Stay ADvised: 2024, Issue 23
In This Issue:
- Lyft Settles FTC Allegations It Took Drivers for a Ride on Earnings Claims
- Judge Reconsiders Dismissal of Dior False Ad in Light of 9th Circuit Opinion
- Court Approves Old Lyme $4 Million Settlement Over "Non-GMO" False Ad Suit
Lyft Settles FTC Allegations It Took Drivers for a Ride on Earnings Claims
Ride-sharing company Lyft, Inc. (Lyft) has agreed to pay $2.1 million to settle Federal Trade Commission (FTC) allegations that its advertising misled drivers regarding the potential earnings they could obtain as drivers for Lyft's ride-hailing platform.
According to the complaint filed on the FTC's behalf by the Department of Justice (DOJ), Lyft's overly optimistic earnings claims expanded thanks to the company's efforts to fill a shortage of available drivers to meet growing demand during the COVID-19 pandemic.
Lyft ran its ads via social media, email, text messages, push notifications, and Lyft's website that highlighted drivers' potential hourly earnings such as "Earn up to $29/hour driving for Lyft" and "Drivers in Los Angeles make up to $37 an hour." According to the FTC, which takes a very restrictive view of what limitation "up to" actually makes to a claim, these claims reflected the earnings of the top 20% of Lyft drivers—meaning that most drivers could not expect to make the advertised pay.
According to the FTC, the "up to" qualification didn't cure the deception because would-be drivers were unlikely to understand that the claim did not apply to the typical Lyft driver. Additionally, the FTC alleged potential drivers were unlikely to read the fine-print disclaimers attached to the ads clarifying that the earnings claims were not representative. The disclaimer also failed to note that the advertised numbers included the driver tip.
Lyft also allegedly advertised misleading "Earnings Guarantees" promotions where it guaranteed that drivers would get a certain amount if they completed a certain number of rides within a specified time frame. An example of one of these types of ads is below.
Again, Lyft allegedly set the ride requirements at the time to complete a certain number of rides that reflected what the top 20% of drivers for a given region could do. Additionally, the FTC alleged that drivers understood the "Guarantee" advertisements as offering the bonus in addition to their earnings, which was not the case. Instead, should drivers earn less than a certain amount in the specified time, Lyft would pay the difference between the guarantee and the earned amount. For the FTC, the problem was compounded because for many potential Lyft drivers English was a second language, meaning they might be less likely to understand the nuances of the language.
The FTC also emphasized that Lyft was well aware that the target audience took away a misleading message from these Earnings Guarantees ads, as it allegedly received thousands of driver complaints about them. It also continued making these deceptive statements after receiving a Notice of Penalty Offense Letter Concerning Money-Making Opportunities from the FTC in October 2021.
In addition to the monetary component, the proposed settlement prohibits Lyft from making claims about hourly earnings that include the tip amount. It also mandates that the company clearly disclose the specifics of the guarantee to drivers.
Key Takeaways
Earnings claims continue to be an important area for FTC enforcement, which may or may not change prospectively. What is particularly interesting about this case is that the FTC continues to read "up to" claims as meaning most or all, rather than either the "appreciable number" standard generally used by the NAD or as a realistic limitation on claims as at least one circuit court recently found—and a California one at that.
Judge Reconsiders Dismissal of Dior False Ad in Light of 9th Circuit Opinion
The California federal judge presiding over the false advertising lawsuit against Christian Dior Perfumes, LLC (Dior) said she would reconsider her dismissal in light of a recent ruling in another 9th Circuit case.
Plaintiff alleged that Dior falsely advertises its Forever Foundation and Forever Skin Glow Foundation as having SPF protection that will last for 24 hours. The court initially found that the plaintiff had plausibly alleged that a reasonable consumer would be misled by the product's front label but dismissed the complaint on other grounds.
Then came the 9th Circuit decision in McGinity v. Procter & Gamble Co. The court interpreted that decision to stand for the proposition that unless the front label is unambiguously deceptive (such that plaintiff has no need to look elsewhere for clarification), the court will look to the back label to determine whether a reasonable consumer would be deceived by the front-of-pack claim. Based on this decision, the judge dismissed the amended complaint.
