“Whether reasonable consumers would be deceived by a challenged advertisement is a question of fact that can’t be decided on a motion to dismiss.” This claim is one of the biggest sacred cows in false advertising litigation. But as the Second Circuit has made clear twice in the past year, it’s just a load of bull. Take, for example, Chen v. Dunkin’ Brands, Inc., --- F.3d ----, 2020 WL 1522826, which the Second Circuit decided unanimously earlier this week. In Chen, the court doubled down on its June 2019 holding that a court can decide at the pleadings stage “whether a reasonable consumer would have been misled by a particular advertisement,” Geffner v. Coca-Cola Co., 928 F.3d 198, 200 (2d Cir. 2019), affirming the dismissal of a false advertising claim involving the meaning of “steak.” In the process, the court also served up a tasty side dish of personal jurisdiction doctrine.
Back in 2017, five consumers filed a putative class action against Dunkin’ Donuts, alleging a “pervasive pattern of fraudulent, deceptive, and otherwise improper advertising.” Their beef with Dunkin’ concerned two breakfast sandwiches: the “Angus Steak and Egg Sandwich” and the “Angus Steak and Egg Snack N’ Go Wrap.” Not only did the sandwiches’ names contain the word “steak”; Dunkin’s advertising for them was also replete with the word “steak.” However, according to the plaintiffs, the sandwiches did not actually contain “steak,” because they did not feature “[i]ntact cuts of beef muscle” straight from the cow. Instead, they contained “a non-intact (grounded) [sic] beef patty, an inferior product of comminuted [i.e., finely ground] beef.” The complaint featured full-color screen captures from the challenged advertisements depicting the offending piece of pulverized protein:
The five plaintiffs allegedly “relied on [Dunkin’s] misrepresentations” and “paid a premium” for the sandwiches, which cost between $2 and $4.50, based on their expectation that they would receive “intact” steak filets. Indeed, the lead plaintiff, Chufen Chen, was apparently so thoroughly deceived that she bought the accused sandwiches twice, three days apart, apparently holding out for an “intact” Angus steak even after her first disappointing experience. To remedy this alleged deception, the plaintiffs brought claims under the consumer protection laws of all 50 states, seeking certification of a nationwide class, over $5 million in damages, and an injunction.
The district court dismissed the case on the pleadings, and now the Second Circuit has affirmed. Before reaching the meat of the case, however, the Second Circuit had to address a threshold issue: personal jurisdiction. Although the plaintiffs filed their complaint in New York federal court, four of the five were from out-of-state and had purchased the offending sandwiches in their home states, not in New York. Because those four plaintiffs’ claims arose entirely from out-of-state events, New York’s courts (and, by extension, federal courts sitting in New York) lacked specific personal jurisdiction over those claims. The question, then, was whether New York’s courts could exercise general (all-purpose) personal jurisdiction over Dunkin’. If not, Dunkin’ couldn’t be herded into a New York court to respond to the out-of-state plaintiffs’ claims.
In Daimler AG v. Bauman, 571 U.S. 117 (2014), SCOTUS explained that a corporation like Dunkin’ is subject to general personal jurisdiction in a state only where it is “essentially at home” in that state. Id. at 126. Ordinarily, this will be the case only if the corporation is “incorporated in” the state or “ha[s] its principal place of business there.” Id. at 140. As the Second Circuit reiterated in Chen, to find a corporation “at home” in a state outside of these two scenarios would require “a truly exceptional case.” 2020 WL 1522826, at *3. Dunkin’ was neither incorporated in nor principally based in New York, and there were no other “truly exceptional” facts that would justify deeming it “at home” there.
Uncowed, the plaintiffs argued that even if Dunkin’ wasn’t “at home” in New York, it “consented to general personal jurisdiction in New York by registering to do business … in the state.” Id. at *2. Like other states, New York “requires foreign corporations to register with the state and designate an agent for service of process” before conducting in-state business. Id. at *3 (citing N.Y. Bus. Corp. Law § 1301(a)). Prior to Daimler, New York courts had “interpreted the act of registering [in the state] as consent to general jurisdiction in the state.” Id. But the Second Circuit was not moo-ved: even if those decisions were right when they were decided, the Second Circuit held, they “do not survive Daimler.” Id. A different result, the court correctly observed, would “rob[] [Daimler] of meaning” by leaving “every corporation … subject to general jurisdiction in every state in which it registered.” Id. at *4.
