Regular readers know that there is no private right of action for violations of the FTC Act. Most of us also know, however, that aggressive plaintiffs’ lawyers frequently try to “piggy back” on FTC enforcement actions by bringing private class actions premised on the same conduct as the FTC action. This is one such tale. Here, the defendant (the wolf) huffed and puffed to the judge that the plaintiffs’ case was made of straw and should be blown down. The judge, finding that the plaintiffs’ claims were premised on a lack of substantiation not falsity, agreed.
In 2010, the FTC sued and settled with Nestle over claims made about Nestle’s BOOST Kid Essentials drink. The FTC alleged that Nestle claimed that the drink and its probiotic laced straw could: prevent upper respiratory tract infections in children; strengthen the immune system to protect against cold and flu; and reduce school absences due to illness. The FTC alleged two different theories of deception. First, the FTC alleged that in making the health claims Nestle also made an express or implied representation that it possessed and relied upon a reasonable basis for those claims. Based on the posture the FTC recently has taken regarding health and disease claims (and the consent decree in this case), a reasonable basis for the FTC would be two clinical trials substantiating the claims made. Second, the FTC alleged that the ads also claimed that “clinical studies prove” that drinking BOOST had the same health benefits; and that clinical studies in fact did not prove these health benefits.
Approximately ten days after the FTC announced its action, the first of several putative class actions were filed. These actions were consolidated before Judge Faith Hochberg in the District of New Jersey. Plaintiffs sued under several state consumer protection statutes, as well as for negligent misrepresentation and breach of express warranty. On July 16, Judge Hochberg granted Nestle summary judgment on the state consumer protection statutory claims.
Following a string of other decisions, the parties and the court all agreed that the state statutes did not provide for a claim based on a lack of “prior substantiation.” That is, unlike the FTC Act, the state statutes require a plaintiff to prove falsity not simply that the advertiser lacked a “reasonable basis” for the claims made.
In this case, plaintiff argued that it was not bringing prior substantiation claim, rather a falsity claim based on Nestle’s claim that the health benefits were “clinically shown”. Recall that the FTC alleged not only that the health claims were unsubstantiated but also that the “clinically shown” claims were false. Nestle was successful in blowing this house down as well. After reviewing the expert opinions both parties submitted, Judge Hochberg concluded that “[p]laintiffs do not present evidence that
Nestle actually lacks scientific support for its “clinically shown” claims or that such support does not exist; they argue that this support should have been stronger.” The court found that this was insufficient to prove falsity.
This case highlights well the different frameworks that govern an FTC case and those brought by private class action litigants. The FTC’s paradigm effectively shifts the burden to the defendant to prove its claims are substantiated. Thus far, courts construing state statutes have refused to follow the FTC’s lead and find that an advertiser makes an implied representation that it possess a reasonable basis for claims that is false unless the advertiser possesses prior substantiation. So for now, this portends a happy ending for advertisers facing “piggy back” class actions and a nightmare for plaintiffs’ attorneys.