff does not qualify as
a “consumer” if they do not purchase a product for consumption. Thus, the NJ
plaintiffs weren’t “consumers” entitled to the protection of the NJCFA. Nor
were donations to the entities that transacted with Blackbaud enough. Donors
are not “consumers” under the NJCFA because they are “not being approached in
their commonly accepted capacity as consumers” and a donation “involves neither
commercial goods nor commercial services.” Plaintiffs didn’t allege that they
purchased or used Blackbaud’s services, knew Blackbaud existed, or perceived
that Blackbaud managed their data.

New York General Business Law § 349: This requires a
consumer-oriented practice, which occurs if it has “a broader impact on
consumers at large,” or “something more than a single-shot consumer transaction
or a contract dispute unique to the parties.” However, GBL § 349 does “not
impose a requirement that consumer-oriented conduct be directed to all members
of the public[.]” Unsurprisingly, the allegations here adequately established
consumer-oriented conduct.

Privity isn’t required under GBL § 349, so it was irrelevant
that the NY plaintiffs weren’t direct consumers of Blackbaud. Section 349(h)
specifically empowers “[a]ny person who has been injured by reason of any
violation of this section” to bring an action. GBL § 349(h). “The critical
question, then, is whether the matter affects the public interest in New York,
not whether the suit is brought by a consumer or a competitor.”

Pennsylvania Unfair Trade Practices and Consumer Protection
Law: The UTPCPL provides a private cause of action to “[a]ny person who
purchases or leases goods or services primarily for personal, family or
household purposes and thereby suffers any ascertainable loss of money or
property, real or personal, as a result of the use or employment by any person
of a method, act or practice declared unlawful” by the Act. “It is the
plaintiff’s burden to prove justifiable reliance in the complaint.” Again
unsurprisingly, the Pennsylvania plaintiff failed to sufficiently allege
reliance on Blackbaud’s misrepresentations and omissions. She instead alleged
that she was “required to provide her PHI to her healthcare provider as a
predicate to receiving healthcare services[,]” and didn’t allege that she knew
that Blackbaud maintained her data or was that she was exposed to
representations Blackbaud made to her or her healthcare provider. Her
allegation that she “would not have entrusted her Private Information to one or
more Social Good Entities had she known that one of the entity’s primary cloud
computing vendors entrusted with her Private Information failed to maintain
adequate data security” was merely conclusory. Courts sometimes presume
reliance, but only in cases involving life-threatening defects.

South Carolina Data Breach Security Act: The provision plaintiffs
sued under covered only entities that “own[] or licens[e] computerized data or
other data that includes personal identifying information,” requiring them to
notify South Carolina residents in the event of a data breach; Blackbaud didn’t
own or license the data; its possession was insufficient. True, a separate
provision of the law required someone “maintaining computerized data or other
data that includes personal identifying information that the person does not
own” to notify the owner or licensee after a data breach, but plaintiffs didn’t
assert claims under that provision.  

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Non-alphanumeric logo isn’t CMI

Posted on August 16, 2021 by rtushnet

CoStar Group, Inc. v. Commercial Real Estate Exchange Inc., No.
CV 20-8819 CBM(ASx), 2021 WL 3566415 (C.D. Cal. Jun. 9, 2021)

CoStar owns a number of digital marketplaces containing listings
of real estate for sale and for lease. Its LoopNet is allegedly “the leading
digital marketplace for commercial real estate,” and contains CoStar’s
copyrighted images, data from the CoStar database, and edits made by CoStar to
“improve marketability.” Defendant CREXi is trying to build its own online
commercial real estate marketplace and auction platform. It allegedly CREXi
“harvest[ed] content, including broker directories, from CoStar’s subscription
database without authorization by using passwords issued to other companies.” This
opinion addresses only CoStar’s CMI claims.

The court agreed with CREXi’s argument that CoStar’s watermark
wasn’t CMI. It didn’t include the copyright symbol (©) or any identifying
information about the author of the work, such as a web address or company name.
Its logo “can be described as five small light grey parts that form a circle.” (Interestingly,
it doesn’t seem to use grey for its regular logo—perhaps black disappeared into
too many photos.)

