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Brand Protection & Advertising

Stay ADvised: What's New This Week, June 26

07.02.20
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In This Issue:

FTC Pumps the Brakes on Stimulus Check Used Car Scam

In what could be called a creative, if deceitful, use of bait-and-switch tactics, Traffic Jam Events and its owner David J. Jeansonne, II, attempted to leverage the Coronavirus Aid, Relief and Economic Security (CARES) Act—including through mock-ups of bogus stimulus checks—in direct mailers advertising their car dealership clients, the FTC has alleged.

According to the agency's complaint and press release, the company promised consumers who attended the car sales that they would receive stimulus checks by traveling in-person to a "Stimulus Relief Program" center. Instead, when eager consumers arrived, they found just a lot hosting a used car sale.

As the FTC describes it, Traffic Jam solicited consumers by stamping mailer envelopes with "TIME-SENSITIVE" and "IMPORTANT COVID-19 ECONOMIC STIMULUS DOCUMENTS" language. Inside, the ads touted multiple additional benefits, such as a retail gift card and special financing rates. To lend legitimacy to the scheme, Traffic Jam stressed that there were "mandatory qualifications to receive the Stimulus Relief Funds," including U.S. residence and a valid driver's license.

But it was all much ado about nothing. "In fact, Defendants are not providing important COVID-19 stimulus information or stimulus relief, including stimulus checks. Additionally, Defendants are not affiliated or otherwise associated with, or approved by, the government, or otherwise permitted to use the Great Seal of the United States," said the FTC.

Such egregious violation of consumer trust and blatant use of deceptive marketing tactics to make a buck will not do, said the FTC, particularly at a time when consumers are especially vulnerable to scams because of COVID-19. The FTC's complaint against the company and its owner alleges it violated the FTC Act and seeks a permanent injunction enjoining defendants from further violations.

And it's not just the FTC that's chasing Traffic Jam Events at full speed. In addition to working with the FTC on this matter, Florida Attorney General Ashley Moody filed her own suit against Traffic Jam in April seeking an injunction. No surprise for a repeat offender—the company has faced enforcement actions in Indiana and Kansas.

Key Takeaways

For the FTC, which has been fighting COVID-19 scams practically since the pandemic began, this enforcement action is just one of many. The agency concurrently announced it mailed an additional 30 letters warning marketers to cease making deceptive advertising claims about COVID-19 treatments and cures. That brings the total number of such letters it sent up to 250. This is a key area of current enforcement focus for the agency.

No Creamer for You! Nestlé Loses Summary Judgment Bid Over Coffee-mate Creamer Claims

This ruling joins a recent string of cases—including the "Whole Grain" Cheez-It case in the 2nd Circuit—that touch on the consumer's duty to review product labels, including ingredient lists, for information that arguably contradicts other packaging claims.

Plaintiff Mark Beasley's complaint alleged that Nestlé engaged in "an intentional, long-term campaign to deceptively market Coffee-mate as healthful and free of trans fat," knowing that the product contained partially hydrogenated oil (which is an artificial form of trans fat). The presence of this ingredient was disclosed in the ingredient list. Beasley asserted that these practices constituted violations of California's Unfair Competition Law (UCL), False Advertising Law (FAL), and other state consumer protection laws.

Nestlé argued that Beasley's case was barred by the statute of limitations, pointing to deposition testimony where Beasley admitted that he has known that partially hydrogenated oil is a trans fat "since the late 1990s." Nestlé also argued that Beasley admitted in his deposition that consumers seeking to avoid trans fat can look at a food product's ingredient list to see if it contains partially hydrogenated oil. After Nestlé filed its motion for summary judgment, Beasley claimed he "misspoke" at the deposition and did not learn about the ingredient until 2017.

The U.S. District Court for the Northern District of California denied Nestlé's motion for summary judgment, noting that questions of fact remain as to whether the plaintiff should have investigated the ingredient list on the product labels more closely, rather than relying on claims that the product was trans fat-free.

Key Takeaways

There's nothing sweet about this ruling for Nestlé, although it serves as a reminder that advertisers may not be able to escape deceptive ingredient claims by pointing to FDA-mandated ingredient labeling. Recent filings indicate that this case was referred to a magistrate for settlement negotiations. Though settlement is often a pragmatic solution for the parties, Nestlé made a point to remind the court of public opinion that the ruling on the motion for summary judgment "is in no way determinative of the merits of the plaintiff's allegations."

Not So Fast: FTC/SBA Warn Six Companies About PPP Loan Claims

The Federal Trade Commission (FTC) and the Small Business Administration (SBA) sent joint warning letters to six companies this week regarding potentially misleading claims about the companies' affiliation with and their ability to secure loans for small businesses under the SBA's Paycheck Protection Program (PPP).

