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Stay ADvised: What's New This Week, December 27

12.30.21
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In This Issue:

Mass. AG Puts Some Teeth Into False Ad Complaint v. Dental Chain

Massachusetts Attorney General Maura Healey has filed a complaint alleging that a chain of dental care centers engaged in a pattern of false advertising designed to market toothsome deals that turned out to be duds.

Stopping just short of calling the company's tactics crooked, the 123-page complaint seeks to make the case that Aspen Dental Management repeatedly used bait and switch tactics to procure millions improperly from consumers, often targeting those who called in complaining of pain and others with low incomes.

The complaint also alleges that Aspen Dental's conduct violates the terms of its $1 million 2014 settlement in which it agreed to cease promoting similar deceptive claims. Since then, the complaint alleges, Aspen Dental has apparently brushed off any compliance efforts and run multiple ads making misleading promises about its supposedly free services, despite having committed to cease making misleading advertising claims.

According to the allegations, Aspen Dental, which has more than 25 offices in the state, advertised an initial free appointment, but then billed for dental exams. The company also advertised "no hidden fees" while drilling into its staff that it should hide the fees the company charged customers.

Further claims that did not align with reality included: the company claiming it accepted all types of insurance services when it did not; falsely advertising the price of dentures; and falsely advertising money-back guarantees without disclosing offer limitations.

The complaint alleges violation of Massachusetts consumer protection statutes, seeks restitution from the company, and seeks to enjoin Aspen Dental from making a long list of allegedly false claims. As one customer quoted in the complaint said: "[t]hey assured me the first visit would be free[;] [y]ou people should be sued for false advertising . . ."

Key Takeaways

This time Aspen Dental may have bitten off more than it can chew. Though AG Healey does not say how much restitution the company should fork over to straighten out its misconduct, the complaint does mention that Aspen Dental has netted $380 million since the 2014 settlement. As a repeat offender, Aspen Dental may have something to worry about.

It May Be MyLife, But It's the FTC and DOJ's $21 Million Ban on Background Reports

Anyone who's ever Googled anyone has probably come across MyLife, the company offering personal information and background reports online.

Now, MyLife and its CEO Jeffrey Tinsley have settled a Federal Trade Commission (FTC) and Department of Justice (DOJ) complaint and are on the hook for $21 million. They've also been banned from using negative option contracts because they allegedly used underhanded tactics to lure consumers into unlawful subscription programs.

The 2020 complaint alleged that MyLife falsely implied to consumers that subscribers could get access to viewable criminal records—but only after subscribing. In reality, once consumers subscribed, they found that many of the advertised records did not contain criminal reports or that the infraction was little more than a driving violation.

MyLife and Tinsley also allegedly failed to disclose material terms to subscribers, including how payment would be charged and the details of subscription cancellations. Additionally, outbound marketing campaigns and the company's pricing list made materially misleading and deceptive statements about the benefits of a MyLife subscription and about the company's cancellation policies. Additionally, the complaint alleged that, in practice, it was extremely difficult for customers to cancel subscriptions or obtain a refund, resulting in hundreds of consumer complaints.

The complaint also alleged that MyLife and Tinsley violated the Fair Credit Reporting Act (FCRA) by promoting the background reports without ensuring their accuracy, and also violated the Restore Online Shoppers Confidence Act (ROSCA) due to misleading billing practices. In a violations trifecta, the complaint also charges the defendants misrepresented their refund and cancellation practices in violation of the Telemarketing Sales Rule (TSR).

The settlement follows a court order that found that MyLife cost consumers almost $34 million and that injunctive relief would be appropriate to prevent the company from further violation of law. In addition to the monetary component, the settlement imposes a permanent ban on the company from offering negative option features and engaging in the allegedly deceptive conduct. The company must also implement a monitoring program to ensure compliance with the FCRA.

Key Takeaways

As we've covered on Stay ADvised, negative option contracts are trending these days, whether at the FTC or via the growing body of state laws regulating automatically renewing contracts.

Defendant Washes Its Hands Of "99.99%" Germ-Killing False Ad Suit

A company accused of falsely advertising the germ-killing power of its hand sanitizers has found its slate wiped clean as a judge ruled that the plaintiffs in the proposed class action suit failed to allege any concrete injury.

In July 2020, with hand sanitizers were very much in demand, the plaintiff filed a complaint (subsequently filing a second amended complaint after the first amended complaint was dismissed with leave to amend) alleging that Vi-Jon's ethyl alcohol-based hand sanitizer products (sold under brand names including CVS and Walgreens) falsely represented that it could kill "99.99%" of germs.

According to the plaintiff, this was false advertising and product misbranding because the hand sanitizers were ineffective at killing multiple types of organisms that cause disease, including the food-related norovirus germ, HPV, hepatitis A, and other germs amounting to more than 0.01 percent of germs. The complaint put forth causes of action for violations of California's Unfair Competition Law (UCL), False Advertising Law (FAL), the California Consumer Legal Remedies Act (CLRA), and other common laws.

