Stay ADvised: What's New This Week, August 16
In This Issue:
- Max International Agrees to Comply With DSSRC Directive But Finds It Tough to Enforce
- Rawlings Bat Plaintiff Strikes Out in Bid for Class Certification
- Ghirardelli "Classic White" Baking Chip Plaintiffs Soon to Taste Sweet Settlement
- Plaintiff Gives Arizona Iced Tea the Cold Shoulder Over "All Natural" Claims
Max International Agrees to Comply With DSSRC Directive But Finds It Tough to Enforce
A multi-level marketing company has come under fire from the Direct Selling Self-Regulatory Council (DSSRC) over admittedly unsubstantiated health claims made by its salesforce on social media—but the company says it's done everything possible, and more, to remove the offending posts.
The direct selling industry's self-regulating program opened an inquiry into claims made by Max International, a multi-level marketer of a line of health-related and wellness products whose 200,000-member salesforce work around the world. The DSSRC commenced its inquiry of Max International as part of its ongoing independent monitoring of advertising and marketing claims in the direct selling industry, and what it found did not bode well for the company.
The inquiry concerned social media posts apparently promoting the company's products as a cure-all for conditions ranging from chronic pain and diabetes, to sickle cell disease and infertility, to stroke and hypertension. Just one example is the claim: "CellGevity – Reverse Ailments like: Cancer, Diabetes, Arthritis, Asthma, Stroke Kidney Problem."
Max International did not dispute that these claims were not substantiated and in fact admitted that "all of the social media posts at issue were unauthorized health-related claims that originated from salesforce members located overseas." The company agreed that these were "problematic health claims" and so "did not attempt to provide evidentiary support" for them.
The company also outlined the substantial steps it took to have the posts taken down. These included sending cease and desist letters threatening termination to its salesforce posters if the posts were not removed, putting top personnel in charge of taking down posts, and even hiring a third-party vendor to do so.
Still, at least four misleading posts remained active, said the DSSRC. But such health-related claims must be "supported by competent and reliable scientific evidence, as defined by the Federal Trade Commission (FTC)." The posts also made establishment claims, which are held to a very high standard of proof, said the DSSRC.
On the other hand, the DSSRC did not take issue with Max International's attempts to remove the posts as it apparently had complied with all the DSSRC's requirements, including providing the required proof of its efforts. The DSSRC also acknowledged the difficulty of reaching salesforce members who are "not within [the company's] geographical control" or were not "active distributors."
The DSSRC said it would continue to monitor the posts and would "open a compliance inquiry should there be a continuing systemic pattern of egregious health-related performance claims disseminated by" the company's salesforce members.
NAD and other self-regulation programs such as the DSSRC have increasingly made clear the need for companies to monitor and enforce claims by arguably related third parties—such as retailers and here MLM company sellers located overseas. For some MLM companies, the difficulty in enforcing suspect claims is simply baked into the business model. Stay tuned to see what happens next.
Rawlings Bat Plaintiff Strikes Out in Bid for Class Certification
A plaintiff hoping to certify a class in a faulty baseball bat lawsuit against Rawlings Sporting Goods Company may be down to his last out after a federal judge signaled he was unlikely to grant certification.
Plaintiff Richard Sotelo accused Rawlings of falsely advertising the weight of youth baseball bats. Sotelo said he purchased one such bat for his son, that the bat weighted 2.6 ounces more than advertised, and that his son was unable to use it as a result. These weight differences are material to reasonable consumers, argued Sotelo, because they affect how the bat operates and can affect the risk of injury.
Sotelo asked the court to certify a large class of plaintiffs that purchased non-wood adult or children's baseball bats in California. On Sotelo's first at bat, U.S. District Judge Wu originally denied the motion to certify the class, finding that Rawlings sells many, many types of bats. Not all of these bats have a significant weight difference and plaintiff "had not alleged specific weight discrepancies for those hundreds of bat models."
Following plaintiff's motion, Judge Wu allowed Sotelo the chance to amend, but it will likely be another swing and a miss. According to reports after a recent hearing on the matter, it appears Judge Wu is still unpersuaded, and best guesses say he will likely not certify the class. The judge issued a tentative ruling refusing to go to bat for Sotelo on class certification.
What's more, at the subsequent hearing on the class certification motion, Judge Wu remained unconvinced that Sotelo's claim about a 0.5 ounce difference between the advertised and actual weight of the bats was not arbitrarily chosen, saying that "it seems you just picked something out of the blue." Further, Judge Wu said there was no evidence presented that "a reasonable consumer would ever think to use 0.5 ounces as a material figure."
Judge Wu was also skeptical of plaintiff's argument that the materiality of the weight was for the jury to decide. There may also be issues with plaintiff's damages report, said the judge. Still, Sotero will have a chance to file a supplemental briefing before Judge Wu makes his final decision.
Materiality matters, and what it means in any given context is not necessarily readily apparent. As we speculated on StayADvised previously, a key question would be whether the court would consider those extra ounces of weight sufficient to make enough of a difference to the reasonable consumer. It is particularly difficult here given that plaintiff wants to certify a large class and Rawlings sells so many different types of bats.
