Proskauer on Advertising Law
Proskauer on Advertising Law

Supreme Court Briefing Begins Over Equitable Tolling of Rule 23(f) Deadline

Our readers may recall that last year, the Supreme Court ruled that a plaintiff in a putative class action cannot subvert the discretionary nature of Rule 23(f) interlocutory review by voluntarily dismissing his case after denial of class certification to obtain an appeal from the denial of class certification as a matter of right.  We blogged about that decision here. Earlier this summer, the Supreme Court granted certiorari in yet another Ninth Circuit case involving Rule 23(f) interlocutory review. On August 20th, petitioner Nutraceutical Corp. filed its opening brief urging the Court to rule that district courts cannot equitably toll Rule 23(f)’s fourteen-day time period in which a party must seek immediate interlocutory review of an order denying or granting class certification.

In 2013, Troy Lambert filed a putative class action against Nutraceutical Corp., alleging that advertising for the “Cobra Sexual Energy” dietary supplement was false and misleading. The District Court initially certified a class, but after further discovery granted Nutraceutical’s motion for decertification in February 2015. Under Rule 23(f), Lambert had fourteen days from the date that order was entered to file a petition for permission to appeal this decision in the Ninth Circuit. Instead, during this fourteen-day window, Lambert’s attorneys made a verbal request in court to file a motion for reconsideration. The Court granted this request and set a briefing schedule that allowed Lambert to file its motion for reconsideration within twenty days of the entry of the decertification order. Lambert filed its motion on the twentieth day. The Court denied that motion, and Lambert then filed a Rule 23(f) petition within fourteen days of that denial. As a result, Lambert did not file his petition for interlocutory review of the decertification decision until more than three months after that decision was entered.

The Ninth Circuit held that it could toll or stay Rule 23(f)’s fourteen-day deadline under its equitable powers because this was merely a procedural deadline, not one after which the court lost jurisdiction over the matter. The Ninth Circuit found that Lambert’s attorneys’ verbal statement of intention to file a motion for reconsideration, coupled with the court-ordered briefing schedule, was sufficient to warrant equitable tolling of Rule 23(f)’s fourteen-day window in this case.

The Ninth Circuit’s decision got a rise out of Nutraceutical, which then filed a petition for certiorari with the Supreme Court, noting that the Ninth Circuit’s opinion created a circuit split as to the standard for when Rule 23(f)’s deadline can be equitably tolled. The Supreme Court granted certiorari in June. On August 20th, Nutraceutical filed its opening brief in which it argued that Rule 23(f)’s fourteen-day window should serve as a “strict and unyielding deadline that precludes equitable exceptions.” This fourteen-day window is purposefully short, according to Nutraceutical, to reduce the “delay, disruption, and waste of judicial resources” caused by interlocutory appeals. Nutraceutical also argued that allowing the Court to exercise its equitable discretion to extend this deadline would create uncertainty.

In the coming months, additional briefs will be filed and the Supreme Court will hear oral argument. The case is Nutraceutical Corp. v. Lambert, Dkt. No. 17-1094. Watch this space for further updates.

***

Want to talk advertising? We welcome your questions, ideas, and thoughts on our posts. Email or call us at lweinstein@proskauer.com /212-969-3240 or akaplan@proskauer.com /212-969-3671.  We are editors of Proskauer on Advertising Law and partners in Proskauer’s False Advertising & Trademark practice.

Court Puts “FDA-Cleared” Complaint on Ice

The Central District of California recently dismissed, for the second time, a putative class action filed by two plaintiffs who claimed to have purchased Zeltiq Aesthetics, Inc.’s “CoolSculpting” fat-reduction treatments under the allegedly mistaken belief that the treatments had been “approved,” not just “cleared,” by the U.S. Food and Drug Administration.

The CoolSculpting “fat-freezing” procedure is the only “FDA-cleared,” non-surgical fat-reduction treatment of its kind, according to CoolSculpting’s website.  It uses “controlled cooling to eliminate stubborn fat that resists all efforts through diet and exercise.”  Plaintiffs alleged that the “FDA-cleared” claim was important to their decisions to purchase CoolSculpting treatments.

