Stay ADvised: September 6
In This Issue:
- Chew on This: Investor (and Gum Creator) Suit Claims Wayne Gretzky Lied About Weight Loss Gum
- Earth Friendly Products Are Neither Earth nor Human Friendly, Allege Plaintiffs in "Non-Toxic" False Ad Class Action
- Misleading or Not? UK's CMA Turns Its Eye on Major Fashion Retailers' Sustainability Claims
- Leaving No Doubt, CFPB Says Digital Marketers on the Hook Under Financial Consumer Protection Laws
Chew on This: Investor (and Gum Creator) Suit Claims Wayne Gretzky Lied About Weight Loss Gum
Blame it on Gretzky. That's what the creator of a weight loss chewing gum is doing in a recent $20 million suit accusing the legendary ice hockey player of misleading the public about the weight loss effects of the very same gum he helped create.
Steven Sparks filed the investor lawsuit in California state court alleging that the "Great One" misrepresented that he lost 35 pounds in 6 to 8 weeks by chewing "OMG gum," which Sparks invented and brought to market via his company BuChew. OMG stands for Overeating Management Gum, and Gretzky learned about the gum from his wife, a company spokesperson.
Nonetheless, according to Sparks, Gretzky's misrepresentations that the product worked so well on him induced Sparks and other investors to invest or re-invest in OMG Gum. According to the suit, Gretzky allegedly misrepresented the truth in order to bolster the value of BuChew stock that Gretzky allegedly purchased "surreptitiously…under his family's name."
This sticky situation began a few years after Sparks founded BuChew, where he acted as manager and investor. Sparks alleges that he hired Gretzky's wife Janet Marie Gretzky sometime in 2017 as a spokesperson to market "OMG gum," based in part on promises that her hockey legend husband would personally use and endorse the product.
The following year Ms. Gretzky made good on her promise of bringing in Mr. Gretzky, who indicated he chewed the gum every day and "loves the taste." Then, a little later that year Gretzky represented to plaintiff Sparks that he "lost 35 pounds in 6 to 8 weeks" as a result of chewing OMG Gum. Sparks alleges that such statements (about the gum Sparks brought to market) led him and other investors to pour more money into the company.
Contrary to his prior statements, in 2020 Gretzky apparently changed his tune and admitted that he (OMG!) "really did not lose 35 pounds" chewing OMG Gum, or so the plaintiff alleges. Though it is unclear from the complaint to whom this admission was made, Sparks alleges that the admission was not made to investors who had invested solely and expressly based on Gretzky's weight loss representations about OMG Gum.
Sparks further alleges that Gretzky's admission that the weight loss statement was false resulted in the Gretzkys planning to remove Sparks as manager, and that the Gretzkys then "instructed the new managers of BuChew to inform the investors that Wayne's name and image would no longer be used to promote OMG gum."
Sparks alleges causes of action for fraud and negligent misrepresentation, and seeks over $20 million in damages.
Unlike in a false advertising matter, as a plaintiff in an investor fraud case Sparks need not show that a reasonable person would have been misled by Gretzky's representations, but he must allege that the hockey great intentionally made the misrepresentation, and that he relied on and suffered damages as a result.
Earth Friendly Products Are Neither Earth nor Human Friendly, Allege Plaintiffs in "Non-Toxic" False Ad Class Action
Class action plaintiffs claim a company branding itself and its cleaning products as "non-toxic," safe, and sustainable is actually selling products with carcinogenic, harmful chemical ingredients.
Venus Laboratories does business as Earth Friendly Products and sells the ECOS brand of products. ECOS markets cleaning products with such names as "Hypoallergenic ECOS" and "Plant Powered Laundry Detergent." Plaintiffs claim ECOS engaged in deceptive and misleading marketing of its products as "safer" and "non-toxic."
The complaint alleges that in the race to capitalize on consumers' interest in non-toxic and environmentally friendly products, ECOS took advantage of consumers by "greenwashing" its marketing. Plaintiffs allege ECOS misrepresented its products as safe, when the actual ingredients the company uses are harmful to the environment and to humans.
One of plaintiffs' examples in the suit describes how ECOS allegedly uses the chemical phenoxyethanol, which plaintiffs state is defined under federal law as toxic and "potentially lethal even in very small doses." Not only is the chemical a carcinogen, note the plaintiffs, but they also point out that case studies have shown it can cause "acute neurotoxic results." In other words, according to the complaint, it's a far cry from the advertised "non-toxic" ingredients.
Plaintiffs allege that phenoxyethanol is not the only troubling chemical in ECOS products. The complaint includes a long list of alleged ingredients which plaintiffs note are harmful to humans or the environment in some way.
According to plaintiffs, the advertising deceptively says otherwise with its focus on the environmental friendliness of its products as "safer," "made without known carcinogens, reproductive toxins, or endocrine disruptors," "climate positive," "Earth Friendly," and/or "sustainable"—claims which allegedly appear on social media. The complaint further points to the ECOS website and its messaging that consumers could trust ECOS to be "green," with claims such as "We've been at the forefront of clean, green chemistry for over 50 years."
Plaintiffs place ECOS' actions in the context of a marketplace that has seen increased demand for "non-toxic, safe and environmentally friendly" green products.
The reasonable consumer lacks the wherewithal to independently discover the presence or meaning of these allegedly harmful ingredients, or just how far their inclusion takes ECOS from its marketing, claim plaintiffs.
