Supplement Manufacturer May Be Liable for Nutrition Claims Under California Consumer Protection Law

This posting was written by Jody Coultas, Editor of CCH State Unfair Trade Practices Law.

A supplement purchaser stated California consumer protection law claims against a supplement manufacturer for allegedly making false and misleading advertising statements, the federal district court in Oakland, California, has held.

The majority of the purchaser’s first amended complaint that the manufacturer falsely advertised its Muscle Milk Ready–To-Drink and Muscle Milk Bars was dismissed (CCH State Unfair Trade Practices Law ¶32,442).

The court found that the manufacturer’s use of the term “healthy” in its advertising was difficult to define and there was no evidence that the products actually contained unhealthy amounts of fat.

Healthy Energy, Good Carbohydrates

In the amended complaint, the purchaser presented statements made on the manufacturer’s products and website and television advertisements, specifically that the products contained healthy energy and good carbohydrates.

The second amended complaint contained allegations that relied on the Food, Drug, and Cosmetic Act and Food and Drug Administration (FDA) regulations. The borrowing from the regulations did not impose any unfair burden on the manufacturer and were allowed.

Statements made by the manufacturer that its products contained “Healthy, Sustained Energy” and “25g PROTEIN for Healthy, Sustained Energy” were actionable, according to the court. Although a healthy product is hard to define, the purchaser provided objective standards, such as the FDA requirements, that could be used as evidence that certain contents in the product were not healthful.

However, the statements “good carbohydrates” and “0g Trans Fat” were not actionable. There was no evidence that added sweeteners and sugar were not good carbohydrates or that the amount of trans fats was not in fact 0 grams.

The purchaser also met the reliance requirements of the consumer protection statutes by alleging that she saw and relied on the alleged misrepresentations on the manufacturer’s website and in its television ads.

The decision is Delacruz v. Cytosport, Inc., CCH State Unfair Trade Practices Law ¶32,500.

Nationwide Class Certification of California Ad Claims Vacated

This posting was written by William Zale, Editor of CCH Advertising Law Guide.

Certification of a nationwide class was vacated by the U.S. Court of Appeals in San Francisco in an action under California law asserting that Honda’s advertisements misrepresented the characteristics of a braking system.

California Unfair Competition Law, False Advertising Law, and Consumers Legal Remedies Act could not be applied to the entire nationwide class, and all consumers who purchased or leased an Acura RL automobile could not be presumed to have relied on the advertisements, the court held.

Variances in State Consumer Laws

The law of multiple jurisdictions applied to any nationwide class of purchasers or lessees, according to the court. Variances in state consumer laws overwhelmed common issues and precluded predominance for a single nationwide class.

Reliance on Advertising

Even if the class was restricted only to those who purchased or leased their car in California, common issues of fact would not predominate in the class as currently defined because it almost certainly included members who were not exposed to, and therefore could not have relied on, Honda’s allegedly misleading advertising, the court determined.

Honda’s product brochures and TV commercials fell short of the “extensive and long-term [fraudulent] advertising campaign” at issue in In re Tobacco II Cases (Cal. S. Ct. 2009), CCH Advertising Law Guide ¶63,423.

In the absence of a massive advertising campaign, the relevant class had to be defined in such a way as to include only members who were exposed to advertising that was alleged to be materially misleading, the court concluded.

The decision is Mazza v. American Honda Motor Company, Inc., CCH Advertising Law Guide ¶64,536.

Online Ticket Buyers Get Another Try at Class Certification in “Rewards” Cases

This posting was written by William Zale, Editor of CCH Advertising Law Guide.

Class certification was improperly denied in cases brought by online ticket purchasers asserting California consumer protection law claims that Ticketmaster participated in a deceptive Internet scheme to lull and induce ticket purchasers into unwittingly signing up for a fee-based “rewards” program, the U.S. Court of Appeals in San Francisco has ruled.

The operator of the Entertainment Rewards program, Entertainment Publications LLC, allegedly charged amounts to the ticket purchasers’ credit cards or directly deducted amounts from their bank accounts, all without specific authorization. Members of the program can download printable coupons for discounts at retail establishments.

Unfair Competition Law

Class certification was improperly denied on the theory that individualized proof of reliance and causation would be required to establish California Unfair Competition Law (UCL) claims, the court held. Relief under the UCL was available without individualized proof of deception, reliance, and injury, according to the court.