Plaintiffs first argued that the “FDA-cleared” claim, and a related “FDA-cleared, safe and effective” claim, were misleading partial representations that violated California law because they implied to consumers unaware of the distinction between FDA “approved” and FDA “cleared” that the device had satisfied the more rigorous FDA premarket approval application process.  FDA “clearance” refers to a less rigorous Section 510(k) premarket notification clearance process, which CoolSculpting had successfully completed.

Because the plaintiffs could not explain how the factually true “FDA-cleared” claim on its own could cause reasonable consumers to believe that CoolSculpting had received FDA approval, the court found that plaintiffs had failed to carry their burden to plead facts that, if taken as true, would show a “probability that a significant portion of the general consuming public or of targeted consumers, acting reasonably in the circumstances, could be misled.”

In addition, the court noted that, according to FDA regulations, FDA clearance indicates that a device is at least as “safe and as effective as a legally marketed device,” and that “special controls” applicable to Class II medical devices such as CoolSculpting provide “reasonable assurance of the safety and effectiveness” of such devices for their intended use.  As a result, plaintiffs’ arguments that the words “safe and effective” could be used only in connection with FDA approval and not clearance were to no avail.

Plaintiffs also argued that even if the “FDA-cleared” claims were not misleading, Zeltiq had a duty to disclose the distinctions between FDA approval and FDA clearance.  The court disagreed, holding that a manufacturer’s duty of disclosure to customers is limited to warranty obligations absent either an affirmative misrepresentation or a safety issue, neither of which was present here.

The court dismissed plaintiffs’ “FDA-cleared” and “FDA-cleared, safe and effective” claims with prejudice.  The court dismissed without prejudice plaintiffs’ remaining allegations – including some about references on CoolSculpting’s website to magazines and other publications that allegedly described CoolSculpting as “FDA-approved” – because the complaint did not allege with particularity that the plaintiffs were personally exposed to those representations.

Plaintiffs filed a Third Amended Complaint on July 2, 2018, in which they no longer allege that Zeltiq concealed the distinctions between FDA approval and FDA clearance, though they still maintain that Zeltiq misrepresented the true nature of CoolSculpting’s FDA regulatory status.  Zeltiq renewed its motion to dismiss for the third time on July 23, 2018.  The case is Carmen Otero et al. v. Zeltiq Aesthetics, Inc., No. 2:17-cv-03994 in the Central District of California.  Watch this space for further developments.

***

Want to talk advertising? We welcome your questions, ideas, and thoughts on our posts. Email or call us at lweinstein@proskauer.com /212-969-3240 or akaplan@proskauer.com /212-969-3671.  We are editors of Proskauer on Advertising Law and partners in Proskauer’s False Advertising & Trademark practice.

Ninth Circuit Puts Restitution Claims to Rest in Discount Advertising Case

The Ninth Circuit recently addressed once again the common practice in outlet stores and other retail establishments of juxtaposing the price at which a fashion item is offered for sale with a higher price advertised as a former price, or as the supposed market value, of that item.  Chowning v. Kohl’s Dep’t Stores, 2018 WL 3016908, (9th Cir. 2018).  The most recent previous Ninth Circuit decisions addressing discount price advertising concerned the adequacy of pleadings at the motion to dismiss stage, and thus had limited relevance to the merits of those cases or their ultimate outcomes.

The Kohl’s decision is of potentially greater significance.  In Kohl’s, the panel affirmed the district court’s grant of partial summary judgment in favor of defendant, finding that plaintiff was not entitled to restitution under California law for allegedly being tricked into thinking she was purchasing items at a substantial discount.  In doing so, the court construed California consumer protection laws in a way that potentially significantly limits the ability of plaintiffs to recover any money in cases involving allegedly false or fraudulent discount price advertising.

