Originally published on Sep 30, 2016

To be able to fully identify a case, it’s best to understand the different types of class actions that exist in today’s world.

Each and every one of us are also consumers in our day-to-day lives. We are subjected to marketing representations by retailers, they purchase products, and contract with service providers. We are almost always at risk of being the victim of unlawful activity at the hands of other actors in the marketplace.

Below are three different types of class actions.

“Snake Oil” Cases

One type of consumer class action is the so-called “snake oil” case. This term finds its origin to health products and “medicines” sold to unsuspecting consumers by hucksters in the 19th century. These snake oil salesmen would traverse the country claiming their elixir could cure any disease known to man. In our modern times, these cases center on products that claim to serve a purpose but are devoid of any benefit to the consumer. By marketing such products with overstated and false representations, sellers open themselves up to liability under state-specific consumer protection statues as well as common law causes of action such as fraud and unjust enrichment.

A great example of these so-called “snake oil” cases can be found in Rikos v. The Proctor & Gamble Co., (Case No. 1:11-cv-00226, S.D. Ohio) where Defendant’s probiotic supplement, Align, was marketed to consumers nationwide as a product that “naturally helps build and support a healthy digestive system, maintain digestive balance, and fortify your digestive system with healthy bacteria.” However, consumers disagreed and filed a suit alleging that the product provided no digestive benefit at all and was successful in certifying classes in five separate states.
As the Rikos case demonstrates, these “snake oil” cases can be boiled down to one specific question: does the product work? The defendant seller has made one single claim that their product can do one specific thing—provide digestive benefit. If the product cannot do that thing, then the seller is open to substantial class-wide liability as consumers would have uniformly relied on that singular representation.

Fraudulent Marketing Representations

While consumers are at risk on the front end when they face fraudulent marketing representations, once they choose to actually purchase a product or service they are at further risk of being charged duplicative or undisclosed additional fees. These cases are often contractual in nature and require a close inspection of any documents produced during the course of the transaction. For instance, a consumer may have contracted with a service provider for one level of service, but came to find that the service provider unilaterally decided to charge them for a higher level of service without warning.

As consumers become increasingly savvy in today’s tech-driven world, they have started to look at every facet of their lives to make sure that they are not the victim of an illegal scheme. One popular class action archetype that has flowed from this increased awareness are claims against retailers for deceptive advertising and pricing schemes.

Constant Sales

Another of the different types of class action is the constant sale. We have all seen the signs while walking through the mall, “40% off everything!” But, consumers have started to question whether a sale really is a sale if that 40% off discount happens every day. Courts across the country are beginning to consider this very question. While these cases continue to make their way through the Courts, consumers have focused heavily on applying the consumer protection statutes available to them on a statewide basis. While courts continue to consider the ramifications of these practices, retailers across the country have chosen to settle such actions and return the discounts that should have been given to their consumers.

Class actions have also been filed against retailers for their use of “comparative pricing,” schemes where the retailer will list a “compare at” price and “their” price on the tag. However, consumers have discovered that the “compare at” price is simply made up. These false comparison pricing cases have started to pop up in consumer-friendly states and are likely to gain steam across the country as consumers continue to hold retailers responsible for unlawful pricing schemes.

If you question whether a particular business practice is harmful to a large group of people, call the award-winning class action attorneys of Dworken & Bernstein

In Lake County, call 440.946.7656

In Cuyahoga County, call 216.861.4211

Our review is free of charge and confidential.

Originally published on Oct 26, 2016

One type of case that warrants its own discussion is wage & hour class actions given its idiosyncrasies and importance. Both have federal and state law components, but at their most basic level, wage and hour cases begin at the end – they all seek to remedy lost or stolen worker wages.

There are a few different ways that companies can cause that to happen, whether accidentally or intentionally.

Failing to Pay Minimum Wage and Overtime

First, it’s failing to pay minimum wage. Second, is failing to pay overtime. While both of these have technical components, and you should consult a wage and hour attorney if you are faced with a potential issue, these two situations are relatively straightforward and easy to recognize.

