PRESENTED BY DOUGLAS B BROWN JACEY KAPS

PRESENTED BY DOUGLAS B. BROWN JACEY KAPS

Consumer Class Actions Under State Little FTC Acts Why should you care?

Why should you care? • Juries are deciding what conduct is unfair, not the court applying defined standards. • Indiscriminate incorporation of other rules and statutes are part of the standard of “unfair” or “deceptive: ” – – – FTC Trade Regulation Rules FTC Policy Standards FTC Guides Other federal consumer acts. State regulatory acts.

Why should you care? • Tie the reference to other standards to statutes or rules that define conduct as “deceptive” or “unfair” acts. • Little FTC Acts trumping contract terms and avoiding economic loss doctrine and reaching “performance of the contract” issues. • Fee driven cases –difficult to moot out because the plaintiff seeks injunctive or declaratory relief.

Why should you care? • In some states injury-in-fact requirement is being circumvented by claims of price inflation (a “fraud on the market” theory). • More aggressive FTC will lead to more private cases. • POM Wonderful ALJ Order. • “Up to” performance claims. • Privacy cases.

Standards for Unfair & Deceptive Acts or Practices

Federal Trade Commission Act 15 U. S. C. A. § 45 (a)(1): Unfair methods of competition in or affecting commerce, and unfair or deceptive acts or practices in or affecting commerce, are hereby declared unlawful.

FTC’s Deception Statement Under the FTC deception statement, the plaintiff must prove: • a representation, omission, or practice that is likely to mislead consumers; • the practice is examined from the perspective of a customer acting reasonably under the circumstances; and • the representation, practice, or omission must be material. FTC Policy Statement on Deception, October 14, 1983

Unfairness -S&H Standard • To determine if an unfair practice, look to: (1) whether the practice injures consumer; (2) whether it violates established public policy; (3) whether it is unethical or unscrupulous. F. T. C. v. Sperry & Hutchinson Co. , 405 U. S. 233, 244 (1972). • Often cited, despite the FTC’s abrogation in its 1980 Policy Statement on Unfairness.

FTC’s Unfairness Statement The FTC unfairness doctrine requires allegations that: • The injury must be substantial; • The injury must not be outweighed by any off-setting consumer or competitive benefits; and • The sales practice also produces the injury and must be one which consumers could not reasonably have avoided. FTC Policy Statement on Unfairness, December 17, 1980

FTC Policy on Advertising Substantiation • The issue is not the truth or falsity of the claim – it is the failure to have and rely upon the substantiation which is actionable. • The advertiser must have at least the degree of substantiation that it claims. • Key is matching claims to evidence.

The Consumer’s Use of Prior Substantiation • Generally, courts have held that the consumer cannot bring a claim under a state consumer act under a theory of prior substantiation. • Plaintiff has the burden in proving that the representation was false or misleading. • Franulovic v. Coca Cola Co. , 390 F. App’x 125, 2010 WL 3155012 (3 d Cir. 2010); Stanley v. Bayer Healthcare LLC, 2012 WL 1132920 (S. D. Cal. 2012); Scheuerman v. Nestle Healthcare Nutrition, Inc. 2012 WL 2916827 (D. N. J. 2012)

Florida’s Little FTC Act Florida Statutes Section 501. 204 (1) Unfair methods of competition, unconscionable acts or practices, and unfair or deceptive acts or practices in the conduct of any trade or commerce are hereby declared unlawful. (2) It is the intent of the Legislature that, in construing subsection (1), due consideration and great weight shall be given to the interpretations of the Federal Trade Commission and the federal courts relating to s. 5(a)(1) of the Federal Trade Commission Act, 15 U. S. C. s. 45(a)(1) as of July 1, 2006.

States With Similar Provisions Regarding the FTC • • • • Alabama Alaska Arizona Connecticut Georgia Hawaii Idaho Illinois Louisiana Maine Maryland Massachusetts Mississippi • • • Montana New Hampshire New Mexico Ohio Rhode Island South Carolina Tennessee Texas Utah Vermont Washington West Virginia

Florida’s Little FTC Act: Problems of Incorporation Florida Statutes Section 501. 204 (3)“Violation of this part” means any violation of this act or the rules adopted under this act and may be based upon any of the following as of July 1, 2006: (a) Any rules promulgated pursuant to the Federal Trade Commission Act, 15 U. S. C. ss. 41 et seq. ; (b) The standards of unfairness and deception set forth and interpreted by the Federal Trade Commission or the federal courts; (c) Any law, statute, rule, regulation, or ordinance which proscribes unfair methods of competition, or unfair, deceptive, or unconscionable acts or practices.

Problems with Little FTC Act Claims • Jury decides what conduct is unfair or deceptive • Inconsistent standards – each jury becomes its own FTC • Courts fail to screen cases • No distinction between deceptive statements and omissions in FTC Policy Statements.

Class Actions

States That Prohibit Little FTC Act Class Actions • • • Alabama Georgia Iowa Louisiana Mississippi Montana South Carolina Tennessee Virginia • But remember Shady Grove Orthopedic Assoc. v. Allstate Ins. Co. , 130 S. Ct. 1431 (2010) (holding that state law against class actions could not be followed in federal court)

Application to Consumer Cases • Emphasis that Rule 23 does not change the substantive standard, if a fact is relevant in an individual case it is relevant in a class action. • Even when presumption applies, the defendant has the right to present evidence. • Injunctive relief is not a backdoor for damages 23(b)(3) must be followed. • Class representative cannot assert claims he does not have on behalf of the class.

