Alerts

AD-ttorneys@law - May 16, 2019

Alerts / May 16, 2019

In This Issue:

Indiana AG Itchy About Scratch-Off Switcheroo

Sues direct mailing company that allegedly offered fake wins to a ton of Hoosiers

You get a car! And you get a car!

Hopkins & Raines Inc. (H&R), a direct mail company headquartered in Texarkana, Texas, has stirred up a hornet’s nest in Indianapolis.

Indiana Attorney General Curtis T. Hill, Jr. caught wind of a series of mailings sent by H&R on behalf of car dealers in more than 50 separate campaigns. The mailings, which targeted more than 2 million Indiana residents, included a “game piece” that entitled winners to any number of prizes listed in the main mailing.

And the prizes weren’t shabby: up to $25,000 cash, a $1,000 Walmart gift card, large-screen HDTVs, and boats or cars from dealerships that were H&R’s clients. Sounds good, right?

Cheap exchange

Not so fast. Hill’s office claims that all the game pieces that were sent out were “winning” pieces. The mailings “included a game piece only to generate excitement and deceive recipients into believing they won a significant prize to drive attendance at the corresponding Sales Events in order to provide H&R and the sponsoring dealerships with opportunities to sell recipients motor vehicles,” the complaint reads.

When the “winner” showed up at the car dealership, game piece in hand, the suit alleges that “the recipient was provided an item of nominal value as a ‘prize,’ such as a $5.00 Walmart gift card, a cheap MP3 player, or a scratch-off lottery ticket.”

The takeaway

The suit, filed last month in Indiana’s Morgan County Circuit/Superior Court, hit H&R with 10 counts, including failing to communicate required disclosures and misrepresenting the value of the prizes under Indiana’s Promotional Gifts and Contests Act, and misrepresenting that mailing recipients were winners under the state’s Deceptive Consumer Sales Act. Along with a permanent injunction against future misrepresentations, the suit seeks consumer restitution for the targets of the promotions, to the tune of $500 per person.

At more than 2 million recipients, that’s a hefty price to pay for a promotion.

Utz Resolves All Natural False Ad Claims for $1.2 Million

Agreement finally settles to the bottom of the docket

Cocktail party banter

Have you ever wanted to bust out exhaustive, detailed accounts of how cottonseed, corn, soybean and canola oil are processed? How about the industrial derivations of vinegar, citric acid and various sorts of food additives?

Yes? Really? Well, have we got the lawsuit for you.

The case in question is a class action originally filed in 2014 by Matt Difrancesco, Angela Mizzoni and Lynn Marrapodi, consumers from Massachusetts and New York. The suit, filed in the District of Massachusetts, accused iconic snack producer Utz Quality Foods Inc. of falsely labeling scores of its products as “all natural.”

Hence the lessons in canola oil pressing techniques.

Thoroughly thorough

The suit goes deep on the manufacturing process of a number of ingredients in Utz’s Bachman- and Utz-branded products.

“The manufacturer first physically presses the cottonseed, rapeseed, corn, or soybeans, which typically extracts a small portion of the extractable oil,” the complaint states in one of its more lyrical passages. “Next, the vegetables are treated with hexane …”

All of this detail is marshalled in favor of a three-prong attack on Utz’s “All Natural” labeling: First, that the products are not natural because they are ultimately derived from genetically engineered ingredients; second, that these products are so overprocessed that, regardless of GMO status, they are effectively man-made; and third, certain other ingredients are just plain old synthetic substances (such as malic acid, an ingredient which we’ve covered before).

The plaintiffs sought relief for breach of warranty and unjust enrichment under New York and Massachusetts laws.

Settlement agreements began surfacing in February 2017, but were kicked back more than once by an unsatisfied district court. Some ambiguities in the plaintiffs’ settlement documents led to moments of wry comedy from the bench: “So, what we have is monies created, a pot of money created to make a case go away, to get closure on marketing documents, in a way that does not seem to be leading to much in the way of likely financial return to class members, and, frankly, the class members are, because of the difficulty in identifying them, anybody who is prepared to say that they bought some potato chips.”

That was a passage from a hearing in November 2018, a year after an amended settlement agreement was submitted.

The plaintiffs cleaned up their act, apparently, because in March the court gave the settlement agreement the go-ahead. Utz admits to no wrongdoing. The plaintiffs get a $1.25 million settlement fund to pay up to $20 per household “depending on [the] amount of products purchased” and up to $5,000 for each named plaintiff.

The takeaway

Businesses should keep in mind the requirements for labeling their products as all natural before making such representations to consumers. Otherwise, they stand to face class action lawsuits for claims of false and misleading representations that may result in the business having to correct its advertising campaign and pay damages and restitution to affected consumers.

Is Plaintiff Being a Giant Baby Over a Baby Giant?

Sues Carter’s for email subject line she says is nothing like it seems

Worst EVAR

Out on the vast reaches of the Interwebs, it is said, there is a website to satisfy almost any curiosity. If, for instance, you’d like to write a terrible, horrible, no good, very bad email subject line, there’s a user guide out there for you.

