consumer fraud – Class Action Defense

Duane Morris Takeaway: This week’s episode of the Class Action Weekly Wire features Duane Morris partner Jerry Maatman and associate Alessandra Mungioli with their discussion of 2023 developments and trends in consumer fraud class action litigation as detailed in the recently published Duane Morris Consumer Fraud Class Action Review – 2024.

Check out today’s episode and subscribe to our show from your preferred podcast platform: Spotify, Amazon Music, Apple Podcasts, Google Podcasts, the Samsung Podcasts app, Podcast Index, Tune In, Listen Notes, iHeartRadio, Deezer, YouTube or our RSS feed.

Episode Transcript

Jerry Maatman: Welcome loyal blog listeners. Thank you for being on our weekly podcast, the Class Action Weekly Wire. My name is Jerry Maatman, I’m a partner at Duane Morris, and joining me today is my colleague, Alessandra. Thank you for being on our podcast to talk about thought leadership with respect to class actions.

Alessandra Mungioli: Thank you, Jerry. I’m glad to be here.

Jerry: Today we’re going to discuss our recent publication, our e-book on the Duane Morris Consumer Fraud Class Action Review. Listeners can find this book on our blog. Could you tell us a little bit about what readers can expect from this e-book?

Alessandra: Absolutely Jerry. Class action litigation in the consumer fraud space remains a key focus of the plaintiff’s bar. A wide variety of conduct gives rise to consumer fraud claims which typically involve a class of consumers who believe they were participating in a legitimate business transaction, but due to a merchant or a company’s alleged deceptive or fraudulent practices, the consumers were actually being defrauded.

Every state has consumer protection laws, and consumer fraud class actions require courts to analyze these statutes, both with respect to plaintiffs’ claims and also with respect to choice of law analyses when a complaint seeks to impose liability that is predicated on multiple states’ consumer protection laws.

To assist corporate counsel and business leaders with navigating consumer fraud class action litigation, the class action team here at Duane Morris has put together the Consumer Fraud Class Action Review, which analyzes significant rulings, major settlements, and identifies key trends that are apt to impact companies in 2024.

Jerry: This is a great, essential desk reference for practitioners and corporate counsel alike dealing with class actions in this space. Difficult to do in a short podcast, but what are some of the key takeaways in that desk reference?

Alessandra: Just as the type of actionable conduct varies, so, too, do the industries within which consumer fraud claims abound. In the last several years, for example, the beauty and cosmetics industry saw a boom in consumer fraud class actions as consumers demanded increased transparency regarding the ingredients in their cosmetic products and the products’ effects. In 2023, consumer fraud class actions ran the gamut of false advertising and false labeling claims as well.

Artificial intelligence also made its way into the class action arena in the consumer fraud space for the first time in 2023. In MillerKing, LLC, et al. v. DoNotPay Inc., the plaintiff, a Chicago law firm, filed a class action alleging the defendant, an online subscription service that uses “robot lawyers” programmed with AI, was not licensed to practice law and therefore brought claims for consumer fraud, deceptive practices, and breach of trademark. The defendant moved to dismiss the action on the basis that the plaintiff failed to establish an injury-in-fact sufficient to confer standing, which the court granted. The plaintiff asserted that the conduct caused “irreparable harm to many citizens, as well as to the judicial system itself,” and constituted “an infringement upon the rights of those who are properly licensed,” such as “attorneys and law firms.” The court found that the plaintiff failed to demonstrate any real injury per its claims, and granted the defendant’s motion to dismiss.

Jerry: Well, robot lawyers and lawyer bots – that’s quite a development in 2023. How did the plaintiffs’ bar do in – what I consider the Holy Grail in this space – securing class certification, and then conversion of a certified class into a monetary class-wide settlement?

Alessandra: So settlements were very lucrative in 2023. The top 10 consumer fraud class action settlements in 2023 totaled $3.29 billion. And by comparison, the top 10 settlements in 2022 had totaled $8.5 billion, so we have seen a downward trend. Notably, five of these 10 settlements last year took place in California courts. The top settlements in 2023 resolved litigation stemming from a variety of different theories, from smartphone performance issues to the marketing of vape products. Last year, courts granted plaintiffs’ motions for class certification in consumer fraud lawsuits approximately 66% of the time. And the overall certification rate for class actions in 2023 was 72%.

Jerry: Well, that’s quite a litigation scorecard. And this is an area of interest that the class action team at Duane Morris will be following closely and blogging about in 2024. Well, thank you for being with us today and thank you loyal blog readers and listeners for joining our weekly podcast again. You can download the Duane Morris Consumer Fraud Class Action Review off our website. Have a great day!

Alessandra: Thank you!

By Seth Goldberg, Gerald L. Maatman, Jr., and Jennifer A. Riley

Duane Morris Takeaways: Cannabis products – such as vapes, pre-rolled joints, tinctures, gummies, and beverages – are consumer packaged goods that are required under state law to be marketed with packaging and labeling that demonstrates their safety to consumers. Although the U.S. state-licensed cannabis industry has been one of the fastest-growing industries in the U.S. over the past decade, consumer fraud lawsuits arising out of alleged packaging and labeling problems, which are a common risk for CPG manufacturers in other industries, have, until now, not been a major consideration for the cannabis supply chain. However, that is changing. As three recent lawsuits suggest, consumer fraud class actions may be on the rise in the industry. Given the media attention cases like these attract, and the potential for damages for thousands or millions of potential consumers, the cannabis supply chain should take notice. As discussed below, this is going to be especially true once cannabis products are permitted to be sold interstate.

