Social Media Marketing and Class Actions

Social Media Marketing and Class Actions

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.

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