Due Process - Pattern of Practice “However, if the Appellees are permitted to establish the putative class members' claims by proof of common schemes or patterns of behavior, the Appellants will be unable to defend against individual claims where there may be no liability. By any standard, this would amount to a violation of substantive due process of law. ” Rollins, Inc. v. Butland, 951 So. 2 d 860, 874 (Fla. 2 d DCA 2006).

Arbitration Provisions with Class Action Waivers • AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011) ( • Cruz v. Cingular Wireless, LLC, 648 F. 3 d 1205 (11 th Cir. 2011); Pendergast v. Sprint Nextel Corp. , 691 F. 3 d 1224 (11 th Cir. 2012). • Potential uses: – Store credit cards – Club membership plans

FTC Actions That May Lead to Copycat Cases

POM Wonderful • Challenged claims included reduction of risk of heart disease, prostrate cancer, erectile dysfunction. The ALJ found insufficient substantiation. • POM appeal to full commission centered on the following issues: – Sellers of food products should be able to make implied health claims with a lower standard of substantiation than extraordinary expensive controlled human studies.

POM Wonderful Cont. – First amendment right to present its views on the proper interpretation of its research; – Current ads do no more than truthfully reference potential benefits. • ALJ did not require POM to meet FDA approval for health claims • POM characterized result as a victory in press release.

New FTC Policy: Maximum Performance Ads Examples: • Price advertising: – Save up to 50% off of regular price – save up to 47% on heating and cooling bill. – Up to 1% savings by use of credit card. • FTC traditional test – an appreciable number of consumers will experience near maximum results if used as directed. In the Matter of GSC Electronics, Inc. , 108 F. T. C. 158 (1986).

Maximum Performance Ads Cont. • FTC study showed that consumers treated “up to” claims as meaning all or almost all consumers would obtain those results. • New FTC enforcement policy is that if you use a percentage or specific representation, you need to disclose the percentage of consumers who will reach those results. • NAD has used a 10% minimum compliance test.

Privacy Federal Trade Commission v. Neovi, Inc. , 604 F. 3 d 1150 (9 th Cir. 2010) • Third-party vendor sued by FTC under unfairness theory for failing to protect private consumer information.

Current Hot Issues

Price Inflation Damages • Consumer may not be required to prove reliance to prove a substantive violation. • However, Defendants have been successful in arguing that plaintiffs must prove causation-in-fact • But, increasing use of claims for price inflation damages. Fitzpatrick v. General Mills, Inc. , 635 F. 3 d 1279 (11 th Cir. 2011).

Mootness Defense Limited in Actions for Declaratory and Injunctive Relief Zinni v. ER Solutions, Inc. , 2012 WL 3641911 (11 th Cir. 2012).

Representative Class Actions Against Retailers

Pricing Cases • Retailer represents that the original / retail price of a product is substantially higher than its true value in order to advertise a special deal • Retailer promises to “price match”

Food Labeling • Coloring of food to make it appear like “wild salmon” • Labeling product “all natural” New Filings: • Private label salad dressing, cereal is 100% natural was misleading because they contain genetically modified organics. (N. D. Calif. 10/5/12) • “Kobe Beef” designation (Cal. State. Ct. 10/3/12) • Bottled water 100% natural (N. D. Ill. 10/10/12)

Privacy • Failing to comply with own privacy policy • Requesting confidential consumer information in violation of state law. • Wyndham Hotels – FTC sued under § 5 asserting that the defendants failed to protect stored credit card information from hackers.

Warranties • Having an ambiguous warranty that does not disclose all terms. • Having a warranty with unconscionable short duration.

Product Representations • Promoting a store brand product in the same manner as the nationwide manufacturer’s product (K-cups) • Representations about the characteristics of a product. • New Filings: – Lip balm with false bottom “misrepresenting” the amount of the product (CD. Cal. 10/3/12).

Unfairness • Continuing to advertise and sell a product --, i. e. vitamins, after its expiration date. • FTC cases regarding protecting customer information from hackers – failure to follow contractual terms effecting many consumers. • These cases could be viewed as unfair even if not deceptive.

Taxes and Pass-on Fees • Computing taxes on pre-discount purchase price. • Charging sales tax on shipping & handling charges • Characterizing charges such as “environmental fees” which are simply add-ons.

Origin of Product • Representing the product is “Made in the USA” when in fact some parts were not.

Solutions 1. Restrict Statutes to consumer transactions and preclude claims by parties not in privity. 2. Limit scope of declaratory and injunctive relief. 3. Require causation in fact for class members. 4. Require prior demand for fee recovery.

Solutions Cont. 5. 6. 7. 8. 9. • Eliminate or define “unfairness” doctrine to FTC standard, rather than S & H standard. Require scientier for omission theory. Limit damage cases to deception claims. Retailer exemption from supplier based on ads. Abrogation of statutory minimum damages. Procedural changes will not help much in -- and almost all class action cases will be removable to federal court.

Thank You