The Ninth Circuit revived a consumer class action that had been dismissed without leave to amend by Judge Manuel Real of the Central District of California. See Balser, et al. v. The Hain Celestial Group Inc., No. 14-55074 (9th Cir. Feb. 22, 2016) (slip op. available here). Plaintiffs Balser and Kresha claimed that Hain misled them into paying a premium price for Alba Botanica products labeled “Natural” and “100% Vegetarian” when they allegedly contained synthetic/non-natural substances and were not made entirely with plant-derived products.

The district court had previously dismissed the plaintiffs’ claims, finding that they had not alleged what they thought the “natural” representation meant, nor had they sufficiently pled how they relied on and were harmed by the representation. Judge Real stated, “[r]ead as a whole, no reasonable consumer would be misled by the label ‘natural.’” See Order Granting Defendant’s Motion to Dismiss, Balser, et al. v. The Hain Celestial Group Inc., No. CV 13-05604-R (C.D. Cal. Dec. 18, 2013). In a brief 5-page opinion, the panel found that the plaintiffs’ allegations are “sufficient . . . to [plausibly] allege a reasonable consumer’s understanding of ‘natural’ as used on Hain’s packaging, and so are adequate under California law.” Slip op. at 2. Additionally, the opinion stated that the consumers’ allegation of reliance—that they relied on the “natural” labeling when they purchased the products, and allegation of economic injury—that they paid more than they otherwise would have because of the misrepresentation, were also sufficiently pled. Id. at 2-3. Applying Williams v. Gerber Prods. Co., 552 F.3d 934 (9th Cir. 2008), the court stated, “[w]hether a business practice is deceptive, misleading, or unfair is ordinarily a question of fact to be decided by a jury.” Williams at 938-39. Williams also involved claims of deceptive labeling on Gerber Fruit Juice Snacks packaging (including a “natural” claim) and the Ninth Circuit had reversed dismissal; similarly, in the present case, statements that the products were “natural” and “100% vegetarian” plausibly could be interpreted as a claim that the products contained no synthetic chemicals, a claim alleged to be false.

Finally, the plaintiffs argued that the district court abused its discretion in denying them pre-certification discovery; the Ninth Circuit agreed, finding the plaintiffs had been improperly denied the chance to conduct discovery, partly due to Central District’s Local Rule 23-3 that requires that the motion for class certification be filed within 90 days of a complaint. The district court had deferred the plaintiffs’ discovery requests beyond the 90-day mark, “thereby implicitly denying the motion by rendering it moot.” Slip op. at 5. Citing Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541, 2551 (2011), the appeals court noted the schedule, “when considered alongside federal rules regarding status conferences and the timing of discovery, is quite unrealistic in light of recent case law regarding the need to establish a sufficient factual record at the class certification stage.” Id. at 3-4 (emphasis added).

The panel reversed and remanded the district court’s ruling and required the lower court to consider whether precertification discovery is necessary.

Authored by: 
Mao Shiokura, Associate
CAPSTONE LAW APC

In recent years, bolstered by U.S. Supreme Court decisions, numerous businesses have successfully limited their potential exposure for consumer protection and employment law violations by requiring consumers and employees to enter into arbitration agreements. Now, the pendulum seems to be swinging back as Congress considers a bill limiting the practice.

On February 4, 2016, Democratic Senator Patrick Leahy introduced the Restoring Statutory Rights Act (S. 2506) (available here). The bill would create an exception in the Federal Arbitration Act (FAA) for disputes involving individuals and small businesses. Pursuant to the proposed statute, arbitration would be available only if the parties agreed to it after the dispute arose. By contrast, currently, individuals often agree to arbitration as a condition of purchasing a product or applying for employment. The bill explicitly criticizes recent U.S. Supreme Court decisions regarding the preemptive effect of the FAA, stating that the decisions “have enabled business entities to avoid or nullify legal duties created by congressional enactment, resulting in millions of people in the United States being unable to vindicate their rights in State and Federal courts.”

