Stay ADvised: What's New This Week, August 22
In This Issue:
- Lawsuit Claims H&M Sustainability Claims Are for Appearances' Sake Only
- If It Tastes Like Raspberry, and It Looks Like Raspberry, It's Close Enough for the Reasonable Consumer
- Court Eats Away at Costco Chocolate Ice Cream Bar False Ad Allegations
- Payment Processor to Pay Up or Face FTC Enforcement Action for Bilking Small Businesses
Lawsuit Claims H&M Sustainability Claims Are for Appearances' Sake Only
Jumping in on the sustainability litigation trend, a class action lawsuit alleges that clothing brand H&M is falsely advertising the sustainability of its clothing as part of a "greenwashing campaign." Plaintiff claims H&M's "environmental scorecards" and "Sustainability Profiles" contain false and misleading information that contradict the underlying data.
The lawsuit, which accuses H&M of violating unjust enrichment and consumer protections laws of the State of New York, alleges that the goal of H&M's "marketing scheme" is to "capitalize on the growing segment of consumers who care about the environment." The complaint alleges that for H&M, which has purportedly lost large numbers of customers due to their growing concerns about the environmental impact of its fast fashion, advertising sustainability makes business sense—but according to plaintiffs, the company's advertising accomplishes its goals by deceiving consumers about the environmental impact of its products.
According to plaintiffs, H&M's misrepresentations about its sustainability fall into two categories: (a) the "Sustainability Profiles" on display on its website and in-store, which feature the purported "environmental scorecard" of the company's products; and (b) specific sustainability (mis)representations the company makes in its advertising.
According to the complaint, which seems to largely base its assertions on a recent investigative piece, to create its environmental scorecards H&M takes the data from an independent publisher of environmental scorecards (Higg Index Scores) and then turns the data on its head. The result is that data showing that, for instance, H&M uses 20% more water to manufacture the product becomes the opposite and far more positive claim—that it uses 20% less water.
"H&M conveniently, and egregiously, 'ignored negative signs in Higg Index scores,' and simply presented them as 'positive' results in every instance…. This was a uniform practice for each and every Sustainability Profile scorecard," claims plaintiff.
The suit also accuses H&M of marketing broader misrepresentations about the environmental impact of its clothing, including that its clothing contains "at least 50% sustainable materials," when actually certain of the synthetic fabrics it uses are not sustainable. Likewise, in an H&M recycling campaign, H&M allegedly paints a bogus picture of its environmental friendliness. Plaintiff asserts that H&M's representations imply that "old clothes are simply turned into new garments" and that clothes will not end up in a landfill when, in fact, recycling solutions at the scale that H&M operates are not commercially viable. To the contrary, most of the company's clothing, says plaintiff, ends up in landfills.
The list of companies facing greenwashing suits has been growing steadily, and there have been many related to the now ubiquitous practices of clothing companies' created "sustainable" lines. Indeed, late last year a group of fashion companies signed on to a letter asking the FTC to provide additional guidance around sustainability and related claims in its planned review of the FTC's Guides for the Use of Environmental Marketing Claims.
If It Tastes Like Raspberry, and It Looks Like Raspberry, It's Close Enough for the Reasonable Consumer
Poland Springs' flavored raspberry lime water is just that—water containing raspberry and lime flavors—and the reasonable consumer would not interpret the product label to communicate that the product contains actual raspberry and lime ingredients. Or so a New York federal judge held in dismissing the false advertising and consumer protection class action suit against Nestlé over its Poland Springs flavored water.
The complaint alleged that the water, whose label features the taglines "With a Twist of Raspberry Lime" and "Taste the Real" alongside pictures of raspberries and limes, failed to inform consumers that the majority of the product's flavor stemmed from fruits other than the named raspberries and limes. The label misled consumers about the amount of raspberry and lime in the water, argued plaintiff, and, therefore, consumers would interpret the label's "naturally flavored" disclaimer to mean that the product contains the promised "Twist of Raspberry Lime."
At the heart of the dispute was the question of whether Nestlé engaged in any acts likely to mislead the reasonable consumer, wrote the court. Citing the "vanilla" false advertising cases that "numerous courts (including this Court) have dismissed … because there is nothing in the word 'vanilla' itself that would lead a reasonable consumer to understand a product's flavor to be derived mostly or exclusively from the vanilla bean," the court held that the answer in this case was likewise that the reasonable consumer would not be misled.
Poland Spring label's use of the phrase "With a Twist of Raspberry Lime" is merely a representation that the water is raspberry and lime flavored. Missing from the label is any language such as "made with raspberry and limes" that would communicate to the reasonable consumer that the product contained those ingredients, wrote the court.
Further, the court found that because raspberry oil and lime juice are not separate entries on the ingredient list, a reasonable consumer would conclude that the raspberry and lime twist is part of the extracts making up the flavoring.
The court further noted that because the phrase on the label "With a Twist" of lime is ambiguous and reasonable consumers would differ on its meaning, therefore, the product label should be viewed as a whole. When viewed as part of the entire product label, the phrase was consistent with the other messages communicated.
As for the "Taste the Real" representation on the label, the court also found that no reasonable consumer reading the label as a whole would interpret this phrase to refer to real fruit, because right underneath "Taste the Real" the label states that the product contains "Real Raspberry Lime flavor."
Unlike ingredients lists in beauty products and drugs containing chemicals with names unknown to the reasonable consumer, more and more courts have come to expect the reasonable consumer to understand that "natural flavors" does not mean the addition of actual natural ingredients but, rather, flavors derived from natural sources. That's the case where, as here, the court concluded that the label should be viewed as a whole—inclusive of the ingredients list, the ambiguous "With a Twist" and "Taste the Real" and, perhaps most damaging of all to plaintiff, the "Real Raspberry Lime flavor" claim.
