Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—E.D. Cal.: Use of Energy Star logos on non-compliant appliances would support misrepresentation claims, (Oct 28, 2013)

By Edward L. Puzzo, J.D.

Consumers who purchased Whirlpool refrigerators that did not meet Energy Star guidelines but carried the Energy Star logo successfully stated claims for misrepresentation under California’s Consumer Legal Remedies Act, Unfair Competition Law, and False Advertising Law, the federal district court in Sacramento, California has ruled (Dei Rossi v. Whirlpool, October 24, 2013, Nunley, T.).

Plaintiffs Kyle Dei Rossi and Mark Linthicum, representing a class, alleged that Whirlpool Corporation, by selling certain refrigerators with the “Energy Star” logo that in fact did not meet the Energy Star program guidelines, had committed misrepresentations in violation of the California Consumer Legal Remedies Act (CLRA), the California Unfair Competition Law (UCL), and the California False Advertising Law (FAL).

Intent and deceptive practices. The California Consumer Legal Remedies Act, the court explained, prohibits unfair or deceptive practices undertaken by any person in a transaction intended to result in the sale of goods to any consumer. One of the unfair trade practices specified in Section 1770(a) of the CLRA is representing that goods have an approval or affiliation that they in fact do not have. However, the plaintiff must sufficiently allege that the defendant was aware of the defect at the time of the sale in order to survive a motion to dismiss. Whirlpool alleged that they lacked the requisite intent for liability under the Act because they were unaware that the refrigerators in question did not meet the Energy Star guidelines.

Here, plaintiffs’ complaint alleged that the Whirlpool manufacturing process included rigorous equipment maintenance and calibration, detailed lab procedures, and comprehensive record keeping on both equipment and test results. Consequently, they alleged, Whirlpool either tested the refrigerators and knew they were non-compliant with Energy Star, or affixed the Energy Star logos to them without testing them. In either case, it would know that the representations of Energy Star compliance were baseless, demonstrating intent.

These allegations, comported with the heightened pleading requirements of Federal Rule of Civil Procedure 9(b), which requires allegations of fraud to state with particularity the circumstances constituting fraud, the court ruled. Thus, defendants’ motion to dismiss the CLRA claims was denied.

Unlawful, unfair and fraudulent acts. The California Unfair Competition Law has established three types of unfair competition, the court explained: unlawful acts or promises, unfair acts or promises, and fraudulent acts or promises.

Plaintiffs cannot sustain an unlawful act or promise claim under the UCL, the court ruled. The plaintiffs had alleged that defendants, by selling refrigerators that did not meet the Department of Energy (DOE) energy efficiency standards, had committed an unlawful act. The court stated that, after reviewing the DOE regulations and guidelines, it failed to find a law governing the use of the Energy Star logo. Thus the unlawful act allegation could not be sustained.

The UCL unfair act claim, however, could be sustained, the court continued. Under the UCL, a practice is unfair if the consumer injury is substantial, not reasonably avoidable by the consumer, and not outweighed by countervailing benefits to consumers or competition, explained the court. Plaintiffs’ allegations that Whirlpool’s mislabeled appliances caused consumer injury they could not independently avoid, and that there was no countervailing benefit to their conduct, were sufficiently pleaded, the court ruled.

The UCL fraudulent act claim could also be sustained, the court ruled. Plaintiffs had alleged that Whirlpool’s laboratories were certified annually to show that its processes comported with Energy Star guidelines. If true, this would support the claim that Whirlpool’s misrepresentations were intentional. This claim met the requirement that facts be pleaded from which misrepresentation can be imputed to the defendant.

California False Advertising Law. The FAL makes its unlawful to disseminate any advertising which is untrue or misleading, the court explained. Whirlpool alleged that plaintiffs’ pleadings had not specified the time, place, and medium by which the false advertising was communicated to them.

The court disagreed. The pleadings specified when and where plaintiffs purchased their Whirlpool refrigerators, and further specified that Energy Star logos were displayed on the product. This defendant’s motion to dismiss the FAL claim was denied.

The case is Civil Action No. 2:12-cv-00125.

Attorneys: Annick Marie Persinger (Bursor & Fisher, PA) for Kyle Dei Rossi. Bradley A. Benbrook (Benbrook Law Group) for Whirlpool Corporation.

Companies: Whirlpool Corporation

Cases: Advertising StateUnfairTradePractices CaliforniaNews