Advertising Fraud Class Actions Lower Bar for Consumer Cases
What if I told you that suing companies doesn’t necessarily require you to prove damages or find an injured client? By identifying everything as advertising fraud, lawyers can take anything—a watchdog report, a new or vague FDA regulation, a distant report of actual injuries—and turn it into a class suit.
The ease of advertising fraud claims has led to skyrocketing numbers of suits. A proposed New York law would make them even easier.
The model of a consumer fraud lawsuit is simple: A company makes a claim about its product, consumers buy the product because of the claim, but the claim was unsupported—if not downright misleading—so consumers sue to get their money back.
For example, in 2008, makers of the herbal supplement Airborne paid a $23 million settlement to customers who purchased the product because of false claims that it could prevent colds. Reasonable enough.
The success of this model now drives a booming industry. By one estimate, class consumer fraud suits in New York trebled between 2017 and 2021. This isn’t the result of a sudden spike in commercial misinformation. Instead, plaintiffs’ lawyers are increasingly converting other kinds of litigation into advertising fraud lawsuits.
Rather than pursue individual personal injury claims, for example, consumers sued a cosmetics company for mislabeling its face masks, claiming the company labeled them as suitable for the skin when they caused skin irritation for some consumers.
Consumers also enforce FDA labeling laws, with scores of lawsuits over tiny deviations from complex regulations. For instance, one current suit targets the maker of the beverage Emergen-C over whether its “natural flavors” claim is false if the product contains malic acid.
A new trend is to use advertising fraud to sue over the presence of chemicals in products—for example, lead in dark chocolate. A decade ago, these suits would have been brought under California’s Proposition 65, which allows consumers to sue if a product contains certain chemicals without displaying a Proposition 65 warning. But such lawsuits are technical and require that the attorney hire an expert pre-suit. Advertising lawsuits have no such barriers to entry.
These new suits generally rest on vague and conclusory allegations that the companies falsely or intentionally mislabeled their products. For example, the dark chocolate sellers made no explicit claims about the chemical makeup of their product. Indeed, no sane chocolate company would advertise its candy as lead-free.
Multiple lawsuits against the outdoor company REI alleged that its waterproof gear was misleadingly labeled as “sustainable gear built to last” because it contained PFAS chemicals. The lawsuits contain no specific allegations that REI knew its products contained PFAS or set out to deceive consumers. Also, there’s no evidence that consumers connect sustainability or manufacturing quality with an absence of PFAS chemicals.
But the lures of advertising fraud lawsuits to plaintiffs’ attorneys are strong. For one, such suits require little pre-suit investigation. The dark chocolate lawsuits came on the heels of a Consumer Reports article describing lead and cadmium in these products. Similarly, an article by the laboratory Valisure inspired a cottage industry of lawsuits about benzene in dry shampoo.
It’s also simple to find clients. The named plaintiffs in advertising fraud lawsuits only must claim that they bought a product with a certain understanding. The plaintiffs don’t allege they were physically hurt by the product, even when they complain about the presence of harmful chemicals. Such claims are easy to make and hard to disprove.
And because “damages” are measured by the consumer’s outlay of cash, it’s easy to package these lawsuits as class actions: Each consumer suffered the same alleged injury. By contrast, class actions over physical injuries are difficult to certify because personal injuries are individualized.
The popularity of advertising fraud lawsuits comes at a cost for companies. Although individual damages are small—the price of the product—class-wide damages can be ruinous. Companies thus face an uncomfortable choice when hit with a demand letter or suit: settle quickly or spend hundreds of thousands (or millions) of dollars litigating a case with an uncertain outcome. Either way, they pass the costs onto consumers through higher prices.
Courts have recently pushed back against advertising lawsuits where the plaintiffs haven’t suffered any obvious damages. A class action against a cosmetics company was dismissed for the plaintiff’s lack of damages where none of the plaintiffs claimed to have gotten sick from the product. The Third Circuit upheld the dismissal. A suit against Unilever in Illinois over toxic substances in hair products was recently dismissed for similar reasons. The Ninth Circuit has displayed an increasing willingness to sign off on early dismissals in advertising lawsuits.
However, a proposed New York law would make advertising fraud lawsuits easier. The Consumer and Small Business Protection Act would allow consumers to sue over vague “unfair” or “abusive” practices. It would increase statutory penalties from $50 to $1,000 and permit advocacy groups to sue, rather than just consumers.
Such a law would not only cost businesses and consumers, but also remove the last fig leaf that consumer advertising litigation is driven by confused consumers rather than the simplicity of the model itself.
"Advertising Fraud Class Actions Lower Bar for Consumer Cases," by Erica R. Graves was published in Bloomberg Law on May 24, 2023.
Reproduced with permission. Published May 24, 2023. Copyright 2023, Bloomberg Industry Group, 800-372-1033. For further use please visit bloombergindustry.com/copyright-and-usage-guidelines-copyright/.