LegalMatch: Business Law

False Advertising Laws

In advertising, many companies cross the line between telling the truth and making false claims. They may claim that a product is “scientifically proven” and “results are guaranteed,” but is this true?

Deceptive advertising is prevalent in the marketing world, and most of us have been the victims of false advertising. Is there anything that protects the consumer from these types of misleading advertisements?

Companies Sued for False Advertising

Jamie Lee Curtis used to be the main spokesperson for Activitia yogurt. Their advertisements claimed Activia had more health benefits than the average yogurt. In actuality, it pretty much has the same nutritional value as every other kind of yogurt. A class action settlement from 2010 forced Dannon, the makers of Activia, to pay up to $45 million in damages to the consumers that filed the lawsuit and others who said they were fooled by the advertisement.

In 2010, Kellogg’s Rice Krispies cereal was accused of misleading consumers about its immunity boosting capabilities. The FTC ordered Kellogg to halt all advertising that claimed that the cereal improved a child’s immunity with “25 percent Daily Value of Antioxidants and Nutrients – Vitamins A, B, C and E,” stating the claims were “dubious.”

Penzoil was ordered to pull ads that claimed their oil performed better than their competitors. A New Jersey judge called these claims “false and misleading” and “repugnant,” because, in actuality, their oil performs no better than others.

Eclipse gum claimed that its new ingredient, magnolia bar extract, had germ-killing properties. In fact, it did not. As part of the settlement, its maker paid $6 to $7 million to a fund that will reimburse consumers up to $10 each for the product and cover other costs of the settlement.

Truth in Advertising

When consumers see or hear an advertisement, federal law dictates that the ad must be truthful. In other words, it must not be misleading and, when appropriate, must be backed by scientific evidence. The Federal Trade Commission (FTC) enforces these truth-in-advertising laws. The laws apply the same standards no matter what the medium, whether it’s a newspaper, magazine, online, in the mail, on billboards or on buses.

The FTC particularly scrutinizes advertising claims that impact consumers’ health or pocketbooks, such as claims about food, dietary supplements, over-the-counter drugs, tobacco, alcohol, or information related to high-tech products and the Internet. The FTC also monitors and writes reports about ad industry practices regarding the marketing of alcohol and tobacco.

How Do Consumers Prove False Advertising?

Once a consumer believes he has been duped by false advertisement and files suit, he must prove five things. First, a false “statement of fact” has been made about the advertiser’s own or another person’s goods, services, or commercial activity. Second, the statement deceives or has the potential to deceive a substantial portion of its target audience. Third, the deception is likely to affect the audience’s purchasing decisions. Fourth, the advertising involves good or services in interstate commerce. Finally, the deception has either resulted in, or is likely to result in, injury to the plaintiff. The fact weighed most heavily is the advertisement’s potential to injure the customer.

Types of False Advertising

There are three main acts that constitute false advertising: failure to disclose, flawed and insignificant research, and product disparagement.

With failure to disclose, a court of law can find a company guilty of false advertising if the company makes statements which are misleading because they do not disclose something that the consumer should know. For example, a drug company can be liable for false advertising if it fails to disclose certain side effects to taking the drug.

Flawed and insignificant research occurs when research is unsupported by accepted authority or which is contradicted by prevailing authority. Product disparagement involves discrediting a competitor’s product.

Authored by Erin Chan-Adams, Legal Match Legal Writer and Attorney at Law

Your Retirement Investments Just Got $17B Safer

Planning for retirement can be a daunting task—regardless of your occupation or where you are in your career. In order to ensure a secure financial future, it is common to seek professional advice to advise you on retirement plans and investments.  Considering the impact that a retirement plan has on your life, one would hope that the professional giving advice is putting your best interests first.  However, until a recent change in law from the Department of Labor, this has not always been the case.

A fiduciary duty is a legal duty to put the interests of a person or party above all else; violating this duty leads to legal repercussions. Somebody who has a fiduciary duty is called a fiduciary. In 1974, the Employee Retirement Income Security Act (ERISA) was passed to help create standards and practices for retirement and health plans. The original act applied a broad rule, assigning fiduciary duty to those rendering investment advice regarding a retirement plan for compensation. However, one year after ERISA was passed, the act was amended so that the application of fiduciary duty to retirement advisors was substantially limited. 