The third circumstance takes a bit more looking into and knowledge of wage and hour laws. These are generally called misclassification cases. The most famous example in the news lately is the series of cases against Uber. Uber maintains and continues to maintain that their drivers are independent contractors. However, a number of drivers across the country filed misclassification lawsuits against Uber arguing that they are, in fact, employees entitled to minimum-wages, overtime wages, and, in certain states, reimbursement for their expenses.

As technology and industries continue to advance, a number of large companies have taken up this staffing model – classifying workers as independent contractors instead of employees.

However, just because you call a member of your staff an independent contractor doesn’t automatically make them an independent contractor. Federal and state law look to several objective factors to determine an individual’s actual classification.

There are many, and an entire book could be written on what those are and how to consider and apply them, but one of the most important factors is the level of control exercised by the employer. Does the company require a uniform, does it provide a script, does it tell individuals when the workday begins or ends, and does it have the final say over whether the staffer at issues can bind the company to do something? If the answer is yes to any of these questions, it weighs in favor of finding that the individual is an employee and is potentially misclassified.

Statute of Limitations

One important nuance to consider regarding wage & hour class actions is the statute of limitations. Generally, the FLSA has a two-year limit to claims. However, if you can show that the violation was intentional, the statute extends to three years. What ‘intentional’ means and how you prove that is full of factors and considerations that should be evaluated by a wage and hour attorney.

At the end of the day, a useful rule of thumb is to analyze the big picture and give a wage and hour attorney a call. All of these elements and idiosyncrasies get complicated, but keeping a wide-angle lens will allow you to recognize if a client is being denied minimum wages, overtime wages, or reimbursements because they are misclassified.

If you question whether a particular business practice is harmful to a large group of people, call the award-winning class action attorneys of Dworken & Bernstein

In Lake County, call 440.946.7656

In Cuyahoga County, call 216.861.4211

Our review is free of charge and confidential.

Originally published on Oct 26, 2016

… or, as we like to say, “no judgments during brainstorming.” In the world of class actions, one well-executed idea can make an entire career. The stakes are very high and coming up with the next big case is a serious focus for any attorney looking to be a part of this practice area, even as local or liaison counsel. We take that cliché very seriously: there really and truly is no such thing as a stupid idea. The courage of creative thinking can translate into significant recovery for consumers, small businesses, and their lawyers.

The names and circumstances have been changed just a bit to allow the involved parties to save face, but these are all inspired by actual events that have resulted in significant recovery.

Consumer protection statutes have been on the books in various states for decades. Generally speaking, they prohibit “unfair or deceptive” acts and practices. Some of them are much more specific, listing categories of conduct that are deceptive. For example, the Ohio Consumer Sales Practices Act (CSPA) states that representing a specific price advantage exists if it does not is a prohibited deceptive practice. Well, as you can tell, this isn’t too much more specific than “unfair or deceptive.” So, a lot of the creativity comes from arguing what could constitute a “price advantage.”

Constant Sales

One of the trending areas of consumer class actions is the constant sale case. If everything in the store is on sale all the time, the higher “regular” reference price is simply fictional – the company made it up. Therefore, the “discount” you supposedly receive is a represented “price advantage” that doesn’t, in fact, exist. Before 2012, no one had come up with that idea. All it took was one creative thinker to take a look around, analyze the representation that was being made and bring it up at a department meeting. Today, there has been nine-figures (and counting…) in consumer recovery for these practices across the country.

Telephone Consumer Protection Act (TCPA)

There is a federal spam statute called the Telephone Consumer Protection Act (TCPA), which prohibits unsolicited commercial telephone calls and text messages to cell phones. There are many technical contours to this statute, but generally speaking, if a consumer provides their number to a company, that company can text the consumer for informational purposes, but not for telemarketing purposes. If a company wants to send telemarketing texts, they need express prior written consent from the consumer.

Well, an attorney received a seemingly benign text message from a large social media company simply saying, “Go to the website or text 99999 to say Hi! to your follower John Doe.”

After some consideration, the attorney had a Eureka! moment: this is a telemarketing text message. The social media company makes its money when its users engage its platform.

This wasn’t a purely informational text message. It didn’t say, “Give John a call!” or “Shoot John a text!” It specifically solicited engagement with the company’s moneymaking platform.

