Retail and Consumer Products Law Roundup - February 2017

by Manatt, Phelps & Phillips, LLP
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  • Ninth Circuit Tackles Several TCPA Issues in Gym Texting Case
  • Retailer to Pay California $1 Million for "Biodegradable" Plastic Claims
  • Social Media Communications Insufficient to Order Halt, Court Rules
  • Arbitration Not Permitted for PAGA Claims
  • Wage Statements Comply With State Law, Ninth Circuit Affirms

Ninth Circuit Tackles Several TCPA Issues in Gym Texting Case

By Christine M. Reilly, Co-Chair, TCPA Compliance and Class Action Defense | Marc Roth, Co-Chair, TCPA Compliance and Class Action Defense | Diana L. Eisner, Associate, Litigation

Why it matters:

Retailers communicate with their customers frequently as an essential part of their business. While these communications are typically expected and desired, that doesn't shield even the most well-intentioned companies from the explosion of Telephone Consumer Protection Act (TCPA) litigation seen the past few years. In this climate, many companies struggle to balance communicating with their customers and warding off litigation.

A recent decision by the Ninth Circuit underscores why good compliance is key, and also lends clarity to certain key parameters, such as the scope of consent and revocation thereof.

Detailed discussion:

On January 30, 2017, the Ninth Circuit issued its decision in Bradley Van Patten v. Vertical Fitness Group et al., No. 14-55980, a case that addressed a number of significant TCPA issues. Plaintiff Van Patten joined a gym in 2009 and provided his cell phone number on the membership application. He canceled his membership shortly thereafter. In May and June 2012, he received several promotional text messages from the gym inviting him to re-join. Van Patten filed a putative class action alleging various violations of the TCPA, arguing that he never consented to receive the text messages and even if he had, he revoked consent when he canceled his membership.

The defense initially argued that Van Patten did not have Article III standing for his suit, citing the U.S. Supreme Court's recent decision in Spokeo v. Robins. The Ninth Circuit rejected this argument, finding that "[u]nsolicited telemarketing phone calls or text messages, by their nature, invade the privacy and disturb the solitude of their recipients." The panel distinguished Spokeo, reasoning that "[u]nlike in Spokeo, where a violation of a procedural requirement minimizing reporting inaccuracy may not cause actual harm or present any material risk of harm . . . the telemarketing text messages at issue here, absent consent, present the precise harm and infringe the same privacy interests Congress sought to protect in enacting the TCPA." Thus, "[a] plaintiff alleging a violation under the TCPA 'need not allege any additional harm beyond the one Congress has identified.'" (quoting Spokeo).

This ruling is consistent with prior Ninth Circuit TCPA decisions on this issue, effectively foreclosing the applicability of Spokeo to virtually all TCPA cases in that circuit.

The Ninth Circuit's ruling on revocation of consent provided a mixed result for defendants. On one hand, the court held that revocation must be "clearly made" and Van Patten's cancelation of his gym membership, standing alone, was insufficient to constitute revocation of consent for calls and text messages. However, the Ninth Circuit definitively held that the defendant bears the burden to prove that consent was previously given, a finding consistent with the FCC's July 2015 ruling on that issue, but unclear within the circuit as some lower courts placed the burden of proving a lack of consent on the plaintiff. Now, it is squarely on the defense to prove consent by affirmative evidence.

The Ninth Circuit also reaffirmed the importance of considering the context of the circumstances under which consent is provided. The texts Van Patten received were an offer to re-join the gym. Thus, the court held the texts were within the scope of his consent because he had provided prior express consent to receive text messages related to his gym membership when providing his mobile number on his original gym application. (It is also noteworthy that the texts were sent prior to the FCC's 2012 Order requiring prior express written consent went into effect in October 2013, so the standard was prior express consent even though the texts were marketing).

Retailer to Pay California $1 Million for "Biodegradable" Plastic Claims

By James G. Votaw, Partner, Environment | La Toya Sutton, Associate, Advertising, Marketing and Media

Why it matters:

Wal-Mart Stores and its online affiliate Jet.com, Inc. have agreed to pay penalties and other costs of nearly $1 million to settle allegations by 23 California county district attorneys that the company sold plastic products with "biodegradable" or unsubstantiated "compostable" claims in violation of the State's plastics labeling law and deceptive trade practices laws. California law goes beyond federal standards for biodegradation claims for plastic products of any kind. Originally only applicable to plastic bags and food containers, the California plastics labeling law bans the sale of any plastic product or packaging with a "biodegradable" or other claim implying that the item will breakdown, fragment or decompose in a landfill or other environment. The only exception is for "compostable" claims where the seller can demonstrate that the plastic product or packaging fully meets particular ASTM plastic biodegradability standards. All companies in the distribution chain that sell in or into California are potentially strictly liable for mistaken biodegradability claims, including online and brick and mortar retailers. Like Wal-Mart in this case, violating companies are also subject to injunctive relief, which may significantly exacerbate the consequences of a repeat violation.