The proposed bill would also strengthen the power of the courts to reject mandatory arbitration if the arbitration clause is unconscionable or if a statute prohibits arbitration. Specifically, the bill provides that courts may decline to compel arbitration if “a Federal or State statute, or the finding of a Federal or State court, . . . prohibits the agreement to arbitrate on grounds that the agreement is unconscionable, invalid because there was no meeting of the minds, or otherwise unenforceable as a matter of contract law or public policy.” This provision is expressly aimed at cases such as AT&T Mobility v. Concepcion, 563 U.S. 333 (2011), that have interpreted the FAA to preempt substantive rights and remedies established under the law.

The success of this bill is uncertain as Republicans maintain control of both houses of Congress and generally favor arbitration, but it represents a serious effort to roll back some of the excesses in business entities’ use of arbitration.

Authored By:
Stan Karas, Senior Counsel
CAPSTONE LAW APC

A year and a half after it was sued for falsely claiming that its neckties were made in the USA, retailer Lands’ End has agreed to refund its California customers the full purchase price of the neckties as part of a class action settlement. Oxina v. Lands’ End, No. 14-cv-2577-MMA (S.D. Cal., complaint filed Oct. 29, 2014). See Plaintiff’s Motion for Preliminary Approval of Class Action Settlement (Feb. 12, 2016) here. In August 2014, Plaintiff Elaine Oxina purchased a “Kids To-Be-Tied Plaid Necktie” from the clothing retailer’s website. The plaintiff alleged that the website represented that the necktie was “Made in [the] USA,” but the tag on the necktie that Oxina received stated it was “Made in China.” Oxina sued Lands’ End for false advertising and violations of federal and state consumer protection laws.

Following eleven months of litigation on the pleadings alone, the parties agreed to settle Plaintiff Oxina’s claims in exchange for complete relief for the 38 California class members who purchased the neckties during the 4-year settlement period. Under the proposed settlement, Lands’ End will refund class members their purchase price, plus interest at the rate of ten percent per year from the date of purchase. The settlement also provides for $32,500 in attorneys’ fees and expenses.

Although the parties have agreed to settle, the plaintiff initially had lost the battle over the pleadings. Judge Michael Anello previously dismissed (without prejudice) Oxina’s originally pled false advertising claim on the ground that the allegedly false statement “Made in [the] USA” appeared on the website rather than on the necktie itself:

Section 17533.7 sets forth the following: It is unlawful for any person, firm, corporation or association to sell or offer for sale in this State any merchandise on which merchandise or on its container there appears the words “Made in U.S.A.,” “Made in America,” “U.S.A.,” or similar words when the merchandise or any article, unit, or part thereof, has been entirely or substantially made, manufactured, or produced outside of the United States. Plaintiff fails to state a claim under § 17533.7 because she fails to allege that the words “Made in U.S.A.,” or similar words, appeared on the Necktie itself, or on the Necktie’s container. . . . It is clear and unambiguous that the text of § 17533.7 only creates liability where the words “Made in U.S.A.,” or words to that effect, appear on the merchandise, or on the merchandise’s container. It does not create liability for a product that is misleadingly described on a website with the words “Made in U.S.A.” (internal citations and quotations omitted.)

Order Granting Defendant’s Motion to Dismiss, at 13 (available here). The court’s holding suggests that the drafters of Section 17533.7 did not specifically intend for the statute to apply to statements on a merchant’s website. While this cannot be denied, that is because Section 17533.7 was enacted in 1961. The statute’s silence on the issue of internet advertising therefore says nothing about the Legislature’s intent for it to apply to the Internet. Further, because Section 17533.7 applies to print catalogs (see O’Brien v. Camisasca Automotive Mfg., Inc., 73 Cal. Rptr. 3d 911 (2008)) and other forms of advertising, clearly the statute is not limited to statements on merchandise or containers. To rule otherwise is to vitiate the protections afforded by Section 17533.7 to California consumers, who, in greater numbers, purchase goods online rather than in stores. In short, the court’s holding on the necktie false advertising case is too restrictive.

