The Advertising Disputes & Litigation and Consumer Protection Committees’ RECENT LITIGATION DEVELOPMENTS [Cases from November 1 to 17, 2015] Prepared for the ADL and CP Committees by Dan Blynn, Shahin Rothermel, Sam Boro, and Laura Arredondo-Santisteban of Venable LLP; Dale Giali, Andrea Weiss, Elizabeth Crepps, and Rebecca Johns of Mayer Brown LLP; Doug Brown of Rumberger Kirk & Caldwell, P.A.; Sherrie Schiavetti, Katie Riley, Donnelly McDowell, and Devon Winkles of Kelley Drye & Warren LLP; Darren McCartney of Walters McCartney; Lauren Valkenaar of Davis Wright Tremaine LLP; Lauren Valkenaar of Norton Rose Fulbright LLP; Erik King of Lockheed Martin; Mike Sherling, Judicial Law Clerk, Maryland Court of Special Appeals; Tiffany Ge of Frost Brown Todd LLC; and Peter Farnese of Beshada Farnese LLP. RECENT DECISIONS Lanham Act and Other Competitor Actions The U.S. District Court for the Middle District of Tennessee grants defendant Cumulus Broadcasting, LLC’s motion for summary judgment. Plaintiff Service Jewelry Repair, a jewelry sales and service company, alleged violations of breach of contract, defamation, and violations of the Tennessee Consumer Protection Act and the Lanham Act. Plaintiff purchased an on-air advertising campaign from the defendant-radio station, which was prompted by an investigative news report that questioned the manner in which one of the plaintiff’s competitor’s graded the quality of its diamond products. Plaintiff provided the radio station a list of talking points designed to capitalize upon the negative publicity its competitor received in the investigative report. After the advertisement aired, the plaintiff’s competitor purchased advertising time from the radio station and requested that the radio station air apologies; the radio station complied. Plaintiff filed suit alleging that the radio station spread defamatory, disparaging, and false and damaging statements about the plaintiff at the request of its competitor. The court granted summary judgment in favor of the defendant on all counts, holding that the record contained no evidence of consumers’ reaction to the apologies; the plaintiff failed to present any material evidence that its reputation was injured or that it suffered damages; and the plaintiff failed to identify any contract terms that were breached by the radio station’s apologies. (Service Jewelry Repair, Inc. v. Cumulus Broadcasting, LLC, No. 3:14-cv-1901, 2015 WL 7112334 (M.D. Tenn. Nov. 13, 2015)). Consumer Class Actions The U.S. District Court for the Southern District of Ohio grants in part and denies in part a motion to dismiss the plaintiff’s class action claims alleging violations of the Ohio Deceptive Trade Practices Act (“ODTPA”) and the Ohio Consumer Sales Practices Act (“OCSPA”), negligent misrepresentation, and fraud. Plaintiff alleged that the defendant-manufacturer and distributor of “Tito’s Handmade Vodka” falsely labeled the vodka as “Handmade” and “Crafted in an Old Fashioned Pot Still by America’s Original Microdistillery” when, in fact, the vodka was made from commercially manufactured neutral grain spirit that was pumped into an industrial facility. The