Key Cases

In Centeno et al. v. DreamFields Brands Inc., and Med for America, Inc., a consumer class action filed on October 20, 2022, in the Superior Court of California for Los Angeles County, two putative class representatives filed a putative class action against the manufacturers of Jeeter-branded pre-roll joints on behalf of “all persons who, while in the State of California and within the applicable statute of limitations period, purchased or more Jeeter Products.” The complaint alleges that the putative class representatives purchased a variety of Jeeter-branded pre-rolled joints based on the high THC potencies stated on the labeling of such products, but those products were actually lower in THC than stated on the labeling. Given that products with greater THC potency are priced higher than products with lower THC, the putative class representatives claim they paid a premium they would not have paid had they known the true THC potency of the Jeeter products they purchased, and thus they suffered an economic loss for which they should be made whole. Their complaint alleges that “millions of other consumers” bought Jeeter pre-rolled joints and suffered the same economic loss. As the Complaint asserts:

If Defendants told the truth — that is, that its products’ THC content is substantially lower than represented on the label — the price of its Products would fall dramatically. If consumers knew the truth — that the Products contain substantially less THC than the label says — Defendants could not sell their Products for its current prices. Indeed, as explained above, cannabis products with lower declared amounts of THC content sell for substantially less than ones with higher declared amounts of THC content. Accordingly, if Defendants told the truth about the THC content of their products, they would have had to lower the price, and Plaintiffs and class members would have paid less.

In addition to seeking for themselves and the class of “millions of consumers” damages for the amounts overpaid for the Jeeter-branded pre-rolls, the putative class representatives also seek punitive damages, attorneys’ fees, and injunctive relief to stop the allegedly fraudulent labeling under California’s unfair competition and false advertising statutes, as well as various common law claims.

We previously wrote about a number of separate actions filed against Curaleaf, the largest U.S. cannabis product manufacturer in 2021, arising out of allegations that Curaleaf mislabeled tinctures containing THC that were marketed as containing CBD. One of those cases, Williamson v. Curaleaf, Inc., a consumer class action filed in the U.S. District Court for the District of Oregon on May 30, 2022, was reported last week to have settled for payments of $150 to $200 for as many as 500 class members who are alleged to have consumed the mislabeled Curaleaf tinctures. Like the class action complaint filed in Centeno arising out of the mislabled Jeeter pre-rolls, Williamson’s class action complaint sought statutory damages, punitive damages, and attorneys’ fees under Oregon’s consumer fraud statute known as the unfair Trade Practices Act.

In addition to Centeno and Williamson, we previously wrote about Plumlee v. Steep Hill Inc., a putative class action filed in the U.S. District Court for the Eastern District of Arkansas against cannabis testing lab and cannabis cultivators NSMC-OPCO LLC, Bold Team LLC and Osage Creek Cultivation LLC, which, like Centeno, arose out of allegations that the operators falsified the amount of THC in their cannabis products. As in Centeno, Plumlee seeks class-wide damages for economic loss, i.e., amounts overpaid for mislabeled cannabis products, and as in Centeno and Williamson, Plumlee seeks punitive damages and attorneys’ fees for the alleged fraudulent conduct. Interestingly, although the claims in Plumlee are sound in consumer fraud, Plumlee asserts that the defendants acted together to form an enterprise in violation of the Racketeer Influenced and Corrupt Organizations Act. As we previously wrote, these claims could just as easily been asserted as consumer fraud.

Future Litigation Prospects

There are a few reasons cannabis consumer fraud class actions may not have been attractive to the plaintiffs’ class action bar in recent years. First, given that cannabis products may only be manufactured and sold in the same state, the size of a class and the amount of damages are limited to consumers in a single state, as opposed to the type of nationwide class action one see with other CPGs. Indeed, Centeno, Williamson, and Plumlee, assert claims on behalf of a single state-wide class.

Second, most state cannabis markets have only recently – in the past few years – begun to grow into markets of hundreds of thousands or millions of consumers, and thus a single state class a few years ago would likely have been too small to warrant the investment in an expensive litigation by plaintiffs’ counsel.

Third, and similarly, defendants’ pockets are deeper today as a result of the increased sales over time than they were just a few years ago. For these reasons, the continued growth of state cannabis markets is likely to result in more cannabis consumer fraud class actions.

However, the interstate sale of cannabis products is really going to change the risk spectrum from consumer fraud class actions.

Once interstate sales of cannabis products are permitted, the mass marketing and distribution of cannabis products to consumers in multiple states in a region, if not nationally, will open the door to claims asserted on a nationwide basis that a cannabis consumer product was mislabeled. While such claims would be asserted under state-specific consumer fraud laws, they may be asserted on behalf of consumers around the country, resulting in significant exposure to the cannabis supply chain, i.e., growers, processors, labs, and dispensaries, for economic loss and punitive damages, as well as attorneys’ fees. These types of claims are routinely filed by the plaintiffs’ class action bar on behalf of nationwide classes arising out of the alleged mislabeling of other CPGs, and that bar will no doubt have cannabis products in their sights when interstate sales cannabis begin.