Retail and Consumer Products Law Roundup

Revocation? Think Again.

By Christine M. Reilly, Chair, TCPA Compliance and Class Action Defense | Diana L. Eisner, Associate, Litigation

On June 22, the U.S. Court of Appeals, Second Circuit issued what might be the most business-friendly Telephone Consumer Protection Act (TCPA) decision we have seen in a long time in Reyes v. Lincoln Automotive Financial Services.

The facts of Reyes tell an old, familiar story. Reyes leased a new luxury Lincoln in 2012 and provided his cell phone number in his lease application. The application included a provision that Reyes “expressly consent[ed]” to contact via “prerecorded or artificial voice messages, text messages, . . . and/or automatic telephone dialing systems.” Not long after he signed the lease, Reyes stopped making payments. Lincoln called Reyes many times to cure his default. Reyes claimed he mailed Lincoln a letter demanding that all calls to his cell phone cease, but the calls continued. In 2015, Reyes filed a TCPA lawsuit against Lincoln, seeking $720,000 in damages for the allegedly unlawful phone calls. The district court granted summary judgment in Lincoln’s favor, finding that Reyes failed to prove he revoked consent, and that regardless, the TCPA does not permit a party to a legally binding contract to unilaterally revoke bargained-for consent to be contacted.

Reyes appealed. The Second Circuit disagreed that Reyes failed to prove he revoked consent, but agreed that the TCPA does not permit a consumer to revoke his or her consent to be called “when that consent forms part of a bargained-for exchange.” The court distinguished prior authority by the Federal Communications Commission (FCC) and the Third and Eleventh Circuits, which held that consent under the TCPA can be freely revoked, by narrowing the issue to “whether the TCPA [] permits a consumer to unilaterally revoke his or her consent to be contacted by telephone when that consent is given, not gratuitously, but as bargained-for consideration in a bilateral contract” (emphasis added).

The Second Circuit reasoned that its sister circuits and the FCC “considered a narrow question: whether the TCPA allows a consumer who has freely and unilaterally given his or her informed consent to be contacted can later revoke consent.” In both the Third and Eleventh Circuit cases, the consent to be contacted was “not given in exchange for any consideration,” and was not incorporated into a binding legal agreement. The FCC’s 2015 Ruling relied on those two cases in holding that consent can be revoked at any time in any reasonable manner. By contrast, Reyes’ consent to be contacted was an express provision of his bilateral lease contract. Thus, his consent was not revocable. The Second Circuit found that ruling otherwise would impermissibly “alter the common law of contracts” without evidence Congress intended to do so.

Importantly, the court’s decision is grounded on the difference between “consent” in tort law and contract law. In tort, consent is generally a “gratuitous action,” and its effectiveness is extinguished upon termination. However, in contract, consent to another’s action can become irrevocable when provided in a legally binding agreement.

The decision will likely be appealed. The highly anticipated D.C. Circuit appeal of the FCC’s July 2015 Declaratory Ruling is expected as early as this summer. That appeal is also expected to address the FCC’s broad ruling on revocation of consent.

For now, businesses should consider reviewing their contracts and including a strong “consent to contact” provision. Not only could these provisions allow companies to continue collection efforts in the event of a default, even in the face of a purported revocation, but they also serve more fundamental purposes of ensuring consent is properly obtained in the first instance and in managing consumer expectation.

The TCPA Compliance and Class Action Defense team at Manatt will continue to monitor how this issue develops.

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FTC, Amazon Refund Consumers

By Richard P. Lawson, Partner, Advertising, Marketing and Media

The Federal Trade Commission (FTC) mailed almost $2 million to consumers for bogus weight loss products while Amazon launched the refund process as part of its deal with the agency in an action involving in-app purchases by children.

The agency announced that it sent 38,553 checks totaling $1.9 million (with an average payment of $49.66) to consumers who purchased Pure Health or Genesis Today green coffee bean extract supplements. Last year, the FTC sent refunds to 191,748 online purchasers with checks totaling $9,190,842.68, or an average payment of $47.93.

As part of a settlement, the defendants agreed to pay the refunds based on their unsubstantiated weight loss claims for their products, including that users could lose 17 pounds and 16 percent of their body fat in 12 weeks without diet or exercise. The defendants disseminated their false claims via fake websites designed to look like legitimate news sites, the agency alleged, as well as television programs like The Dr. Oz Show and The View.

In the Amazon action, the refunds were based on unauthorized in-app charges incurred by children. More than $70 million in charges incurred between November 2011 and May 2016 may be eligible for refunds, the FTC noted.

