ACI's 12Th National Forum on Residential Mortgage

ACI’s 4th Annual Advanced Legal, Regulatory and Compliance Forum on Over the Counter Drugs October 28-30, 2015

Follow-On Consumer Class Actions: Risk Avoidance and Defensive Strategies

Kathryn A. Meisel Steven A. Zalesin Assistant General Counsel Partner Johnson & Johnson Patterson Belknap Webb & Tyler LLP

Tweeting about this conference? #OTCDrugs Consumer Class Actions

• Typically brought under state law • Plaintiffs’ lawyers look for: • Uniform misconduct (labels, packaging) • Applicable to many people • Uniform harm

#OTCDrugs Identifying Potential Class Actions • Triggers • Competitor Lanham Act suits • Government inquiries (FDA warning letters) • National Advertising Division decisions

• Magnet Claims • “Natural” • Efficacy/health benefits • Children’s or infant products

#OTCDrugs J&J Products

#OTCDrugs Triggers: Lanham Act Claims

• Lanham Act allows companies to bring private lawsuits against competitors for deceptive advertising. • Individuals generally lack standing under the Lanham Act, but companies defending Lanham Act claims face the prospect of follow-on consumer class action cases mirroring the claims of the Lanham Act case.

#OTCDrugs Triggers: Lanham Act Claims

• Splenda Cases: The Sugar Association, Inc v. McNeil-PPC, Inc., 04-cv-10077 (C.D. Cal.) and Merisant Co v. McNeil Nutritionals, LLC, 04-cv-5504 (E.D. Pa.) • Virtually all promotional materials for SPLENDA noted that it was “made from sugar so it tastes like sugar.” • In 2004, Merisant Co., the makers of Equal, and the Sugar Association, a trade association representing major U.S. sugar companies, filed separate Lanham Act lawsuits, alleging that SPLENDA advertising falsely implied that the product is “natural” or actually “contains sugar” as opposed to sucralose. • The Lanham Act cases eventually settled, but they triggered a cascade of copycat state consumer class actions. More than a dozen class actions were filed in total, across seven different states: Florida, New York, California, New Jersey, Massachusetts, Ohio, and West Virginia. 6

#OTCDrugs Triggers: Lanham Act Cases

Pom Wonderful LLC v. Coca-Cola Co. • In 2008, POM Wonderful sued Coca-Cola, the maker of Minute Maid juices, alleging that the name and label of Minute Maid “Pomegranate Blueberry Flavored Blend of Five Juices” was deceptive because the product consisted predominantly of apple and grape juices. • The case eventually made its way to the U.S. Supreme Court, which held in 2014 that a Lanham Act claim is not precluded by FDA regulations that authorize a product label. • Two follow-on consumer class actions have mirrored the Pom’s allegations: • Saeidian v. Coca Cola Co., 09-cv-06309 (C.D. Cal.) (still pending) • Stansfield v. The Minute Maid Company, 14-cv-290, 2015 U.S. Dist LEXIS 106656 (Aug. 13, 2015 N.D. Fl.) (dismissed on preemption 7 grounds—appeal pending) #OTCDrugs Triggers: Lanham Act Cases

• Nestlé Purina PetCare Co v. The Blue Buffalo Co. Ltd. No 4:14-cv- 00859 (E.D. Mo.) • In 2014, Nestle Purina brought suit against Blue Buffalo under the Lanham Act, alleging that, contrary to product labeling and advertising, “independent testing” had revealed that Blue Buffalo’s pet foods contain poultry by-product meal. • The first putative consumer class action was filed one day later, and several more followed. All cases have been consolidated in and MDL in Missouri. • In re: Blue Buffalo Company Ltd., Marketing and Sales Practices Litigation, MDL No. 2562.

#OTCDrugs Triggers: FDA Warning Letters

• The FDA defines a warning letter as: • “a correspondence that notifies regulated industry about violations that FDA has documented during its inspections or investigations. Typically, a Warning Letter notifies a responsible individual or firm that the Agency considers one or more products, practices, processes, or other activities to be in violation of the Federal Food, Drug, and Cosmetic Act (the Act), its implementing regulations and other federal statutes. Warning Letters should only be issued for violations of regulatory significance, i.e., those that may actually lead to an enforcement action if the documented violations are not promptly and adequately corrected. A Warning Letter is one of the Agency’s principal means of achieving prompt voluntary compliance with the Act.” • A warning letter is not a binding FDA determination. (FDA 9 Regulatory Procedures Manual, 4-1.) #OTCDrugs Triggers: FDA Warning Letters

• FDA Warning Letters are publicly released, and provide excellent fodder for plaintiffs’ attorneys seeking to assert claims based on regulatory infractions.

