Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—E.D. Cal.: Unilever could have misled consumers about TRESemmé Naturals products, (Apr 11, 2014)

By Peter Reap, J.D., LL.M.

Two consumers adequately alleged claims on their own and on behalf of putative subclasses under the California Unfair Competition Law (“UCL”), California Consumers Legal Remedies Act (“CLRA”), and the Massachusetts Consumer Protection Act (“MCPA”) against Unilever United States, Inc., for allegedly misleading them by falsely representing that its TRESemmé Naturals line of hair care products contained no synthetic chemicals or artificial ingredients, the federal district court in Sacramento has decided (Morales v. Unilever United States, Inc., April 9, 2014, Shubb, W.).

Background. Morales is a resident of South Lake Tahoe, California. Morales alleges that she purchased defendant’s Nourishing Moisture shampoo, Nourishing Moisture conditioner, Vibrantly Smooth shampoo, and Vibrantly Smooth conditioner at a Safeway store in South Lake Tahoe, California in June 2012. Cohen is a resident of Canton, Massachusetts. Cohen alleges that she purchased defendant’s Radiant Volume shampoo and Vibrantly Smooth conditioner at a Target store in Stoughton, Massachusetts in April 2013.

Both plaintiffs allege that they viewed the product labels before purchasing the products and paid a premium for the products over comparable products not marketed as “natural.” The plaintiffs allege that defendant’s representation that the products are natural is false because the products contain numerous “unnatural synthetic ingredients.”

On October 22, 2013, the plaintiffs brought this action on behalf of themselves, a putative class of purchasers located in 21 states (the “Class”) including California and Massachusetts, a subclass of California purchasers, and a subclass of Massachusetts purchasers. The plaintiffs assert three claims: (1) a claim by Morales under the UCL on behalf of the California Subclass; (2) a claim by Morales under the CLRA and twenty other state consumer protection statutes on behalf of the Class and the California Subclass; and (3) a claim by Cohen under the MCPA twenty other state consumer protection statutes on behalf of the Class and the Massachusetts Subclass.

Standing. The standing requirements under the UCL are both similar to and substantially narrower than federal standing under Article III. The standing requirements under the UCL are also more stringent than those imposed by the CLRA. Therefore, if plaintiffs have sufficiently alleged standing under the UCL, they have also alleged standing under the CLRA and Article III, according to the court.

Economic injury. A plaintiff must establish that he suffered “some form of economic injury” in order to have standing under the UCL. Here, the plaintiffs alleged that they suffered economic injury because they paid a premium for TRESemmé Naturals products over comparable products that are not marketed as “natural.” The “extra money paid” for these products above what plaintiffs would have paid but for defendant’s allegedly deceptive representations constitutes economic injury, the court held.

Causation. In order to have standing under the UCL, a plaintiff must allege not only that he suffered economic injury, but also that there was a “causal connection” between that injury and the defendant’s alleged misrepresentation. The California Supreme Court has recognized that a presumption of actual reliance arises whenever a misrepresentation is material—that is, if a reasonable person would “attach importance to its existence or nonexistence in determining his choice of action.”

Here, the plaintiffs alleged that they “viewed the labels” and “paid a premium for those products over comparable products that do not purport to be natural.” Those allegations permit the reasonable inference that the plaintiffs purchased the products on the basis of representations made on the label. Although the defendant contended that the plaintiffs have not identified the specific aspect of the product labels that influenced their decision to purchase the products, the plaintiffs are not required to do so in order to establish standing.

Even if the defendant was correct that the plaintiffs did not allege that they relied upon any particular representation or aspect of the product label, the plaintiffs sufficiently alleged that the product labels contained material misrepresentations, the court held. The Plaintiffs alleged that consumers are “increasingly concerned” about the effects of synthetic chemicals, pay a premium for natural products, and that, as a result, the nationwide market for “natural” products exceeds $100 billion dollars.

Because the plaintiffs sufficiently alleged economic injury and reliance, they have standing to bring this action under California’s consumer protection statutes, as well as Article III.

Radiant Volume Conditioner claims. Although plaintiffs allege that they purchased five other products from the TRESemmé Naturals line, neither plaintiff alleged that she purchased defendant’s Radiant Volume conditioner. However, the packaging of the Radiant Volume conditioner is strikingly similar to the five products that plaintiffs purchased: it contains the same “Naturals” label and prominent green leaf as the other five products and makes the same claim of “silicone free conditioning” as the two conditioners that plaintiffs purchased.