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court dismissed the ODTPA claims because consumers do not have standing under the ODTPA. The court allowed an individual OCSPA claim, but dismissed the class claim because the plaintiff failed to meet the notice pleading requirement for class actions under the OCSPA. Finally, the court dismissed the negligent misrepresentation claim because an action for negligent misrepresentation cannot be maintained when the alleged misrepresentation is intended to reach an extensive, unresolved class of persons. (Terlesky v. Fifth Dimension, Inc., No. 1:15-cv-374, 2015 WL 7254189 (S.D. Ohio Nov. 17, 2015)). The U.S. District Court for the Central District of California orders the plaintiffs to show cause as to why the case should not be dismissed for lack of subject matter jurisdiction. Plaintiffs filed a putative class action against defendants FanDuel, Inc. and Draft Kings, Inc., alleging violations of California’s Consumer Legal Remedies Act (“CLRA”) and False Advertising Law (“FAL”). Although the plaintiffs did not invoke the Class Action Fairness Act (“CAFA”) as a jurisdictional basis, the court noted that the plaintiffs must meet CAFA’s requirements to establish jurisdiction. As pleaded, however, it was unclear whether the plaintiffs met CAFA’s requirements because they failed to specify whether the class includes more than 100 members and whether the amount in controversy exceeds $5,000,000. Accordingly, the court ordered the plaintiffs to show cause as to why the case should not be dismissed for lack of subject matter jurisdiction. (Spiegel v. FanDuel, Inc., No. 15-cv-08142, 2015 WL 6957993 (C.D. Cal. Nov. 10, 2015)). The U.S. District Court for the Northern District of California grants the plaintiffs’ motion to remand to San Francisco Superior Court their putative class action against Gerber Products Company for its allegedly deceptive food labeling. The plaintiffs alleged that the defendant deceptively advertised its “Gerber Graduates Puffs” by inflating the product’s nutritional content. The court held that, pursuant to the Class Action Fairness Act, the defendant did not demonstrate by a preponderance of the evidence that the amount in controversy exceeded the statutory minimum of $5 million. The court ruled as inadmissible hearsay the evidence offered by the defendant showing total sales figure in excess of $5 million. Because the defendant offered no admissible evidence to support removal under CAFA, remand to state court was warranted. (Gyorke-Takatri v. Nestle USA, Inc., 15-CV03702, 2015 WL 6828258 (N.D. Cal. Nov. 6, 2015)). The U.S. District Court for the Northern District of California denies Seventh Generation, Inc.’s motions to dismiss and to strike the plaintiffs’ complaint alleging violation of the Magnuson-Moss Warranty Act, violation of the California Consumer Legal Remedies Act, deceptive advertising, unfair business practices, and breach of express warranty. Plaintiffs claimed that Seventh Generation falsely labeled its cleaning supplies, paper products, and personal care products as “natural” despite containing non-natural ingredients. Defendant moved to dismiss, claiming that no reasonable consumer would be misled by the term “natural”; the court rejected this argument, holding that the plaintiffs sufficiently alleged that a reasonable consumer is likely to be deceived by the term “natural.” Specifically, the court noted that a fact-finder needed to resolve issues such as whether the ingredients list sufficiently explained or disclaimed the word “natural” to a reasonable consumer. The court further held that the plaintiffs stated the fraud claims with particularity under Fed. R. Civ. P. 9(b) because they provided copies of the allegedly misleading product labels; they described how terms were allegedly misleading; and stated that they purchased the products in reliance on the “natural” labeling statements at specified retail locations. (Tsan v. Seventh Generation, Inc., No. 15-cv205, 2015 WL 6694104 (N.D. Cal. Nov. 3, 2015)).

