Considering the intersection of industry self-regulation and false advertising consumer class actions, the National Advertising Review Board agreed with the National Advertising Division that a court challenge to an advertiser's claims seeking financial recovery does not foreclose administrative review of the veracity of the same claims.

Unilever United States challenged claims made by The Colgate Palmolive Company for its Tom's of Maine "Naturally Dry" antiperspirant, such as "It really works. Naturally" and the name of a product itself.

Colgate responded with a procedural objection. It argued that the NAD should administratively close the case because the claims were the subject of litigation in Florida federal court, where a consumer had filed a false advertising lawsuit. In that case, the company agreed to pay $4.5 million to plaintiffs who alleged Tom's ran afoul of multiple state consumer protection laws and warranty statutes by using the term "natural" for various personal care products, including deodorant.

The NAD disagreed and Colgate appealed.

Section 2.2(B)(1)(b) of the Advertising Self-Regulatory Council (ASRC) Procedures provides that the NAD shall administratively close a challenge if the NAD "concludes that the advertising claims complained of are … the subject of … an order by a court." Colgate attempted to hang its hat on the Florida court's order signing off on the settlement agreement between the parties.

But a majority of the NARB panel reached the opposite conclusion, finding the language in Section 2.2(B)(1)(b) "to be ambiguous as to the degree to which the court order must relate to the challenged claims," the decision said. "For example, it is not clear whether this requires that the court evaluate the merits of the claims and/or direct action with respect to the claims."

The panel noted NAD precedent that the same provision requires the self-regulatory body "to carefully balance the need to avoid multiple and potentially conflicting findings from tribunals with the NAD's mandate to ensure that advertising is truthful and accurate in order to foster consumer confidence in advertising and create a level playing field for advertising."

With this in mind, the NARB said that the court order did not make any findings with respect to the claims challenged by Unilever and required no action other than what the parties agreed to in their settlement agreement, leaving the NAD free to consider the merits of the dispute.

"The NAD's exercise of jurisdiction poses no danger of multiple and potentially conflicting findings from tribunals because the class action was resolved without any findings as to the truthfulness or accuracy of the challenged claims," the panel wrote. "In essence, the settlement is an agreement between Tom's of Maine and the approved class of consumers, and the court's overall determination that the settlement was 'fair, reasonable and adequate' does not resolve questions about the truth or falsity of the claims challenged by Unilever and does not help to foster consumer confidence in advertising or create a level playing field for other advertisers."

Based on this analysis, a majority of the panel concluded that the NAD acted appropriately in deciding not to administratively close the case. One panel member believed that the language of Section 2.2(B)(1)(b) was sufficiently clear and supported a finding that the claims challenged by Unilever should have been administratively closed as the "subject of" the court order approving the class action settlement.

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

Why it matters: The NARB noted that the ASRC Procedures were drafted "long before the explosion of consumer class actions" and Section 2.2(B)(1)(b) was likely written without consideration of the issue presented in the case. Therefore, the panel recommended that the ASRC Board consider clarifying the provision "to more clearly state whether, or under what terms, a settled consumer class action should result in the NAD administratively closing a challenge that involves similar claims."