Because the Radiant Volume conditioner is substantially similar to products that plaintiffs purchased, the plaintiffs have standing to bring claims on behalf of putative class members alleging that the Radiant Volume conditioner was mislabeled, the court ruled.

Claims based on other states’ consumer protection laws. Although Morales only alleged that she purchased TRESemmé Naturals products in California, she asserted claims under the consumer protection laws of 21 different states. Likewise, although Cohen only alleged that she purchased TRESemmé Naturals products in Massachusetts, she asserted claims under the consumer protection laws of those states. Because neither Morales nor Cohen is a resident of any state other than California or Massachusetts, respectively, and did not purchase defendant’s products in any state but her own, the plaintiffs did not have standing to assert a claim under the consumer protection laws of the other states named in the Complaint.

The court granted the defendant’s motion to dismiss the plaintiffs’ claims on behalf of the Class to the extent they arise under the laws of states other than California and Massachusetts.

Motion to dismiss. The standard for California’s UCL, False Advertising Law, and CLRA is the “reasonable consumer” test, which requires a plaintiff to show that members of the public are likely to be deceived by the business practice or advertising at issue. The MCPA likewise incorporates a “reasonable consumer” test, the court noted.

Here, the plaintiffs alleged that several aspects of the product labels are misleading: the use of the term “Naturals,” the green leaf that is prominently displayed on the bottle, and the claims that the product is “silicone free” or “lower in sulfates.” The plaintiffs alleged that a reasonable consumer would take these representations to indicate that defendant’s products are “natural” and free of “synthetic ingredients.” The defendant argued that reasonable consumers would not be misled by those product labels because they understand that cosmetics are not natural—that “there are neither shampoo trees nor conditioner streams.”

Despite the defendant’s contention that a cosmetic product cannot be natural, numerous courts have denied motions to dismiss claims alleging that cosmetic products were falsely labeled as “natural.” The defendant’s argument leads to the opposite conclusion, namely, that labeling cosmetic products manufactured from artificial ingredients as “natural” is misleading, the court reasoned. The court therefore could not conclude at this stage of the litigation that a reasonable consumer would not be misled by the term “natural” or “Naturals.”

Even if defendant disclosed those ingredients on the back label, it is settled law that it may not “rely on the ingredient list” to correct misleading labels. Accordingly, because the plaintiffs adequately alleged that defendant’s labels were likely to mislead a reasonable consumer, the court denied the defendant’s motion to dismiss plaintiffs’ UCL, CLRA, and MCPA claims.

Rule 9(b). In a deceptive advertising case, Rule 9(b) requires that the plaintiff(s) identify specific advertisements and promotional materials; allege when the plaintiff(s) were exposed to the materials; and explain how such materials were false or misleading. Here, the plaintiffs provided a copy of each of the allegedly misleading product labels and identify several features that they contend are misleading. The plaintiffs also identified the locations of the stores where they purchased defendant’s products after viewing the product labels and the dates on which they made those purchases. Finally, the plaintiffs alleged that the product labels are misleading because each product contains three to twelve artificial and unnatural ingredients, all of which are identified in the Complaint, the court explained.

The defendant contended that even if plaintiffs have described the alleged misrepresentations with adequate specificity, they have not satisfied Rule 9(b) because they have not adequately alleged reliance. As a preliminary matter, it is not clear whether allegations of reliance are subject to Rule 9(b)’s heightened pleading requirement, the court noted.

The court did not need to resolve this question, however, because the plaintiffs adequately pleaded reliance even under Rule 9(b), the court ruled. The plaintiffs alleged that they understood the product labels to mean that the products were free of artificial or unnatural ingredients and that they paid a premium for those products as a result. Those allegations were sufficiently particular to satisfy Rule 9(b). Accordingly, because the plaintiffs alleged the circumstances constituting fraud with sufficient particularity, see Fed. R. Civ. P. 9(b), the court denied the defendant’s motion to dismiss on this basis.

The case is No. 2:13-2213 WBS EFB.

Attorneys: Joseph DePalma, PHV (Lite DePalma Greenberg, LLC) for Alba Morales. James Maxwell Cooper (Kirkland & Ellis LLP) for Unilever United States, Inc.

Companies: Unilever United States, Inc.

Cases: Advertising StateUnfairTradePractices CaliforniaNews