#OTCDrugs Triggers: FDA Warning Letters • Listerine Total Care • The product label claimed six benefits: “Strengthens Teeth, Restores Minerals to Enamel, Fights Unsightly Plaque Above the Gum Line, Helps Prevent Cavities, Kills Bad Breath Germs, and Freshens Breath.” • In 2010, the FDA sent Johnson & Johnson a warning letter, stating that the “Fights Unsightly Plaque Above the Gum Line” and “Prevents Cavities” claims were unauthorized drug claims • Multiple consumer class actions followed: • In re Listerine Total Care Mouthwash Marketing and Sales Practices Litigation (MDL No. 2210) • Separate complaints in Indiana and Arkansas could 11 not be removed due to insufficient product sales

#OTCDrugs Triggers: NAD Decisions

• The National Advertising Division (NAD) of the Better Business Bureau reviews national advertising for accuracy and truthfulness. NAD typically reaches a conclusion within 90 days of initiating an inquiry.

#OTCDrugs Triggers: NAD Decisions

• Chow v. Neutrogena Corp., 12-cv-04624 (C.D. Cal.) • In January 2012, NAD recommended that Neutrogena modify or discontinue certain claims for its Rapid Wrinkle Repair products “to avoid conveying the message that the product can eliminate wrinkles in ‘just one week.’” • Class action followed shortly thereafter, parroting the NAD ruling.

#OTCDrugs Opposing Class Certification

• Commonality/Predominance • Typicality • Ascertainability

#OTCDrugs Opposing Class Certification: Commonality/Predominance • Brandner v. Abbott Laboratories, case number 2:10-cv-03242, E.D. La. • In September 2010, Abbott recalled $100 million worth of Similac powdered infant formula produced at a particular facility after finding beetles in a batch of finished product.

#OTCDrugs Opposing Class Certification: Commonality/Predominance • Brandner v. Abbott Laboratories, case number 2:10-cv-03242, E.D. La. • Brandner filed suit shortly after the recall, seeking to represent a class of all Louisiana plaintiffs who bought Similac during the recall period, and asked for monetary damages and injunctive relief. • The court denied class certification, finding that Brandner had not met her burden of establishing that the proposed class met the predominance and superiority requirements of Rule 23. • Louisiana law would require extensive inquiry into the circumstances of each potential plaintiff, making class certification inappropriate. • Brandner v. Abbott Labs., Inc., 2012 U.S. Dist. LEXIS 7017, 16- 16 17 (E.D. La. Jan. 23, 2012).

#OTCDrugs Opposing Class Certification: Commonality/Predominance • Chow v. Neutrogena Corp., 12-cv-04624 (C.D. Cal.) • The court found that individual issues predominated over common issues of law and fact. • “Resolving this question would necessitate consulting each class member individually to determine if they experienced the advertised result.” Further, a “significant portion of consumers who purchased the product were repeat purchasers. Plaintiff has not provided significant proof to distinguish between mere favorability toward products bearing the Neutrogena brand name, for example, and reliance upon specific advertised benefits of the products in this case. Moreover, Plaintiff has not shown how the Court could distinguish between repeat purchasers who actually received benefits from the product and repeat purchasers who were deceived again.” Chow v. Neutrogena 17 Corp., 2013 U.S. Dist. LEXIS 17670, at *4-5 (C.D. Cal. Jan. 22, 2013)

#OTCDrugs Opposing Class Certification: Typicality • Splenda cases • The central component of the class complaint was the allegation that the putative classes of prior SPLENDA purchasers in each state bought the product on the mistaken belief that it was “natural” or “contained sugar.” • Depositions revealed that several named plaintiffs bought SPLENDA for reasons having nothing to do with any supposed deception. The Ohio plaintiff, for example, testified that she bought SPLENDA because it didn't have calories, she liked the taste, and it didn't contain aspartame. One New Jersey plaintiff purchased SPLENDA only because her brother recommended it.