The new rule applied a five-part test before a retirement advisor owed a fiduciary duty to the person they are advising. Under the 1975 rule, employers still owed a fiduciary duty to employees taking advantage of retirement plans offered by that employer. However, many private retirement advisors didn’t carry such a duty. Instead, advisors were only required to make recommendations that they themselves reasonably believe were suitable for clients.

How Good is “Suitable” Advice?

So just how much damage can entrusting your retirement to an advisor who is held to less than a fiduciary standard do? While there are certainly advisors who will provide non-conflicting advice regardless of the standard they are held to, the damage caused by conflicted advisors is substantial. The Obama administration recently issued a study estimating that conflicts of interest cost retirement plans about $17 billion a year. The Department of Labor estimates that conflicted investment advice “could cost IRA investors between $95 billion and $189 billion over the next 10 years and between $202 billion and $404 billion over the next 20 years.”

These conflicts generally occur where financial advisors, not subject to a fiduciary standard and not required to act exclusively in your best interest, suggest investment opportunities that provide them better commissions instead of providing you better returns. It is very common for companies to offer percentage commissions or rewards to advisors on certain investments or types of investments.  For example, the company Table Bay offered “a Maserati to advisers who sell at least $7.5 million in annuities in 2014 and a BMW, Range Rover, or Porsche to those with at least $6 million in sales.” These sort of deals can lead a retirement advisor to recommend investments with the best commissions as opposed to investments that are best for your retirement portfolio—leading to the costs described above.

The Department of Labor Has Changed Who Owes You a Fiduciary Duty

With the landscape of retirement planning changing, and the potential for so much damage to investors before them, the Department of Labor has taken action to change the 1975 test. They first introduced a proposal to update the rule for who owes a fiduciary duty in 2010.  Since then, they have introduced an updated proposal in 2015 and released a final rule which will take effect in June 7, 2016 and will be applicable to financial advisors beginning on April 10, 2017.

The new rule substantially expands who has a fiduciary duty in regards to your retirement account.  In addition to explicitly including advice regarding private plans like IRAs, the Department of Labor has done away with the 1975 five-part test entirely—replacing it with a broader standard.

The new rule assigns fiduciary duty to advisors providing recommendations regarding the investment of retirement plan or IRA assets, including recommendations regarding the investment of assets that are being rolled over or otherwise distributed from plans to IRAs. It also requires that advisors making recommendations regarding investment management of plan or IRA assets hold a fiduciary duty to their client.

Tempered Expectations

These new changes substantially expand the situations where a retirement advisor will be treated as a fiduciary. However, not every advisor will be a fiduciary. The new rule has a specific definition for what constitutes a “recommendation” and what constitutes “financial advice.” 

While critics argue that holding advisors to a higher standard may push some advisors out of the market—or lead them to stop offering services to moderate income individuals—it seems unlikely that the changes will lead financial advisors to abandon such a huge market.  The increased protection to retirement investors far outweighs the loss of advisors who don’t feel they can sustain a business while maintaining a fiduciary relationship.  If advisors feel they need to offer recommendations that are not in your best interest, is that really advice or is it a sales pitch?

Authored by Jonathan Lurie, LegalMatch Legal Writer and Attorney at Law

Use of Defeat Device by Volkswagen Prompts Recall

Volkswagen was directed by the Environmental Protection Agency (EPA) to issue a recall of almost 500,000 of its vehicles. The EPA alleges they were programmed with a “defeat device” that caused full emissions controls to be turned on only when tests were being performed on the car. According to the EPA, during normal driving, when the full controls are turned off, the Volkswagen vehicles pollute more intensely than the automaker says they do, and can emit up to 40 times the permitted amount of pollutants under the Clean Air Act.

Cynthia Giles, the assistant administrator for the Office of Enforcement and Compliance for the EPA, described the automaker’s actions as a “threat to public health.” Officials from the EPA issued Volkswagen a notice of violation, and stated that the company acknowledged that it had used a defeat device. The recall applies to 4-cylinder Volkswagen and Audis, from model years 2009 to 2015.

The software was created with the intention of hiding the car’s emission of the pollutant, nitrogen oxide, which is partly responsible for the production of ozone and smog. The pollutants are associated with a number of health issues, such as asthma attacks, other respiratory illnesses, and premature death.

Specialists in automotive technology stated that turning off the pollution controls on a car fueled by diesel can result in improved performance, including better torque and acceleration. But when the pollution controls are operating, there’s a concession between performance and emissions, according to Drew Kodjak, executive director of the International Council on Clean Transportation. Kodjak described this behavior as “cutting corners.”

