Stay ADvised: What's New This Week, May 2
In This Issue:
- It's the "Phantom" of the Dress Barn as Plaintiff Accuses Retailer of Making Up Discounts
- Plaintiff Gains Class Certification in Diet Pill False Ad Suit
- FTC Battles Bogus "Warrior Trading" Earnings Claims, Nets $3 Mil Settlement
- FTC Operates on For-Profit Medical School Making Deceptive Claims to the Tune of $1.2 Mil
It's the "Phantom" of the Dress Barn as Plaintiff Accuses Retailer of Making Up Discounts
Dress Barn is artificially inflating its "original" pricing on its website to give the (false) impression of big savings, thereby taking advantage of "consumers' susceptibility to the bargain" in violation of California and federal law, according to a recently filed putative class action complaint against the clothing retailer.
According to the plaintiff, Dress Barn advertises an "original" reference price alongside what appears as a discounted price. But the advertised items were never sold for that listed "original price," alleges plaintiff.
The price disparity creates the false impression of a "deep discount," but because the original price never existed, the plaintiff claims the prices create a misrepresentation. "The 'original' price merely serves as a false reference price Defendant uses as part of a larger scheme to deceptively manufacture false discounts to incentivize consumers to make purchases," alleges plaintiff.
According to the allegations, plaintiff Jaimie Hernandez purchased a number of products at Dress Barn online after seeing the false reference price alongside the sale price, thinking she was getting a great discount on the products. Hernandez claims she thought the products wouldn't last at those prices and that she was getting a "significant bargain."
Based on the false pricing claims, Hernandez asserts violations of California regulations that dictate retailers may only discount an item from its original price for up to 90 days, following which time they must disclose to consumers when the product was last offered for sale. She also alleges violations of California's false advertising laws.
The issue of whether the original or reference price is a bona fide price has been around for decades. There are a host of state laws, more restrictive than the FTC's Deceptive Pricing Guidance, which can make sale pricing a tricky area to navigate. California is particularly restrictive.
Advertisers should stay apprised of the limits that California, other states, and the FTC impose on their sale pricing claims to avoid these class claims, which appear with regularity.
Plaintiff Gains Class Certification in Diet Pill False Ad Suit
A plaintiff claiming that she and a class of consumers were misled about the efficacy of a diet supplement has just taken one significant step closer to getting redress as a California federal court certified a nationwide class and a state class of consumers in her false ad lawsuit.
It took a round or two of amending the Complaint, but lead plaintiff Cynthia Ford this time alleged that Sports Research Corporation falsely marketed "Sports Research Cambogia" as an effective "weight management" and "appetite control" supplement, despite its active ingredients—Hydroxycitric Acid and extra virgin organic coconut oil—which plaintiff claims are "scientifically proven to be incapable of providing such weight loss benefits."
Ford alleged she found this out the hard way after using the product for two months without seeing any of the advertised results. The complaint charged Sports Research with violations of California's Unfair Competition Law (UCL), False Advertising Law (FAL), Consumer Legal Remedies Act (CLRA), and other common law claims.
In granting class status, the court ruled the plaintiff "easily satisfied" all the requirements for class certification, including questions of law common to the class.
Sports Research argued that because the product label varied during the class period, consumers hadn't been exposed to the same label. Rejecting the defense argument, the court reasoned consumers would have seen either or both labels in any case during the class period. The Court also found sufficient common questions of law among potential class members, including whether Sports Research's claims were likely to deceive the reasonable consumer.
The court also rejected defense arguments that the plaintiff's claims weren't typical of all class members because Ford had testified that she would purchase the product again for liver benefits. It was sufficient that Ford had also testified that she would not buy the product for weight management and as an appetite suppressant. Therefore, Ford's claims were based on the same facts as other class members, using the same legal theories as the rest of the class: that she purchased the supplement in reliance on the misleading dietary claims.
The court further held that common issues predominate over individual questions on all plaintiff's claims. Sports Research had contended that individual issues predominated, so plaintiff couldn't be entitled to a presumption of reliance. Not so, wrote the court.
Broad advertising claims will often lead to class certification, regardless of defense claims about variations in the labels or some customers' different experiences reading them. Defendants should keep in mind the very real pitfalls of relying on minor labeling differences to attempt avoiding classwide mislabeling and reliance claims.