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The U.S. District Court for the Northern District of California dismisses defendant-wireless phone companies’ motion to enforce arbitration clauses in their contracts with consumers. Two plaintiffs who purchased phones at Cricket Wireless LLC stores claimed that Cricket violated false advertising laws by marketing “unlimited 4G/LTE services” but lacking the capability to provide such services. The phones came in boxes stating that the “enclosed terms and conditions” apply and contained a “Quick Start Guide” with terms and conditions in small font. The case was removed to federal court, where Cricket contended that the plaintiffs had accepted the terms in the Quick Start Guide, including arbitration provisions. Plaintiffs argued that they were not put on notice of the terms and, thus, did not agree to arbitrate, and that even if they agreed to the terms, Cricket is estopped from enforcing the contract because it advertised “No Contract” service. The court held that there was a genuine issue of fact as to whether a contract was formed, and that the issue should be resolved by a summary trial. The court dismissed the defendants’ motion to enforce arbitration because the Quick Start Guide lacked any indication of a contractual nature, and, by opening the boxes and activating the phones for consumers, Cricket employees obviated the need for the plaintiffs to review the Quick Start Guide and accompanying arbitration provision. Further, the court held that equitable estoppel did not apply because the phrase “No Contract” in the context of telecommunications advertisements merely distinguished services with annual commitments from those without annual commitments. (Barraza v. Cricket Wireless LLC, No. C 15-02471, 2015 WL 6689396 (N.D. Cal. Nov. 3, 2015)). The U.S. District Court for the Middle District of Florida granted a motion to stay the plaintiff’s putative nationwide class action, alleging breach of contract, breach of warranty, and unjust enrichment against a retailer arising out of the retailer’s allegedly false statements that merchandise was sold at 40% off the regular price. The plaintiff alleged violations of the Florida Deceptive and Unfair Trade Practices Act (“FDUTPA”). Similar actions had been filed in several courts, including one in the Eastern District of Pennsylvania. The Pennsylvania court preliminarily approved a nationwide class settlement and enjoined further prosecution of any claims in other actions encompassed by the nationwide settlement, pending final approval of the settlement in that action. The defendant in the Florida action argued that the Florida claims should be stayed pending the outcome of the Pennsylvania settlement. The court agreed, finding that the bulk of the members of the putative classes would be members of the Pennsylvania class; the Pennsylvania settlement covered the Florida action; and continuing the Florida action would violate the Pennsylvania order. (Loor v. Tween Brands, Inc., No. 6:15-cv-953, 2015 WL 6704579 (M.D. Fla. Nov. 3, 2015). The U.S. District Court for the Northern District of California grants with prejudice defendant Plum Organics’ motion to dismiss a nationwide consumer class action complaint challenging the labeling of food products for toddlers. Plaintiff alleged false advertising under California consumer protection laws based on defendant featuring on the principal display panel (“PDP”) the names and images of some, but not all, of the products’ ingredients. Plaintiff alleged that the labels were deceptive because they implied that the featured ingredients were either the sole ingredients or the most predominant, but the ingredients were neither. The court rejected the theory, holding that, as a matter of law, there was nothing false on the principal display panel because the featured ingredients were present in the product and there were no representations on the label that the featured ingredients were the only ingredients or the most predominant. Likewise, the labels were not deceptive, as a matter of law, because consumers know that food products can be “largely made up of . . . ingredient[s]” other than those featured on the PDP. “Every reasonable shopper knows that