SendCheckIt.com provides this guide, which offers spot-on bad advice. There are old saws such as “USE ALL CAPS IN YOUR SUBJECT LINE” and “Write a subject line that’s comparable to an essay in size.” There are also a few gems you may not have considered before, like “Abuse the #&!@^$* out of your punctuation!!!!!!!”

My kingdom for an *

There’s also this piece of advice for people who want to perfect crappy subject-line writing: “Be Purposefully Deceiving.”

This last piece of advice might be the subtitle of Plaintiff Maribell Aguilar’s recent allegations – on behalf of herself and all others similarly situated – against Carter’s Inc., a leading retailer and manufacturer of baby and young children’s clothing in the United States. Plaintiff Aguilar filed suit against Carter’s in the Eastern District of Washington, claiming that the subject line of a marketing email sent by the company is rife with deception and misrepresentation.

Plaintiff Aguilar allegedly received an email from Carter’s with a subject line that read “50-70% OFF EVERYTHING” (the complaint does not detail what was in the body of the email).

“The subject line did not contain an asterisk or other indication that the words in the subject line had a special or invented meaning,” the complaint reads; and that, Aguilar states, opens a whole can of trouble for the company.

Aguilar claims that this subject was enough to send her off to a Carter’s retail location, expecting but not getting a discount on every product that Carter’s sold.

Deconstruction

Aguilar pores over that one line like a semiotics student studying Derrida. The entire line is misleading, she maintains, for several reasons.

First, she argues that the “50-70% OFF EVERYTHING” discount would be assumed by an ordinary consumer to be a “discount from Carter’s regular or prevailing price,” when it was “actually [a reduction] from Carter’s Manufacturer’s Suggested Retail Price (“MSRP”).” Moreover, Carter’s, which she argues is the de facto manufacturer of its own products, sets the MSRP instead of the market – and does so at inflated prices, a practice that no consumer should be expected to be aware of.

In any case, she alleges, Carter’s does not make its products available at its artificial MSRPs anyway –“Carter’s has a policy … of not following its own ‘suggested’ retail price, because Carter’s, as both manufacturer and retailer, intentionally inflates the MSRP for the purpose of deceiving consumers into believing they are receiving a significant discount …” Additionally, she alleges that Carter’s resellers –department stores, for example – don’t offer or sell the products at Carter’s MSRP, making the line even more deceptive.

The takeaway

Finally, she says, the word “EVERYTHING” folds under interrogation: “Carter’s was not offering discounts on all of its products. … At least 500 items were excluded from the sale advertised in the Email subject line and potentially upward of 1,700 items were excluded.”

Without an asterisk, or other indication, she claims, the line is compromised from the jump.

We’ll see where this case goes, but there’s one odd equivocation in Aguilar’s arguments that might cause trouble for her as things progress: Her MSRP arguments hinge on defining Carter’s as a manufacturer. But is it? Even Aguilar doesn’t seem entirely sure:

“While Carter’s may sub-contract the physical construction of its products to third parties,” she says, “Carter’s is the manufacturer of almost all of its products in the sense that Carter’s decides what products to make, when, where, how and in what quantities, materials, sizes and colors. When this pleading refers to Carter’s as a manufacturer, it does so in this sense of overall control over the creation of its products.”

The question now is: Will the court buy what she’s selling?

Mortgage Servicer Settles Mini-Check Misery for $26 Million

Consumers allege they were trapped by invisible enrollment tag-team

“Please sir, can we have some less?”

We’re not even going to try to lead you through this one.

Delgado v. Ocwen Loan Servicing, LLC was a monster. It featured an avalanche of discovery that generated 35 conferences, 30 contested discovery motions, 75-plus document dumps amounting to more than 400,000 pages of material, 20-plus depositions, and five subpoenas.

Six years and four amended complaints since its first filing, the suit finally settled this year, but will anyone involved ever be the same?

To paraphrase Dickens’ “Bleak House”:

“We asked a gentleman by us, if he knew what cause was on? He told us Delgado v. Ocwen. We asked him if he knew what was doing in it? He said, really no he did not, nobody ever did; but as well as he could make out, it was over.

‘Over for the day?’ we asked him. ‘No,’ he said. ‘Over for good.’

Over for good!

When we heard this unaccountable answer, we looked at one another quite lost in amazement.”

Let there be light

Here’s the shortest summary we can manage.

The original case was filed in the Eastern District of New York in August of 2013. The fourth amended complaint was filed in April of 2017, doubling the length of the original complaint.

Ocwen and several related companies were accused of a massive fake-check enrollment scheme. Ocwen, “America’s largest subprime loan servicer,” according to the most recent complaint, teamed up with co-defendant Cross Country Services Inc., which mailed millions of small ($2.50) checks to Ocwen customers. The checks were disguised as a refund or other remuneration related to the customer’s Ocwen account.