Each member of the proposed class would have suffered a concrete and particularized injury by being relieved of money in the alleged transactions, and the alleged loss was traceable to the actions of the defendants, the court determined. The denial of class certification as to the UCL claims was reversed and remanded. A ruling that two individuals who were not deceived into joining the rewards program could not act as class representatives was affirmed.

Consumers Legal Remedies Act

California Consumers Legal Remedies Act (CLRA) claims were improperly dismissed because the statutory 30-day notice provided by ticket purchasers setting forth the nature of the dispute and intent to seek damages did not expressly state that class action relief would be sought. The statute did not state that the threat of class action must be set forth, according to the court.

Dismissal of the CLRA claims was affirmed in two of the actions on appeal in which the proposed class of ticket purchasers was so broadly defined that material misrepresentations to the whole class could not be shown.

The August 22 opinion in Stearns v. Ticketmaster Corp. appears at CCH Advertising Law Guide ¶64,386.

Labeling, Advertising Food as “Healthy” Could Violate California Law

This posting was written by William Zale, Editor of CCH Advertising Law Guide.

Advertising Nutella® hazelnut spread as a “tasty yet balanced breakfast” was not mere puffery, and purchasers satisfied the reasonable consumer test under California consumer protection statutes in a suit against the food manufacturer Ferrero U.S.A., Inc., the federal district court in San Diego has ruled.

In a class action complaint, the purchasers alleged that Ferrero misleadingly labeled and advertised Nutella as healthy and beneficial to children, when in fact it contained dangerous levels of fat and sugar.

The purchasers’ complaint provided detailed lists of the challenged representations, the sections of the Consumers Legal Remedies Act (CLRA) that Ferrero allegedly violated, and a statement of how each section was violated. The purchasers stated a claim of unlawful conduct under the Unfair Competition Law (UCL) based on alleged violations of the False Advertising Law and the CLRA. The purchasers stated a claim of unfair conduct under the UCL by alleging that the misleading labeling of Nutella was immoral, unscrupulous, and offensive to public policy, and that the utility of the advertising and labeling was outweighed by the harm suffered by the purchasers.

Preemption

Federal law preempted an allegation that Ferrero deceptively omitted from its Nutella labeling the fact that it contained artificial flavoring, the court held. Food labeling was governed by the federal Food, Drug, and Cosmetic Act, as amended by the Nutrition Labeling and Education Act. Because Nutella’s label stated the fact that it contained vanillin, an artificial flavor, the label complied with the federal disclosure requirements, the court said.

Ferrero did not argue that the purchasers’ allegations regarding statements from its television advertisements were preempted.

Standing to Challenge Website Statements

The purchasers lacked standing to challenge statements on the Nutella website because, according to the purchasers’ allegations, they did not actually rely on the website statements before making their purchases, the court decided. The purchasers alleged that they only relied on representations from Nutella’s label and television advertisements in purchasing the product, and they admitted in their briefing that they had not visited the website.

The purchasers argued that they did not have to rely on individual website misrepresentations because the representations were part of a long-term, multifaceted advertising campaign, but the purchasers did not allege this in their complaint, the court noted. The purchasers were given 30 days to cure deficiencies in the complaint.

The June 30, 2011 opinion, In re Ferrero Litigation, 11-CV-205 H (CAB), will be reported at CCH Advertising Law Guide ¶ 64,349.

iPad Data Plan Fraud Claims Proceed Against Apple and AT&T

This posting was written by William Zale, Editor of CCH Advertising Law Guide.

Purchasers of 3G-enabled iPads can pursue claims of common law fraud against Apple and AT&T Mobility, but the purchasers failed to state claims under California consumer protection statutes, the federal district court in San Jose has ruled.

Apple’s and AT&T’s advertising, including statements by Apple CEO Steve Jobs, allegedly led the purchasers to believe that they would have the flexibility of switching in and out of an unlimited data plan based upon their monthly needs.

Apple began selling 3G-enabled iPads on or around April 30, 2010, and the firms’ allegedly promoted the flexible and unlimited data plan options up to June 2, 2010, when they announced that as of June 7, 2010, they would no longer provide an unlimited data plan.

Consequently, purchasers who initially opted for the limited data plan no longer have the option to switch in and out of an unlimited plan. Purchasers who had signed up for the unlimited plan were allowed to maintain it, but if they discontinued it they would not be allowed to switch back.