The warning letters state that the claims expressly or impliedly state "an affiliation or relationship with the SBA or approved PPP lenders," "that consumers can get PPP or other SBA loans by applying" on the company's website, and that consumers will be approved and receive funds within a certain, expedited timeframe. Some of the problematic claims include:

  • Using the SBA name and official logo as part of the company name and/or in advertising materials (e.g., "SBA Los Angeles," "SBA LA");
  • Listing the address of the SBA headquarters, implying it is the company's address;
  • Claiming the company offers "SBA Loans," that the applicant will "receive approval within 24 hours and be funded within 48 hours";
  • Offering access to "SBA Lending experts" and "SBA Loan Officers";
  • Claiming the company provides SBA Disaster Loans, that companies can "get your PPP loan today," and that companies should "Apply Now" through the company website;
  • Claiming that the company is "able to process your SBA Paycheck Protection Loan faster than any other source" and that "the fastest way to your loan is here."

The FTC/SBA letters warn these companies that to the extent that any of these claims are false, misleading, and/or not substantiated, such claims would violate the FTC Act. The warning letters direct the companies to review all of their marketing materials to ensure that all deceptive claims are removed, and require the companies to notify the FTC/SBA within 48 hours of the substantiation the companies have for the identified claims.

These warning letters emphasize the FTC's focus on not only potentially deceptive marketing practices that could negatively impact the health and safety of consumers (i.e., products related to COVID-19), but also on claims that could negatively impact the financial well-being of businesses during these difficult economic times.

The letters were issued to: TF Group, Inc. d/b/a Tayclor Financial; SBADisasterLoan.org; Small Business Advocates – Los Angeles, d/b/a SBA Los Angeles; Madison Funding Partners, Inc.; NYMBUS, Inc.; and, USAFunding.com.

NARB Declines to Revisit NAD's Determination on Jurisdictional Challenge; Affirms NAD's Findings Regarding Home Warranty Claims in Full

In a recent decision, the National Advertising Review Board (NARB) has affirmed that jurisdictional issues are best resolved by NAD, and that NAD's resolution of such issues should not be cast aside by NARB on appeal.

The case is Choice Home Warranty (Home Warranty Service Plans), Case #6341 (01/29/20), NARB Panel #265. Advertiser Choice Home Warranty (Choice Home) and challenger Frontdoor, Inc., both offer home service contracts (colloquially referred to as home warranties), whereby consumers pay a monthly or annual fee for access to the provider's list of professional contractors and coverage of some or all of the repair or replacement costs for home appliances and systems (such as HVAC systems).

Choice Home argued NAD should decline to exercise jurisdiction over Frontdoor's challenge, citing a 2015 proceeding by the New Jersey AG's Office and its consumer protection arm. That proceeding terminated in a consent judgment, whereby Choice Home agreed to pay a fine, was enjoined from certain business practices within the state of New Jersey, and agreed to the appointment of a compliance monitor through 2017. Although the compliance period had admittedly ended, Choice Home argued that it had retained the compliance monitor privately thereafter.

NAD's jurisdictional analysis is governed by Rule 2.2(C) of the Better Business Bureau National Program's Procedures, which provides that:

If, at the commencement or during the course of an advertising review proceeding, NAD/CARU concludes that the advertising claims complained of are: …
(b) the subject of pending litigation or an order by a court;
(c) the subject of a federal government agency consent decree or order; … or
(f) without sufficient merit to warrant the expenditure of NAD/CARU's resources,
NAD/CARU shall advise the challenger that the complaint is not, or is no longer, appropriate for formal investigation … and shall administratively close the case file.

Choice Home argued before NAD and again at NARB that its "so-ordered" consent judgment was an order of the court, the equivalent of a federal consent decree or order, and that the case did not merit the expenditure of NAD's resources given it had retained the compliance monitor. NAD disagreed.

Consistent with and expanding upon prior jurisdictional appeals, NARB declined to review NAD's decision:

The panel finds it unnecessary to address the specific points raised by CHW in support of its jurisdictional position, or the specific responses argued by Frontdoor. The panel concludes that issues involving the interpretation of procedural rules and the discretionary exercise of NAD jurisdiction are generally best left for resolution by NAD. The panel concludes that that principle applies here, and the panel accepts NAD's resolution of those issues. In addition, the panel commends NAD for proceeding to evaluate the advertising issues raised by the challenge here and believes that those issues represent the type of dispute that industry self-regulation is well-suited to resolve.

NARB also affirmed each of NARB's recommendations as to the claims at issue. Choice Home agreed to comply with NARB's decision.

Key Takeaways

Although "generally best left for resolution by NAD" leaves open the possibility of NARB review, the decision suggests that most jurisdictional appeals are unlikely to be fruitful. Prior NARB decisions questioned the appropriateness of jurisdictionally based appeals but did not go quite as far as the ChoiceHome panel.

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