Plaintiff, who asserted claims under the California Unfair Competition Law (UCL), False Advertising Law (FAL), and Consumer Legal Remedies Act (CLRA), alleged that Kohl’s displayed two prices on goods for sale in its store:  the “Actual Retail Price,” and a significantly lower price reflecting what Kohl’s charges consumers for the item.  According to the complaint, the Actual Retail Prices did not reflect prevailing market retail prices and were therefore fraudulent, deceiving the plaintiff into believing she was purchasing the products at a discounted price.

Judge Gary Klausner of the Central District of California had granted Kohl’s motion for summary judgment as to the plaintiff’s monetary claims for restitution.  In affirming, the Ninth Circuit held that under the UCL, FAL and CLRA, restitutionary damages are calculated by the difference between the price paid and the value received.  Although plaintiff alleged that the Actual Retail Prices were deceptive, she did not introduce competent evidence of how much value she received for the items she purchased.  Thus, the Ninth Circuit agreed with the district court that because there was no evidence of the value of the goods purchased, the restitution calculation was “impossible,” which entitled Kohl’s to summary judgment.

The Ninth Circuit’s decision was designated Not for Publication, and thus it does not have precedential value.  However, it likely will put a damper on damages claims under California law based on allegations of deceptive discount price advertising, as it signals that the Ninth Circuit is receptive to the holdings of other courts that previously reached the same result in precedential opinions.  We recently covered some of those decisions here.  Watch this space for further developments.

***

Want to talk advertising? We welcome your questions, ideas, and thoughts on our posts. Email or call us at lweinstein@proskauer.com /212-969-3240 or akaplan@proskauer.com /212-969-3671.  We are editors of Proskauer on Advertising Law and partners in Proskauer’s False Advertising & Trademark practice.

Update: Second Circuit Affirms Dismissal of Lanham Act Claims Based on Allegedly False UL Certification

Last fall, we covered the Southern District of New York’s dismissal of Board-Tech Electronic Company’s Lanham Act false advertising claim.  Based on its own internal testing, Board-Tech alleged that light switches sold by its competitor, Eaton Corporation, were falsely labeled as complying with an Underwriters Laboratories (“UL”) certification standard.  However, the district court found that Board-Tech had not plausibly alleged that Eaton’s labelling was false because the product was in fact certified by UL.

Earlier this month, the Second Circuit affirmed, holding that Board-Tech failed to plausibly allege that Eaton’s placement of the “UL 20” mark on its product labelling was literally false.  The mark merely communicated that the product was certified by UL, which Board-Tech conceded was true.

Board-Tech contended that the use of the “UL 20” mark necessarily implied, falsely, that any given product bearing the mark would meet the UL 20 standard, but the Second Circuit disagreed:  “The use of the UL 20 mark on Eaton’s products represents that a sampling of those products complied with UL standards when UL tested the products.  It does not represent that every single unit will perform the same way when tested by different entities.”  To sustain a claim under the false-by-necessary-implication theory of literal falsity, the Court explained, Board-Tech would have needed to show that UL no longer considered Eaton’s products to be compliant with the UL 20 standard.

Watch this space for any further developments.

***

Want to talk advertising? We welcome your questions, ideas, and thoughts on our posts. Email or call us at lweinstein@proskauer.com /212-969-3240 or akaplan@proskauer.com /212-969-3671.  We are editors of Proskauer on Advertising Law and partners in Proskauer’s False Advertising & Trademark practice.

Federal “Spring Water” Standards Runneth Over State Claims

We often cover cases in which false advertising claims brought under state law are challenged as preempted by a federal regulatory scheme.  Poland Spring was a recent target of state law false advertising claims, and successfully obtained the dismissal of those claims on the ground that they were preempted by federal statute.  Patane v. Nestle Waters N. Am., 2018 WL 2271161 (D. Conn. May 17, 2018).