Bait and Switch

The purchasers asserted a classic “bait and switch” fraud scheme and claimed that they would not have purchased 3G-enabled iPads had they known that the firms would pull the flexible unlimited data option.

Contrary to AT&T’s contention, the purchasers alleged the “who, what, when, where, and how” of the fraud with the particularity required by the Rule 9(b) of the Federal Rules of Civil Procedure. The court found that the complaint set forth specific information that AT&T allegedly concealed—that it would almost immediately be canceling the unlimited plan and denying customers flexible access to such a plan, and that this was its intention all along.

The purchasers pleaded the element of reliance by repeatedly alleging that both Apple's and AT&T's statements were material to them and had they known that there would be no flexible unlimited data plan, they would not have purchased their iPad 3Gs, according to the court. The purchasers claimed that AT&T was aware of Apple's alleged misrepresentations, but did nothing to counter the statements, and even endorsed them, the court added.

California Consumer Protection Laws

The purchasers failed to allege a proper basis for restitution under the California Unfair Competition Law and False Advertising Law with regard to excess data plan charges incurred after the unlimited data plan was replaced. A damages claim under the California Consumers Legal Remedies Act was rejected because a required 30-day advance notice of violation was sent to Apple but not to AT&T. In addition, non-California residents who purchased their iPads outside of California lacked standing to assert claims under the statutes.

The purchasers’ claims under the California consumer protection statutes were dismissed with leave to amend.

The July 18 opinion in In re Apple and AT&T iPad Unlimited Data Plan Litigation will be reported at CCH Advertising Law Guide ¶64,337.

Further information regarding CCH Advertising Law Guide appears here.

Data Security Breach Supported Contract, Negligence Claims

This posting was written by Thomas A. Long, Editor of CCH Privacy Law in Marketing.

An individual could have sustained an injury in fact from the failure of a publisher and developer of online services and applications for use with social networking sites (“RockYou”) to secure and safeguard its users' sensitive personally identifiable information (PII), sufficient to support contract and negligence claims brought under California common law, on behalf of himself and a purported class of similarly situated persons, according to the federal district court in Oakland.

The individual failed, however, to allege actionable injuries in support of his claims that RockYou violated the California Unfair Competition Law, Computer Crimes Law, and Consumer Legal Remedies Act. The statutory claims were dismissed with prejudice.

Collection, Storage of Personal Information

The individual—a registered user who had given RockYou his e-mail address and password in order to sign up to use a photo sharing application—asserted that RockYou collected and stored millions of users' PII in a large-scale commercial database, in “clear” or “plain” text, with no form of encryption, so that the PII was readily accessible to anyone with access to the database.

RockYou allegedly was negligent by failing to store passwords in a “hashed” form or to use any other common and reasonable method of data protection.

In December 2009, RockYou disclosed to users that one or more hackers had illegally breached its database and acknowledged that, at the time of the breach, the hacked database had not been up to date with industry-standard security protocols.

Contract and Negligence Claims

With regard to the contract and negligence claims, the individual sufficiently alleged a general basis for the requisite injury or harm by alleging that the breach of his PII caused him to lose some ascertainable but unidentified value or property right inherent in the PII, the court said.

The claims were not automatically precluded by a provision of RockYou's privacy policy, which stated that RockYou assumed no liability for third-party breaches of its secure servers. The individual asserted that RockYou's servers were not, in fact, secure.

The individual's allegations did not, however, rise to the level of stating a breach of the implied covenant of good faith and fair dealing, the court decided. The alleged misconduct did not involve conscious or deliberate actions by RockYou.

Unfair Competition Law

Although the breach of his PII could constitute a general form of “harm,” the individual failed to allege any loss of money or property as a result of RockYou's conduct, as required for a claim under the California Unfair Competition Law, the court determined.

The individual's contention that his PII constituted “currency” strained the acceptable boundaries of injury under the Act. To the extent that the individual claimed that his PII was “property,” he could not establish that his PII was “lost,” for purposes of the Act. His e-mail login and password did not cease to belong to him or pass beyond his control.

Computer Crimes Law

RockYou’s alleged failure to secure and safeguard its users' sensitive personally identifiable information (PII) would not violate California’s Computer Crimes law, in the court’s view. The statute prohibited any person from knowingly and without permission accessing or providing a means for another to access a computer system or network.

RockYou was not a proper defendant under this provision, the court said. RockYou's alleged failure to utilize reasonable data security methods did not constitute “providing a means” for third-party hackers to illegally access RockYou's database.