The plaintiffs alleged that when the checks were cashed, Ocwen and Cross Country took the customer’s endorsement as a sign-up for Cross Country’s home warranty plans. Ocwen then added a line item charge to its bills for the Cross Country services, which usually went unnoticed by the customers when they sent in payment. Ocwen gave Cross Country the proceeds, and Cross Country, in turn, shared a percentage of the revenue with Ocwen.

Gerber Settles With FTC Over Anti-Allergy Claims

Terms undisclosed – is the agreement something to sneeze at?

… A little too quiet?

The Federal Trade Commission (FTC), which usually trumpets its success shortly after a win, has been mysteriously quiet about its recent settlement with Gerber Products Company – instead of the customary press release, all FTC watchers got was this lousy 60-day order.

The suit in question, filed almost five years ago in the District of New Jersey, concerned Gerber’s “Good Start Gentle” infant formula. The FTC alleged that Gerber made a number of claims in its advertising that promoted the formula’s supposed anti-allergy properties.

Gerber allegedly claimed that Good Start Gentle, made with partially hydrolyzed whey proteins, was simpler for tykes to digest than formula derived from standard cow juice, and that “feeding this formula to infants with a family history of allergies prevents or reduces the risk that they will develop allergies.”

Like almost all advertising that involves infants and their attendant products, the campaign got a little weird. A baby’s picture next to the tag “The Gerber Generation says, ‘I love Mommy’s eyes, not her allergies.’” And … how does the kid know what an allergy is?

More straightforward was this tagline: “Gerber Good Start is the first and only infant formula that meets the criteria for a FDA Qualified Health Claim.” Together with the general anti-allergy claims, the whole advertising campaign made the FTC itch.

Itch, folks. Get it? Allergies? Itch?

The takeaway

Quoting the Food and Drug Administration (FDA), the FTC explains that “to receive FDA approval for a health claim, a petitioner must demonstrate ‘significant scientific agreement among qualified experts that the claim is supported by the totality of publicly available scientific evidence for a substance/disease relationship.’” In cases of limited support, “the agency will issue a letter outlining the circumstances under which it intends to consider exercising its enforcement discretion not to challenge the claim. The letter will specify, among other conditions, the specific language that must be used to communicate the limited evidence supporting the claim.”

Despite more than one petition to the FDA, the FTC claimed that Gerber only secured permission for a highly qualified claim that “the relationship between 100% Whey-Protein Partially Hydrolyzed infant formulas and the reduced risk of atopic dermatitis is uncertain, because there is little scientific evidence for the relationship.”

The commission sued for false representations of the formula’s anti-allergy powers and false FDA approval claims. No one knows what the provisions of the settlement are, but the original complaint should be taken as a cautionary tale: When it comes to FDA approval, proper wording is everything.

Check Out Our Latest Blog Post

Security Incident Mitigation Strategy: Effective Negotiation of Technology Contract Limitations of Liability

There is always significant negotiation around caps on liability when negotiating a contract with a technology vendor. If the vendor will have access to the personal information of its customers’ end users (regardless of whether the end users are employees or customers), treatment on caps on liability take on heightened importance. In fact, limitations of liability are a key indicator of the allocation of risk between the parties. Both parties are seeking to insulate themselves from liability and minimize the financial harm in the event of a data security incident. Vendors have become increasingly reluctant to provide unlimited liability to protect customers against harms caused by security incidents, going to great lengths to narrowly tailor the situations under which the vendors will bear risk. Customers have been increasingly reluctant to have a data security incident classified as a regular contract breach and subject to regular contract damages. The resulting compromise, in many instances, is the “super cap.” The super cap is a number greater than the general cap on liability, but less than unlimited liability. It can exist in many forms; for example, as a multiple of fees paid, a multiple against 12 months’ fees paid, a number tied to insurance coverage or a flat dollar amount.

Given the findings in the 2019 Data Security Incident Report (“DSIR”), what rule of thumb or general guidance exists to guide decision-making regarding acceptable financial risk allocation? Learn more and subscribe here.

Speaker Spotlight

Get Ready for the Impact of the California Consumer Privacy Act on New York Area Companies

On Tuesday, June 18, BakerHostetler partners Gerald Ferguson, Alan Friel, Linda Goldstein and Melinda McLellan will join forces with Michael Hahn, General Counsel of the Interactive Advertising Bureau, to discuss the California Consumer Privacy Act, similar legislative proposals in other jurisdictions, and what companies in New York need to do to comply and when, including how to leverage your GDPR program. Seating is limited, so be sure to register ASAP. Click here for details.

Baker & Hostetler LLP publications are intended to inform our clients and other friends of the firm about current legal developments of general interest. They should not be construed as legal advice, and readers should not act upon the information contained in these publications without professional counsel. The hiring of a lawyer is an important decision that should not be based solely upon advertisements. Before you decide, ask us to send you written information about our qualifications and experience.

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