In consolidated actions, putative class action plaintiffs alleged that Poland Spring water is not actually 100% “spring water” as defined under the Food, Drug and Cosmetics Act (FDCA).  The Food & Drug Administration’s regulations define spring water as “deriv[ing] from an underground formation from which water flows naturally to the surface of the earth,” with a “natural force causing the water to flow to the surface through a natural orifice.”  The water may be collected by a tap and with an external hydraulic force, so long as the water has all the physical properties of the water that naturally flows to the surface, and so long as the water is collected by a “hydrogeologically valid method.”  Since the FDCA does not provide a private right of action for the violation of the regulations in question, plaintiffs asserted fraud, breach of contract, and consumer deception claims under various state laws.

The district court (Judge Jeffrey A. Meyer) held that plaintiffs’ claims were preempted by § 337(a) of the FDCA, which provides that only the federal government—not private parties—may enforce FDCA violations.  According to the court, § 337(a) impliedly preempts any claim under state law based solely on a violation of the FDCA.  Plaintiffs’ principal complaint was that Poland Spring did not comply with the FDA’s standards for spring water, and plaintiffs tellingly proclaimed that they sought to enforce those standards in the FDA’s stead.  Since all claims for relief hinged on the alleged non-compliance with FDA standards, all claims were dismissed as impliedly preempted.

Plaintiffs were given leave to replead any proper state claims that are not preempted.  Though not essential to its holding, the court also expounded upon § 343–1(a)(1) of the FDCA, which expressly preempts any state law from imposing any definition of “spring water” that is not identical to the FDCA definition.  According to the court, implied preemption under § 337(a) and express preemption under § 343–1(a)(1) result in a broad preemptive effect under which only a narrow range of state law claims can survive:  “In order to survive preemption, a state law claim must rely on an independent state law duty that parallels or mirrors the FDCA’s requirement for ‘spring water,’ but must not solely and exclusively rely on violations of the FDCA’s own requirements.”  Given the court’s dicta on the combined effect of express and implied preemption, if plaintiffs’ claims in their amended pleadings are again preempted, we might expect dismissal with prejudice.  Watch this space for further developments.

***

Want to talk advertising? We welcome your questions, ideas, and thoughts on our posts. Email or call us at lweinstein@proskauer.com /212-969-3240 or akaplan@proskauer.com /212-969-3671.  We are editors of Proskauer on Advertising Law and partners in Proskauer’s False Advertising & Trademark practice.

Sixth Circuit Says T-bone Steaks and Salmon Filets on Pet Food Packaging Not Misleading

Last month, the Sixth Circuit held that photographs of “premium cuts” of meat on pet food packaging were not enough to mislead a reasonable consumer into believing that the kibble was made from these high-end ingredients.  Wysong v. APN, 889 F.3d 267 (6th Cir. 2018).

In 2016, Wysong Corporation, a pet-food manufacturer, sued six other pet-food manufacturers asserting that the packaging used by their competitors was deceptive under the Lanham Act because the lamb chops and other premium cuts depicted on the product packaging did not accurately represent the products’ actual ingredients—meat trimmings.

The Sixth Circuit found the plaintiff’s allegations insufficient to state a claim.  First, the packaging was not literally deceptive because it showed the type of animal from which the food was made even if it did not indicate the precise cut of meat.  Second, the packaging was not misleading because a reasonable consumer would not believe that cheap pet food was made from the same ingredients as “people-food” found “a few aisles over” in a grocery store.  Moreover, the full list of ingredients often appeared next to the allegedly deceptive photos on the product packaging, eliminating any possibly misleading effects.

To illustrate its point, the Court analogized to a fast food drive-through menu.  A reasonable consumer would not expect a burger received from a drive-through window to “look just like the one pictured on the menu.”  Rather, the idealized imagery of the drive-through menus, like the defendants’ pet-food packaging, is nothing more than puffery.

The Court also affirmed the district court’s denial of leave to amend.

We have previously highlighted a similar decision by a federal district court in California.  In that case, the court held that prominent photographs of fruit and vegetables on the packaging of Plum Organics cereal were not deceptive.