The difference between Volkswagen’s emissions during normal driving and testing in laboratories was first discovered by Kodjak’s group when it was performing research on diesel vehicles. They informed the EPA, which performed additional tests on the cars, and eventually detected the defeat device software.

Criminal Sanctions Are Ahead

California has given Volkswagen a separate notice of violation, and an investigation into the accusations is being conducted by officials in California, the Justice Department, and the EPA. EPA representatives said that throughout next year, owners of vehicles to which the recall applies, will receive recall notices from Volkswagen as well as advice regarding ways to have the vehicles repaired free of charge. Approximately 482,000 diesel passenger cars that were sold in the U.S. since 2009 have been affected by the recall, and they include the Volkswagen Jetta from model years 2009-2015, the Beetle from model years 2009-2015, the Golf from model years 2009-2015, the Passat from model years 2009-2015, and the Audi A3 from model years 2009-2015.

As a result of the probe by the Department of Justice, Volkswagen could face fines or penalties under the provisions of the Clean Air Act. The company could be fined up to $37,500 for each vehicle that is recalled for a total penalty of $18 billion.

The extent of the violations committed in this case may be far worse than those of other automakers because the company seems to have designed a system that had as its objective the deception of consumers and government. And if that is determined to be true, then there will be criminal charges.

If Volkswagen did set out to mislead consumers and the government by creating the defeat device software that permitted its vehicles to produce extremely unhealthy amounts of pollutants, then criminal charges should be brought against the company. Recalls and fines can only serve as mild deterrents, and will not have the same effect as criminal prosecution. Prosecution will strike fear into the minds of other automakers, who will be less likely to engage in similar deceptive and illegal behavior.

Authored by Roxanne Minott, LegalMatch Legal Writer and Attorney at Law

Berkeley Requires Mobile Retailers to Warn You About Your Phone

Earlier this year in May, the City of Berkeley passed an ordinance mandating mobile phone retailers to make certain safety disclosures to all consumers in subsequent sales. Specifically, Berkeley wanted cell retailers to put consumers on notice that carrying a cellphone in one’s pants, shirt pocket, or tucked in one’s bra could result in exceeding federal radiation exposure guidelines.

CTIA – The Wireless Association, representing mobile phone retailers, quickly responded with a lawsuit in an attempt to put a permanent stop to Berkeley’s ordinance requiring disclosures. CTIA argued the ordinance was preempted by federal law, contending federal regulation of mobile retailer disclosures controlled over attempted state and municipal regulations. CTIA further argued that the ordinance violated mobile retailers’ right to commercial speech under the First Amendment. 

In its argument, CTIA let on to the real reason it staunchly opposed the ordinance, emphasizing that requiring mobile retailers to disclose more health information would unnecessarily interfere with commercial development. In essence, CTIA argued potential harm to mobile phone sales was more important than potential health hazards to future consumers. In that light, federal district Judge Edward Chen made the right decision when he held in favor of the City of Berkeley.

Requiring Disclosure of Truthful and Helpful Information to the Public Is Not an “Obstacle” To Federal Regulation

In its argument against Berkeley’s ordinance, CTIA maintained mobile networks and retailers were already regulated by the Federal Communications Commission (FCC). The FCC already has a regulation regarding the minimum advised space one should carry their mobile phone away from their body. CTIA argued such federal regulations were appropriate because mobile networks are by nature national networks and subjecting them to state standards would “disrupt...uniformity and place additional burdens on industry and the network itself.” CTIA presses on that Berkeley’s ordinance thus creates an “obstacle” to the FCC's purpose by creating its own municipal regulation and should be considered preempted, or overridden, by existing federal law.

In response, Judge Chen accurately points out that the Berkeley ordinance does not in fact pose an obstacle to the FCC’s purpose, as the required disclosure “is consistent with the FCC’s statements and testing procedures regarding spacing.”  Berkeley’s ordinance does not deviate from the FCC’s mandated regulations.

Instead, it merely advises consumers that carrying mobile phones either in their pockets or bras could potentially exceed federal guidelines. Judge Chen further noted the FCC has not objected in any way to states or cities requiring warning disclosures to consumers regarding the spacing issue.  Because of this and because the ordinance does not conflict with existing FCC regulations, Judge Chen held Berkeley’s ordinance was not overridden by federal law nor did it pose a threat to national uniformity concerning mobile network regulations.

