Prepare for Product Labeling Class Action Now , Part I

This article is part one of a two-part examination of product labeling class actions.

Be prepared . . . “for any old thing,” advised Boy Scouts of America founder Robert Baden-Powell. Over 100 years later, those words are more than insightful scoutcraft recommendations. In today’s burgeoning consumer fraud/product labeling class action environment, they are a mandate for companies’ management, in-house counsel, and marketing departments that want to survive the sharp uptick in suits premised upon consumer product labels’ language, such as “organic,” “natural,” “healthy,” “clinically proven,” and “pure.” Sunscreen, yogurt, cereal, baby shampoo, deodorant, orange juice, milk, soap, toothpaste, vitamins, margarine, sneakers, granola bars, baby food, ice cream, diet margarita drink mix, bottled water, cosmetics—even cranberries and cat litter—have been targets. Labeling litigation has indeed, grown to encompass “any old thing.”

Spiking over the past two years, product labeling class actions invoke state consumer protection statutes (usually in New Jersey or California) and allege that an advertisement’s or label’s language is false, misleading, or deceptive, and that consumers would not have purchased the item without it. Plaintiffs seek compensatory damages (e.g., purchase price, trebled in many states), the value difference between the as-received and as-advertised product, attorneys’ fees, and various equitable relief (e.g., changes to labels and ads). For nationwide classes, the alleged damages could be crippling to many companies.

While companies cannot block these filings outright, here are a few issues that general counsel should be thinking about—now—in order to better position the organization, should it become a defendant:

E-Discovery

An ounce of prevention is worth a pound of cure—Benjamin Franklin’s advice rings true as ever in litigation’s digital age. Pre-suit e-discovery preparation is preferable to post-suit scrambling to locate relevant e-data. An adverse inference sanction for e-discovery missteps can ring a case’s death knell, even if the substantive or class action defenses have merit. In a product labeling class action context, e-discovery involves a number of significant considerations:

• Removal: To remove a plaintiff’s state case to federal court (i.e., most defendants’ preferred venue) under the Class Action Fairness Act of 2005 (28 U.S.C. Sections 1332(d), 1453, and 1711-1715), defendants must file for removal within 30 days after receiving service of the complaint (28 U.S.C. 1446(b)), and the amount in controversy must exceed $5 million. Knowing where the sales data are for a given product with the particular label language at issue (and for the pertinent state[s] and class period at issue)—and how to access this information quickly—is imperative.
• Hold Trigger: Keep in the company’s fold experienced outside counsel who are well-versed in the pertinent states’ laws, especially as to when document-preservation obligations arise (e.g., cease routine e-record destruction and preserve hard-copy documents). For example, the duty to preserve evidence almost everywhere arises “when a party reasonably believes that litigation is foreseeable” and may arise many years before litigation commences. Consumer-plaintiffs often file private lawsuits after seeing Food and Drug Administration (FDA) warning letters or Federal Trade Commission (FTC) action against companies, products, or labels posted on agency websites. Since plaintiffs so frequently piggyback private class actions after FDA or FTC web postings, query whether governmental agency action within the food industry could trigger the litigation hold duty before a complaint or subpoena is even received.
• “Predominance”: Opposing certification of class action consumer fraud product labeling claims almost always involves arguments that individualized questions of law or fact unique to each class member predominate over common ones, thereby failing Fed. R. Civ. P. 23(b). To equip their certification opposition arsenal, a company should retain in a systematic and defensible manner the documents that illustrate differences in consumers’ individualized exposure to and reliance upon its labels and advertisements—which can vary across the board in significant ways, including: the content, time period, and geographic reach of TV and radio commercials for the product at issue; the content and time period of website ads for the product; and the specific language and timeframe of specific product labeling. In other words, not every proposed class member might have been exposed to the same ads and labels. Variations across print and television advertising, labels, websites, and other communications suggest absence of Rule 23 predominance. Moreover, specificity-in-pleading requirements like that of Fed. R. Civ. P. 9(b) require complaints to say which particular labels and ads class members saw and when; deficient pleadings are subject to motions to dismiss. Of course, effective use of these strategies depends upon retaining a company’s substantive history of ads and labels.
• Organizational Knowledge: Effective record retention policies will keep institutional knowledge alive no matter how often employees move on. Defensible e-discovery practices consider, for example: (1) The files of employees who have transferred departments within the company but know all successive iterations of the relevant time period’s labels and TV, radio, Internet, and print ads for a challenged product. Such knowledge can provide a keyword list to run searches for relevant e-discovery in the corporation’s records (i.e., the adjectives in various versions of ads about the challenged product). (2) The files of employees who have left the company but knew about previous scientific studies undertaken by the company that would substantiate the claims on a challenged label. (Counsel should also be involved in the regular and consistent pre-suit practice of maintaining the records on which labels are based, to more efficiently demonstrate those practices were in place as of the times the labels were used.)
• Costs: The costs of getting to the e-discovery finish line can be large, but consulting with e-discovery and consumer fraud class action outside counsel who know the current law in your jurisdiction is indispensable. See, e.g., Boeynaems v. LA Fitness International, LLC, 285 F.R.D. 331 (E.D. Pa. 2012) (holding that plaintiffs who were seeking broad e-discovery regarding class certification issues should share in the production costs because “discovery burdens should not force either party to succumb to a settlement that is based on the cost of litigation rather than the merits of the case”).    

Be Proactive, Not Reactive