Marketing Class Action Lawsuits: Legal Steps

marketing class action lawsuits
Marketing Class Action Lawsuits – History, Summary and Case Studies

Class Action Lawsuits Part I: History

History of Class Action Litigation

Class action litigation dates all the way back to medieval England. Thanks to treacherous roads and equine-powered vehicles, it was difficult for Kings, Queens and henchmen to travel from one village to village dispensing justice. As such, dealing with legal conflicts en masse became the norm.

But things eventually improved in jolly old England. Roads became less death-trapy; horse-and-buggy technology blew up; travel became safer and smoother. The improvements affected politics, culture and justice, not the least of which was a shift from group to individual litigation. By 1850, the UK Parliament had enacted several statutes which lessened the effectiveness of group litigation. But at around the same time in the United States, group litigation lived on, albeit oddly, thanks to Supreme Court Justice, Joseph Story.

Class Action Law in the United States

Equity Rule 48 is the modern-day legal seed of class action litigation in the United States. Back in the day, though, 48 was largely ineffective because it didn’t allow “suits to bind similarly situated absent parties.”

Over time, Equity Rule 48 effectively became Equity Rule 38.

In 1966, class action litigation underwent another major change in the United States. The opt-out process became standard and Equity Rule 38 became Rule 23 of the Federal Rules of Civil Procedure.

Today, Class action laws in the U.S. are defined in Rule 23 of the Federal Rules of Civil Procedure and Title 28, section 1332(d) of the annotated United States Code.

For several decades, the 1966 standard remained the status quo for class action litigation. Things changed in the 1990s, however, when the Supreme Court of the United States made clear their preference for bilateral arbitration over class action litigation. Capitalizing on SCOTUS’ sentiments, in 1999, a national arbitration advocacy association launched a campaign encouraging businesses to include “collective action waivers” — which force consumers and partners to waive class action rights — in all contracts.

Class Actions as an Alternative to Government Finance Regulation

America loves capitalism. Some folks dig it so much they criticize even the smallest government intervention in financial markets. Back in 1941, two such well-known, free marketing believers  — Harry Kalven, Jr. and Maurice Rosenfeld — promoted the idea that class action litigation could replace “direct government regulation” in the market.  It never worked out to the extent the pair hoped.

Class Action Lawsuits Part II: The Anatomy of A Class Action Claim

We’ve discussed the history of class action law, from its beginnings in Medieval England to its current form under U.S. statutes. Now let’s look at the administrative aspects and legal elements of a class action lawsuit.

Jurisdiction and Class Action Lawsuits

In terms of jurisdictional variations, most state class action provisions look a lot like federal ones; but, inter-state differences do exist. For example: California allows for four different types of class actions; Virginia doesn’t allow for any class action suits; New York limits the types of cases that can be brought via the class action process.

Federal Class Action Eligibility

Class actions can be filed in federal court if the prevailing issue is a matter of federal law. As always, federal district courts have jurisdiction over any civil action where the ask amount exceeds $75,000. As such, with regards to class action law, a case can be presented in federal court if the ask amount exceeds 75K and a member of the class is from a different state or country than the defendant.

State Class Action Eligibility

Class actions can also be brought under state law. Common wisdom says federal courts are more favorable to defendants, while plaintiffs tend to fare better in state courts. As such, defendants often try to get class action cases moved to federal court.

The Class Action Fairness Act of 2005

In 2005, federal officials passed the Class Action Fairness Act (U.S.C. Sections 1332(d), 1453 and 1711-1715). A statute meant to modernize class action litigation, the law increased federal jurisdiction over class and mass action lawsuits. It also directed courts to better scrutinize the efficacy of settlements.

Like most federal statutes, The Class Action Fairness Act had its supporters and detractors. The “yay” vote appreciates the reduction of “forum shopping” that the bill makes possible. The “nay” group thinks the Class Action Fairness Act does not bring balance, but instead makes it harder to bring class action lawsuits — and therefore benefits large corporations over average citizens.