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the devil is in the details.” To the extent a consumer wanted to clear up an ambiguity that may exist, detailed ingredient information could be found on the nutrition panel. (Workman v. Plum PBC, -- F. Supp. 3d --, No. 3:15-cv-02568, 2015 WL 6664837 (N.D. Cal. Nov. 2, 2015)). [Plaintiff filed a notice of appeal to the Ninth Circuit on Dec. 4, 2015.] The U.S. District Court for the Northern District of California grants defendant Costco Wholesale Corporation’s motion to stay the case pending the Ninth Circuit’s resolution of Kosta v. Del Monte Foods, Inc., Brazil v. Dole Food Co., Inc., and Jones v. ConAgra Foods. Plaintiffs purchased canned tomato products and frozen fruit and fruit cups from Costco, and alleged that they included false and misleading label statements, such as nutrient content claims, claims about antioxidant content, “preservative-free” claims, and synthetic chemical content omissions. Plaintiffs alleged causes of action for unlawful, unfair, and fraudulent business acts and practices, in violation of California’s Unfair Competition Law and Consumer Legal Remedies Act. The court determined that a stay would not harm the plaintiff because (1) the plaintiff did not oppose the motion; (2) Costco established that hardship could occur absent a stay because the parties might needlessly spend time and resources on issues subject to change pending the Ninth Circuit decisions; and (3) the cases pending review in the Ninth Circuit overlapped with the case, and the Ninth Circuit issues, such as whether “all natural” labeling statements could mislead a reasonable consumer, could provide guidance on arguments in the case at hand. Thus, the court granted the stay. (Thomas v. Costco Wholesale Corp., No. 12cv2908, 2015 WL 6674696 (N.D. Cal. Nov. 2, 2015)). The U.S. District Court for the Central District of California denies a motion to dismiss by defendant The Jewelry Channel, Inc. USA d/b/a Liquidation Channel (“LC”) in a putative class action suit for negligent misrepresentation, intentional misrepresentation, unjust enrichment, and state law claims under California’s False Advertising Law, Consumer Legal Remedies Act, and Unfair Competition law, and Oklahoma’s Consumer Protection Act. Plaintiffs alleged that LC, a company that sold jewelry online and on television, deceived consumers by advertising jewelry with an “estimated retail value,” an “LC Price” describing the percentage savings with the estimated retail value often being over 80 percent higher than the LC price, and describing how much money the customer saved as compared with the estimated retail value, when, in fact, the LC price was much closer to the actual value of jewelry and the estimated retail price was fictitious. LC argued that its descriptions of the estimated retail value of its products – and the discounts derived therefrom – were “opinions” of value and, therefore, puffery. The court held that LC’s descriptions were not puffery and not merely “opinions” because the discounts and estimated retail values were measurable and likely capable of verification. Next, the court held that the plaintiffs’ claims satisfied Fed. R. Civ. P. 9(b) because they put LC on notice of the particular misconduct alleged. Finally, the court allowed the plaintiffs’ claim for injunctive relief on the basis of “class standing” because some class members did not have the same knowledge as the plaintiffs, and there was a likelihood of repeat injury for the entire class. (Kabbash v. Jewelry Channel, Inc. USA, No. CV 15-4007, 2015 WL 6690236 (C.D. Cal. Nov. 2, 2015)). State Consumer Protection Law Actions The U.S. District Court for the Southern District of Illinois grants the defendant’s motion to dismiss for failure to state a claim upon which relief can be granted. The plaintiffs purchased a long-term care insurance policy from the defendants, Genworth Financials, which included a provision stating

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they could cancel the policy at any time and receive a refund. After canceling their policy, the defendant allegedly refused to return $31,800. The plaintiffs brought an action for consumer fraud. The court held that the allegations exceeded the scope of the statute because the plaintiffs alleged only that the defendant failed to fulfill their contract. Thus, the plaintiffs’ claim was a breach of contract claim; the court granted the motion to dismiss and allowed the plaintiffs 30 days to amend. (Hyatt v. Genworth Fin., No. 15-cv-00869, 2015 WL 7177722 (S.D. Ill. Nov. 16, 2015)). The U.S. District Court for the Northern District of Indiana grants in part and denies in part defendant Leatt Corp.’s motion to dismiss a product liability complaint for strict liability, breach of warranty, negligence, and deceptive advertising after the plaintiff sustained an injury while wearing a neck brace manufactured by the defendant for use during motocross activities. The court construed the claims as claims brought pursuant to the Indiana Products Liability Act, which governs actions that are: (1) brought by a user or consumer; (2) against a manufacturer or seller; and (3) for physical harm caused by a product; regardless of the substantive legal theory or theories upon which the action is brought. Indiana law required that the plaintiff prove an intent to defraud when alleging deceptive advertising; however, the plaintiff pled only that