Therefore, this was a purely economic solicitation from the company – a telemarketing text – and a higher level of consent was required for TCPA compliance. There are other consent issues to be argued and worked out in that case, as well, but that is essentially the argument.

These two ideas aren’t even too far outside the box. However, it is absolutely imperative to take the time and develop the space to think creatively about what the law means and how it can be applied in new ways.

Any attorney can do it

The beautiful thing is: any attorney can do it. We can all get lost in the forest sometimes, keeping our heads down and powering through the day’s tasks, but by simply taking a few more moments to consider a creative way to argue that a representation is a misrepresentation or a fee is illegal could make a career and could mean millions in recovery for consumers, small businesses and their attorneys.

For the last fifteen years, we have taken on the cases that other firms have refused to take, or the ones they have dismissed as “stupid ideas.” We have taken this cliché seriously. Nine out of ten times, we share a laugh and shoot down the crazy idea, but we all know that one out of ten is all you need to make your practice lucrative and make the consumer experience a little fairer. Take just a few more minutes and a little closer look at what you come across in your day-to-day. It could be the next big, “stupid” idea.

Originally published on Nov 15, 2016

How many times a day, week, or month do you click a checkbox next to the words “I Agree to the Terms of Service”? Or, how many times have you agreed to small print? You make sure the numbers are right, flip to the back page, and sign on the line? What about the eight pages of terms and text in between? Well, in a class action practice, that fine print is where we live and breathe. And sometimes, the devil’s in the details.

What is an Arbitration Clause?

An arbitration clause is a term of a contract that requires the parties to resolve their disputes through an arbitration (read: non-litigation) process. If enforceable, these clauses effectively eliminate a consumer’s ability to bring a class action on behalf of a large group of consumers. Given the cost of legal representation, arbitration over a small amount of money that you believe was wrongfully charged is never economical. Without the ability to bring a class action for these small but improper fees, companies can continue nickel-and-diming consumers without any real consequence.

CFPB – Consumer Financial Protection Bureau

Earlier last year, the Consumer Financial Protection Bureau published the first extensive study on arbitration clauses in six consumer finance markets: credit cards, checking accounts, prepaid cards, payday loans, private student loans, and mobile wireless contracts. Its findings were startling and unequivocal: arbitration agreements limit the ability of millions of consumers to recover for consumer finance disputes.

Faced with this evidence, the CFPB, through the authority granted to it under Dodd-Frank, is currently attempting to make class action waivers in consumer financial products a thing of the past. Someday, hopefully soon, all consumer contracts will no longer be able to contain an arbitration clause.

Arbitration clauses do not raise prices

Now, smart people on the other side of things will argue that class actions cost good companies good money. The stakes get so high, even good corporate citizens will cave and pay off a settlement. As a result, these companies then have to turn around and pass costs down to consumers.
However, the CFPB addressed this exact claim in its study. They found “no statistically significant evidence that the companies that eliminated their arbitration clauses increased their prices or reduced access to credit relative to those that made no change in their use of arbitration clauses.” Simply put, arbitration clauses do not raise prices.

Now, just to be clear: this is in no way to disparage the good companies out there. They are, by far, more prevalent than the bad actors. But sometimes there are legitimate disputes over a fee, a charge, or a business practice that affect a large group of consumers. And for a consumer to have to hire a lawyer, bring an arbitration action, and possibly be on the hook for costs, all in order to challenge a $4 fee… This is all contrary to the purposes of Civil Rule 23, substantive consumer protection law, and common sense.

Citizens are better at advocating for themselves.

Without a strong class mechanism that cannot be sidestepped, there is no effective way for consumers to take an active role in keeping corporate bad actors in check. If we can’t do it ourselves, we’d have to rely on the FTC or some other governmental body to act as our consumer advocate. Fortunately, the CFPB, through its efforts to get rid of arbitration clauses, has recognized that private citizens are simply better at advocating for themselves.

So when you click that box marked “I Agree to Terms of Service” or you skim those pages of small print, maybe take a little longer than you usually do. There are things in there that significantly affect your rights. And if something jumps off the page or smells fishy, give us a call.