Consumer Legal Remedies Act

The individual failed to allege that he was a “consumer” within the meaning of the California Consumer Legal Remedies Act. He did not “purchase or lease” any goods or services from RockYou, as required for CLRA standing. There was no authority supporting the individual's contention that the CLRA covered intangible forms of payment, such as the individual's PII, the court said.

The decision is Claridge v. RockYou. Inc., CCH Privacy Law in Marketing ¶60,620.

Web Users Fail to Allege Injury in Fact from Installation of “Flash Cookies”

This posting was written by Thomas A. Long, Editor of CCH Privacy Law in Marketing.

A purported class of web users bringing claims against online third-party advertising network Specific Media for installing “Flash cookies” on their computers without their knowledge or consent failed to allege an “injury in fact” resulting from Specific Media’s conduct, the federal district court in Los Angeles has ruled.

The users brought claims under the federal Computer Fraud and Abuse Act and California’s Computer Crimes law, invasion of privacy statute, Unfair Competition Law, and Consumer Legal Remedies Act.

The term “Flash cookies” refers to data called “local shared objects,” which are stored on a user’s computer and used by Adobe Flash Player media software. Such data files allegedly circumvent the privacy and security controls of users who had set their web browsers to block or to periodically delete conventional cookie files.

Economic Loss?

The complaining users asserted that Specific Media’s placement of Flash cookies on their computers caused them to sustain economic loss, in that their personal information had “discernible value.”

However, the users did not allege that Specific Media actually tracked their online activity, the court said. They asserted only that they believed the Flash cookies could be used as substitutes for previously deleted standard cookies and to “re-spawn” previously deleted cookies. Therefore, the users did not allege that they were specifically injured by Specific Media’s practices.

Even if they could allege that they were affected by Specific Media’s installation of Flash cookies, the users made only conclusory allegations of harm, according to the court. The argument that Specific Media’s practices caused the users to sustain damage to the economic value of their personal information was potentially valid in the abstract. However, the users would have to provide particularized details of the harm suffered.

For example, the users would have to explain how Specific Media’s conduct deprived them of the opportunity to engage in a “value-for-value exchange” for their information and how that deprivation caused the economic value of the information to be diminished.

Harm to Computers

To the extent that the users alleged that the Flash cookies caused harm to their computers, such harm would be de minimis and insufficient to confer Article III standing, the court said.

The court also expressed skepticism that the users could allege an injury involving the requisite $5,000 minimum in economic damages to support a Computer Fraud and Abuse Act claim, even in the aggregate.

Specific Media’s motion to dismiss the complaint was granted, with leave to amend.

The April 28 decision in La Court v. Specific Media Inc. will appear in CCH Privacy Law in Marketing.

Labeling on “Cobra Sexual Energy” Supplement Might Violate California Consumer Protection Laws

This posting was written by William Zale, Editor of CCH Advertising Law Guide.

A purchaser of the Natural Balance dietary supplement Cobra Sexual Energy asserted deceptive labeling claims under California consumer protection laws with the particularity required for pleading fraud, the federal district court in San Diego has ruled.

Natural Balance argued unsuccessfully that the purchaser’s claims failed to meet the heightened standards for pleading fraud prescribed by Rule 9(b) of the Federal Rules of Civil Procedure.

Deception, Reliance, Injury

Under the California Unfair Competition Law (UCL), False Advertising Law (FAL), and Consumers Legal Remedies Act (CLRA), conduct is deceptive or misleading if it is likely to deceive an ordinary consumer.

The purchaser articulated the “what” and “who” of the misconduct by identifying “Cobra Sexual Energy” and its labeling as the allegedly deceptive product and Natural Balance as its manufacturer and marketer, the court found. The purchaser provided the “when” by stating that she bought the product this year at a CVS Pharmacy. The purchaser stated the “where” and “how” by providing pictures of the product’s labels and listing each challenged statement with an explanation of why it was deceptive or fraudulent.

The purchaser asserted reliance and injury in fact by alleging that she suffered an economic injury because she paid more for the product than she would have absent the deceptive statements on its labels, which she read and relied upon in buying the product, the court determined.

Natural Balance's arguments about whether the labels contained adequate warnings and whether the labels contained misrepresentations raised questions of fact that should not be decided on a motion to dismiss, according to the court.

