The New Consumer Class Action Trend: Corporate Character Attacks

Aug. 26, 2021, 8:01 AM

As those of us who defend consumer class actions know, the lawyers on the other side of these cases are always on the lookout for fodder for the next complaint. In the past decade or so, this search has focused on labeling claims about product features, leading to a rash of class actions for every popular labeling claim.

For example, claims that goods are “natural” or contain “real” ingredients have each spawned dozens of consumer class actions in which the plaintiffs claim to have overpaid for a product that was not really as advertised.

Recently, however, consumer plaintiffs’ attorneys have begun to shift their focus from the features of products to the practices of the companies behind them. These cases take aim at a company’s claims that its practices are “sustainable,” that its materials are “responsibly” or “ethically sourced,” or that its manufacturing processes are “cruelty-free.”

If not for these representations, the plaintiffs allege, they would not have purchased the company’s products. In some cases, the consumer plaintiff adds heft to the complaint by joining forces with a nonprofit, such as the Sierra Club.

Why have these cases come into fashion, and are they any stronger on the merits than the product-feature-centered cases of yore?

Why ‘Corporate Responsibility’ Class Actions Are Catching On

The Plausibility Factor. Courts are growing bolder about tossing class actions at the pleading stage on the grounds that the consumer’s expectations, even if nominally based on the label claim, were wildly unrealistic for the product—e.g., that a $5 “truffle oil” was made with real wild truffle.

Plaintiffs’ attorneys may hope that judges will view “corporate responsibility” class actions with less skepticism—both because the cases purportedly implicate weightier issues than the ingredients in cooking oil, and because judges may reason that consumers cannot independently evaluate corporate practices.

The Public Relations Dimension. The attorneys behind this new genre of class action are also probably hoping that they will pose delicate public relations challenges for defendants. It is one thing to respond aggressively to a complaint about flavoring ingredients, but defendants may be more circumspect when the topic is environmental stewardship or treatment of workers. Plaintiffs are likely hoping to derive settlement leverage from these sensitivities.

The Scope. Plaintiffs in these cases may also be hoping to get, or at least credibly threaten, broad and sensitive discovery. Consumer class actions typically target statements on product labels, and many “corporate responsibility” class actions continue that trend, taking aim at statements like “sustainably sourced” and “100% recycled.”

But some plaintiffs also beef up their complaints with general comments from corporate leadership about, for example, the company’s sustainability practices. By plaintiffs’ logic, almost any comment can be damning—if an executive has praised the company’s progress, he has helped to defraud consumers about the company’s sustainability; if he has acknowledged limitations, he has admitted to the fraud.

Plaintiffs include these dubiously relevant allegations to create the impression that litigating the case will open the hood on the full range of the company’s practices, including at its highest levels.

... And Why They May Not Take Off

Although class actions of this sort create unique sensitivities for defendants, they also suffer from their own legal infirmities:

Lack of Causation and Injury. The problem with broadening these complaints beyond run-of-the-mill product labels is that the more diffuse the alleged misconduct, the more difficult to certify a class. Certification requires a showing that the defendant’s conduct caused the same injury to each class member—making the class action an awkward vehicle for sweeping charges of corporate hypocrisy.

Even if a company has publicly claimed to have certain standards and fallen short of them, it is virtually impossible to tie that to a concrete injury to consumers who bought the corporation’s product. Most will not have heard about the company’s corporate responsibility claims, and the few who have probably did not consider them when shopping.

These limitations are likely to land plaintiffs back where they started: challenging a single labeling statement on a specific product (e.g. “sustainably sourced”).

Lack of Standing for Nonprofits. As noted above, some consumer plaintiffs have enlisted nonprofit organizations to join these claims. But unlike consumers, nonprofit organizations cannot credibly claim they were taken in by a company’s misrepresentations. Instead, they claim that they wasted resources educating others about those misrepresentations.

This theory has faced skepticism from courts, and is unlikely to stand up to discovery, since nonprofits will rarely be able to show that single corporation’s misconduct cost them significant resources.

Protected Speech. Another problem with targeting public statements by corporate leaders is that those statements are often entitled to First Amendment protection. Corporations discuss these issues in policy discussions with journalists, lawmakers, or experts—making them impervious to suit even if they are false.

Moreover, although statements on product labels are usually fair game, the Federal Trade Commission’s “Green Guides” offer guidelines for labeling claims about sustainability, and many states recognize a “safe harbor” for compliance with those guidelines. So many of the statements targeted in these complaints may be uniquely ill-suited to support consumer fraud claims.

Plaintiffs’ attorneys are likely hoping that the weighty subject matter of these cases will increase courts’ inclination to overlook these infirmities. If that proves true, these cases may be here to stay.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

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Jane Metcalf, a partner with Patterson Belknap in New York, maintains a diverse commercial litigation practice with a focus on false advertising. She has successfully represented Fortune 500 companies in consumer class actions and competitor suits across the country.

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