Protecting Small Businesses

Rather than being an enemy of business, recent class actions have been protecting small businesses against the government and mega-corporations. Class actions are used when a wrongdoer, such as a government entity or multi-national corporation, commits the same wrong against a large group.  But it doesn’t have to be a group of people.  It specifically can be a group of businesses.

For example, in 2006, a small jewelry company brought a class action against airfreight companies for overcharging them and tens of thousands of other businesses for “fuel surcharges” and other alleged costs, in violation of the United States antitrust laws. The class action was a perfect example of small businesses being victimized and cheated by larger companies or the government.  The case was settled for the benefit of tens of thousands of small companies for over $320 Million.

A recent case here in Ohio

In another recent case here in Ohio, our firm sued the Bureau of Workers Compensation for overcharging over 300,000 small Ohio businesses for their workers’ compensation premiums for more than eight years. Finding that the class action law allowed class action protection for small companies, the case was aggressively litigated and the small businesses won at trial and in the court of appeals.  The courts held that the government had intentionally violated the law and had overcharged premiums.  This class action resulted in a settlement of more than $400 Million for the benefit of more than 300,000 small Ohio companies hurt by the overcharges.  Some readers of this blog likely have small companies which received the benefit of that class action.

Defendants are Never Small Companies

The defendants in class actions are never small companies—small businesses don’t have enough transactions for a class action. The defendants are the giants in business and government.  Whether they have cheated customers, shareholders, or other businesses, class actions are to make sure those victims are protected and that wrongful conduct is stopped.

If your company has been the victim of wrongful conduct that you think might involve many other businesses, feel free to call the award-winning class action attorneys of Dworken & Bernstein

In Lake County, call 440.946.7656

In Cuyahoga County, call 216.861.4211

Our review is free of charge and confidential.

Originally published on Feb 27, 2017

The Issue of Reliance in Consumer Class Actions

Irrespective of your political leanings, the Trump University consumer class actions are an interesting and unique case. It is also a good learning tool for one issue that comes up in nearly every consumer protection class action – reliance. In this article, we will explore the lawsuit and the issue of reliance, cutting through the political noise that surrounded it.

Trump University – Broken Promises?

The plaintiffs in the Trump University case alleged that they did not get what they were promised by the company. Despite very specific marketing representations and promises, Donald Trump was not actively involved in Trump University’s live events and did not select or interview Trump University’s instructors or mentors. Trump offered no input into the actual instruction provided to Trump University’s consumers, a ghostwriter wrote the Donald Trump blogs and wrote most or all of the answers to “Ask Donald Trump” forum questions, and Trump University did not have a faculty of professors and adjunct professors, but rather independent contractors who were paid commissions for sales.

In other words, the company promised Trump University but delivered neither Donald Trump nor a university. That was the plaintiffs’ position. Of course, this characterization was vehemently opposed.

Consumer Protection Statutes

Consumer protection statutes were originally codified into law in order to relieve a misled consumer from having to plead and prove the elements of common law fraud – historically, a pretty high burden.

Fraud required a plaintiff to prove their reliance on, and the materiality of, a false representation. And even though the element of reliance was taken out of most causes of action under consumer protection statutes, courts have consistently required a “causal connection” between the allegedly deceptive conduct and the resulting harm.

Some conservative courts have said that this requires full-on reliance, effectively gutting one of the purposes of the consumer protection statute – to lower the pleading standard. These courts have said if reliance is required, after all, each harmed individual must provide evidence that he or she relied on the representation, effectively making a class action impossible.

Other courts have left a door open, stating that reliance is not the only way to evidence this causal connection. However, what this evidence could be is amorphous and has not really been fleshed out in a definitive way.

Reliance is a Necessary Element of the Cause of Action

The most common way that consumer-friendly courts have approached reliance is actually something of an express lane to this “causal connection”. These courts actually take the more stringent route on the first issue, stating that reliance is a necessary element of the cause of action – a death knell in the more conservative jurisdictions.

However, in these more open-minded courts, if the alleged deception a.) reaches the entire class and b.) is objectively material, reliance can be presumed, even on a class-wide basis.