FTC Battles Bogus "Warrior Trading" Earnings Claims, Nets $3 Mil Settlement
Doubling down on deceptive earnings claims in the investment industry, for the second time in as many months the Federal Trade Commission (FTC) took action against an investment company accused of making deceptive claims, ultimately reaching a $3 million settlement.
This time the company in the arena was Warrior Trading. Despite the mighty name, the FTC alleged that the day trading platform and website grossly mischaracterized the earnings potential of its program, all but assuring its customers that they'd make it big as day traders with Warrior Trading's assistance.
In reality, day trading is actually a risky endeavor, and most day traders lose money in their first few months, said the FTC. Indeed, FINRA calls it "extremely risky," the FTC added.
Warrior Trading employed deceptive earnings claims by promoting its tools as opportunities to profit "substantially and consistently," according to the FTC complaint. The company touted its trading courses and workshops as "a quick and simple way to get your dream of day-trading success going." Using the day trading results of founder and principal (and defendant) Ross Cameron to sell its message, the company claimed that Cameron is "an extremely successful day trader," and offered consumers "the opportunity to learn Cameron's strategies and watch him as he trades."
Warrior Trading's marketing expressly or impliedly promoted the company's tools as "proven and profitable" trading strategies that customers could use with an investment as small as $500. It also represented that consumers who purchased the courses would be able to consistently employ these strategies for profit. The FTC said that representative claims included "Learn To Trade With Certainty Towards the Financial Freedom You've Always Wanted" and "Warrior Trading teaches people how to make a living trading stocks!"
In fact, day trading is financially risky and difficult to break into, said the FTC. It usually requires a significant investment. Indeed, many Warrior Trading consumers lost thousands of dollars trading (on top of the thousands they paid for the programs), according to the FTC.
The complaint accused Warrior Trading of violating the FTC Act by making the aforementioned misrepresentations and the Telemarketing Sales Rule (by making them while telemarketing). To put the allegations to rest, the company agreed to pay the monetary penalty and cease making deceptive claims. The order prohibits Warrior Trading from making unsubstantiated earnings claims by misrepresenting that anyone with any background, capital, and time can make it day trading.
The FTC is closely scrutinizing companies making earnings claims—as the 1,100 penalty offense letters it sent last October made very clear. And it is making good on those promises. Last month the Commission settled with online trading company Raging Bull over similar allegations.
FTC Operates on For-Profit Medical School Making Deceptive Claims to the Tune of $1.2 Mil
From Illinois to the Caribbean, a medical school allegedly falsely marketed prospects for potential students, and now the Federal Trade Commission (FTC) has secured $1.2 million in refunds and debt cancellations for students.
The FTC's complaint alleges that Saint James School of Medicine, which is physically in the Caribbean but has operators based in Illinois, made a number of misrepresentations about its program in order to lure students to the school. Notably, these included false promises about the student passage rate for a "critical" medical school standardized test and about students' likelihood of being accepted into residency programs after graduation.
Touting its program during open houses, Saint James told prospective students that its first-time passage rate for the U.S. Medical License Exam (USMLE) is 96.77 percent, slightly below the passage rate for U.S. and Canadian medical students. In reality, the school's passage rate is a much less impressive 35 percent, and the school also imposes a prerequisite to taking the exam which is not required by other medical schools.
On residency match rates, Saint James maintained during sales calls, presentations, and in marketing materials that they were equivalent to those at U.S. schools, when the school's average match rate is 63 percent, significantly lower than that of U.S. schools.
Along with high-pressure sales tactics that Saint James telemarketers employed—including falsely telling consumers they'd lose their spot in the school if they didn't pay the reservation fee within 48 hours—the school made other misrepresentations about financing for tuition and living expenses, claims the FTC.
In addition to the misrepresentations, the school also allegedly used illegal credit contracts in which it attempted to waive student rights. Saint James also omitted disclosures legally mandated by the Holder Rule, which requires credit agreements to include a notice informing consumers of their rights to assert claims against the holder of a credit contract.
The complaint alleges violations of the FTC Act, the Telemarketing Sales Rule, the Holder Rule, and the Credit Practices Rule (which protects consumers in credit card transactions).
Compared to the FTC's $191 million settlement in 2019 with the infamous University of Phoenix touting false employment opportunities for graduates, today's settlement is significantly smaller. But the FTC has continuously emphasized enforcement against the deceptive marketing tactics that plague the for-profit university industry. As promised in the 70 penalty offense letters sent this past fall on the subject, it remains a priority.