One version of CoStar logo (which is elsewhere usually accompanied by its name)

Although CoStar alleged that this identified its ownership
of the image, that was a legal conclusion; the logo itself didn’t contain any
identifying information about the author of the work as required by § 1202(c). McGucken
v. DMI Holdings, CV 18-4837, 2019 U.S. Dist. LEXIS 60852 (C.D. Cal. Apr. 9,
2019), accepted “45SURF” superimposed onto a photo as CMI because “it
identified plaintiff and his brand as the author and owner of the photographs”;
he used that as his professional name. But CoStar’s logo “does not include the
author’s name, title, an alphanumerical designation, or identifying symbols
referring to such information.” See also Maule v. Anheuser Busch, LLC, No.
17-00461, 2018 U.S. Dist. LEXIS 125805 (E.D. Pa. July 27, 2018) (“Visit Philly
Skyline Dot Com” superimposed on picture was not CMI: it “did not contain
Maule’s name or any identifying information about him as the author of the
photograph or owner of the copyright to that work … nor does it inform the
public that something is copyrighted [or] prevent infringement.”)

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reasonable consumers of manuka honey know its price and grading scheme

Posted on August 16, 2021 by rtushnet

Moore v. Trader Joe’s Co., 4 F.4th 874 (9th Cir.
2021)

Trader Joe’s markets its store brand Manuka honey as “100%
New Zealand Manuka Honey” or “New Zealand Manuka Honey,” but Moore alleged that
because Trader Joe’s Manuka Honey actually consists of only between 57.3% and
62.6% honey derived from Manuka flower nectar, Trader Joe’s engaged in “false,
misleading, and deceptive marketing” of its Manuka honey. FDA guidelines permit
labeling honey by its “chief floral source,” given that busy bees cannot be
prevented from foraging on different types of flowers, despite their keepers’
best efforts, and plaintiffs’ own tests indicated that Manuka was the chief
floral source. The court concluded that the 100% claim wouldn’t deceive a
reasonable consumer, with some plausible arguments and one really bad argument
(it was so cheap that no reasonable consumer would believe it was Manuka honey,
which assumes a lot of highly calibrated knowledge among consumers that seems a bit inconsistent with a motion to dismiss).

100% New Zealand Manuka Honey and New Zealand Manuka Honey jars

Identical nutrition panel on both showing the only ingredient as manuka honey

Manuka honey supposedly has antibacterial properties and health
benefits; this, plus geographic barriers to widespread production, result in
high demand and low supply and “a price far in excess of other honeys.” Manuka
honey producers grade the purity of Manuka honey on the Unique Manuka Factor (UMF)
grading system, from 5+ to 26+ based on the concentration of honey derived from
Manuka flower nectar. A bottle of Manuka honey 92% derived from Manuka flower
nectar costs approximately $266, or $21.55 per ounce.

TJ’s Manuka Honey is labeled with a UMF grade of 10+, “a
relatively low grade, and sells for the comparatively low price of $13.99 per
jar, or $1.59 per ounce.”  The ingredient
statement lists Manuka honey as the sole ingredient.

Plaintiffs brought the usual California claims. I think that
the court wouldn’t have to rest on factual claims about the details of what
consumers understand about Manuka honey if it had admitted that what is really
going on here is balancing: given the unique production/collection of honey
products, there’s no simple way to explain to consumers what’s going on, so requiring
a more complicated explanation would obscure more than it prevented deception.
(Though a 5 to 26 scale is pretty weird, LSAT-level weird, and perhaps it really
would be more helpful if they indicated that 10+ wasn’t all that Manuka-y.)

Anyway, TJ’s Manuka Honey met the FDA standard, being derived
from between 57.3–62.6% Manuka flower nectar (as estimated by pollen count). Taking
into account “all the information available to consumers and the context in
which that information is provided and used,” “other available information
about Trader Joe’s Manuka Honey would quickly dissuade a reasonable consumer
from the belief that Trader Joe’s Manuka Honey was derived from 100% Manuka
flower nectar.”

Specifically, “information available to a consumer is not
limited to the physical label and may involve contextual inferences regarding
the product itself and its packaging.” Though, as the Seventh Circuit has held,
“[d]eceptive advertisements often intentionally use ambiguity to mislead
consumers while maintaining some level of deniability about the intended
meaning[,]” as with the “100% Grated Parmesan” full of non-cheese, there was nothing
like such conduct here. “Bees make the Manuka honey, without input from Trader
Joe’s or any other manufacturer. Trader Joe’s does not insert any additional
ingredients to produce the product or mix Manuka honey with other, non-Manuka
honeys to dilute it.” And a consumer wouldn’t make an unreasonable or fanciful
interpretation of “100% New Zealand Manuka Honey” because of: (1) the
impossibility of making a honey that is 100% derived from one floral source,
(2) the low price of Trader Joe’s Manuka Honey, and (3) the presence of the
“10+” on the label, all of which is readily available to anyone browsing the
aisles of Trader Joe’s.

