Two attorneys from the Michigan-based 1-800-LAW-FIRM recently filed a class action lawsuit against Lady Gaga and her corporate partners in connection with the promotion and sale of wristbands to benefit victims of the March 2011 earthquake and tsunami in Japan.
"We Pray for Japan" wristbands are available for purchase for $5 through Lady Gaga's official website, which represents that "all proceeds go directly to Japan relief efforts." The plaintiff, on behalf of herself and all others who purchased a wristband, claims that the defendants retained a portion of the $5 donation; inflated reports of the total amount donated; imposed shipping charges in excess of the amount required to ship the items (and kept that excess amount for themselves); and wrongfully taxed the donations. Companies engaged in commercial co-ventures - the offering of a product for sale in connection with a donation to a charitable organization - and cause marketing campaigns should track the case and consider whether to make adjustments to their own campaigns.
The complaint, filed in the U.S. District Court for the Eastern District of Michigan, alleges violations of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), violations of the consumer protection statutes of all 50 states and the District of Columbia, and unjust enrichment. Specifically, the plaintiff claims that:
- the wristband "enterprise" constitutes a pattern of racketeering activities in which the defendants conspired to engage, in violation of RICO;
- the misrepresentation that all proceeds from the sale of the wristbands would be given to the Japan relief effort constitutes deceptive, unconscionable, unfair, fraudulent, and misleading practices, and thus violates the consumer protection statutes of all 50 states and D.C.; and
- charging excess shipping costs and charging and retaining sales tax on the transaction unjustly enriched the defendants.
The complaint seeks injunctive relief and over $5 million in damages and demands a jury trial.
A representative for Lady Gaga called the lawsuit "misguided" and "without merit," and reassured that the entire $5 donation supports tsunami relief, that the defendants are not profiting from the shipping costs, and that the sales tax is imposed in accordance with local legal requirements.
The Big Picture
The number of celebrity-created charities likely has increased in recent years, and many have been accompanied by heightened scrutiny. The media are quick to criticize when charitable intent fails to come to fruition or encounters unforeseen problems, as occurred when Madonna and Oprah attempted to found schools in Malawi and South Africa, respectively. Additionally, it was reported that IRS records revealed that U2's Bono had distributed less than one percent of donations received for his ONE charity in 2008, and it is alleged that Wycelf Jean paid his mistress $105,000 through the charity he had set up for victims of the 2010 Haiti earthquake.
Even if a celebrity is not involved, companies should use caution when embarking on a commercial co-venture ("CCV") or cause marketing campaign with a charity. Many states have statutes governing CCVs that could require a company to register with the state, have a contract with the charity, retain records, and include certain disclosures in advertising. Although not all states have a CCV statute, both regulators and consumers could take action against a co-venturer under many state deceptive trade practices statutes. For example, some state regulators have informally advised that using terms like "proceeds" or "net proceeds" to describe contribution amounts can be deceptive to consumers. Companies should carefully review the disclosures and execution of any CCV or cause marketing campaign to avoid presenting a "poker face" to consumers