Accurate Health Disclosures Do Not Impede Commercial Speech

CTIA argued that even if Berkeley’s ordinance is not eclipsed by federal law, it should be struck down as an unconstitutional violation of CTIA members’ right to commercial speech. Under this argument, CTIA maintained that Berkeley must give a substantial government interest or else it must be struck down as unconstitutional.

However, Judge Chen was quick to clarify that the issue at hand was not regarding commercial speech, but rather compelled disclosure of commercial speech, which the Supreme Court has historically treated differently. The Supreme Court has held that compelled disclosure of commercial speech, unlike suppression or restriction of such speech, only requires the State to show any conceivable government interest related to the regulation.

Such a low standard applied this case would mean Berkeley only had to show one possible government interest related to the ordinance in order for it to pass as constitutional. Berkeley met that minimum requirement easily with its ordinance, which was put in to place for the purpose of enhancing public health and safety. Thus, applying past Supreme Court holdings, Judge Chen correctly upheld Berkeley’s ordinance as constitutional.

Authored by Sarah Lee, LegalMatch Legal Writer

Possible Oversight of Auto Dealers

Automobile dealers may soon fall under the oversight of the Consumer Financial Protection Bureau (CFPB) if U.S. Senator Elizabeth Warren succeeds in finding a co-sponsor for just such a bill. This spring, Warren stated in speeches that the CFPB has supervision over mortgages, credit cards, and checking accounts, but it does not have complete management over the auto loan market. This is because the Dodd-Frank Wall Street Reform and Consumer Protection Act, which is usually called Dodd-Frank, provided an exception for auto dealers.

Dodd-Frank

Dodd-Frank was enacted into federal law by President Obama in 2010 as a way of increasing accountability and transparency in the financial services industry. The law was passed in response to the Great Recession, and has implemented the most important changes to U.S. financial regulation since the reform that occurred after the Great Depression.

The Auto-Dealer Industry

Despite Warren’s efforts at regulating the largest type of unregulated debt owed by consumers, she does not have the support of other senators. The bill lacks enthusiasm because of the status held by auto dealers, who are located in every district. Many auto dealers are owned locally by families and together they employ over a million employees. There are numerous lobbyists in the industry, who have succeeded in preventing auto dealer regulation. According to the National Auto Dealers Association, the matter was settled five years ago by members of both political parties and thus, there is no interest in reopening the issue. 

Even after the financial crisis of 2009, the auto dealer industry seems to be immune from regulation. Democrats and Republicans alike wish to maintain the unregulated condition of loans made at dealerships. Note that the CFPB can regulate car loans that are not made at dealerships.

During the 2014 election, car sellers contributed approximately $10 million to legislators who were running for the House or Senate. According to the Center for Responsive Politics, the majority of the contributions came from individuals associated with dealerships.

However, auto dealers are also trying to garner support from the same lawmakers in hopes that they will be in favor of laws that would make it challenging for the CFPB to admonish auto dealers to exercise caution when setting interest rates on auto loan packages. The CFPB issued such a warning in 2013.

The warning consisted of a statement to car sellers to be mindful of laws that make certain that consumers are treated in a just manner.  The CFPB also admonished them that the habit of reducing interest rates for some consumers can engender great risk that there will be pricing differences based on race, national origin, and other forbidden factors. However, a House bill would have the effect of repealing the agency’s 2013 warning, and compel the agency to gather opinions prior to issuing such a warning in the future.

If lack of oversight can really lead to pricing differences on the basis of factors that are prohibited, then perhaps more regulation of the auto industry is needed.

Should I Consult an Attorney?

If you think that you have been subjected to unfair lending practices regarding your auto loan, you should consult a consumer protection attorney who can determine whether your lender has violated consumer protection laws.

Authored by Roxanne Minott, LegalMatch Legal Writer and Attorney at Law

Class-Action Lawsuit Alleges "Super-Stacked" Subs Are Neither Super, Nor Particularly Stacked

Are you a nutritionist? No? Then you should probably consult with one before you file a lawsuit like this one. You’ll save yourself quite a bit of embarrassment, and may even save yourself from becoming this week’s laughingstock of the legal blogosphere (no guarantee, though; they’re a fickle bunch).

 

An attorney in Illinois has filed a lawsuit against the Blimpie chain of sandwich shops. The restaurant chain advertises that any of its sandwiches can, for a small additional charge, be “Super-Stacked” – made with twice as much meat as an ordinary sandwich. However, the attorney is alleging that the “Super-Stacked” sandwiches don’t actually contain twice as much meat as the regular sandwiches.