“Although a reasonable consumer might not be an expert in
honey production or beekeeping, consumers would generally know that it is
impossible to exercise complete control over where bees forage down to each
specific flower or plant.” Of course, consumers are unlikely to think of (1)
when they browse the aisles. They may very well assume to the contrary even if
they’d see the unlikelihood—surely not the impossibility; are there not
greenhouses and fields of monocultures around the world?—if forced to work the
problem through. (1) is really a cost-benefit analysis: consumers may assume
the wrong thing, but correcting that assumption isn’t worth the information costs
especially given that there are no single-source honeys.

(2) assumes a really high degree of calibration of
understanding, beyond “it is expensive” to “I know the right retail price for
high grade honey and I understand that this goes beyond what TJ, a savvy buyer
known for its good deals on house brands, could do.” I think that’s a bad idea
on a motion to dismiss; it, as with the truffle oil case that invented this consideration,
authorizes sellers to deceive bargain-hunters because they aren’t as
sophisticated about pricing as the court thinks (without actual evidence) they should
be. But plaintiffs didn’t help themselves by alleging that manuka honey
consumers “know[s] that the concentration of manuka [nectar, as measured by
pollen,] as opposed to other honey pollens can vary significantly from brand to
brand depending on what measures have been taken to maximize manuka purity” and
“attach importance to representations that communicate a higher purity level.”

The court here thought that consumers of Manuka honey, “a
niche, specialty product, are undoubtedly more likely to exhibit a higher
standard of care than ‘a parent walking down the dairy aisle in a grocery
store, possibly with a child or two in tow,’ who is ‘not likely to study with
great diligence the contents of a complicated product package.’ … Rather, an
average consumer of Manuka honey would likely know more than most about the
production of the product and the impossibility of a honey that is 100% derived
from Manuka flower nectar.” In a footnote, the court pointed to Broad City’s
parody of the “perceived high-brow nature of the product,” where a main
character under the influence of heavy medication buys it at Whole Foods in a grocery
trip costing $1,487.50; it’s sarcastically described as “so reasonably priced.”
Yeah, that’s real motion-to-dismiss-worthy evidence, speaking of sarcasm.
Anyway, the $1.59 per ounce cost of the honey should have signaled relatively low
pollen count.

(3) assumes that consumers know the rating scheme, and don’t
think it’s 1-10, which is possible though not necessary given the allegations
of the complaint. I myself had certainly heard of manuka honey and its purported
special properties, but I had no idea of a 5-26 rating scale. The court:

While there are no other details on
the jar about what “10+” means, the presence of this rating on the label puts a
reasonable consumer on notice that it must represent something about the
product. Reasonable consumers of Manuka honey would routinely encounter such
ratings and would likely have some knowledge about them. … Thus, even a
consumer with cursory knowledge of the UMF scale would know Trader Joe’s Manuka
Honey was decidedly on the lower end of the “purity” scale.

Why is a reasonable consumer of Manuka honey someone used to
encountering the expensive stuff, rather than someone who’s read about it and
happy to find an affordable version in the local TJ’s?

Anyway, the name was ok, and so was the use of “Manuka
Honey” as the sole ingredient on the ingredient statement, as provided for by
the FDA’s Honey Guidelines.

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Claims that timeshare exit services are legal and effective were not puffery

Posted on August 16, 2021 by rtushnet

Bluegreen Vacations Unlimited, Inc. v. Timeshare Lawyers
P.A., 2021 WL 3552175, No. 20-24681-Civ-Scola (S.D. Fla. Aug. 11, 2021)

Another timeshare versus timeshare exit false advertising
case. Marketing Defendants allegedly falsely advertise timeshare exit services
by promoting a legitimate process to exit timeshare contracts. The Marketing
Defendants allegedly advertise their services on the Third-Party Marketing
Defendants’ websites that rate various timeshare exit companies. The Lawyer
Defendants allegedly execute a letter directed to Bluegreen that is intended to
“cut off any communication between Bluegreen and the Bluegreen timeshare
owners, and constitutes the entirety of the ‘service’ the Lawyer Defendants
perform.” And the Credit Repair Defendants allegedly manipulate the timeshare
owners’ credit reports and remove negative trade lines related to the timeshare
owner’s default on the timeshare contracts and file false police reports
claiming identify theft on behalf of timeshare owners to discourage credit
bureaus from reporting negative information.