The Basic Timeline of a Class Action Lawsuit

You may be thinking: how does a class action lawsuit actually play out? Here’s a rough timeline for a typical class action case:

  1. Finding and Filing a Case: Sometimes a plaintiff approaches a law firm about a potential class action lawsuit. Other times, a law firm approaches a potential client about being a named/lead plaintiff on a case.
  2. Certification: Once the case is filed, it needs to be certified as a class action lawsuit. Specifically, the parameters of the class need to be drawn, and a judge must determine if the case qualifies for group litigation. Discovery may be necessary during the class certification process.
  3. Let the Objections Begin: Once the class is certified, the defendants can voice their objections. Common arguments during this stage include:
    • Objection to the validity and feasibility of a class action to resolve the particular legal conflict at hand;
    • The appropriateness of the named plaintiff as a representative of the group;
    • The preparedness of the law firm representing the plaintiffs; and
    • The soundness of using class action litigation to rectify the legal questions at hand.
  4. Hear Ye, Hear Ye: Once objections have been made, dealt with, and the class is certified, it’s time for broadcasts. After all, you can’t very well have a class action lawsuit without a sizable class of potentially damaged class members. The first announcement announces the class and usually gives instructions on how potential members can opt out. Why would anybody want to opt out? In most cases, because an individual wants to pursue his or her own legal action against the defendant(s). If the named plaintiff, defendants and attorneys can hammer out a settlement before the case is heard by a judge or jury, a settlement notice must also be published to the public.
  5. Kumbaya Achieved: If a settlement is immediately proposed, accepted and approved, then the class action is essentially over and the parties execute their portion of the settlement agreement. In these instances, the class members can collect whatever reward at his point. If a settlement is not proposed, accepted and approved, the case may go to trial – which could take years. Eventually, a decision will be made, and the resulting orders will be carried out as prescribed by the outcome of the case.

CAN’T Principle: The Four Pillars Of A Class Action Claim

When describing class action lawsuits, the acronym “CAN’T” is used to outline the necessary aspects of a class action lawsuit.

Commonality: In order for a class action lawsuit to move forward, the members of a given class must have the same legal issue with the same set of defendants. Moreover, the common issue must usurp any singular issues an individual class member may have with the defendant(s).

Adequacy: A certified class largely depends on the preparedness of the plaintiffs’ law firm. The courts won’t let just any attorney handle a class action case, as group litigation requires significant resources and knowledge of class action proceedings. Same goes for the other side.

Numerosity: Size matters in class action lawsuits. For a case to be green lit, the number of people in the class must be large enough that litigating each case separately would be unreasonable.

Typicality: Like any lawsuit, class action cases must use laws and arguments relevant to the issue(s) at hand.

Advantages of a Class Action Lawsuit

All legal remedies have their pros and cons. Part of effective lawyering is deciding which legal avenue best serves a given situation. So let’s take a quick look at the advantages of a class action lawsuit.

A class action lawsuit:

  1. Can increase efficiency of legal process;
  2. Can lower litigation costs;
  3. Can Eliminate redundant trials;
  4. The structure of a class action creates a worthwhile opportunity to hold a company accountable;
  5. Disallows early-filing plaintiffs from “raiding the fund” in “limited fund” cases;
  6. Can mitigate legal confusion, as there is less opportunity for “incompatible standards”.

Disadvantages of Class Action Lawsuits

We covered the good aspects of class action lawsuits; now let’s get to the bad side of class action litigation.

  1. In certain circumstances, class actions have the potential to harm class members with legitimate claims;
  2. Class actions have the potential to adversely affect interstate commerce;
  3. Have the potential to undermine the public’s respect for the judicial system;
  4. The notification system is often confusing and inefficient;
  5. If the stars are aligned, participants in competing cases can orchestrate collusive settlement discussions.

Class Action Lawsuits Part III: Marketing Class Action Lawsuit Briefs

SunRun Class Action Lawsuit

In January 2013, California resident Shawn Reed filed a lawsuit against SunRun, a solar panel company. Reed alleged deceptive marketing, citing inaccurate information conveyed to him by both the company’s marketing materials and a sales representative. Specifically, Reed “understood from SunRun that increases in electricity prices would result in the cost advantage of the SunRun system.”

Reed was skeptical of the claims and researched the issue. His findings did mesh with SunRun’s. Specifically, Reed concluded that while electricity rates were on the rise, they were increasing at the rate SunRun said.

But the discrepancy in electricity rates was the only problem Reed had with SunRun. He also took issue with the termination clause in the contract that said consumers could cancel without penalty if they move; yet, further down the contract, it says customers must pay the remainder of the lease if the contract is terminated. The contradiction bothered Reed because, in his opinion, it was “unnecessarily confusing to the average consumer” and “likely to deceive” customers. Firm in his convictions, Reed decided to launch a lawsuit.