misrepresentations regarding the brace’s ability to protect riders from spinal cord injury were made through general marketing and advertising of the brace. The court agreed with the defendant that the plaintiff had not pled with specificity the identity of the person who made the misrepresentation, or the time, place, and the method by which the misrepresentation was communicated to the plaintiff, as required by Fed. R. Civ. P. 9(b). Thus, the court dismissed the plaintiff’s deceptive advertising claim with leave to refile. (Lyons v. Leatt Corp., No. 4:15-CV-17, 2015 WL 7016469 (N.D. Ind. Nov. 10, 2015)). Federal Trade Commission (FTC) Litigation Decisions The U.S. District Court for the Eastern District of Pennsylvania grants the FTC’s motion for a preliminary injunction against companies and individuals involved in operating “Click4Support,” which sold computer security and technical support services. Pennsylvania and Connecticut joined the suit under their respective state consumer statutes. The allegations included misrepresentations that various defendants had a relationship and were approved by major technology companies such as Apple, Microsoft, and Google, which were false. Defendants allegedly used online advertising associated with false “report” warning messages to consumers stating that their computer systems had been penetrated by hackers or were subject to significant performance issues; the defendants allegedly used these warning messages to sell valueless services. Defendants’ related entities misled over 55,000 customers and sold almost $18 million in valueless services. The court originally granted the ex parte request for a temporary restraining order (“TRO”), asset freeze, and appointment of a receiver. First, the court granted the preliminary injunction that was substantively similar to the TRO, but did not continue the asset freeze as to the individual defendants. The court determined that the various corporate and individual defendants were part of a common enterprise based upon a seven prong test. Next, the court found that the transactions were conducted through a maze of related companies; there was common control of the companies; shared officers and employees; shared offices; shared marketing, and commingling of funds, all showing that there was no real distinction in the companies. In addition, the court held that the large charge back rate on credit card transactions was a red flag that provided notice to individual defendants. The court held that the FTC had to prove only two prongs to be entitled to a preliminary injunction: (1) likelihood of prevailing on the merits, and (2) the balance of the equities, and the court found for the FTC on

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both factors. (FTC v. Click4Support, LLC, No. 15-5777, 2015 WL 7015271, (E.D. Pa. Nov. 10, 2015)). The U.S. District Court for the Southern District of New York, on remand from the U.S. Court of Appeals for the Second Circuit, holds that the FTC established that it is entitled to a presumption of consumer reliance in the calculation of contempt damages against BlueHippo Funding, LLC, an installment credit company that offers computers and other electronic devices. Defendant had a policy of issuing store credit (instead of refunds) after seven days of purchase but failed to tell customers that store credit could not be applied to shipping and handling or taxes. The FTC initiated a contempt proceeding in 2009, alleging violations of a 2008 consent order prohibiting deceptive sales practices, and sought $14 million in damages, representing losses to the 55,892 customers that had made at least one payment but received neither a computer nor store merchandise. The district court awarded $610,000 in damages, holding that the FTC failed to show damages as to all customers. The Second Circuit vacated the decision, noting that information about the shipping and handling fees and taxes, if revealed to consumers before purchase, would have influenced consumers’ purchasing decisions. Importantly, the Second Circuit stated that “permitting a presumption of reliance in FTC claims for contempt damages would further the Commission’s statutory purpose to protect consumers.” This presumption would be triggered by showing that (1) the defendant made material misrepresentations or omissions that were of a kind usually relied upon by reasonable prudent persons; (2) the misrepresentations or omissions were widely disseminated; and (3) consumers actually purchased the defendants’ products. On remand, the district court held that the FTC had met its burden and was entitled to a presumption of consumer reliance. (FTC v. BlueHippo Funding, LLC, No. 08-CIV-1819, 2015 WL 6830161 (S.D.N.Y. Nov. 6, 2015)). RECENT FILINGS Consumer Class Actions Putative nationwide class action filed against