While most companies are aware of the Federal Trade Commission's (FTC) formal guidelines for environmental marketing claims ("Guides for the Use of Environmental Marketing Claims" or "Green Guides"), this case reminds us that individual States may have more particular restrictions on environmental marketing claims, and there are cost and reputational risks to relying solely on suppliers' due diligence for compliance.

Detailed discussion:

Federal Standards for Proper Biodegradability Claims

In the Green Guides, the FTC cautions marketers not to make unqualified "degradable" claims for a product unless they can have competent and reliable scientific evidence that the entire product or package will completely break down and return to nature within one year after customary disposal for the product. This will almost never be appropriate for items typically disposed of by landfill, recycling or incineration. For unqualified "compostable" product claims, FTC requires marketers to have competent and reliable scientific evidence that all the materials in the item will break down into, or otherwise become part of, usable compost in a safe and timely manner in a home compost pile or device. In general, claims must consider both the extent of degradation that will be achieved, and whether the circumstances of disposal assumed by the claims will be practically available to the consumer (e.g., existence of municipal composting facilities). Among other topics, the Green Guides present the FTC's enforcement position on "free-from," "recyclable," ozone-friendly, non-toxic, recycled content and source reduction claims, and use of eco-friendly seals and certifications.

Since issuing the Guides, the FTC has initiated numerous enforcement actions involving allegedly misleading environmental claims, including over a dozen cases concerning claims of plastic products being biodegradable to different extents. Additionally, the agency has closely scrutinized more cutting edge claims—where science and consumer expectations may be at a disconnect—such as in October 2014, when the agency sent warning letters to 15 marketers of "oxodegradable" plastic waste bags warning them that their oxodegradable, oxobiodegradable or biodegradable claims may be deceptive. The letters explained that the required setting for oxodegradable plastic to degrade, specifically a high-oxygen environment, is unlikely to be found in landfills, the place where the vast majority of these types of trash bags end up. Contrary to the marketing, therefore, these bags may be no more biodegradable than ordinary plastic waste bags when used as intended.

Social Media Communications Insufficient to Order Halt, Court Rules

Why it matters:

An employer lost a motion requesting a California federal court limit the communications of the plaintiff's counsel in a wage and hour dispute. Jerrod Finder filed a putative class action against Leprino Foods Company, alleging that his employer violated California wage law. While the case was on appeal to the U.S. Court of Appeals for the Ninth Circuit, the employer filed a motion to limit Finder's counsel's communication with putative class members via a social media group dedicated to the case, arguing the interactions were "inappropriate and intentionally misleading." Finder's counsel retorted that a former employee started the page and issued him an invitation, and that his comments and questions—even those about other employees that filed affidavits in support of Leprino—were appropriate.

Ultimately, the court was not persuaded that the communications at issue were misleading or improper enough to warrant judicial intervention. Finder's counsel's appeared to be engaging in pre-certification communications with potential class members, the court said, and Leprino failed to provide evidence of any prejudicial effect on employees supportive of the company.

Detailed discussion:

The dispute over proper communications between counsel and potential class members over social media began in 2013, when Jerrod Finder filed a wage and hour class action against Leprino Food Company. He alleged multiple violations of the California Labor Code as well as Private Attorneys General Act claims.

Multiple motions followed by both parties and the U.S. District Court certified for interlocutory appeal the question of whether meal period premiums are wages or penalties under California law. The U.S. Court of Appeals for the Ninth Circuit accepted the appeal in October 2016.

While the case was pending before the federal appellate panel, Leprino filed a motion to limit plaintiff's counsel's communications with putative class members. According to the employer, several Leprino employees reported to their manager that their names had been published in posts in a semi-private social media group about the lawsuit.

Specifically, Phillip Downey, counsel for Finder, named 27 individuals whose declarations were submitted by Leprino in support of its opposition to class certification, asking group members to notify him "if you know anything about the following individuals who are testifying for Leprino." Downey also quoted from the deposition of one employee that he said was contrary to hundreds of other employee statements and asked the social media group members to contact him with reasons why she would provide conflicting information.

Members of the group responded with posts such as, "someone got promise [sic] a promotion lol" and "You know that's true." Leprino argued that such commentary falsely insinuated that the declaring employee lied in return for an employment benefit, and that Downey's conduct would have a chilling effect on employees willing to speak on behalf of Leprino, hampering the employer's ability to defend itself. The comments were "amplified" by appearing in an online public forum, Leprino added.