Court Eats Away at Costco Chocolate Ice Cream Bar False Ad Allegations
From water to chocolate, another plaintiff's false food advertising class action suit is toast. In this case plaintiff alleged that Costco falsely advertised the chocolate in its Chocolate Ice Cream Bar, but the case has now been permanently thrown out.
Plaintiff alleged that the label for Costco's chocolate dipped vanilla ice cream bars was false, deceptive, and misleading because the chocolate in the coating is made mainly of vegetable oils rather than actual chocolate derived from cacao beans. Citing dictionary definitions of chocolate, plaintiff argued that chocolate excludes fats from sources other than cacao.
Although the product ingredient list noted the inclusion of vegetable oil, plaintiff argued that federal law requires the disclosure of the product as containing "milk chocolate and vegetable oil coating" prominently on the front label. Having failed to do so, Costco was allegedly misleading consumers about the chocolate content in the bars, plaintiff alleged.
The court found the plaintiff hadn't shown that his definition of chocolate mirrored what the reasonable consumer would expect "chocolate" to mean. Just because plaintiff claims consumers "expect chocolate to be made from cacao beans" didn't mean that reasonable consumers would not expect it to contain other ingredients, such as dairy and sugar, found the court. And the cacao and chocolate ingredients together made up almost twice as much of the chocolate coating as the vegetable oils.
Additionally, the results of a plaintiff-conducted survey finding that sixty percent of respondents expected the ice-cream bars to "contain more cacao bean ingredients than it did and would not be made with chocolate substitutes" didn't signify that these same respondents believed the product coating wasn't chocolate or that chocolate must be made exclusively from cacao beans, added the court.
Further, plaintiff's dictionary definitions of chocolate suggested that reasonable consumers would expect chocolate to contain other ingredients like sugar. Plaintiff relied on a mathematical application of FDA regulations to conclude that the product contained 15 grams of vegetable oil versus 12 grams of cacao bean ingredients, and that because there were more vegetable oil than cacao bean ingredients, the product isn't chocolate. But this application ignored the fact that reasonable consumers would expect sweeteners and dairy products to be part of the chocolate equation.
Further, the court rejected plaintiff's conclusion that the ice cream bar contained more vegetable oil than chocolate. The court, instead, added the amounts of sugar and nonfat dry milk, which would "match a reasonable consumer's expectation of chocolate," to the amount of cacao bean ingredients. This results in a product that is 61% chocolate and 30% vegetable oils.
The court also rejected plaintiff's arguments that the label was deceptive because the picture of chocolate chunks on the label "tells consumers that the Product will contain a non-de minimis amount" of chocolate. As in Poland Springs, the court noted that an allegedly deceptive act must be looked at together with the totality of the information available to plaintiff, which in this case included pictures of other ingredients contained in the product.
Once again, the question here came down to what the reasonable consumer expects "chocolate" (or "Twist of Raspberry Lime" in Poland Spring) to mean. The answer is good news for food advertisers when it comes to the reasonable person, whom courts are increasingly finding has expectations more in line with advertisers than plaintiffs.
Payment Processor to Pay Up or Face FTC Enforcement Action for Bilking Small Businesses
The Federal Trade Commission (FTC) has accused a Texas-based payment processor of using deceptive tactics to trap small businesses into paying hefty fees to cancel its service, then continuing to charge them via so called "zombie charges," i.e., making continued withdrawals under different business names after the businesses withdrew consent in order to evade stop-payment orders. The company has agreed to pay $4.9 million dollars and put an end to deceptive tactics to avoid further enforcement action.
The FTC complaint accuses First American Payment Systems of engaging in illegal and deceptive behavior that trapped unsuspecting small businesses reliant on the payment processor to accept credit card payments from customers. According to the FTC, the company also took advantage of the limited English proficiency of some of these merchants.
The pattern of deceptive conduct alleged in the complaint begins with First American's false representations that representatives made during sales pitches. During the calls, the company misrepresented the monthly fees for its services and claimed savings the businesses would never see.
When companies attempted to cancel, they discovered that key contract terms pertaining to cancellation were not disclosed and that these terms contradicted First American's representations. The company misrepresented its cancellation policies, telling businesses that they could cancel the service at any time without penalties. Meanwhile, First American's standard agreement bound customers for three years and imposed a nearly $500 fee for early termination.
Perhaps most egregiously, the FTC alleges that First American continued to charge small businesses fees even after they withdrew consent in violation of Section 5 of the FTC Act: "When consumers dispute debts, instruct Defendants not to debit their accounts, or stop payment through their financial institutions, Defendants, through First American's collection department, nevertheless routinely attempt to debit consumers' bank accounts electronically for the claimed debts." In fact, the FTC alleges, that "First American's collection department attempts to evade stop-payment efforts by debiting different bank accounts or changing company names associated with the debits."
According to the complaint, because First American's contracts renewed automatically, the company was bound by ROSCA (the Restore Online Shoppers' Confidence Act) to make clear and conspicuous disclosure of material terms before charging consumers. In failing to disclose key terms including agreement length, early termination fees, the actual automatic renewal feature, and the cancellation requirements, First American violated ROSCA.
First American has agreed to an order requiring it to pay nearly $5 million dollars to settle the allegations, which will go towards refunding affected businesses. The order also requires the company to stop misleading consumers about contract terms like cancellation fees. The company has also agreed to make its cancellation process easier and to stop charging early termination fees.
Post-AMG Capital, ROSCA remains an important FTC enforcement tool. The FTC continues to focus enforcement actions against companies targeting small businesses with unscrupulous and illegal practices.