In their defense, SunRun argued that the company was not “intentionally deceptive” – a requirement for a successful false advertising action.

Reed won the first round and a judge certified his proposed class: anyone who entered into a contract with SunRun before February 2012.

The case is currently ongoing. Reed v. SunRun Inc., Case No. BC498002, California Superior, County of Los Angeles

Kodak Class Action

Over the years, several printer companies have found themselves in the middle of class action lawsuits. Kodak is one such business.

To summarise the conflict, consumers realized that printing black and white documents used up a significant amount of color ink. The excess ink translated into extra costs for the consumer. As a result, affected parties launched a class action, with lead plaintiff, Daniela Apostol.

The process started in Sept 2011. The plaintiffs alleged violations of the Consumers Legal Remedies Act and unfair competition laws, in addition to false advertising and unjust enrichment. The lawsuit states: “Kodak represents that its 10B black inkjet print cartridges will yield approximately 425 pages, but Kodak does not advertise that to print 425 pages of black text and graphics, a significant and a substantial amount of colour will also be used…”

The proposed member class is anyone in the United States who owns a Kodak color inkjet printer and has printed black text or images using that printer between January 26, 2010 and September 23, 2011. At the time of this writing, a settlement or decision has yet to be rendered.

HP and Epson are facing similar lawsuits.

Webloyalty Class Action Case

The Webloyalty class action lawsuit deals with unauthorized credit card charges. Plaintiffs in the case allege deceptive Internet marketing and selling strategies.

The case began in 2006. Webloyalty was running a fee-based travel membership club called “Reservation Rewards” that supposedly conferred discounts on participants. The problem, according to plaintiffs, was that Webloyalty enrolled people without their knowledge. Additionally, according to reports, the company wouldn’t honor cancellation requests and unlawfully obtained consumers’ billing information.

A judge certified the class membership and ultimately the class won. The order allowed affected parties to recover up to 100% of unauthorized charges for enrollment in any Webloyalty membership programs. In addition, Webloyalty had to make significant changes to its disclosures and post-enrollment notifications. The court’s order went into effect on august 14, 2009.

Target Class Action

The Target screen-reader class action serves as a good reminder to ensure your e-commerce sites are properly accessible.

In 2006, Bruce Sexton, Jr. – a blind student at the University at California-Berkeley – in association with the National Federation of the Blind – filed a lawsuit against Target stores because the company’s corporate website used image maps and was, therefore, inaccessible to blind people, thus violating the American’s with Disabilities Act. In addition, the plaintiffs argued violations of California’s Unruh Civil Rights Act and the California Disabled Persons Act. The addition of the California-specific claims gave plaintiffs more wiggle room. If the case didn’t fly on the federal level, it had a shot on the state level.

A California court certified the class as “all blind internet users throughout the United States who have tried without success to access Target’s website.” The judge also certified a second class: blind Californians who have tried without success to access Target.com.

When the Target caught wind of the class action, it acted quickly to change its site. But it was too late. The case moved forward. In the end, the plaintiffs won.

Other cases like this have been tried before, with different results. For example, Southwest Airlines won a similar action because the court determined that the ADA applies only to physical spaces, not websites.

Payment Card Interchange Fee Merchant Discount Antitrust Litigation

A 2005 class action lawsuit examined the possibility of price fixing and other anti-competitive practices in the credit card industry. A complex case, it lasted over 7 years and is still ongoing. And it not wonder this class action is moving at a snail’s pace; Visa, Mastercard and most of the large credit-card issuing banks like JPMorgan Chase, BOA, CitiBank, Wells Fargo and Capital One are involved.

So what is the central issue of this seemingly never-ending case? The plaintiffs contend the defendants (credit card companies and other financial institutions) conspired to fix swipe fees for credit and other types of money cards. The plaintiffs argue that doing such hindered their ability to promote alternative payment methods (cash, checks, lower-cost cards).

After considerable litigation, attorneys for the two sides struck a deal: the card companies would reduce the swipe fee charges by 0.1% for 8 months. The reduction would translate to a $7.25 billion settlement if all class members accepted. In addition, the settlement draft gave vendors permission to pass the cost to consumers by charging a fee to buyers as a way to recoup swipe fees. Many of the larger retailers, like Target and Walmart, however, opted not to implement the consumer surcharges, fearing a PR backlash.

Though, after reviewing the settlement offer, the National Association of Convenience Stores and the National Retail Federation came out against the deal. One of the main complaints is that consumers, not the stores, end up paying the price under the proposed settlement.

