A federal judge recently held that a plaintiff cannot state a claim for false advertising under Illinois law by cherry picking statements in isolation if, on the whole, the information available to plaintiff dispelled the alleged deception. On April 6, 2018, the Northern District of Illinois dismissed a proposed class action that unsuccessfully claimed that a fast food restaurant and an Illinois franchisee had misrepresented the value of certain value meals. The proposed class action, filed in Illinois in 2016, was one of hundreds of cases filed that year alone in a recent surge in food consumer class action litigation.

According to a recent report by the U.S. Chamber Institute for Legal Reform, food marketing class actions increased from about 20 in 2008 to over 425 active cases in federal courts in 2015 and 2016. During this same two-year period, Illinois ranked as a favorite of the class action bar by hosting the fourth largest number of food class actions in federal courts and only trailed California, New York and Florida.

Background

Plaintiff filed a class action complaint against a fast food restaurant and its franchisee alleging that certain value meals were not a good value because consumers could have purchased the meal items separately at a lower cost than the bundled meal. Plaintiff claimed that marketing the meals as “values” suggests that the meals cost less than ordering each item individually. Plaintiff therefore argued that labeling such meals as value meals was false, deceptive, and misleading in violation of the Illinois Consumer Fraud and Deceptive Business Practices Act.

Judge Elaine Bucklo rejected Plaintiff’s claims. She held that, under Illinois law, consumers who simply don’t bother to compare prices easily visible at the point of purchase cannot claim they have been misled. Judge Bucklo reasoned that, although Plaintiff’s argument had “superficial appeal,” she and the consumers she sought to represent had all the information necessary to compare prices. Judge Bucklo noted that, if Plaintiff had “take[n] the time to compare prices,” she would have realized that she could have saved a few cents by purchasing the items individually.

In holding that there could be “no possibility for deception,” Judge Bucklo relied on a line of cases dismissing similar claims where plaintiff consumers received all the information they needed to make an informed purchasing decision. Judge Bucklo distinguished the fast food restaurant’s prominent display of all prices near the chain’s registers from situations where “consumers would have to consult an ingredients list or other fine print to determine whether prominent images or labels a defendant uses in connection with its product accurately reflect the product’s true nature or quality.”

Takeaway

The court’s decision is a victory for food chains and other restaurants. Restaurants and retailers should consider prominently displaying all information necessary to evaluate pricing claims in advertisements or at the point of purchase.

WebinarOn Thursday, September 10 at 12:00 p.m. Central, Seyfarth attorneys Michael Burns, Robert Milligan and Jason Stiehl will present the second installment of our 2015 Class Action Webinar Series. Presenters will discuss the climate to help retailers avoid becoming targets of litigation. This webinar will provide an overview of the current class action lawsuit landscape complete with discussion of recent cases, hot areas, and valuable takeaways to inform strategy. In addition, the panel will explain business practices that retailers should implement to reduce their risk of becoming a defendant in a class action lawsuit, including class action waivers.

Topics will include:

  • Telephone Consumer Protection Act (TCPA);
  • Song Beverly Consumer Warranty Act and similar state statutes;
  • Call Recording;
  • False Advertising and Comparative Pricing Fraud; ‘
  • Gift Cards/Loyalty Programs; and
  • Data Privacy.

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If you have any questions, please contact events@seyfarth.com.

*CLE Credit for this webinar has been awarded in the following states: CA, IL, NJ and NY. CLE Credit is pending for GA, TX and VA. Please note that in order to receive full credit for attending this webinar, the registrant must be present for the entire session.

 

The Illinois Supreme Court recently granted a Petition for Leave to Appeal in Price v. Phillip Morris, Inc., after the Illinois Appellate Court for the Fifth District effectively reinstated a $10 Billion verdict against Philip Morris from 2003.  9 N.E.3d 599 (5th Dist. 2014).  The Illinois Supreme Court’s decision to once again weigh in on the case sets the stage for a substantive analysis of class actions and damages awards under the Illinois Consumer Fraud and Deceptive Business Practices Act, codified at 815 Ill. Comp. Stat. 505, et seq. (“Consumer Fraud Act”).

Background

In 2000, plaintiffs Sharon Price and Michael Fruth filed a class action in the Circuit Court of Madison County, Illinois against Philip Morris, Inc., alleging that it had violated the Consumer Fraud Act by fraudulently advertising its cigarettes as “light” or “low tar,” when in fact they were higher in tar and nicotine than represented and more toxic than regular cigarettes.  219 Ill. 2d. 182, 210 (Ill. 2005).  Plaintiffs did not seek damages for any alleged adverse health effects caused by Phillip Morris cigarettes but for economic damages resulting from their purchase of the product in reliance on statements which they contended were fraudulent, deceptive and unfair.  Id. at 209.