This eliminated the claims of the four out-of-state plaintiffs, but left those of Chufen Chen, who bought the accused sandwiches in New York. Turning to her, the Second Circuit noted that, to violate New York’s consumer protection statutes, the challenged conduct must be “likely to mislead a reasonable consumer acting reasonably under the circumstances.” Id. at *5. And, as the court stressed, “[i]t is well-settled that a court may determine as a matter of law that an allegedly deceptive advertisement would not have misled a reasonable consumer.” Id. (quoting Fink v. Time Warner Cable, 714 F.3d 739, 741 (2d Cir. 2013)) (emphasis added). So much for the bromide that deceptiveness is always question of fact for discovery or trial.
Applying this reasonable consumer test, the Second Circuit made mincemeat of Chen’s claims. For starters, the court noted, Dunkin’s sandwiches did indeed contained “steak,” at least in a sense. Citing Merriam-Webster, the court observed that “steak” may refer not only to an intact ribeye or filet mignon, but also to “ground beef prepared for cooking or for serving in the manner of a steak,” as in “chopped steak, hamburger steak, and Salisbury steak.” Id.; see also Steak N Shake v. Burger King Corp., 323 F. Supp. 2d 983 (E.D. Mo. 2004) (discussing the use of the term “steak burger” dating back to the 1930s to describe ground-beef patties “made from steak or mostly steak cuts of the beef”). Interpreting “steak” in this sense, Dunkin’s advertisements would be true and non-misleading.
And reasonable consumers had every reason to interpret “steak” in that way, rather than in the idiosyncratic manner that Chen allegedly understood the term. The Second Circuit emphasized that “context is crucial” in evaluating the reasonableness of a particular interpretation. Chen, 2020 WL 1522826, at *5 (citing Geffner, 928 F.3d at 200). Here, the court observed, the challenged advertisements feature “zoomed-in images that clearly depict the ‘steak’ in the Products as a beef patty.” (Again, some of those images are reproduced above.) Furthermore, the court noted, the sandwiches are sold for “less than $4,” and they are “marketed as grab-and-go products that can be consumed in hand, without the need for a fork and knife.” Id. Given these contextual clues, the Second Circuit held, “[a] reasonable consumer” simply “would not be misled into thinking she was purchasing” an “intact” Angus steak. Id. at *6.
Chen’s jurisdictional holding is obviously a big deal for non-New York corporations that do business in the Empire State. But its merits holding is also a valuable reminder (1) that courts can (and should) toss implausible false advertising claims at the pleadings stage, and (2) that “context is crucial” in the Rule 12(b)(6) analysis. As in Chen itself, this “context” can include the remainder of the challenged advertisement or label (including imagery, disclaimers, or ingredient lists); the price of the product; and the channel or location in which it is sold. And, although Chen didn’t say so explicitly, this “context” should also include the background knowledge and experience of the relevant consumer audience.
For example, the reason the product’s price was relevant in Chen is because most American consumers know that intact “steak” is a high-end, expensive product that costs much more than $4. The Second Circuit didn’t hesitate to decide the case on this basis, even though the plaintiffs didn’t include the price of an intact steak in their complaint. Likewise, in Geffner, the Second Circuit invoked the long history of use of the term “diet” in the marketplace to mean “reduced calorie” in rejecting the claim that reasonable consumers would view the term as a guarantee of weight loss. 928 F.3d at 200-01. As these decisions underscore, courts should not hesitate to consider unpleaded facts that ordinary consumers would likely know, as the modern Rule 12(b)(6) standard “requires the reviewing court to draw on its judicial experience and common sense.” Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009).
We hope to see more courts follow the Second Circuit’s well-done decision by subjecting allegations of false advertising to rigorous scrutiny at the pleadings stage, and tossing out those—like Chen’s—that are all hat and no cattle.