Several larger retailers (Walgreens, Kroger and Safeway) reached a separate agreement with the defendants regarding this matter.

Lane v. Facebook Class Action

Perhaps one of the bigger class actions involving an online company, Lane v. Facebook deals with Internet privacy and social media advertising.

It all began in December 2007. Facebook unleashed Beacon – an advertising plugin deployed on all user accounts without any warning. A disaster from day one, Beacon broadcasted purchases to users’ contact lists. Unfortunately for X Lane, his purchase of an engagement ring was blasted to his girlfriend, who was on his contact list. Needless to say, Beacon effectively ruined the surprise. Many other people were similarly betrayed by Beacon, and within ten days of launching, Moveon.org had gathered over 50,000 signatures from Facebook users.

Within days, Facebook terminated Beacon, but the damage was done. In short order, Lane fronted a class action lawsuit against the social networking company. The certified class was “all Facebook users that had been affected by this service and used it without their knowledge between November and December 2007.”

In the end, the court sided with the class. The ruling, however, proved controversial because people felt Facebook wasn’t sufficiently punished. The social media monster was ordered to put $9.5 million towards a privacy and security research project – a project from which Facebook arguably benefited. The lawyers in the case were handsomely rewarded, but the users got zilch. Moreover, critics questioned the validity of letting Facebook have a seat on the board of the non-profit that was funded by the 9.5 million punishment.

Specifically, the plaintiffs alleged violations of the Electronic Communications Privacy Act, Video Privacy protection Act, California Consumer Legal Remedies Act, California Computer Crime Law and Computer Fraud and Abuse Act.

Swift v. Zynga

In 2009, an important online advertising class action lawsuit took form. Zynga, a developer of online games like Farmville, Mafia wars, YoVille! and ZyngaPoker, began to run ads on Facebook. Since many of their games use various types of virtual currency, oftentimes, Zynga ads would promote an offer to earn game currency.

But according to Rebecca Swift, an avid Zynga player, the gaming company was not playing fair when it came to their advertising. When Swift provided her cell phone number in response to an ad she saw on Facebook offering YoVille! cash, she was charged $9.99 without her knowledge or consent. In the same year, Swift also signed up for another Zynga-related offer for “risk-free Green Tea Purity Trial.” As Swift understood the deal, she would receive YoCash in exchange for participating in a risk-free trial. According to the ad, she could cancel in 15 days without penalty. So Swift gave her debit card information and agreed to a shipping and handling charge. After she received the Green Tea and pills, 10 days in, she sent an email asking to cancel her subscription.

But apparently her attempt to cancel the membership didn’t work. On July 4, Swift got a message that said she would be charged $79.95 for the package of teas and pills. The notification did not include contact information for someone she could talk to about her cancellation. On July 6th, Swift was billed $79.95, in addition to a foreign transaction fee. On July 20th, without warning, she was once again billed $79.95, for a total of 176.56.

Virtual currency is metered out in their games and offers run by partner Adknowledge.

In November 2009, a class action lawsuit launched against Zynga, Zynga’s partner Adknowledge and Facebook. Swift was the lead plaintiff. The suit alleged violations of the unfair competition law and consumer legal remedies act plus unjust enrichment. According to the claim, the defendants purposefully created and distributed “highly misleading ads.” When word of the lawsuit broke, the peanut gallery opined that Facebook and Zynga probably would enjoy immunity. Swift took notice of the criticisms and removed the two companies from the suit, but without prejudice, so, if need be, they could be re-added.

While Swift and company were busy planning their strategies, Zynga and Adknowledge separately tried to get the case dismissed on CDA Section 230 grounds, but the courts denied the requests, evoking the Roomates.com ruling. Ultimately the judges considering CDA applicability determined that Swift’s allegations could support the conclusion that Adknowledge was responsible for creating or developing the content at issue and Zynga further contributed to their development by specifying the design, layout, and format of the offers.

When the judges dismissed the motions to dismiss, legal watchers noted that the decisions marked a departure from accepted case law and could mean that websites are not as insulated from action as previously thought.

In the end, despite pulling all its “offer” based advertising in 2009, Zynga promptly reinstated the practice in 2010.

Litigation is still ongoing in the case.

Fraley, et al. v. Facebook, Inc., et al class action

Another class action lawsuit out of California, Fraley, et al. v. Facebook, