The litigation arena for the consumer products industry is as active as ever. Each newsletter we bring you a summary of the most important litigation developments from the past two months, from complaint filings and key court decisions to trial results and settlements. For more information about these and other developments, please visit our Food & Beverage Industry Tracking Report.
Several Major Retailers Implicated in Flushable Wipes Class Action Lawsuit
On December 5, 2017, in a New York federal court, a new class action lawsuit alleged that retailers including Costco, Target, and Wal-Mart manufacture and sell wipes that are incorrectly marketed as safe to flush, causing considerable long-term damage to sewage systems. The party representing the class—a New York-based homeowners association that operates a sewage treatment plant claims that the operators of the facilities bear the cost of maintenance and repairs of the sewage systems caused by the wipes. They take issue with the fact that the wipes are labeled as “safe to flush, safe for plumbing, safe for sewer systems and/or biodegradable,” while they allegedly are not. The homeowners association seeks to represent a class of New York-based operators of sewage treatment plants and a separate class of all U.S. operators of sewage treatment plants that have been affected by the wipes since Dec. 4, 2011. They allege strict product liability for defective design, failure to warn, nuisance, trespass, breach of express and implied warranties, negligence, and negligent misrepresentation.
“Groundbreaking” Allergan Lanham Act Suits Against Drug Compounders Survives Motion to Dismiss
Two lawsuits filed in California federal court by drug company Allergan PLC in early September have been recently described as “seminal” and “groundbreaking,” in that they set the stage for testing to what extent drug compounders can mass-produce virtual copies of brand-name prescription drugs. They are among the first lawsuits where a large pharmaceutical company has used the Lanham Act to allege that compounders are falsely claiming to be in compliance with FDA regulations (rather than relying on government regulators to police activity). These suits coincide with litigation against the FDA by Par Pharmaceutical accusing the FDA of letting compounders sell large quantities of copycat drugs and skirting the FDA approval process. Recently, on December 4, 2017, Judge David O. Carter refused to dismiss the lawsuit.
Utz Settles “All-Natural” Class Action for $1.25M
On December 7, 2017, Utz Quality Foods settled a proposed class action launched back in 2014 for $1.25 million that asserted that several of their snack foods are deceptively labeled as “all natural.” Some of the products at issue include their brand of regular potato chips, honey wheat pretzel sticks, and restaurant-style tortillas. Plaintiffs alleged that these products, and others, contain unnatural genetically-modified, synthetic, and artificial ingredients, and thus, they had breached express warranty, engaged in deceptive acts or practices and misleading advertising, and had been unjustly enriched. Although Utz has agreed upon the payment, they “den[y] and continue to deny all liability with respect to any and all of the claims alleged.”
Data Breaches Cost Cottage Health $2M in Recent Settlement
In another recent data breach lawsuit, Cottage Health agreed to pay $2 million to settle claims that it failed to implement basic safeguards for patient data that led to two separate data breaches leaking medical information. The first breach released the private information of more than 50,000 patients from 2011–2012. The second breach in 2015 leaked more than 4,500 patients’ medical records. Attorney General Xavier Becerra announced the settlement on November 22. Cottage Health has agreed to implement upgrades including new system monitoring, firewalls, network intrusion detection, and access management protocols to protect patient data. It will also have to hire a data privacy security officer to ensure compliance and assist in completing annual privacy risk assessments.
The Children’s Place Settles Deceptive Discount Pricing Class Action for at Least $6.8 Million
On November 27, 2017, The Children’s Place agreed to settle a class action lawsuit launched in California federal court by plaintiffs claiming that the retailer offered “phantom markdowns.” They alleged that The Children’s Place inflated printed “original” prices in order to offer “sale” prices that seemed far greater than they were because the retailer rarely, if ever, offered the merchandise at the purported “original” prices. This class action has been one of several recently issued against retailers such as Gap, Amazon, Burberry, and Burlington Coat Factory, centering on deceptive discount pricing. The settlement also follows JC Penny’s $50 million settlement in 2016 and Michael Kors’ $4.9 million settlement in 2015, both related to deceptive pricing. Here, The Children’s Place will distribute up to 800,000 vouchers worth a total of $4.8 million to class members. Depending on the number of claimants who avail themselves of the vouchers, the retailers may also offer vouchers worth 25% off a purchase of up to $100, which could bring up the settlement value to $20 million. Additionally, it has agreed to pay attorneys’ fees for class counsel of about $1 million, and up to an additional $1 million for administrative fees.
Federal Judge Dismisses Dannon “Natural” Yogurt Labeling Suit
On December 4, 2017, a New York federal judge granted Dannon’s motion to dismiss a false labeling product liability class action suit against them. The class action suit alleged that Dannon yogurt is falsely labeled as “natural” since the cows may have eaten genetically modified feed, or have been subjected to non-natural processes to increase milk yield, such as being given antibiotics. The suit alleged violations of Minnesota’s deceptive trade practices act and false advertising law, New York’s common law fraud claim, and breach of warranty under the laws of more than 40 states. In her opinion, U.S. District Judge Katherine Forrest held that there was no legal support for the idea that a cow that eats GMO feed, or is subjected to various animal husbandry practices, produces “unnatural” milk. Additionally, the court found that Dannon did and does not represent that its products are GMO-free or free from antibiotics or hormones. Podpeskar v. Dannon Company Inc., Case No. 1:16-cv-08478, U.S. District Court for the Southern District of New York.
FTC and NY AG’s False Advertising Claims Against Prevagen Dismissed
On September 28, 2017, a New York federal judge granted Prevagen’s motion to dismiss fraud and false advertising claims brought against them by the Federal Trade Commission and New York Attorney General Eric Schneiderman. The New York AG’s office brought false advertising and fraudulent acts claims while federal and state regulators accused the makers of Prevagen of violating FTC regulations over false proof and unsubstantiated efficacy claims. U.S. District Judge Louis Stanton found that regulators’ claims that a study showing Prevagen’s primary ingredient, apoaequorin, was clinically proven to help improve memory showed no statistically significant improvement was untrue. Stanton dismissed the FTC allegations for failure to state a claim. Because the federal claims were dismissed, Stanton declined to exercise jurisdiction, and has left it to state courts to decide whether the case has merit, should regulators seek action there. Federal Trade Commission v. Quincy Bioscience Holding Co., Case No. 17-cv-00124, U.S. District Court for the Southern District of New York.
With a new executive administration getting its bearings in Washington, the regulatory landscape is in a state of flux—with important changes on the horizon. Each newsletter we bring you a rundown of key developments for the consumer products industry from each of the three main regulatory agencies, as well as the NAD.