Now, the plaintiff has asked the court to reconsider her decision in light of her appeal of the dismissal and of the nuanced clarification of McGinity in the recent 9th Circuit decision in Whiteside v. Kimberly Clark Corp. There, the court clarified that a label in California is not ambiguous "merely because it is susceptible to more than one reasonable" interpretation—leading a consumer to look to the back of pack to learn more. Rather, the court explained that a label "may have two possible meanings, so long as the plaintiff has plausibly alleged that a reasonable consumer would view the label as having one unambiguous (and deceptive) meaning."
The court explained that only when a reasonable consumer would necessarily require more information before concluding that the label is making a particular representation would the front label be deemed ambiguous—and the back label be considered at the dismissal stage. More specifically, "even if a front label can be interpreted in different ways, if the plaintiff plausibly alleges that the label 'conveys a concrete and unambiguous [deceptive] meaning to a reasonable consumer' the front label is not ambiguous and the back label is not considered."
Thus, under the standard as clarified by Whiteside, a front label is not necessarily ambiguous merely because it is open to more than one possible interpretation. The plaintiff had alleged that the Dior label is deceptive to the reasonable consumer, and therefore the label was not de facto ambiguous at this stage.
The court said if the appeals court remands the case, it would reconsider its dismissal in light of this latest jurisprudence.
Key Takeaways
This case shows the rapidly evolving landscape on the issue of product front and back labels and when the reasonable consumer would or would not be expected to look to the back label to clarify the front one. It's a question that's haunted many a false advertising suit.
Court Approves Old Lyme $4 Million Settlement Over "Non-GMO" False Ad Suit
Plaintiffs who alleged that Old Lyme (doing business as Deep River Snacks) misled consumers about its products containing non-genetically modified ingredients are one step closer to closing the door on the litigation as the court provided preliminary approval for a $4 million settlement.
Plaintiffs alleged that Old Lyme violated numerous states' consumer protection laws by falsely representing to consumers that certain of its products were non-GMO verified by a reputable and independent third party, but that the representation just mimicked the real seal and had no real meaning. They alleged that the "Non-GMO Ingredients" label on several products, including Deep River potato chips, was designed to look like the seal of the independent Non-GMO Project. That nonprofit is widely known for its rigorous scientific testing and trusted as an independent third-party verifier of whether a product contains GMO ingredients, explained plaintiffs.
In fact, said plaintiffs, "the Non-GMO Ingredients Seal is not a designation bestowed by a nonprofit group, or even a neutral third party, but instead is the work of Defendant itself. In other words, the Non-GMO Ingredients Seal of approval is nothing more than Defendant touting its own Products."
Plaintiffs alleged that the Old Lyme non-GMO seal was deliberately designed to look like the official designation to generate profits off of consumers that desire independently validated products. In reality, the seal was deceptive not only because it signified nothing official, but also because the products do contain GMO-derived ingredients.
The company's use of this label created consumer confusion and deceived consumers. It was intended to draw in consumers willing to pay a premium for a product perceived to be better for health and environment. Because of Old Lyme's deception, plaintiffs and consumers did not receive the benefit of their bargain, alleged plaintiffs.
After the deceptive business practice claims survived Old Lyme's motion to dismiss, the parties entered into mediation. Now the settlement will provide class members who have proof of purchase with $5 for the first product, plus an additional $0.50 per additional product for a total of $10.
Class counsel Sheehan & Associates, the attorneys involved in the vanilla false ad litigation and voluminous false advertisement legal filings, will ask for attorney's fees equaling one-third of the settlement fund.
Key Takeaways
This settlement marks the end of the road for yet another food-related false advertising action filed by Sheehan & Associates. Following an initial streak of public interest, Sheehan faced backlash from courts who questioned his tactics and whether his suits were frivolous. In this case, it seems he has struck gold.