 

How did he reach this conclusion? By looking at the restaurant’s published nutritional information. At first glance, one might reach the same conclusion as this lawyer: a regular sandwich contains 49 grams of protein. A Super-Stacked sandwich contains 71 grams. Shouldn’t a sandwich with twice as much meat have twice as much protein? It seems reasonable at first glance – most of us know that meat is high in protein, and most people (non-vegetarians, at least) get most of their protein from meat.

 

It also seemed reasonable to this attorney, because he’s now alleging that Blimpie engaged in deceptive business practices and claims that each plaintiff might be entitled to $75,000 in damages.

 

There’s just one problem: meat isn’t the only thing in the world that has protein in it. In fact, it’s not even the only thing on that sandwich that has protein in it.

 

As this blogger accurately points out, the bread and cheese on the sandwich are also fairly high in protein. He even does the math for us: the 2 slices of American cheese that both sandwiches come with contain a total of 10 grams of protein. The bread contains 15 grams.

 

Subtract that, and we have 24 grams of protein from meat on the regular sandwich, and 49 on the Super-Stacked. Granted, I went to law school to avoid doing math, but I can tell you that 49 is almost exactly twice as much as 24. Sorry, Mr. Plaintiff’s Attorney, your lawsuit is over before it began.

 

I won’t question this attorney’s motives, because I honestly don’t know what they were.

 

However, I do know that lawyers don’t think like many other people. Lawyers are trained to spot problems, and then solve them. In preparing for exams, first year law students have the skill of “issue spotting” drilled into them – a large percentage of your grade on most law school exams comes from how many problems you spot, and propose a solution for. Whether or not you propose a good solution counts for far less. While being trained to spot problems is certainly a good thing, lawyers are generally not trained to gauge how important a particular problem is, in the scheme of things. Now, this is certainly a skill that most people (and by extension, most lawyers) possess, but you can bet they didn’t learn it in law school. This results in some lawyers seeing every tiny issue in the world as a legal question begging to be answered. 

 

Some lawyers can’t leave this manner of thinking back in law school, where it belongs. It’s rarely useful in the real world.

 

This lawyer could have figured out he had no case by doing something that literally any other person who suspected of being shortchanged on meat would do (assuming they cared enough to investigate): buy a regular and “double” sandwich, take the meat out, and weigh it, and then see if the double-sized sandwich actually has twice as much meat, by weight. Problem solved.

 

Repeat after me, kids: Think before you sue.

By: Rusty Shackleford

 

 

Turning Lemons into Lemonade…If you’re Lucky!

What Exactly is a Lemon?

A Lemon is a new or used vehicle (depending on the state) that continually has a defect or defects. Most states require that the vehicle be repaired 4 or more times for the same defect during the warranty period before they consider it a Lemon. Also, the defect must be substantial, meaning that it impairs the vehicle’s safety, use or value. Are you wondering if your car is covered? The following states require your Lemon to be new: California, Florida, Idaho, Illinois, Kansas, Michigan, Minnesota, Nebraska, Nevada, North Carolina, Oregon, Texas, and Washington. You can read your state’s exact statute by clicking here. The remaining states allow a Lemon to be any vehicle, new or used.

What is the Purpose of the Lemon Law?

The Lemon Law was established to protect consumers from defective vehicles. Remember that this defect needs to substantially impair the use or value of the vehicle. Your complaint cannot be cosmetic such as you are dissatisfied with a certain aspect of your vehicle’s interior. When you buy a vehicle it should be free of substantial defects that you were not aware of. My Car is a Lemon…Now What? Your first step should be to contact the manufacturer of your vehicle to discuss your situation with them. This of course only applies to cars covered by a manufacturer’s warranty. The Better Business Bureau may be able to help you if your manufacturer participates. Click here to see if the BBB can assist you with your situation. Most of the major manufacturers are listed. You may be required to participate in arbitration. This of course depends on whether or not you state requires this.

Will you be Successful in Turning your Lemon into Lemonade?

If you are lucky everything will go smoothly and your car woes will end. You may be refunded all repair monies that you have paid to fix the defect or you may even get a new vehicle (hopefully one that is free of defects). If things don’t go as planned you will want to consult with an attorney who may be able to convince the manufacturer/dealer to fix the problems that you are experiencing. Remember that before you embark down the Lemon Law road be sure that you have thoroughly read your state’s Lemon Law to make sure that your car is covered, your claim in reasonable, and what remedies you may be entitled to.

By Lisa Zanassi