Interestingly, this is the line the Ohio Supreme Court has taken. On a gut level, this makes sense. If everyone sees the same lie, and it’s a material representation, why shouldn’t reliance be presumed? If the only function of a product is to do X, the company says it can do X, but it, in fact, cannot do X… X is the only reason any consumer would ever buy this product. That is the prototypical presumed reliance circumstance.

This line of reasoning obviates the need for an individualized inquiry of each class member’s reliance, the end result being that class actions are possible even if reliance is an element of the cause of action.

So, these courts have actually certified classes under common law fraud – the very cause of action the legislatures thought was too difficult to plead and prove.

The Value of a Consumer-Friendly Jurisdiction

So how did this issue come up in the Trump University litigation? Well, this case is a good example of creative lawyering and the value of a consumer-friendly jurisdiction.

The plaintiffs argued that the marketing representations were universal and consistent – that there was a common thread among all the marketing – and that this common thread was objectively material to consumers. This is not a given, especially since the marketing campaign for Trump University was varied, published in different media, and had evolved over time. However, at least up until it finally settled, the plaintiffs were able to plead a plausible case to the judge so as to survive dispositive motions.

The company marketed and promised that Donald Trump himself would be integrally involved in every aspect of Trump University, through which he would sell his personal investment strategies. This was exactly what consumers paid to learn, and the company held their product out as such. Donald J. Trump’s involvement was objectively material to the consumers. The product was supposed to be X, the company said it was X, but it, in fact, was not X.

The Trump University case gives insight into how courts treat the ubiquitous issue of reliance – an issue that is forcefully litigated in nearly every case. Reliance, no matter how it is framed, anchors the causation element of a claim. It is of utmost importance in consumer class actions, and fully understanding its contours can result in a litigant winning “Big League.”

To learn more about the issue of reliance in consumer class actions, feel free to call the award-winning class action attorneys of Dworken & Bernstein

In Lake County, call 440.946.7656

In Cuyahoga County, call 216.861.4211

Originally published o  Mar 16, 2017

We have written extensively on the negative effects of arbitration clauses on consumers. Forced arbitration eliminates the ability of consumers to come together in a class action and advocate for themselves, often in situations where litigation would be cost-prohibitive. Consumers lose significant deterrent effect if they cannot come together to advocate for themselves in a class action. And without private recourse for this conduct, consumers must rely on the government for protection; always a thorny and less than an ideal prospect.

On Babies and Bathwater

 If forced arbitration weren’t enough, the House Judiciary Committee has just approved a new bill (H.B. 985) introduced by Rep. Bob Goodlatte (R-VA) that would provide additional class action protections to companies. We are not too proud to admit when we are wrong, and we were wrong in a previous article when we speculated Republicans were not going to take up this fight in the new Congress. Clearly, they already are.

The argument for reigning in the class action mechanism is that it is a lawyer-driven money grab that results in little direct benefit to consumers. To remedy the alleged misuse of this tool, however, most of which we would dispute, HB 985 throws the baby out with the bathwater.

A Class Action Happens When…

 A class action happens when a private citizen hires a private attorney to protect his or her privacy rights. And then, if and only if a court after undertaking a deep dive analysis of the conduct determines and certifies that a group of people was similarly harmed by the same entity, the court permits the case to proceed as a class action.

 The bill in its current form has many changes to current class action procedure, the most significant of which is that it raises the bar on how a plaintiff can identify and define the scope of a class.

There are already many hurdles a plaintiff must overcome, and classes are very often denied certification by the courts. But now, House Bill 985 would require even more. If written into law, the court will be required to undertake a “rigorous” application of the ascertainability element of class certification, essentially requiring plaintiffs to show that a substantial majority of consumers could provide documentary proof that they, for example, purchased the item in question. If this were a requirement, companies would be free to nickel-and-dime consumers with impunity, as a matter of law, if a plaintiff couldn’t show up-front that a substantial number of consumers kept receipts. Practically speaking, companies would be free to intentionally and deliberately steal from its consumers. All deterrence effect would be gone.