But the social media page was created by a former Leprino employee to let other current and former employees know about the case—not by plaintiff's counsel, they argued. Downey said he was invited to join the group and that it was a perfectly appropriate way to communicate with the putative class. The comments challenged by Leprino were aimed at vetting Leprino's declarations, a duty of counsel, Downey told the court.

Were Downey's communications "misleading or improper"? No, U.S. Magistrate Judge Barbara A. McAuliffe determined.

"By all indications, the [social media] group at issue, here, is one lawfully created by an interested potential class member," she wrote, and not by Downey or other class counsel. "This factor is important because the origins of the relationships between class counsel and the putative class is a distinction that matters under current case law evaluating pre-certification communications by counsel."

While the court recognized that the potential for abusive or coercive statements is particularly high in an employer/employee context, it was not persuaded that Downey's comments required judicial intervention.

"Absent from the communications here is any potential for coercion or undue influence by Plaintiff's counsel," the court wrote. "Because neither Mr. Downey nor his law firm created the [social media] group, the Court has little concern that members are being harassed or improperly influenced in their voluntary communications with Mr. Downey. Mr. Downey is an advocate for his position in this lawsuit; a position that members can freely take or leave. Mr. Downey's participation in this [social media] group is therefore no more than Plaintiff's counsel's engagement in pre-certification communications with potential class members."

Although several of Downey's communications were directed at uncovering information—potentially unflattering about Leprino—such inquiries were not improper, Judge McAuliffe said. "The United States Supreme Court has recognized the importance of permitting class counsel to communicate with potential class members for the purpose of gathering information, even prior to class certification," she said. "[T]he bulk of the comments made by Mr. Downey are aimed at 'determin[ing] whether . . . potential class member[s] possess any evidence relating to the Complaint allegations."

The court even recognized that some of Downey's comments "may consist of insinuations" that cast the employer in a negative light, but found that "those comments do not mislead employees about their rights as potential class members," or create confusion or seek to influence whether members opt in or opt out of the class. "Defendant's arguments boil down to concerns about whether Mr. Downey's comments potentially expose Leprino employees to negative commentary or office gossip," the judge said. "Ultimately, however, case law does not require that communications to potential class members be objective and neutral."

Importantly, Leprino did not present evidence that any members of the social media group had harassed employees in the workplace. The names of the declarants were already publicly available on the Court's docket and Downey asked members of the group to refrain from "intimidating" Leprino witnesses by contacting them. The "mere possibility" of abuses did not justify the adoption of a communications ban, Judge McAuliffe wrote.

To read the order in Finder v. Leprino Foods Company, click here.

Arbitration Not Permitted for PAGA Claims

Why it matters:

A California appellate court affirmed that arbitration is not permitted for Private Attorneys General Act (PAGA) claims, affirming denial of an employer's motion to compel arbitration. A warehouse employee filed a single-count action under PAGA against her employer, alleging multiple violations of state labor law. The employer argued that the plaintiff had to first arbitrate her individual dispute to show that she was an "aggrieved party" under PAGA before the representative action could proceed in court. A trial court disagreed and denied the motion to compel arbitration.

The employer appealed, contending that the Federal Arbitration Act (FAA) permits an employer and employee to individually arbitrate discreet disputes underlying a PAGA claim, which can then be collectively litigated. But the appellate panel affirmed denial of the motion to compel arbitration. "This dispute does not involve an individual claim by [the plaintiff]," the court wrote, "but rather an action brought for civil penalties under PAGA for violating the Labor Code."

Detailed discussion:

Martina Hernandez worked in a Ross Stores, Inc. warehouse in Moreno Valley, CA as a nonexempt, hourly-paid employee. She filed a single-count representative action under the state's Private Attorneys General Act (PAGA) alleging that her employer violated numerous Labor Code laws, including failure to pay all appropriate wages, failure to properly itemize hours worked and paid, and failure to pay overtime. She sought recovery under the PAGA civil penalties.

Ross moved to compel arbitration, arguing that Hernandez first had to establish that she was an "aggrieved party" pursuant to the statute before she could proceed in court. The employer pointed to an employment agreement Hernandez signed when she was hired that stated: "This Arbitration Policy … applies to any disputes, arising out of or relating to the employment relationship between an associate and Ross or between an associate and any of Ross' agents or employees, whether initiated by an associate or Ross. This Policy requires all such disputes to be resolved only by an Arbitrator through final and binding arbitration."

The determination of whether or not Hernandez was an "aggrieved party" necessarily involved the resolution of whether she was subject to a Labor Code violation, Ross said, which was a "dispute" that must be arbitrated as it involved whether she was subject to the violation.

A trial court disagreed, relying on Iskanian v. CLS Transportation to hold that because Hernandez's complaint consisted of a single count under PAGA—a representative action on behalf of the state—no individual claims or "disputes" existed between the plaintiff and Ross.