Puffery

The allegedly deceptive labeling did not constitute puffery, the court held. Generalized, vague, and unspecified assertions constitute mere puffery upon which a reasonable consumer cannot rely and are not actionable under the UCL, FAL, and CLRA.

The purchaser allegedly relied on statements including “Cobra Sexual Energy”; “aphrodisiac plants to enhance . . . sexual energy”; “scientifically blending select, high-quality herbs”; “offering specialty supplements that work”; and “proprietary formulas.”

This was not the rare situation in which the issue of puffery should be decided on a motion to dismiss, the court said.

Amount in Controversy

The purchaser satisfied the federal Class Action Fairness Act's amount in controversy jurisdictional threshold by alleging that the amount in controversy exceeded $5 million, even though the purchaser did not specify the amount of economic injury suffered by her and the proposed class, the court decided.

There was no evidence that the amount was pled in bad faith, and it was not obvious that this suit could not involve that amount, the court noted. The purchaser alleged that the class would include thousands of individuals who purchased the product throughout the United States.

The February 24 opinion in Peviani v. Natural Balance, Inc. will be reported at CCH Advertising Law Guide ¶64,201.

California Class Certified in Suit Over Dell Price Advertising

This posting was written by William Zale, Editor of CCH Advertising Law Guide.

In a suit against Dell Inc. under California consumer protection laws, a class was certified consisting of all citizens of the State of California who on or after March 23, 2003 purchased Dell-branded products advertised with a “Slash-Thru” price—a discount from a former sales price—via the Home & Home Office segment of Dell's website, the federal district court in San Jose has ruled.

Reliance

A key question was whether class members' reliance on Dell's allegedly false representations was susceptible to common proof.

In California, “a presumption, or at least an inference, of reliance arises wherever there is a showing that a misrepresentation was material,” under the California Supreme Court's 2009 decision In re: Tobacco II Cases (CCH Advertising Law Guide ¶63,423).

There was no dispute that the alleged misrepresentations were communicated to all class members, because the representations were made at the point of sale as part of a standardized online purchasing process, the court observed.

Dell's marketing expert contended that while some purchasers might attach importance to a discount off Dell's list price, others would base their decision on wholly unrelated factors. But, under California law, the purchasers did not need to establish that each and every class member based his or her decision on the represented discounts.

The purchasers' common evidence that the representations were material satisfied California's reliance presumption, as well as the federal class action requirement that issues of law and fact common to class members predominate over individual issues, the court determined.

Exclusions from Class

The court excluded from the class purchasers exposed only to Dell's starting “Starting Price” promotions and purchasers through the Small and Medium Business (SMB) segment of Dell's website.

The two named plaintiffs' exposure to alleged misrepresentations regarding a former sales price were not typical of the purchases made after Dell changed to “Starting Price” promotions in mid-2007, the court found. The named plaintiffs failed to satisfy the class action typicality requirement with respect to the later purchases.

As to purchases made through Dell's SMB segment, a purchaser of a large number of computers for a business, or even the purchaser of a single $20,000 commercial server, was unlikely to have a substantially similar purchasing experience as the purchaser of a single laptop for personal use.

It would be difficult to make the same inference of reliance regarding the relevant offers and alleged falsity in the context of Dell's SMB segment, the court said.

The opinion in Brazil v. Dell Inc. will be reported at CCH Advertising Law Guide ¶64,130.

Online Retailer Faces Class Action for Allegedly Negligent Rebate Ad

This posting was written by William Zale, Editor of CCH Advertising Law Guide.

An online purchaser established that class certification should have been granted on claims that online retailer Buy.com misleadingly advertised a $30 Connect 3D memory card with a $30 rebate, which Connect 3D failed to pay, a California appellate court has ruled.

The purchaser alleged negligent misrepresentation and violations of the California Unfair Competition Law and the California Consumers Legal Remedies Act (CLRA).

The class was defined in the purchaser's memorandum of points and authorities as all persons in the United States who purchased a Connect 3D product from Buy.com, Inc. that included a rebate offer and whose rebate submissions were approved for payment, excluding anyone who was paid a rebate by Buy.com.

The trial court erred by holding that the class was not ascertainable because of an inconsistency with the class definition in a proposed order, the appellate court held.

While relief under the CLRA was limited to proposed class members who bought products for consumer use, the class could be certified even though some members of the class were not consumers, according to the court.