Ghirardelli "Classic White" Baking Chip Plaintiffs Soon to Taste Sweet Settlement
So you think its chocolate, but it's not? Well, don't look for answers here. After many twists and turns, plaintiffs have settled their suit alleging Ghirardelli's labeling of its "classic white baking chips" was a mis-marketed misnomer.
Back in 2019, plaintiffs Linda Cheslow and Steven Prescott sued Ghirardelli Chocolate Company, alleging that the premium chocolate maker marketed "fake" white chocolate. What was advertised as "premium baking chips" in "classic white" flavor was in fact not chocolate at all but merely sugar, palm kernel oil, vanilla extract, and other non-chocolate ingredients.
In their complaint, plaintiffs alleged that Ghirardelli's "labeling, advertising, marketing and packaging of the [baking chips] as containing white chocolate is false, misleading and deceptive." According to plaintiffs, the chocolatier had in the past used real cocoa butter in its chips to establish its reputation as a "premium" product but had at some point done a "bait and switch" and stopped including cocoa butter. Consumers, however, still relied on Ghirardelli's false representations when buying the chocolate, which were especially material because most consumers used the chips to bake and the counterfeit chocolate did not melt quite the same as real chocolate, said plaintiffs.
The case did not gain much traction with the U.S. District Court for the Northern District of California, which dismissed the lawsuit in 2020 after failing to find the product name deceptive. The court found that the ingredients list would not deceive the reasonable consumer about the content of the baking chips. The packaging did not include the words "chocolate" or "cocoa," found the court—though according to plaintiffs' original complaint the packaging contained the word "chocolate" up until the time Ghirardelli received statutory notice of the instant lawsuit.
Undeterred, in April 2021 plaintiffs appealed to the 9th Circuit. In their appeals brief, plaintiffs argued that the district court erred in treating the matter as one of those "rare" instances where the court may decide what the reasonable person would think about the baking chips.
Plaintiffs also said the court erred by not considering "other plausible interpretations of [the] ambiguous product name … classic white chips" and zeroing in on only one definition. Further, plaintiffs argued that 92 percent of consumers interpreted the Ghirardelli label as describing chocolate.
Now both sides say they have reached a settlement and have filed a notice of settlement with the 9th Circuit. The details of the settlement are not yet public knowledge as of this writing.
Just who constitutes the reasonable consumer is an ongoing issue in many courts. In addressing the reasonable consumer standard at the motion to dismiss stage, Judge Phillis J. Hamilton of the District Court took an unusual step, and the plaintiffs used that to their advantage on appeal. Whether the appellate court would have taken the judge to task we won't learn from this case.
Plaintiff Gives Arizona Iced Tea the Cold Shoulder Over "All Natural" Claims
A proposed class action lawsuit against the makers of Arizona Iced Tea is one of the latest "All Natural" suits, a "claim" that remains popular with the class action bar. Here, plaintiff alleges the term "all natural" on beverage labels is deceptive because the company uses food coloring in the products, and the Food and Drug Administration (FDA) "does not regard foods with added coloring as natural, no matter the sources of the coloring agent."
According to plaintiff Veronika Guslitser's complaint, Hornell Brewing Co. deceptively marketed its Arizona Iced Tea drinks as "all natural" when the drinks actually contain added coloring including "beta carotene," "fruit and vegetable juices," "anatto" and "vegetable juice." Though these products may be from natural sources, plaintiff argues that a product only meets the FDA's loosely provided guidance of what constitutes "natural" for food if it contains nothing artificial, "regardless of source." Further, the complaint says the "process by which naturally sourced food coloring is added to products alters their status and renders no longer 'natural.'"
As we continue to wait for further guidance or rulemaking (already several years in the making), much of plaintiff's argument centers on the FDA's stated "policy" for labeling food as "natural," recognizing the still-undecided issue of whether and how the agency will "further define or regulate the term 'natural' in food labeling." The complaint makes liberal reference to consumer comments provided to the FDA in furtherance of the FDA's next steps.
Hornell markets the popular drinks as "all natural" to capitalize on the higher price it knows it can charge for such products, claims plaintiff. The complaint alleges that the company advertises the products as "natural" in order to profit from consumer preferences for natural food free of coloring and preservatives. As a result of Hornell's "false, deceptive and misleading label claims … consumers continue to purchase the products under the mistaken belief that they are all natural."
The complaint, which was recently removed to California federal court from state court, alleges violations of California's false advertising consumer protection laws among other claims.
Arizona Iced Tea has been the target of similar suits before. In 2012 plaintiffs settled a lawsuit alleging that Arizona Iced Tea's marketing of the "All Natural" moniker was deceptive because the product contained high fructose corn syrup and citric acid.
Two separate lawsuits in 2018 and 2019 alleged that Hornell's claims of "no preservatives" were misleading. Lawsuits related to these types of food labeling claims have become a natural byproduct of doing business for many food companies as they await further guidance from the FDA.