Philip Morris alleged several affirmative defenses, including one based on section 10(b) of the Consumer Fraud Act, which bars suits based on actions “specifically authorized by laws administered by any regulatory body.”   815 Ill. Comp. Stat. 505/10(b)(1).  According to Philip Morris, the Federal Trade Commission (FTC) had authorized the use of the terms “light” and “low tar” (“FTC Defense”).  219 Ill. 2d. at 215-16.

The trial court certified a class of over one million Illinois consumers who had purchased cigarettes over three decades, from 1971 to 2001.  Id. at 211-12.  The case proceeded to trial and in March 2003, the trial court awarded plaintiffs over $7 billion in actual damages and $3 billion in punitive damages.  Id. at 230-32.  In doing so, the trial court ruled that the FTC had never specifically authorized the use of the terms “light” and “low tar.”  Id. at 230-31.

On appeal, Philip Morris argued that the trial court erred by, among other things, rejecting its FTC Defense, in certifying the class and awarding damages under the model presented by Plaintiffs at trial.  Id. at 233.

In December 2005, the Illinois Supreme Court reversed the trial court’s decision, ruling that the FTC had in fact approved the use of the terms “light” and “low tar” by entering into various consent decrees in other lawsuits against cigarette manufacturers and, therefore, that the lawsuit was barred.  Id. at 265-66, 272.  The Court also expressed “grave reservations” regarding the trial court’s decision to certify the class, the proof offered by Plaintiffs at trial, and the Plaintiffs’ novel damages theory but did not actually rule on those issues.  Id. at 267-71.

In June 2008, the FTC filed an amicus brief in a case involving Philip Morris parent company, Altria Group, which was pending before the United States Supreme Court.  See Altria Grp., Inc. v. Good, 555 U.S. 70 (2008).  In its amicus brief, the FTC disavowed ever having adopted a policy authorizing the use of “light” and “low tar” descriptors.  Id. at  87.  Further, in December 2008, the FTC rescinded prior guidance it had issued regarding statements concerning the tar and nicotine yields of cigarettes, clarified that it had not defined or authorized the terms “light” or “low tar,” and stated that a manufacturer’s continued use of those terms would be subject to prohibitions against deceptive acts and practices.  9 N.E.3d at 603, 608.

Based on these new statements from the FTC, which contradicted the Illinois Supreme Court’s interpretation of FTC policy, Plaintiffs filed a petition for relief from judgment (“Petition”).  Id. at 603.  After extensive litigation concerning the timeliness of the Petition, the Plaintiffs were permitted to pursue relief from the judgment against them.    Id.   The trial court, however, ultimately denied the Petition.  It ruled that while Plaintiffs had a meritorious claim in the underlying litigation, and that the Illinois Supreme Court likely would have ruled differently in 2005 on the issue of the FTC Defense, the Supreme Court was “equally as likely” to have ruled against Plaintiffs on other issues raised on appeal, such as class certification and damages.  Id. at 604.

In April 2014, the Illinois Appellate Court reversed the trial court’s denial of the Petition, effectively reinstating the $10B verdict against Phillip Morris.  Id. at 614.  On September 24, 2014, the Illinois Supreme Court granted Philip Morris’s petition for leave to appeal.

Implications

There is no doubt that the Illinois Supreme Court’s decision to review this case once again will have a profound impact on Illinois consumers, Philip Morris and litigation against tobacco manufacturers.  But the reach of the Illinois Supreme Court’s ultimate decision in this case will likely extend beyond that.

Many states have consumer fraud statutes similar to that of Illinois and the Illinois Supreme Court’s decision could therefore provide a model for class action litigation brought under different states’ statutes.   It is very likely that the Court will now address the merits of issues it previously tabled, such as the propriety of certifying such a large and diverse class of people (which covered over one million individuals and spanned purchases made in three decades), the feasibility of using consumer fraud statutes in consumer class action litigation (a proposition which has been questioned by several courts), the proof required to sustain such an action, and how damages are to be determined if and when such cases are proved.

We will keep you posted on the developments in this landmark case.

Summary

Following the trial of a tobacco false advertising case dating back to 1997, a California court found that, although the defendant misrepresented to consumers the health benefits of its Marlboro Lights cigarettes, the Plaintiffs were entitled to no relief as they failed to prove entitlement to any of the limited remedies available under California’s Unfair Competition Law.