The agency reached a deal with Amazon earlier this year where both parties agreed to drop their appeals of a Washington federal court’s grant of summary judgment in the FTC’s favor. The settlement followed similar agreements with other tech companies (see https://www.manatt.com/insights/newsletters/advertising-law/ftc,-apple-reach-$32-5m-deal-over-in-app-purchases#Article5 and https://www.manatt.com/insights/newsletters/advertising-law/complimentary-tcpa-update-webinar-the-year-in-rev#Article1) in similar suits.

To read about the green coffee bean extract supplement refunds, click here.

For details about the Amazon refund process, click here.

Why it matters: The sizable settlements in the in-app purchase actions (up to $70 million in refunds from Amazon, $32.5 million from Apple and $19 million from Google) reiterate the importance of obtaining express consent before placing charges on consumers’ credit or debit cards, while the additional refunds in the green coffee bean cases serve as a reminder about the FTC’s continued focus on weight loss claims.

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For $27.5M, Burlington Settles Deceptive Pricing Suit

By Jeffrey S. Edelstein, Partner, Advertising, Marketing and Media

Burlington Coat Factory agreed to pay $27.5 million to settle a deceptive pricing suit filed in California federal court.

Reflecting the current trend of consumer class actions challenging the advertising for discount pricing, James Horosny asserted that the national retailer misled consumers with the use of “Compare at” reference prices in relation to an “Our Low” price point. The price tags tricked consumers into believing they were receiving a bargain price for the same merchandise sold at higher prices by other retailers, the plaintiff alleged.

The complaint alleged Burlington violated various state laws as well as the Federal Trade Commission Act.

After the court denied the defendant’s motion to dismiss, the parties reached an agreement. An estimated 3.7 million class members—defined as those who purchased one or more product(s) that were advertised with a “Compare at” price and an “Our Low” price between July 1, 2011, and January 26, 2017, at a California store or shipped to a California address—will each receive a $7.50 merchandise credit.

Class members are entitled to receive only one merchandise credit regardless of the number of alleged violations, and the credits may be redeemed only for in-store purchases in California or online purchases. The credits, which do not expire, may also be redeemed for $5 cash.

On top of the merchandise credits, the settlement fund provides for $10,000 in plaintiff incentive fees, up to $927,500 in attorneys’ fees and costs, and up to $1,137,000 in claims administration fees.

In addition to the monetary payout, Burlington agreed to post disclosures about the basis for its “Compare at” pricing practices both in stores and on its website, hold at least one training for its buyers to review pricing practices, and conduct an audit of its pricing practices for goods sold in its California stores.

To read the settlement agreement in Horosny v. Burlington Coat Factory of California, LLC, click here.

Why it matters: Deceptive pricing suits are the hot new trend in consumer class actions, and the sizable deal in the Burlington case will certainly not discourage plaintiffs from bringing more lawsuits.

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NAD Recommends That a Coffee Brand Discontinue Its Environmental Claims

By Jeffrey S. Edelstein, Partner, Advertising, Marketing and Media

After considering environmental benefit claims made by Kauai Coffee Co., the National Advertising Division recommended that certain ads for the company's single-serve coffee pods be discontinued.

The self-regulatory body requested that the company substantiate its express claims such as "Don't trash the Earth with your coffee. Brew & Renew," "Kauai Coffee comes in newly certified 100% compostable pods that work in all K-Cup brewers," and "Now you can enjoy the great taste and convenience of single-serve coffee without worrying about the environmental impact. Our certified 100% compostable pod is compatible with all K-Cup brewers and is designed to go back to the land—not the landfill."

In addition, the NAD evaluated implied claims that Kauai Coffee pods are compostable in a home compost pile and that the environmental benefits of the pods are significant.

The advertiser provided certification from the Biodegradable Products Institute (BPI) for its "certified 100% compostable claim" and argued that the elimination of the more traditional, plastic format of single-serve coffee "is both [an] evident and significant" benefit.

While the NAD appreciated Kauai Coffee's efforts to develop new types of product packaging, it found that the advertiser's claims failed to include the "significant limitation" that the products are only compostable in industrial facilities. The print advertisement featured the "complete absence of any disclaimer indicating that the 'certified 100% compostable pods' are only compostable in industrial facilities," the NAD wrote.

"Although this significant limitation appears in a barely legible font on the photo of the Kauai Coffee box, and in a similarly tiny font within the BPI certification seal itself, the phrase 'compostable in industrial facilities' does not modify the main claim, nor is it sufficiently clear and conspicuous such that consumers will notice, read and understand it," the self-regulatory body said. A reference in the ad to "Learn more at coffeecomposting.com" was insufficient, as the NAD has consistently held that consumers should not have to search to learn more about the limitations of an advertising claim.