This opinion considered only the marketing defendants. First,
the court rejected the argument that Rule 9(b) applied to the false advertising
claims. Noting only that local courts “tend to apply Rule 8 when addressing
motions to dismiss claims under the Lanham Act,” the court followed that trend.
And it found that the particularity requirements of Rule 9(b) do not apply to the
FDUPTA claims. Under FDUPTA, “the proscription against unfair and deceptive
acts and practices sweeps far more broadly than the doctrine of fraud or
negligent misrepresentation, which asks only whether a representation was
technically accurate in all material respects.” And because “FDUTPA’s elements
are more particularized than those of common law fraud,” Rule 9(b)’s concerns
with subjecting defendants to unfounded allegations of fraud are lessened by
the required specificity. Because “FDUTPA claims seek a remedy for conduct
distinct from traditional common law torts such as fraud[,]” “the uniqueness of
the cause of action place[s] it outside the ambit of Rule 9(b).”

So too with tortious interference.

There is in general a division among courts on the pleading standard for state consumer protection claims; I wonder if there’s any correlation between whether the defendants are, in the court’s perception, ordinary advertisers, and the results.

Bluegreen also stated a claim for Lanham Act false
advertising by alleging that the Marketing Defendants falsely claimed their
services were legal and effective: “Our team at Timeshare Compliance as has a
proven track record of persuading developers to exit timeshare contracts. We
will remove all liability from your timeshare contract.” They advertised a
“proprietary strategy of resolving timeshare contracts,” which was allegedly “to
trick timeshare owners to withhold payments to Bluegreen and to hide their
fraud through credit repair services and letters from lawyers falsely affirming
the legality of the Marketing Defendant’s services.” Their cold calls allegedly
said that “TSC’s service permits the Bluegreen owner to safely stop payments to
Bluegreen” and that “the Bluegreen owner is guaranteed to receive a legal
release from their timeshare obligation.” Evidence of misleadingness or of
specific timeshare owners fooled by the scheme wasn’t required at this stage.

This wasn’t puffery/opinion: Claims about “a 100% guarantee
and top ratings, as well as advertisements that owners would not be liable at
all under the timeshare contracts could constitute facts on which a consumer
may rely.”

The other claims survived too.

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Alleging sponsorship/endorsement confusion can’t defeat clear nominative fair use

Posted on August 16, 2021 by rtushnet

Pasadena Tournament of Roses Ass’n v. City of Pasadena, 2021
WL 3553499, No. 2:21-CV-01051-AB-JEMx (C.D. Cal. Jul. 12, 2021)

For over a century, PTRA has hosted the Rose Parade and Rose
Bowl Game as part of its annual New Year’s Day Celebration. It does so at the
Rose Bowl Stadium under three contracts with Pasadena, including a Master
License Agreement, Trademark Agreement, and Trademark Consent Agreement. Under
these agreements, PTRA is the exclusive owner of the Rose Bowl Game trademark
and owns the mark for use in connection with the annual game. For many years,
the parties worked together behind the scenes to help ensure the success of the
annual game. PTRA alleged that Pasadena disrupted that relationship by
interfering with its trademark rights in statements made in news articles and
via an Instagram post:

IG post using #RoseBowl and 1956 Rose Bowl program image

The pandemic led the 2021 Rose Bowl Game to be played in
Texas. Pasadena objected that, in the event of a force majeure, the MLA gave it
the right to restrict PTRA from hosting the Rose Bowl Game in a venue other
than Rose Bowl Stadium. The parties strongly disagree about this issue and PTRA
sought declaratory judgment concerning the parties’ rights with respect to the
Rose Bowl Game and its related intellectual property.

There was no controversy as to whether Pasadena had an “ownership”
interest in the relevant trademarks. And there wasn’t a sufficient possibility
of future harm that would justify a declaratory judgment interpreting the
contract such that PTRA could host the Rose Bowl elsewhere if a force majeure
event occurred.

Trademark/unfair competition claims: these were all based on
 alleged use of the “Rose Bowl” mark in
an Instagram post made on the Rose Bowl Stadium’s official Instagram account,
together with an image of the official program from the 1956 iteration of the
Rose Bowl Game. Pasadena said this was (1) nominative fair use and (2) an
expressive work protected by the First Amendment.