The parties’ joint motion for preliminary approval of the class action settlement is scheduled to be heard by Judge Anello on March 21, 2016.

Authored by: 
Eduardo Santos, Associate
CAPSTONE LAW APC

It is no secret that class action practitioners are facing a more difficult time getting a settlement approved. Not only must settling parties face a proliferation of professional objectors seeking to muck things up, but courts are also under pressure to scrutinize class action settlements more closely. See, e.g., Allen v. Bedolla, 787 F.3d 1218, 1223 (9th Cir. 2015). One recent order illustrates the perils of the approval process. In Banks v. Nissan N. Am., No. 11-2022, 2015 WL 7710297 (N.D. Cal. Nov. 30, 2015) (slip op. available here), the court refused to grant final approval to a settlement to resolve claims for an alleged brake defect in certain Nissan and Infiniti vehicles. The court was particularly troubled by a cap on reimbursements that resulted in some class members recovering only a fraction of their out-of-pocket costs, with “more than one-third of the claimants . . . receiv[ing] a $60 (or less) reimbursement of a $1,000 repair bill.” Id. at 19. The court also criticized the plaintiffs for not detailing the risks of further litigation in their papers, id. at 16, and for a low claims rate. Id. at 18-19.

How to avoid the problem faced by the plaintiffs in Banks? First, if the benefits must be tailored to a narrow class, aim for substantial benefits to each individual class member. As part of a settlement to resolve automotive defect claims, plaintiffs often negotiate nonmonetary relief—a repair program or extended warranty coverage on the defect—to protect a broad group of current car owners. See, e.g., Eisen v. Porsche Cars N. Am., Inc., No. 11-09405, 2014 WL 439006, at *7 (C.D. Cal. Jan. 30, 2014) (approving settlement that included extended warranty coverage and reimbursement). That apparently was not feasible in Banks, as the class vehicles were too old to be covered under warranty. Instead, the Banks plaintiffs reasonably tried to direct the settlement’s benefits to those with out-of-pocket losses—a smaller class. But courts are much more likely to approve a reimbursement program if class members recover a substantial proportion of their out-of-pocket losses. See, e.g., Browne v. Am. Honda Motor Co., No. 09-06750, 2010 WL 9499072, at *12 (C.D. Cal. July 29, 2010) (approving reimbursement of 50 percent of the costs class members previously incurred replacing their brake pads). In stark contrast, the Banks plaintiffs obtained much less remuneration for out-of-pocket losses, failing to overcome the court’s concern that some class members would be recouping only $20 out of $1,000 repair bill under the settlement reimbursement formula.

Second, in seeking final approval, plaintiffs should thoroughly evaluate the risks of further litigation, and explain those risks in detail in their settlement approval motions. This is an important factor for settlement approval. See Churchill Village, LLC v. General Electric, 361 F.3d 566, 575 (9th Cir. 2004). As the Banks decision underscores, courts will not credit generic recitations of an action’s risks in considering whether the settlement is fair to the class. See Banks, at 16.

Third, when a settlement involves a claims process, plaintiffs should make sure as many class members as possible are aware of the settlement’s benefits. For instance, plaintiffs should ensure that updated addresses, such as those maintained in the National Change of Address database, are used for the class notice. Depending on the facts of the case, a plaintiff may also have the class administrator conduct a skip-trace for addresses with undeliverable notices, have reminder postcards sent out, have the administrator host a dedicated settlement website, and/or contact class members directly to educate them on the settlement’s benefits.

The factors detailed above are just a few of many that the court will analyze when evaluating the fairness of a proposed class action settlement; class action practitioners should analyze and weigh these carefully.

Authored By:
Ryan Wu, Senior Counsel
CAPSTONE LAW APC