Nationwide Class, California Law

Even though the proposed class was nationwide, common issues of law predominated, the court found. A California choice-of-law provision in Buy.com’s terms of use agreement was applicable. Buy.com was headquartered in California. The allegedly misleading rebate information on Buy.com’s website originated from California. The due diligence Buy.com allegedly failed to perform would have been performed in California.

Buy.com unsuccessfully contended that the purchaser's claims were vague. The purchaser alleged that every member of the class must have seen and relied on Buy.com's negligent misrepresentations that the rebate was available.

The decision is Kershenbaum v. Buy.com, Inc., CCH Advertising Law Guide ¶64,005.

Pop-up Ad Prior to Software Download Could Be Deceptive

This posting was written by William Zale, Editor of CCH Advertising Law Guide.

Online purchasers of McAfee antivirus software stated plausible claims under the California Unfair Competition Law (UCL) that they were deceived by a pop-up ad into inadvertently purchasing a third-party product, the federal district court in San Jose has ruled.

After completing their McAfee purchase, but before downloading the McAfee software, the purchasers clicked a “Try It Now” button in a pop-up ad. Doing so enrolled them in a non-McAfee $4.95 per month subscription product called “PerfectSpeed,” as they discovered later upon noticing charges on their credit or debit card statements.

Billing Information Transfer

The pop-up was the result of a partnering arrangement between McAfee and Arpu, Inc., a company that places online advertisements that enable the purchase of products with a single click, in this case using the purchasers’ credit card information transferred from McAfee, according to the class action complaint. The purchasers alleged that McAfee received an undisclosed fee for each customer who subscribed to Arpu’s services through the ad on McAfee’s site.

The purchasers alleged that McAfee transfers the confidential billing information of its customers without adequately disclosing (1) the nature of the services to which customers are subscribing, (2) the consumer’s commitment to pay recurring monthly fees for the service, (3) the terms and conditions of the subscription service, (4) the identity of the billing party, and (5) the manner by which the customer may cancel the service.

Fraudulent, Unfair Business Practice Claims

The purchasers’ complaint describing the allegedly misleading web pages and pop-up ad was specific enough to give McAfee the notice required by the heightened fraud pleading standard under Rule 9(b) of the Federal Rules of Civil Procedure, the court determined.

In asserting that McAfee’s business practices were fraudulent under the UCL, the purchaser’s basic contention was that the pop-up ad led consumers to believe that clicking on it was a necessary step to download the McAfee software. While noting that visual cues in the pop-up—such as a “30 DAY FREE TRIAL” notice—tended to undermine the purchasers’ claims, the court nevertheless concluded that the purchasers alleged facts sufficient to state a plausible claim for relief.

The purchasers also stated a claim that McAfee’s business practices were unfair under the UCL because the deception was unscrupulous and caused injury to consumers which outweighed its benefits, the court held.

The court rejected the purchasers’ claim under the California Consumers Legal Remedies Act (CLRA) that the sale or lease of the PerfectSpeed software was a sale or lease of “goods” or “services” under the act. While acknowledging that the decision was a close call, the court observed that the CLRA expressly limited “goods” to tangible chattels.

To the extent the purchasers argued that the PerfectSpeed subscription should be considered a service, they did not allege enough facts as to the nature of the services provided to allow the court to draw that conclusion. McAfee’s motion to dismiss the CLRA claim was granted with leave to amend.

The October 5 opinion in Ferrington v. McAfee, Inc., Case No.: 10-CV-01455-LHK, will be reported at CCH Advertising Law Guide ¶64,007.

AOL Users May Seek Injunction Barring Release of Internet Search Records

This posting was written by Thomas A. Long, Editor of CCH Privacy Law in Marketing.

California consumers could proceed with claims under that state’s Consumer Legal Remedies Act (CLRA) against Internet service provider AOL for unlawfully making public a database containing the Internet search records of more than 650,000 AOL members, the federal district court in Oakland has decided.

The consumers could pursue injunctive relief, although they failed to provide the requisite notice under the CLRA in order to pursue a claim for damages.

Misrepresentations

The consumers alleged that AOL made false representations in its privacy policy and other statements posted on AOL's website, which assured members that AOL would endeavor to maintain the privacy of their personal information. These allegations were specific enough to satisfy the requirements of Federal Rule of Civil Procedure 9(b), the court said.