The Instagram post was before the court and was NFU. The Rose
Bowl game wasn’t readily identifiable without “Rose Bowl.” The IG post used
“#RoseBowl” in plain text to describe the 1956 Rose Bowl Game program depicted
in the post.

PTRA argued that, because Pasadena has referred to the Rose
Bowl Game as “the game” in the past, the Rose Bowl Game was readily
identifiable without using the term. But those past posts included video clips
that used “Rose Bowl” to identify “the game.”

And Pasadena used only so much of the mark as was necessary.
The term was used twice, but that’s not per se unreasonable. The question here
was not whether it was necessary to use “Rose Bowl” at all, but whether it used
only so much of the mark as is reasonably necessary to identify the Rose Bowl
Game.

Finally, the post had nothing to suggest association or
sponsorship by PTRA. Pasadena posted from its Instagram account,
@rosebowlstadium. “It did not use any express or implied language of
sponsorship or endorsement or ‘tag’ Plaintiff’s accounts.” Conclusory allegations
of possible confusion “are insufficient to plead there was a suggestion of
association or sponsorship.”

The court noted that the parties had been partners for
decades. “Plaintiff has consistently benefitted from Defendant’s promotion of
Plaintiff’s game and its history and likely encourages such promotion. … [T]hat
this claim is being brought now is puzzling to the Court and it is clear that
this claim is not the crux of the parties’ conflict.”

False advertising: Pasadena’s mayor allegedly gave an
interview to the New York Times and stated that “the city [ ] shares a
trademark on the name of the game with the Tournament of Roses Assocation
[…]” and that “The football game belongs to the City of Pasadena and the
people of Pasadena.” But the only statement at issue is the second, which was
the only one actually attributed to the Mayor.

This was not “a representation of fact with respect to who
owns the marks,” but rather “appears to reflect Defendant’s pride for the
nearly 100-year-old annual football game held in Defendant’s Rose Bowl Stadium.”
Expressing an opinion of its own, the court found that PTRA “cannot reasonably
dispute that, separate and apart from intellectual property ownership, the
heart and soul of the Rose Bowl Game belongs to the people of Pasadena.” Thus,
this was merely opinion or puffery and not the type of statement “reasonably
interpreted as a statement of objective fact” surrounding the intellectual
property ownership.

This also got rid of the breach of contract claim, which was
based on the alleged trademark infringement and false advertising.

 

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Illinois unfairness claims against opioid marketers continue

Posted on August 13, 2021 by rtushnet

City of Chicago v. Purdue Pharma L.P., No. 14 CV 4361, 2021
WL 1208971 (N.D. Ill. Mar. 31, 2021)

Chicago alleged unfair and deceptive misconduct in multiple
defendants’ marketing, commercializing, and promoting their opioid products. (Perdue
is first in the list but it’s a bunch of them, so parts of this case will
survive the bankruptcy whatever happens there.) There were a bunch of kinds of
allegedly deceptive marketing related to misrepresentations and failures to
disclose. There were also alleged unfair practices related to diversion of
opioids into illicit channels. Defendants allegedly didn’t comply with their
statutory duties to maintain suspicious-order-monitoring systems (“SOMS”), and
concealed their failure from the public, misrepresenting that they were in
compliance with their obligations under the law. This led to the rise of “pill
mills” and an increasing number of deaths and hospitalizations.

Among other things, the court addressed whether the City
adequately pled unfairness under the Illinois Consumer Fraud Act. Courts look
to the FTCA for guidance on ICFA, and thus consider: “(1) whether the practice
offends public policy; (2) whether it is immoral, unethical, oppressive, or
unscrupulous; (3) whether it causes substantial injury to consumers.”

The parties focused on the public policy element; the City
argued that defendants violated their duties to monitor and prevent diversion
under the CSA (Controlled Substances Act). Defendants rejoined neither the
CSA nor its implementing regulations impose any duties owed to consumers that
might reveal a relevant public policy; it just guided the DEA in enforcement.
But, as the MDL court earlier in this case held, the CSA and its implementing
regulations impose an ongoing duty on DEA registrants. “Given that, as the
Court has explained, defendants were under legal duties, imposed under the CSA,
to monitor for suspicious orders and halt shipments of them, the Court has
little doubt that their alleged failure to do so offends public policy,
particularly under circumstances in which consumers of their products and the
consumers’ communities were likely to be injured by addiction and its
consequences.”