#OTCDrugs Opposing Class Certification: Ascertainability • Carrera v. Bayer Corp., 727 F.3d 300 (3d Cir. 2013) • Plaintiff brought suit claiming that Bayer deceptively advertised its product One-A-Day WeightSmart. The District Court granted class certification. • Bayer appealed, arguing that class certification was inappropriate because the class was not ascertainable. • Bayer argued that since it sold the product through retailers and not direct to consumers, there were no records to identify retail purchasers. • The Third Circuit reversed, and denied rehearing en banc.

#OTCDrugs Opposing Class Certification: Ascertainability • The Third Circuit, however, has cautioned against too broad of a reading of Carrera. • Byrd v. Aaron's Inc., 784 F.3d 154, 162 (3d Cir. 2015) • In Byrd, the court said that its decision in Carrera was simply that “the plaintiffs' proposed reliance on affidavits alone, without any objective records to identify class members or a method to weed out unreliable affidavits, could not satisfy the ascertainability requirement.” • To emphasize the point, the court stated that, “[c]ertainly, Carrera does not suggest that no level of inquiry as to the identity of class members can ever be undertaken. If that were the case, no Rule 23(b)(3) class could ever be certified.” 20

#OTCDrugs Opposing Class Certification: Ascertainability • Randolph v. J.M. Smucker Co., 303 F.R.D. 679, 687 (S.D. Fla. 2014) • Plaintiff alleged that Crisco oils were falsely advertised as are “All Natural” when in fact they are made from genetically modified plants and processed with harsh chemicals. • Court denied class certification on ascertainability grounds because the challenged statement was not placed on the products “uniformly throughout the class period.” • “Based on these facts, the likelihood that an individual would recall not only which specific kind of oil, but also when that oil was purchased, complicates identification of the putative class.”

#OTCDrugs Opposing Class Certification: Ascertainability • Mullins v. Direct Digital, LLC, 795 F.3d 654 (7th Cir. 2015) • The case involves Instaflex, an OTC supplement to relieve joint discomfort. The plaintiff alleged that the advertising for the product was false and misleading and brought suit for consumer fraud. • The defendant argued that class certification should have been denied because its records were insufficient to identify class members and it was unlikely that Instaflex consumers would have kept their receipts. Therefore, there was no “reliable and administratively feasible” to ascertain the class. • The Mullins court effectively rejected Third Circuit precedent, calling it a “new requirement” that imposes a “heightened” ascertainability standard. Instead, the court applied what it called the “weak” version of ascertainability, requiring a clearly 22 defined class based on objective criteria. #OTCDrugs Merits Defenses

• Preemption • Lack of substantiation vs. proof of falsity

#OTCDrugs Merits Defenses: Preemption

• Bowling v. Johnson & Johnson, 1:14-cv-03727 (S.D.N.Y.) • Court granted motion to dismiss putative class action challenging “Restores Enamel” labeling of Listerine mouthwash, holding that the suit was preempted by the FDCA. • In order to establish that state-law claims are not preempted by federal law, plaintiffs must plead that the FDCA affirmatively prohibits the challenged representation. Otherwise, the state-law claims would impose a labeling requirement that is “not identical” to federal requirements.

#OTCDrugs Merits Defenses: Lack of Substantiation/Falsity • A number of courts have held that it is insufficient for a party challenging advertising under state consumer protection statutes to simply allege that the advertising in question lacks substantiation. • “Private individuals may not bring an action demanding substantiation for advertising claims. Instead, pursuant to California Business & Professions Code § 17508, only prosecuting authorities may require an advertiser to substantiate its advertising claims.” Johns v. Bayer Corp., No. 09-cv-1935, 2013 U.S. Dist. LEXIS 51823 at *105 (S.D. Cal. Apr. 10, 2013) • Scheuerman v. Nestle Healthcare Nutrition Inc., Nos. 10-cv-3684, 10- cv-5628, 2012 U.S. Dist. LEXIS 99397, at *6, 7-8 (D.N.J. July 17, 2012) (holding that “prior substantiation claims are not cognizable under the [NJCFA, UCL, FAL or CLRA]. . . .It is Plaintiffs’ burden to affirmatively prove that the ‘clinically shown’ [claim] is a false or misleading statement and not merely one that is unsubstantiated.” 25

#OTCDrugs