Antitrust Law Daily Wrap Up, ADVERTISING—S.D.N.Y.: Red Bull can’t ‘give you wings,’ but false ad complaint won’t fly, (Jun 30, 2016)

By Jody Coultas, J.D.

A Puerto Rican Red Bull purchaser was barred from pursuing false advertising and consumer protection claims against Red Bull GmbH, Red Bull North America, Inc., and Red Bull Distribution Company, Inc., due to a settlement agreement reached in a substantially similar case, according to the federal district court in New York City. The doctrines of res judicata and release precluded the Puerto Rican consumer from bringing claims against Red Bull (Rosado-Acha v. Red Bull GmbH, June 29, 2016, Failla, K.).

The consumer alleged that Red Bull cited to flawed or disproved scientific studies to support its advertising that Red Bull (1) “[i]ncreases performance,” (2) “[i]ncreases concentration and reaction speed,” (3) “[i]mproves vigilance,” (4) “[s]timulates Metabolism,” and (5) “[m]akes you feel more energetic and thus improves your overall well-being.”

The complaint filed in Puerto Rico was substantially similar to a consolidated class action complaint filed in January 2013 in the New York court. The parties reached a settlement agreement, and the court issued a final judgment and dismissed the consolidated action with prejudice as to all settlement class members. Following final approval, Red Bull moved, in that action, to enjoin the Puerto Rican consumer from prosecuting the action in Puerto Rico. That motion was moot after the case was transferred from Puerto Rico to the New York court.

Red Bull North America, Inc. (RBNA) moved to dismiss the instant action, and the consumer moved for entry of default against Red Bull GmbH.

Insufficient process. The court dismissed the complaint as to Red Bull Distribution Company, Inc. (RBDC) and Red Bull GmbH, pursuant to the Federal Rules concerning insufficient process and insufficient service of process. Summonses were issued as to RBNA, GmbH, and RBDC, but service was attempted only on RBNA. The consumer argued that GmbH waived these defenses by appearing in the matter. However, making a general appearance before the court does not constitute a waiver of the defense of insufficient service of process. Also, the motion for an extension of time to answer, the motion to transfer, and the motion to dismiss were filed solely on behalf of RBNA. The time had long since passed during which the consumer could effect service on these defendants. Therefore, the claims were dismissed as to GmbH and RBDC.

Res judicata. The doctrine of res judicata bars a party from relitigating issues that were or could have been raised in an action where a final judgment on the merits has been reached. Dismissal, with prejudice, arising out of a settlement agreement, operates as a final judgment for res judicata purposes. A nonparty may be bound by a judgment because she was adequately represented by someone with the same interests who was a party to the suit. Representative suits with preclusive effect on nonparties include properly conducted class actions. Absent class members in a class action must receive due process in order to be bound by a final judgment a class action.

Because the doctrine of res judicata barred the instant claims, the court dismissed the complaint. Individuals residing in Puerto Rico and the U.S. Territories were included in the Settlement Class. Therefore, those individuals were adequately represented by class counsel and were in privity with the previous Settlement Class. The settlement also was a final adjudication on the merits. The consumer’s claims and demands were almost word-for-word duplications of the New York complaint, and the Puerto Rican consumer was a member of the Settlement Class. There were no grounds on which the court could find that the consumer’s interests were not aligned with those of the earlier class. There was also no reason to find that the Puerto Rican complaint did not involve the same transaction as the earlier class. The fact that the Puerto Rican complaint was based on Puerto Rican law was irrelevant, as res judicata “bar[s] a later claim arising out of the same factual grouping as an earlier litigated claim even if the later claim is based on different legal theories or seeks dissimilar or additional relief.”

Doctrine of release. The Puerto Rican consumer’s claims were unequivocally released, according to the court. Red Bull argued that the consumer’s claims were “expressly and unambiguously” released by the final judgment in the prior class action. “A release is a type of contract governed by principles of contract law. In determining the scope and validity of a release, courts should apply state law, and there is no dispute that New York law applies to the interpretation of the Settlement Agreement.” The settlement release barred any future claims against the defendants, in any court and based on any law, relating to the manufacturing, advertising, marketing, labeling, packaging, promotion, sale, or distribution of Red Bull products. Clearly, the release applied to the consumer’s claims.

The case is No. 15 Civ. 7620 (KPF).

Attorneys: Jose R. Franco-Rivera (Jose R. Franco-Rivera, Attorney at Law) for Jose Rosado-Acha. Jason Russell, Hillary Hamilton, Jordan Feirman, and Angela Colt (Skadden, Arps, Slate, Meagher & Flom LLP) for Red Bull GmbH and Red Bull North America Inc.

Companies: Red Bull GmbH; Red Bull North America Inc.

Cases: Advertising NewYorkNews