The expectations of privacy fostered by these statements were material in terms of influencing AOL members' decisions whether to disclose sensitive information, in the court’s view. Accordingly, the consumers sufficiently pleaded causation for purposes of the CLRA.

The consumers adequately alleged that they sustained injury as a result of AOL’s conduct. “Damage” under the CLRA could encompass harms other than pecuniary damages, the court noted. AOL’s disclosure of highly sensitive personal information regarding its members—including names, addresses, credit card numbers, Social Security numbers, and medical information—was not something that members bargained for when they signed up and paid fees for AOL's service.

Injunctive Relief

The consumers could seek an injunction requiring AOL to:

(1) ensure that member search data does not appear as search results in Internet search engines;

(2) take all necessary steps to enforce a license to prohibit commercial and non-research use of members' search data;

(3) no longer store or maintain records associated with members' searches on AOL's search engine; and

(4) destroy all such records in its possession.

AOL allegedly engaged in a practice and policy of storing search queries containing confidential information and allegedly had taken no steps to ensure that such data would not be disclosed again in the future. Although AOL had pulled the leaked database from its website, the information already had been posted on a number of other public sites.

AOL allegedly did not attempt to retrieve this information or to prevent further republication. The consumers asserted that AOL continued to collect and disseminate the same types of data, the court said.

Damages

The CLRA requires plaintiffs to provide notice to the defendant of the alleged statutory violation and a demand to rectify the alleged violation within 30 days. There was no dispute that the consumers had failed to do so, according to the court.
The claim for damages was dismissed without prejudice, until 30 days or more after the plaintiff complied with the notice requirement. If AOL corrected the alleged wrongs or indicated that it would correct the wrongs within the 30-day period, it could not be held liable for damages.

Disposal of Records

The consumers failed to state a claim that AOL violated the California Consumer Records Act (CRA), the court determined. The CRA provided that businesses must take all reasonable steps to shred, erase, or otherwise destroy customer records that were no longer to be maintained and required businesses to maintain security procedures to protect consumers' personal information.

The CRA was inapplicable because it applied only when a business intended to discard records containing personal information. The alleged disclosure by AOL did not occur in the course of AOL's disposal of customer records, the court said.

The decision is Doe v. AOL LLC, CCH Privacy Law in Marketing ¶60,493.

Further information regarding CCH Privacy Law in Marketing appears here on the CCH Online Store.

Supplement Purchasers Allowed to Proceed with Unfair Competition Class Action

This posting was written by Jody Coultas, Editor of CCH State Unfair Trade Practices Law.

An order denying certification in a consumer’s California Unfair Competition Law (UCL) and Consumer Legal Remedies Act (CLRA) class action against the nutritional supplement retailer GNC was reversed because the trial court’s opinion was based on improper legal criteria and incorrect legal assumptions, according to a California appellate court.

Sale of a Controlled Substance

The consumer purchased an over-the-counter nutritional supplement containing androstenediol, a Schedule III controlled substance, from GNC. It is illegal to sell or possess a Schedule III controlled substance without a prescription, but the retailer failed to disclose that its product contained androstenediol.

The consumer (1) alleged that the retailer violated the UCL by selling the supplement in violation of the California Health and Safety Code and other state statutes and (2) sought restitution and injunctive relief. In June 2004, the action was coordinated with five other class actions in Los Angeles Superior Court.

According to the court, the UCL class action claim presented two predominant issues—whether the retailer’s sales were unlawful and whether the profits from those sales must be restored to the class.

Individualized Proof

In a UCL class action, once the named plaintiff shows that he suffered an injury-in-fact and lost money or property as a result of the unfair competition, no further individualized proof of injury or causation is required to impose liability against the defendant in favor of absent class members.

The trial court had erroneously assumed that individualized issues predominated because the court would need to determine whether the legality of the sale was material to each class member.

Misrepresentations

The consumer also alleged that GNC violated the CLRA by misrepresenting the source, sponsorship, approval, or certification of supplement and by misrepresenting that the supplements were of a particular standard, quality, or grade.

The consumer sufficiently alleged that a reasonable consumer would find the legality of a product important when deciding whether to purchase that product, according to the court. To state a CLRA class action, the consumer needed to show that all class members suffered some damage as a result of the alleged misrepresentation that the supplement was legal. Because these misrepresentations were made to class members, an inference of reliance arose as to the entire class.

The decision—Steroid Hormone Product Cases—appears at CCH State Unfair Trade Practices Law ¶31,995.