Ross appealed but the appellate court affirmed denial of the motion to compel arbitration.

"[T]he dispute between Ross and Hernandez is not a dispute between the employer and the employee," the court wrote. "Rather, this is a representative action and Hernandez is acting on behalf of the state. This dispute does not involve an individual claim by Hernandez regarding the Labor Code violations but rather an action brought for civil penalties under PAGA for violating the Labor Code. There are no 'disputes' between the employer and employee as stated in the arbitration policy. The trial court properly determined it had no authority to order arbitration of the PAGA claim."

The determination of whether the party bringing the PAGA action is an aggrieved party should not be decided separately by arbitration, the court added. The use of the word "dispute" in the employment agreement rather than "claim" was, according to the court, "a distinction without a difference."

"The term 'dispute' is clearly intended in the agreement to refer to all claims, disputes, and actions brought by the employee against the employer for personal Labor Code violations," the court wrote. "Again, this case involves a dispute, claim or action brought on behalf of the state by Hernandez. Hernandez did not allege any individual claims or disputes."

Public policy further supported this conclusion, the court stated, since "requiring an employee to litigate a PAGA claim in multiple forums would thwart the public policy of PAGA to 'empower employees to enforce the Labor Code' on behalf of the state."

To read the decision in Hernandez v. Ross Stores, Inc., click here.

Wage Statements Comply With State Law, Ninth Circuit Affirms

Why it matters:

The Ninth Circuit Court of Appeals affirmed summary judgment in favor of Costco Wholesale Corporation in a suit brought by a former employee alleging the company's wage statements violated California state law. Costco's pay statements did not list her total hours worked and the separate hourly rates for vacation pay and vacation pay at the overtime rate, Loretta Apodaca claimed in her putative class action. Costco countered that the statements complied with the law because they listed the total hours worked with the corresponding hourly rates and that any violation of the statute was not "knowing and intentional."

A district court judge sided with the employer and the federal appellate panel affirmed. Costco listed the total hours worked, the court said, and the lack of vacation pay challenged by the plaintiff "does not reflect 'total hours worked,' but instead represents paid time off." Because the employer complied with the "plain and commonsense meaning" of the statute, it was entitled to summary judgment, the court held.

Detailed discussion:

Loretta Apodaca filed a putative class action against her former employer, Costco Wholesale Corporation, alleging that the company violated California Labor Code section 226 by providing inaccurate wage statements. Costco failed to list on the wage statement the total hours and the separate hourly rates for vacation pay and vacation pay at the overtime rate (or float overtime) on the line labeled "vacation pay/nonexempt salaried vacation or float overtime," she told the court.

Costco moved for summary judgment on the claim, arguing that its wage statements complied with section 226 of the Labor Code because they stated the total hours worked by the employee along with corresponding hourly rates. In addition, Apodaca failed to prove she was injured pursuant to section 226(e) because any alleged violation of the law was not "knowing and intentional," the national retailer added.

A district court judge agreed with Costco and granted summary judgment in the employer's favor. Apodaca appealed and, in an unpublished memorandum, the Ninth Circuit Court of Appeals affirmed.

To establish a section 226 claim, a plaintiff must demonstrate both a violation of subsection 226(a) and an injury under subsection 226(e), the panel noted. While the trial court found Apodaca failed with regard to her 226(e) obligation, the Ninth Circuit said Costco's wage statements satisfied 226(a) and never considered the injury prong.

"The Labor Code provisions at issue require that the employer provide an accurate itemized wage statement listing 'total hours worked by the employee,' and 'all applicable hourly rates in effect during the pay period and the corresponding number of hours worked at each hourly rate by the employee,'" the court wrote. "The district court correctly concluded that the line at issue, 'vacation pay/nonexempt salaried vacation or float overtime,' does not reflect 'total hours worked,' but instead represents paid [time off]. Here, in the line 'vacation pay/nonexempt salaried vacation or float overtime,' Costco included additional information not required by statute, i.e., information regarding paid vacation, and therefore did not violate section 226(a)."

Costco's wage statements satisfy the Labor Code requirements because they list the total hours worked and the corresponding hourly rates, the panel said. "It is undisputed that the total hours worked can be calculated based on the wage statement [alone] by adding the 'REGULAR PAY' hours to the 'OVERTIME' hours,'" the court explained. "It is also undisputed that the applicable hourly rate for these worked hours can be calculated based on the wage statement [alone] by dividing the amount paid by the hours worked."

"Because the hours worked and hourly rate can be 'promptly and easily determine[d] from the wage statement alone,'" the Ninth Circuit affirmed summary judgment for the employer.

To read the memorandum in Apodaca v. Costco Wholesale Corp., click here.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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