"That is why, even though all of the ingredients listed above are identified on the back of the Products' packaging in the ingredients listed, the reasonable consumer would not understand—nor are they expected to understand—that these ingredients are toxic, harmful, dangerous, and environmentally damaging," according to the complaint.
Plaintiffs filed the lawsuit in Missouri federal court and allege violations of California's Unfair and Deceptive Acts and Practices Law, its Consumer Legal Remedy Act, the Missouri Merchandising Practices Act and common law causes of action.
Among other issues, this case brings to the fore questions of what "non-toxic" really means and how it can—or can't—be substantiated. Plaintiffs note that the Federal Trade Commission (FTC)'s Green Guides specifically callout as deceptive misrepresentations that a product is non-toxic if it isn't. That may be, but the Environmental Protection Agency (EPA) "believes that marketers will 'rarely, if ever, be able to adequately qualify and substantiate a claim that a product is 'non-toxic' in a manner that will be clearly understood by consumers." The complaint also cites to the National Advertising Division (NAD) noting its findings that the reasonable consumer understands the claim that a product "will not harm"—" a claim which often goes hand in hand with a "non-toxic" claim—as applicable not only to death but to other far less dangerous side effects. (Note that NAD procedures provide that its decisions are not to be used as evidence in litigation.) What the court will decide, time may tell if this case progresses.
Misleading or Not? UK's CMA Turns Its Eye on Major Fashion Retailers' Sustainability Claims
The U.K.'s Competition and Markets Authority (CMA) (an independent, governmental body with some similarity to the FTC) has announced it's looking into "green" claims made by three popular online "fast" fashion retailers: ASOS, Boohoo, and George at Asda.
Though the CMA hasn't reached any final conclusions, "initial review [of the fashion sector] identified concerns about potentially misleading green claims," reports the group. Now the investigation seeks to determine support for a variety of sustainable fashion claims for these three brands.
The CMA will investigate a number of claims made by the retailers, including:
- Whether statements made by the companies create a false impression that the brands' sustainably marketed lines are more environmentally friendly than they really are. These include ASOS' "Responsible edit," Boohoo's "Ready for the Future," and George at Asda's "George for Good."
- Whether retailers' criteria for what types of products to include in these collections squares with consumers' reasonable expectations based on the retailers' descriptions. Here the CMA notes some products advertised as recycled might contain as little as 20% recycled fabric, and may contradict reasonable consumers' expectations.
- Whether some items included in the collections do not meet the sustainability criteria set by the companies.
ASOS, Boohoo and George at Asda are likely only the beginning of the CMA's examination of misleading environmental claims in the fashion industry. In January of this year CMA turned its attention to this topic in light of what it stressed is the industry's increasing use of sustainable advertising claims.
CMA is opening up the investigation so consumers looking to "buy green" can do so knowing they are not being misled by the associated marketing claims.
The move is part of the CMA's ongoing investigation into increasingly popular "eco-friendly" advertising claims and whether they are misleading the public. CMA began the investigation in late 2020 in "response to the growing number of products and services being marketed as environmentally friendly, as awareness of environmental issues increases," and taking into account the over £41 billion a year spent by U.K. consumers on goods and services marketed as ethical.
Should the CMA find shortcomings in these brands' sustainability marketing, it could open the companies up to civil litigation in the U.S., as plaintiffs often use these types of investigations as the springboard for false advertising lawsuits.
Leaving No Doubt, CFPB Says Digital Marketers on the Hook Under Financial Consumer Protection Laws
Digital marketers who provide services to financial firms may become liable for consumer protection law violations, according to a new draft Consumer Financial Protection Bureau (CFPB) rule.
The to-be-finalized rule, titled the Limited Applicability of Consumer Financial Protection Act's (CFPA) 'Time or Space' Exception to Digital Marketers, empowers the CFPB, states, and other consumer protection enforcement agencies to sue digital marketing providers (like Google) who act as service providers to financial firms and are found to violate federal consumer protection law.
Under the rule, "covered persons" will include those who provide a financial product or "material service" for consumer use, and they're subject to the CFPA, which prohibits unfair, deceptive or abusive acts or practices in offerings of financial products or services to consumers. However, the law provides a couple of exemptions, including the so-called "time or space exception," which states that those selling time or space to advertise consumer financial products are not considered service providers under the law.
By issuing the clarifying rule, the CFPB hopes to clarify that digital marketers do not qualify for the "time or space" exception. Digital marketing providers who are "materially involved" in developing content strategy, those who identify or select the placement of content that affects consumer engagement (particularly companies that sell targeted ads for financial services) are subject to the CFPA.
The rule points out how a "material" service is significant or important: "when digital marketers identify or select prospective customers and/or select or place content to affect consumer engagement…they are providing a significant—and thus 'material'—service."
Distinguishing digital marketers from traditional media, the rule clarifies that while some traditional media may have been involved in the selection of content for ads, they weren't typically involved in content strategy in the active way that today's digital marketers are, such as by analyzing when an ad purchase can make the most impact for an advertiser.
The key question for digital marketers in order to determine whether they are subject to the CFPA or to the "time or space" exception is "whether the digital marketing provider is materially involved in the development of content strategy by identifying or selecting prospective customers and/or selecting or placing content to effect consumer engagement."