House Bill 985 and Furthering our Dependence on the Government

 Moreover, HB 985 would raise the bar for the requirement of commonality to an extent beyond even what J. Scalia defined in Wal-Mart Stores v. Dukes, which was the culmination of 50 years of common law development on the issue.

Commonality is the requirement that all class members must have been subject to the “same injury.” Basically, commonality requires an answer to the question of whether any given definition of “same injury” would all plaintiffs’ and class members’ claims can productively be litigated at once.

According to J. Scalia, it’s about efficient litigation. HB 985 changes this standard to require the same “type” and “scope” of injury, of which scope is the real problem.

As an illustrative example, if HB 985 has its way, all things being equal and provable, a class of consumers could be certified for individuals who were overcharged an illegal $5.00 fee, but nobody who had a claim for $4.99 could be a part of that class. HB 985 would require an entirely separate lawsuit for every individual dollar amount. The scope of consumers’ damages would be different and, therefore, unable to be aggregated.

That is an absolutely absurd result, especially given J. Scalia’s mostly correct recognition that one of the primary policy purposes underlying class certification jurisprudence is efficiency. This practically eviscerates small damage class actions, forcing consumers to run to the government (State AG, FTC, etc) for protection they previously could handle themselves.

Rule 11

The real way to remedy alleged frivolous lawsuits is already on the books: Rule 11, which specifically addresses judicial remedies for inappropriate or baseless conduct.

We are absolutely opposed to frivolous lawsuits, and playing games with a substantive or procedural law to leverage a payday undermines the public’s faith in the judicial system.

But, the public must also have faith that when the government or a large corporation are flat out wrong, they will have an effective, and cost-effective, remedy. We simply want to hold these entities accountable when they cross a line.

These changes add unnecessary hurdles to that end. And if class actions are misused, the remedy is a revitalized judicial conviction to enforce Rule 11 in a class action context.

There are of course improvements to be made, as with any procedure or law, but undermining private citizens’ ability to bring a private action requires us all to depend on the government to protect us when we could very easily do it ourselves. It’s patronizing, inefficient, and unnecessary.

UPDATE: ON FEBRUARY 20, 2017

The House passed this resolution. Now, to become law, the Senate must pass legislation on the issue. The Senate, being its own lawmaking body, can draft an identical piece of legislation, change it, or refuse to take this up. Politically, the Senate is much more evenly balanced, and the Senate Judiciary Committee is ideologically diverse as well, being populated with both moderate and hardline Republicans and Democrats. Only time will tell if this becomes law, but it does face challenges in the Senate.

Social Media Marketing and Class Actions

We have discussed class actions as vehicles through which a group of people or entities obtain recovery from a single wrongdoer for a wrong they committed to the group as a whole. In the marketing context, this mechanism is best suited for the overly simplistic example of a deceptive sale – you didn’t get what you paid for. CEO of Bad Guy Promotions wrings his hands, pets his cat in a dark smoky room, and instructs his company to promote an event that will never happen. This is straightforward fraud, and obviously actionable (unless there was an arbitration clause, of course).

However, what happens when the promoter wanted to put on the event, hyped it, marketed it extensively, and was just incompetent and couldn’t pull it off, while still charging thousands of dollars to consumers? Can that be treated as a class action? When does the marketing go too far and how does that affect the legal landscape of any potential class action?

When Does Social Media Marketing Become a Dumpster Fyre?

All of these issues are raised by the ill-fated Fyre Music Festival. This festival was organized and designed to be a once in a lifetime experience. And, boy was it. The plan was to put on and host a multi-day music festival on a secluded island in the Bahamas with flights included, no need for cash, and top-billed acts. A self-contained package deal like no other. The marketing side of the plan was a social media blitz. The festival organizers got dozens of social media “influencers” (or what they regrettably called “Fyre Starters”) to promote the event by staging elaborate photo shoots to be posted on their social media pages and starring in sexy stylized promo videos. These influencers included models, celebrities, actors, and sports stars, and they were paid hundreds of thousands of dollars for these social media posts. Kendall Jenner, with her 72 million plus followers on Instagram, promoted the event. The best part was that, in the (now-deleted) promotions, there were never any disclosures of any relationship between the festival and these influencers. Overall, this marketing program, with its lack of transparency, would result in a planned 300MM social media impressions and 1.5MM media impressions.