Proctor & Gamble Co. in the U.S. District Court for the Eastern District of New York alleging violations of New York’s General Business Law. Plaintiffs allege that the defendant misrepresented that its “Pantene Pro-V Expert Collection Advanced Keratin Repair Shampoo and Conditioner” products “repair two years of damage in just two minutes” when the products do not have the capacity to repair two years’ worth of hair damage in two minutes. (Lee, et al. v. Proctor & Gamble Co., No. 15-cv-06516 (E.D.N.Y. complaint filed on Nov. 13, 2015)). Putative nationwide class action, with New York and California sub-classes, filed against Monster Beverage Corporation and Hansen Beverage Company in the U.S. District for the Eastern District of New York, alleging, among other things, negligent misrepresentation and violations of California false advertising law, and New York and California consumer protection statutes. Plaintiffs allege that the defendants falsely market and label their “Hubert’s Lemonade” products as “all natural” despite the products containing ascorbic acid and citric acid. (Tjokronolo, et al. v. Monster Beverage Corporation, et al., No. 1:15-cv-06482 (E.D.N.Y. complaint filed on Nov. 12, 2015)). Putative class action filed against Five Pawns, Inc. in the U.S. District Court for the Central District of California alleging violations of California’s Consumer Legal Remedies Act, Unfair Competition

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Law, and False Advertising Law, as well as the Indiana Deceptive Consumer Sales Act and the New York General Business Law. Plaintiffs claim that the defendants falsely represent that their vapor liquids for electronic cigarettes do not contain the chemicals diacetyl and acetyl propionyl, and that the e-liquids do not present health risks. (Greene, et al. v. Five Pawns, Inc., et al., No. 8:15-CV01859 (C.D. Cal. complaint filed on Nov. 11, 2015).) Putative class action filed against Galardi Group, Inc. in the U.S. District Court for the Central District of Illinois alleging, among other things, violations the Illinois Consumer Fraud and Deceptive Business Act. Plaintiffs claim that the defendant advertises its chili hot dogs as “all-beef” despite the chili containing no beef and instead containing mostly pork. (Abdeljawad, et al. v. Galardi Group, Inc., No. 2-15-CV-02265 (C.D. Ill. complaint filed on Nov. 5, 2015).) Putative California-only class action filed against Tyson Foods, Inc. in the U.S. District Court for the Eastern District of California, alleging violations of California’s Unfair Competition Law and Consumer Legal Remedies Act. Plaintiff claims that the defendant falsely represents that its “Nudges” brand of grain-free dog treats are “Made in the USA” and “made from proteins 100% sourced and raised in the USA,” despite containing ingredients from foreign countries. (Fitzpatrick v. Tyson Foods, Inc., No. 2:15-cv-2285 (E.D. Cal. complaint filed on Nov. 4, 2015)). Putative New York-only class action filed against Santa Fe Natural Tobacco Co., Inc. and Reynolds American, Inc. in the U.S. District Court for the Southern District of New York, alleging violation of sections 349 and 350 of the New York General Business Law. Plaintiff claims that the defendants market their “Natural American Spirit” cigarettes as “Additive-Free Natural Tobacco,” falsely implying that the cigarettes are healthier than other cigarettes; and that the cigarettes are not “natural” because they contain ammonia. (Rothman v. Santa Fe Natural Tobacco Co., Inc. et al., No. 7:15-cv-8622 (E.D.N.Y. complaint filed on Nov. 3, 2015)). Putative nationwide class action filed in the U.S. District Court for the Northern District of Illinois against NBTY, Inc. alleging violations of the Illinois Consumer Fraud Act and various other state laws prohibiting unfair and deceptive business practices. Plaintiffs allege that the defendant’s dietary supplement labels deceptively advertised the amounts of the active ingredient Standard Extract Hypericin, and the product contained less of the standardized extract than claimed. (Muir, et al. v. NBTY, Inc., No. 15-cv-09835 (N.D. Ill. complaint filed on Nov. 3, 2015)). Putative nationwide class action filed against Six Continents Hotels, Inc. and Intercontinental Hotels Group Resources, Inc. in the U.S. District Court for the District of Massachusetts, alleging, among other things, violations of Massachusetts’s false advertising law. Plaintiff claims that the defendants falsely advertise that hotel reservations can be cancelled with a certain time without incurring a penalty, but actually charge a penalty for cancelling hotel reservations before the advertised time. (Dishman v. Six Continents Hotels, Inc., et al., No. 1:15-cv-13713 (D. Mass. complaint filed on Nov. 2, 2015)).

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