Whether it is lamb chops and dog food or pomegranates and cereal, when it comes to stating a Lanham Act claim based on deceptive food imagery, context and common sense are key.

***

Want to talk advertising? We welcome your questions, ideas, and thoughts on our posts. Email or call us at lweinstein@proskauer.com /212-969-3240 or akaplan@proskauer.com /212-969-3671.  We are editors of Proskauer on Advertising Law and partners in Proskauer’s False Advertising & Trademark practice.

Lanham Act Injunction Floored Where Social Media Criticisms Were Not “Commercial Advertising”

A judge in the Western District of Wisconsin recently denied a motion for a preliminary injunction that sought to prevent a customer from criticizing the plaintiff’s products over social media.  Buckeye Int’l v. Schmidt Custom Floors, 2018 WL 1960115 (W.D. Wis. Apr. 26, 2018).  Plaintiff Buckeye sells floor finishing products, and defendant Schmidt is a flooring installer and refinisher.  Schmidt purchased Gym Bond, Buckeye’s floor finishing product, to facilitate the bonding of a clear topcoat to finished hardwood sports courts.  When the topcoat peeled off, Buckeye blamed Schmidt and refused to pay for repairs and refinishing.  Schmidt then complained about Gym Bond and Buckeye on social media, which caused Buckeye to sue Schmidt for false advertising under the Lanham Act and seek a preliminary injunction barring Schmidt’s social media postings about Buckeye and its product.

At its core, the decision is a correct, although in arriving at that decision, the court made some dubious characterizations of law along the way.  In denying Buckeye’s motion, Judge Peterson first ruled that Schmidt’s statements were not made “in commercial advertising or promotion” as required by 15 U.S.C. § 1125(a)(1)(B) because that term does not encompass “individualized person-to-person communication.”  That is not quite correct.  Whether a communication meets the “commercial advertising” test depends in large part on whether the communication is intended to reach a meaningful segment of the relevant market.  Although it may be unusual for person-to-person communications to satisfy this test, such communications sometimes are sufficient, and thus there is no bright line rule, as the court supposed, that individual communications are not advertising.  Second, social media postings such as Schmidt’s are not individualized person-to-person communications.  To the contrary, statements on social media, such as Facebook postings and tweets, are often intended to reach large audiences.  The practice of companies using social media to advertise has become ubiquitous in today’s society, as the FTC and NAD have often recognized.

In addition, the court predicated its denial of a preliminary injunction on the fact that Schmidt and Buckeye were not competitors.  At first glance, that proposition too would seem incorrect, because the Supreme Court recognized in Lexmark Int’l v. Static Control Components, 134 S. Ct. 1377 (2014), that Lanham Act standing is not strictly limited to competitors.  However, what the court seemed to be getting at is that Schmidt’s public criticisms of Buckeye were not akin to a comparative advertisement in which one company disparages another’s products to promote its own.  Instead, Schmidt was simply a customer of Buckeye which was pointing out its dissatisfaction with the product it purchased and at the same time defending its own reputation from Buckeye’s attacks.  In short, the court correctly held that Schmidt was not attempting to persuade potential customers to choose its own services over those of Buckeye.  As the court explained, while the Lanham Act prohibits unfair competition, “it does not insulate commercial entities from criticism.”

The court’s decision in Buckeye reminds us that the Lanham Act is not a tool for enjoining criticism in social media where the speech is not commercial in nature, even if it may be harmful to the plaintiff’s business.  This decision is consistent with an Eleventh Circuit decision we covered last year, in which the court held that blog articles criticizing the prescribing practices of a medical clinic did not constitute advertising under the Lanham Act because the blog articles were primarily educational, not commercial.

***

Want to talk advertising? We welcome your questions, ideas, and thoughts on our posts. Email or call us at lweinstein@proskauer.com /212-969-3240 or akaplan@proskauer.com /212-969-3671.  We are editors of Proskauer on Advertising Law and partners in Proskauer’s False Advertising & Trademark practice.

LexBlog