Did the use of a hashtag cause Sensa Products, a weight loss company, to commit fraud and to breach its contract with celebrity endorser and Academy Award-winning actress Octavia Spencer? According to the complaint filed by Spencer in Los Angeles Superior Court, the answer is yes.

Shortly after winning the Oscar for Best Supporting Actress in February 2012 for her role in The Help, actress Octavia Spencer entered into an endorsement agreement with Sensa, the maker of a weight loss system that Spencer had used to lose five pounds. Sensa agreed to pay Spencer $1.25 million over a one-year period for which she agreed to make at least two social media posts per month; schedule various appearances at media tours; produce sound bites; and sit for photo and video shoots.

According to the complaint, Spencer turned down a $3 million offer from one of Sensa’s competitors because Sensa agreed to emphasize that Spencer was interested in living a “healthier lifestyle” – not just significant weight loss. Spencer also claimed she pushed for a change from prior ad campaigns, which relied upon advertorials and editorials in tabloid magazines that focused on extreme weight loss.

As part of her endorsement agreement, Spencer promised to comply with all applicable laws relating to her social media efforts, including the Federal Trade Commission Guidelines concerning the use of endorsements and testimonials in advertising (i.e., including disclosure language such as #SPON).

In her complaint, Spencer contends that she kept up her end of the bargain by using good faith efforts to participate in Sensa’s marketing campaign. She also posted tweets such as “Just had the best breakfast meatless sausage, banana pancakes, sensa! @Sensa Weightloss!!!!! #spon” and “thanks @Sensa Weightloss! Losing weight never tasted so good! #flourlesschocolatecake #spon.”

According to Spencer, the Sensa team informed her and her team in April 2013 that the ad campaign “was not living up to expectations” and that sales had not been good since Spencer’s endorsement began. Sensa indicated that its research showed that many consumers did not recognize Spencer, or did not perceive that she had lost weight. In addition, they also told her that her social media posts “generally received less likes than the brand saw with their normal posts,” and that the company felt that her use of “#spon” at the end of her tweets, which she believed to be a requirement of both the Agreement and FTC guidance, was detrimental.

In the complaint, Spencer describes five occasions where Sensa executives requested that she remove “#spon” from her tweets and alleges that when the company provided copy for her tweets, it omitted the “#spon.” “Not wanting to breach her Agreement, FTC regulations or her talent agency’s custom and practice, Spencer’s re-tweets contained the ‘#spon’ language,” according to the complaint.

The relationship between the parties continued to deteriorate. Sensa reportedly failed to pay Spencer for multiple months of her contract before issuing a termination letter in early August. Spencer claims that the company then “fabricated an after-the-fact breach of the endorsement deal,” in which “Sensa alleged that Spencer’s failure to get a half dozen tweets pre-approved by Sensa, and Spencer’s insistence to add ‘#spon’ at the end of her tweets, as required by the Agreement and the FTC, constituted a material breach of the Agreement, was bad faith and led to a significant loss in sales for Sensa.”

Spencer seeks compensatory damages with interest, costs, and punitive damages for breach of contract, breach of the covenant of good faith and fair dealing and fraud.

To read the complaint in Spencer v. Sensa Products LLC, click here.

Why it matters: The FTC’s updated Guides Concerning the Use of Endorsements and Testimonials in Advertising took effect in December 2009 and apply to social media, word-of-mouth marketing, and other promotions and advertising in which consumers or celebrities speak on behalf of companies. In an FAQ document offering guidance, the agency noted that celebrity endorsers can now be liable for false or unsubstantiated claims made in their endorsements, or for a failure to disclose material connections between the advertiser and endorser. The FTC notes that when making disclosures on Twitter – where messages are limited to 140 characters – hashtags such as “#paidad,” “paid,” or “ad” are sufficient. Spencer’s suit highlights the Catch-22 of complying with the Guides: while advertisers and their endorsers are required to designate paid tweets or other sponsored social media, consumers may be less apt to be engaged or interested in such communications, leading to fewer “likes” or less of a social media presence.