The print ad was particularly problematic given the audience targeted by the advertiser: mainly senior citizens, who may have impaired vision and are less likely than a younger population to notice important disclosures.

In harmonizing its decision with the FTC's Green Guides, the NAD found the advertising also overstated the environmental benefits of Kauai Coffee's products. "The advertisement boldly presents the Kauai coffee pods as an alternative to the 'Over 11 Billion K-CUPS [that] go into America's landfills each year,' however there was no evidence in the record quantifying the actual reduction (or potential reduction) of solid waste from the use of Kauai compostable coffee pods," the NAD wrote, and "given the fact that industrial facilities do not currently exist in the majority of communities, the environmental benefits are significantly overstated."

The NAD recommended the advertiser discontinue or modify the advertisement to include the language "Compostable in industrial facilities. Check locally, as these do not exist in many communities. Not certified for backyard composting."

To read the NAD's press release about the decision, click here.

Why it matters: "While manufacturers of single-use food service products should certainly be permitted, and even encouraged, to educate consumers about their innovations in the arena of disposable products, it is equally important that the benefits of such products be promoted in a responsible manner that does not overstate what has been proven by scientific evidence," the NAD wrote. In addition to obeying the requirement that advertising be truthful, accurate and nonmisleading, marketers should ensure that they comply with the FTC's Green Guides and avoid overstating the environmental benefits of their products.

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RI Court Permits Suit Based on Medical Marijuana Use

Why it matters

For employers concerned about the impact of the growing number of states legalizing marijuana use, a recent decision from a Rhode Island court is worth reading. When applying for a paid internship, Christine Callaghan disclosed that she had a medical marijuana card and would not pass Darlington Fabrics Corp.’s required pre-employment drug test. Callaghan sued when she was not hired, alleging discrimination under the state’s disability law as well as the medical marijuana statute. Relying on language in the statute that nothing in the law “shall be construed to require … [a]n employer to accommodate the medical use of marijuana in the workplace,” the employer moved for summary judgment. But the court sided with the plaintiff.

Implying a private right of action from the state’s medical marijuana statute, the court said employers cannot refuse to hire a medical marijuana cardholder even if the applicant would fail a drug test, because the law prohibits the refusal to employ a worker due to his or her status as a cardholder. Further, Callaghan’s disability claims survived because she could demonstrate discrimination against a class of disabled people (those with disabilities best treated by medical marijuana). Finally, the court held the Controlled Substances Act did not preempt the action. While marijuana laws vary from state to state, employers should prepare themselves for the issue to be raised in other jurisdictions.

Detailed discussion

A master’s student studying textiles at the University of Rhode Island, Christine Callaghan sought an internship as a requirement of her program, applying at Darlington Fabrics Corp. During a meeting with a human resources coordinator, Callaghan disclosed that she held a medical marijuana card, authorized by the state’s Edward O. Hawkins and Thomas C. Slater Medical Marijuana Act (the Hawkins-Slater Act).

She signed a statement acknowledging that she would be required to take a drug test prior to being hired, and during a later phone conversation indicated that she would test positive on her drug screening. Darlington later informed Callaghan that the company was “unable to hire her.”

Callaghan then filed suit alleging employment discrimination in violation of the Hawkins-Slater Act, and the parties filed cross motions for summary judgment. Considering a matter of first impression, Rhode Island Superior Court Judge Richard A. Licht granted summary judgment in favor of Callaghan.

The first question for the court: Does the Hawkins-Slater Act provide a private right of action through which Callaghan could seek relief? The statute—which states in Section 21-28.6-4(d), “No school, employer, or landlord may refuse to enroll, employ, or lease to, or otherwise penalize, a person solely for his or her status as a cardholder”—does not provide an express private right of action.

But the court determined that such a right exists. Although state courts are hesitant to imply private rights of action, Judge Licht said that without an enforcement mechanism, the Hawkins-Slater Act would be devoid of any purpose, inefficacious or nugatory. The law does not list any penalties for violations, and no state department was granted authority to administer its mandates. “[W]ithout a private right of action, Section 21-28.6-4(d) would be meaningless,” the court said.

Having established the plaintiff’s ability to bring suit, the court then considered the relevance of Section 21-28.6-7(b)(2), which states: “Nothing in this chapter shall be construed to require … [a]n employer to accommodate the medical use of marijuana in any workplace.” Darlington pointed to this language to argue it could not be liable for its refusal to hire Callaghan.

But the court was not persuaded. “The natural conclusion is that the General Assembly contemplated that the statute would, in some way, require employers to accommodate the medical use of marijuana outside the workplace,” Judge Licht wrote, undermining the defendant’s argument that its actions did not violate the statute by refusing to hire Callaghan based on her inability to pass a drug test.