Only four days prior, the Fyre Festival’s social media accounts were still plugging the event of a lifetime. “In four days, you will be drinking on a beach” one said. However, when the day finally came, and the concertgoers got on their planes, flew to the Bahamas, and arrived at the property where the festival was to take place, they encountered a barren, nearly empty piece of land. There were multiple rows of the same cheap white tent, barely any infrastructure, no celebrities or staff to be found, and no food or drinks. People described it as “post-apocalyptic” and, rather indelicately, “like a refugee camp”. After the dust settled and everyone realized they had been duped, people were furious. The festival issued an apology. A number of the “concert”-goers sued in two different class actions.

At the end of the day, this seems like a straightforward fraud case. Company promised X in exchange for $Y, I got nothing but a headache, therefore you owe me my money back. And to a certain extent it is. But, what happens when there are dozens of social media influencers plugging product X without disclosing that they are financially benefiting from this? Does that change the landscape of legal action?

We turn to the FTC

To answer that question, we turn to the FTC, where the new era of modern marketing is just starting to be looked at and addressed. Less than a year ago, Warner Brothers settled an FTC complaint about a shadow marketing campaign very similar to the Fyre Fest campaign. Warner Brothers paid influencers thousands of dollars to post positive reviews and videos of a new Warner Brothers video game on YouTube. They failed to adequately disclose that they paid these influencers. In that case, the FTC found that there were some disclosures, but they were below YouTube’s “show more” tab, hidden well down among paragraphs of descriptions and other irrelevant languages. According to the FTC, these were inadequate and violated Section 5 of the FTC Act. “Consumers have a right to know if reviewers are providing their own opinions or paid sales pitches,” the director of the FTC’s Bureau of Consumer Protection said.

In the Fyre Festival case, there were NO disclosures on these influencers’ social media pages whatsoever, obviously a much more egregious violation of FTC disclosure rules. So, the festival could face FTC exposure just as Warner Brothers did. That much is clear. However, what about private class action exposure? Well, since two cases have already been filed, obviously there is exposure there. One of the interesting quirks of some state consumer laws, including Ohio’s, is that they refer, in the statute language itself, to the FTC Act. Specifically, the Ohio CSPA states that “[i]n construing [what is constitutes an unfair or deceptive practice in connection with a consumer transaction], the court shall give due consideration and great weight to federal trade commission orders, trade regulation rules and guides, and federal courts’ interpretations of subsection 45(a)(1) of the ‘Federal Trade Commission Act…” ORC 1345.02(C). So, in short, class action plaintiffs can hang their hat on FTC rules and regulations to argue that an act is deceptive. This appears to be one of those instances.

However, can you go after the influencers themselves for failing to disclose they are paid promoters? This is an issue on the now-filed Fyre Festival cases because it appears that the festival organizers actually blew all the infrastructure and operations money (the money needed to, you know, actually run the festival) on photo shoots with models and yachts, and on these influencers. It was all a marketing facade, and that’s where all the money went. So, in order to recover, to some extent, you need to get that squandered money back from the influencers themselves.

So can you do that? Well, it depends on how you frame the case. And that’s where good lawyering comes in. In the first class action filed against the Fyre Festival, the plaintiffs only name the company itself. The second class action, however, names the influencers (as Jane and John Doe’s, to be determined through discovery). As part of the second case, the plaintiffs emphasize equitable remedies of disgorgement. So, by naming these influencers (who are likely personally in violation of the FTC Act Section 5 disclosure requirements just as Warner Brothers was and the Fyre Festival likely is), plaintiffs are seeking a disgorgement of the consumers’ money which was used not to provide a service to consumers, but to overpay the influencers themselves.

These burgeoning social media marketing issues are being worked through just as a common law system would work through them. A company potentially crosses a line, a new type of marketing emerges, and the FTC and class action practice takes up the cause. We are just starting to see the nascent application of consumer protection law to a new era of marketing, and creative lawyers in the government and both bars will move this area of law into the future.