The court in Brown v. The American Tobacco Co., Inc., et al., Case No. 711400 (San Diego Superior Court Sept. 24, 2013) emphasized and underscored that restitution under California  law does not allow plaintiffs to recover “benefit of the bargain damages.”  Brown, at 11.  Instead, restitution reimburses consumers only for the difference between the value paid and the actual value of the product received.  Id.  Plaintiffs failed to show their entitlement to restitution under California law because, among other reasons, their proffered evidence improperly focused on consumers’ perceived value of the misrepresented health attributes without considering the actual market value of the entire product absent the misrepresented attribute, i.e., the product plaintiffs received.   Id.

The court held that the evidence showed the price paid for Marlboro Lights cigarettes was not in excess of the actual market value of the product plaintiffs received (without any health benefit).  Id. at 16-17.  Thus, the restitution value was zero.  Id. at 17.  The court emphasized that:  (1) consumer purchases of Marlboro Lights did not substantially change relative to Marlboro Reds despite significant corrective actions taken by the defendant to communicate to consumers that Marlboro Lights offered no health benefits compared to Marlboro Reds; and (2) Marlboro Lights and Marlboro Reds sold for the same price during the time period of the defendant’s corrective actions.  Id. at 16-17. 

The court also found that plaintiffs were not entitled to injunctive relief.  Id. at 18-21.  Specfically, the court held that: (1) plaintiffs presented no specific evidence concerning injunctive relief; (2) it is unlikely that the misrepresentations will recur due to defendant’s marketing changes, a federal statute, and an injunction in a different case; (3) injunctive relief would be redundant because information plaintiffs desire to provide consumers has already been disseminated; (4) tobacco advertising and packaging is preempted; and (5) plaintiffs waived injunctive relief in the Master Settlement Agreement reached with numerous state attorneys general.  Id

Significance

The Brown decision illustrates and reinforces the structure of California’s UCL.  While the UCL broadly proscribes a wide swath of conduct, the remedies available are limited.  The decision also serves as a reminder to businesses that defense of UCL actions should focus on both liability and the plaintiffs’ entitlement to available remedies, or the lack thereof.

Even assuming a product’s attributes have been misrepresented to consumers, to obtain monetary relief in the form of restitution plaintiffs must still show that they paid more than the actual market value of the product they received without the misrepresented attribute.  As shown in Brown, this will undoubtedly be difficult if not impossible for plaintiffs where the defendant can show that:  (1) the challenged product sells for the same price as other products without the misrepresented attribute; and (2) consumers did not alter their behavior following any change in advertising as to the allegedly misrepresented attribute.

Businesses should also consider the applicable law governing a particular case.  State consumer protection laws and the law of restitution often vary state to state.  The court in fact noted that plaintiffs’ expert improperly relied on the same form of analysis in a case governed by Missouri law where, the court stated, unlike California, “benefit of the bargain” damages applied.  Id. at 11. 

“Shakedown Suits”

Although California’s passage of Proposition 64 made it more difficult for the plaintiffs’ bar to bring “shakedown suits” against the business community, we are witnessing a flood of false advertising class actions brought (or, more often, threatened) against consumer product manufacturers and retailers, who typically have no arbitration rights.  While some lawsuits are immediately filed, many plaintiffs’ firms serve demand letters under the California Consumers Legal Remedies Act (“CLRA”) threatening class actions that, historically, have been difficult to resolve expeditiously given their fact-intensive nature.  Facing the cost of defending such claims, many companies accept pre-filing offers to settle on an individual basis for purely economic reasons.  On September 25, 2013, however, the California Court of Appeal threw a lifeline to companies that refuse to pay such protection money.

The Court’s Opinion

In Simpson v. Kroger Corp., No. B242405, 2013 Cal. App. LEXIS 769, the complaint alleged that a “spreadable butter” product, which consists of butter mixed with canola or olive oil, was mislabeled and falsely marketed as “butter.”  On behalf of a putative class, the plaintiff alleged purported claims for unfair competition in violation of California Business and Professions Code Section 17200, false advertising in violation of California Business and Professions Code Section 17500, and violation of the CLRA.  After reviewing the packaging, which listed the product’s ingredients and otherwise disclosed what the product was, the trial court sustained a demurrer without leave to amend, finding that a reasonable consumer was not likely to be deceived.  Citing Day v. AT&T Corp., 63 Cal. App. 4th 325, 333, 74 Cal. Rptr. 2d 55 (1998), the Court of Appeal affirmed, confirming that courts “may be able to say as matter of law that contrary to the complaint’s allegations, members of the public were not likely to be deceived or misled . . . by packaging material.”

Implications

Although Simpson certainly does not guarantee the dismissal of every false advertising claim, it provides a potential early exit strategy at the pleading stage where it is clear from the factual circumstances that no reasonable consumer could have been misled.  It also reiterates the importance for companies to consider class action risk with respect to all decisions related to product labeling and advertising.