Reading the statute broadly, as required, “this Court gleans that the Hawkins-Slater Act provides that employees cannot refuse to employ a person for his or her status as a cardholder, and that that right may not be denied for the medical use of marijuana,” the court wrote. “If the Court were to interpret Section 21-28.6-4(d) as narrowly as Defendants propose, Plaintiff and other medical marijuana users would be lumped together with nonmedical users of marijuana. The protections that Section 21-28.6-4(d) affords would be illusory—every medical marijuana patient could be screened out by a facially-neutral drug test.”

Applying this standard to the facts of the case, the court said Darlington violated the Hawkins-Slater Act and granted summary judgment in Callaghan’s favor.

The court did add one final note about federal preemption, writing that the Controlled Substances Act did not preempt the Hawkins-Slater Act. Employment law and antidiscrimination law are two examples of powers traditionally delegated to the states, Judge Licht said, finding the purpose of the CSA to be “quite distant” from this realm.

“To read the CSA as preempting either the Hawkins-Slater Act or [state antidiscrimination law] would imply that anyone who employs someone that violates federal law is thereby frustrating the purpose of that law,” the court wrote. “That connection must, at some point, be deemed too attenuated.” Further, Congress is well aware of the various states’ medical marijuana laws and has even passed an amendment preventing funds from being used to hamper the states from implementing them, “a direct and unambiguous indication that Congress has decided to tolerate the tension, at least for now, between the federal and state regimes,” the court said.

Further, Congress is well aware of the various states’ medical marijuana laws and has even passed an amendment preventing funds from being used to hamper the states from implementing them, “a direct and unambiguous indication that Congress has decided to tolerate the tension, at least for now, between the federal and state regimes,” the court said.

To read the decision in Callaghan v. Darlington Fabrics Corporation, click here.

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App User Sent ‘Invite Friends’ Texts, California Court Rules

By Christine M. Reilly, Chair, TCPA Compliance and Class Action Defense | Diana L. Eisner, Associate, Litigation

Text messages initiated by a user inviting friends to use a fashion-themed mobile app were not actionable against the operator of the app, a California federal court judge has determined.

Christopher Reichman alleged that Poshmark, a mobile app that allows users to browse, buy and sell clothing and accessories, sent him two text messages in 2015 inviting him to view and buy certain items. But the defendant countered that the texts were initiated and sent by Tricia Tolentino, a registered user of Poshmark and friend of Reichman.

Tolentino listed several clothing items for sale and then navigated to the “Find People” page, where she opted to have Poshmark send invitations to the contact list stored on her mobile device. Listed among Tolentino’s contacts, Reichman received a text message containing an invitation “to view and buy the wares now being sold through Poshmark” along with a link to Tolentino’s “closet.” One week later, Tolentino repeated these steps and Reichman received a second message from the app.

He then sued Poshmark, alleging the app violated the Telephone Consumer Protection Act (TCPA). The defendant responded with a motion for summary judgment, arguing that it did not “make” the invitational text messages.

In determining whether an app or its user is the maker of a call, U.S. District Court Judge Dana M. Sabraw looked to the Federal Communications Commission’s 2015 Declaratory Ruling and Order, where the agency considered different scenarios presented in the petitions of various messaging apps.

One of those app providers, TextMe, required several affirmative steps on the part of a user in order to send invitational text messages, leading the FCC to conclude that the user, not TextMe, was the maker of the text message.

Analogizing to the TextMe petition, the court explained that before a text message was sent by the app, Tolentino granted the app permission to access her contact list, tapped the “Find People” button, chose the “Find friends from your contacts” option, determined to invite all her contacts (as opposed to selecting specific contacts) and chose to send the invitational message by selecting the “Invite All” button.

“Based on these affirmative steps, it is apparent that Ms. Tolentino, not Defendant, took the action necessary to send the text messages,” Judge Sabraw wrote. “Had Ms. Tolentino decided not to take any of these steps, a text message would not have been sent to Plaintiff.”

Reichman tried to rebut this conclusion by telling the court that genuine issues of material fact remained, such as whether Poshmark adequately informed its users of the method in which invitational messages would be sent. But the defendant offered evidence demonstrating that the app indicates to users whether invitees will receive the invitational message by text or email, the court said, displaying a phone number or email address under each individual’s name depending on the method of contact saved in the user’s device.

“As a result, it is apparent to users that if they decide to invite a contact whose telephone number appears, then an invitation will be sent by text message rather than by e-mail,” the court wrote. “In any event, whether Defendant informed its users regarding the method of invitation (text or email) is not material to determining who ‘makes’ a call under the TCPA.”

The court granted Poshmark’s motion for summary judgment.

To read the order in Reichman v. Poshmark, click here.

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