But on a motion to dismiss the second amended complaint, Judge Jeffrey T. Miller of the U.S. District Court for the Southern District of California determined that the plaintiff had not supported his allegation that he suffered a concrete injury as a result of the alleged violations of these consumer laws, that he had not alleged that he suffered actual physical harm from his use of the hand sanitizers, nor that he paid a premium for defendant's products.

"Plaintiff has done nothing more than 'mathematically' calculate that the percentage of serious disease bearing 'germs' must, logically, exceed 0.01% of the universe of germs and, therefore, cannot 'kill' all of the most serious germs," said the court. "In sum, Plaintiff has not alleged any harm that is certainly impending as to himself; he has only pled a speculative, conjectural and hypothetical injury."

Judge Miller agreed with Vi-Jon that the public, and the reasonable consumer, was unlikely to be deceived by the marketing. As Vi-Jon pointed out, the product contained a disclaimer in the form of an asterisk next to the claim on the front label that the product "Kills more than 99.99% of germs." The asterisk linked to a back label disclaimer that qualified the claim by noting that it referred to "many common harmful germs and bacteria."

The court found it hard to believe that a reasonable consumer would believe that the products would be effective against the myriad organisms identified in the plaintiff's complaints because they are not transmissible by hands and/or they are uncommon in the United States.

Finally, Judge Miller noted that plaintiff's interpretation of the front label was inconsistent with the reasonable consumer's understanding of the claim because a reasonable consumer would hardly think that hand sanitizer was a suitable substitute for hand washing. Although not addressed again in the motion to dismiss the second amended complaint, the court noted in an earlier order that plaintiff "entirely ignores" in his arguments the defendant's inclusion of a disclaimer.

The disclaimer "simply confirms and clarifies the expectation raised on the front panel, rather than contradicts it." Plaintiff could not look at the front panel statement, "ignore the asterisk, and claim he has been misled." That was especially true when the front label contained no further adornments that would render the statement deceptive.

Key Takeaways

The pandemic spurred a number of lawsuits alleging that claims about the germ-fighting power of hand sanitizers were misleading. But as Judge Miller reminds us, plaintiffs will not go very far by alleging general, speculative injury.

There's a reminder here as well that disclosures, when worded correctly, can be effective at qualifying a claim—even when they appear on back of pack. Not all courts agree, and the National Advertising Division (NAD) has repeatedly frowned on such disclosures.

Hey FTC, You Say You Want a Restitution (Law)? One GOP Senator Has a Proposition

Heeding the Federal Trade Commission (FTC)'s call for Congress to restore its authority to seek equitable monetary relief, Republican Senator Mike Lee of Utah has introduced a bill aiming to do just that, albeit with "appropriate safeguards" for businesses and individuals accused of wrongdoing.

The bill proposes to expressly grant the agency power to seek monetary relief in the form of restitution and disgorgement following the U.S. Supreme Court's decision earlier this year in AMG Capital Management. Despite decades of contrary history, that decision held that Section 13(b) of the FTC Act does not authorize the FTC to seek equitable monetary relief unless available under alternate statute or regulation. Given the blow that the decision had on the FTC's efforts to obtain restitution for consumers and to deter illegal conduct, the agency asked Congress to restore this power and to make it express.

The Consumer Protection and Due Process Act would grant the FTC the authority to pursue equitable remedies for unfair or deceptive trade practices, and would grant more due process protections for individuals and businesses alleged to have violated the FTC Act than earlier bills introduced on this issue. This bill would amend section 13(b) to give the FTC authority to recover ill-gotten funds if a reasonable person would have known its actions were deceptive, which means the FTC must prove the wrongdoing was intentional. The FTC would also only be able to obtain the remedy award for individuals who relied on the wrongdoing and were harmed by it.

The bill would remove a presumption that the consumer was harmed by the unfair or deceptive action simply by being exposed to it and would set a three-year statute of limitations for the FTC to seek equitable remedies. Finally, it allows antitrust matters to be referred to the U.S. Attorney General to collect actual damages.

The bill sharply contrasts with the bill the Democratically-controlled House introduced to restore the FTC's restitution power, which has been sitting in the Senate since July 2021. That bill would add a new subsection (e) to Section 13 of the FTC Act granting the FTC significant restitution and disgorgement powers and would set a 10-year statute of limitations. That bill was criticized by Republicans for failing to protect businesses' due process rights.

Key Takeaways

Is this a case of be careful what you wish for? While Senator Lee's bill might nudge Congress forward to pass a law restoring the FTC's restitution powers, the top Republican on the Senate Judiciary Committee's antitrust panel is an unlikely friend of the FTC's. He is a frequent critic of the agency, including for what he said was its failure to police Big Tech and then trying to "clean up its own mess."

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