However, public policy wasn’t dispositive, “because
plaintiff’s allegations of immoral, unethical, oppressive, or unscrupulous
conduct causing substantial injury to consumers are sufficient to state a claim
on their own.” In particular, this was “oppressive” conduct because it deprived
consumers of choice:

By promoting the use of their
products for chronic or long-term pain while concealing the risks, including
the risk of addiction, they not only caused consumers with chronic pain to use
their product, but also, a reasonable factfinder could conclude, they put these
consumers in a position in which they were compelled by their addiction to
continue buying defendants’ product, whether via legal or illicit channels. In
other words, the consumers, having been tricked into buying defendants’
products, had little alternative but to submit to defendants’ alleged
misconduct and continue to buy the products, even in illicit channels, if
necessary. This is enough to state a claim by itself.

There was also no preemption by the CSA.

Defendants contested harm causation because the City alleged
oversupply in the aggregate without identifying specific orders that should
have been refused, but the court agreed with others that the “very existence of
the duties to maintain effective controls supports the notion that opioid
misuse is foreseeable.” Any intervening acts, “including decisions by
prescribers, patients, distributors, pharmacies, and third-party criminals,”
were “reasonably foreseeable, and thus not superseding acts” that broke the
chain of proximate causation.

 

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reasonable consumer isn’t required to interpret ingredient list for naturalness

Posted on August 13, 2021 by rtushnet

Moore v. GlaxoSmithKline Consumer Healthcare Holdings (US)
LLC, No. 20-cv-09077-JSW,  2021 WL
3524047 (N.D. Cal. Aug. 6, 2021)

Moore alleged that GSK falsely labeled certain ChapStick
products with the claims “100% Natural,” “Natural,” “Naturally Sourced
Ingredients,” and “100% Naturally Sourced Ingredients.” The products allegedly contain
non-natural, synthetic, artificial, and/or highly processed ingredients. The
products are

100% Natural Lip Butter; Total Hydration 100% Natural Lip
Balm; Total Hydration Essential Oils Lip Balm; Total Hydration Moisture + Tint
Lip Balm; and Total Hydration Natural Lip Scrub, which come in a variety of
scents and shades, though Moore alleged that they were substantially similar,
identifying twelve allegedly non-natural (etc.) ingredients. Moore alleged that
she routinely the Total Hydration 100% Natural Lip Balm in Eucalyptus Mint and
Fresh Citrus scents and the Total Hydration Essential Oils Lip Balm in the
Happy scent, relying on the natural representations on the label. She alleged a
continued desire to purchase the products if they didn’t contain any
non-natural ingredients but was currently unable to rely on the truth of the
natural representations. She brought the usual California statutory claims, along
with breach of express warranty and unjust enrichment.

Based on these allegations, Moore had Article III standing
for products she didn’t buy, because the products and alleged
misrepresentations were substantially similar. Differences might impact class
certification or summary judgment, but they weren’t enough to defeat
substantial similarity for the purposes of standing. She also had standing to
seek injunctive relief. As with prior cases, desire to buy the properly labeled
product plus inability to rely on the truth of the packaging constituted a
cognizable risk of future harm. Moore alleged that as “an average consumer who
is not sophisticated in the chemistry, manufacturing, and formulation of
cosmetic products,” she would not be able to differentiate between cosmetic
ingredients that are natural and those that are synthetic. Thus, she alleged
that she was at risk of reasonably, but incorrectly, assuming that GSK fixed
the formulation. “[E]ven if Plaintiff is now aware of some synthetic
ingredients, it is plausible that she would still be unable to rely on the
Products’ labeling in the future given her allegations that she cannot
differentiate between synthetic and natural ingredients.” In any event, the
court didn’t think that she should be required to bear the burden of
scrutinizing the ingredient list to figure out if the products were really
natural.

Moore also adequately stated a claim under Rule 9(b). As to
misleadingness, she alleged a definition of natural and alleged that she
interpreted the natural representations as claims that the products contained
no non-natural, artificial, and/or synthetic ingredients. She also provided a
definition of “synthetic” and alleges how each challenged ingredient is
non-natural, synthetic, or artificial. Moore further plausibly pled deception
by reasonable consumers. Numerous courts in the Ninth Circuit have found it
plausible that a reasonable consumer could understand similar ‘natural’
statements, including ‘100% natural,’ ‘natural,’ and ‘naturally-sourced,’ to
mean that a product does not contain any non-natural ingredients.” Contrary
cases involved limited natural representations, such as “Made with 100% Natural
Moisturizers.”

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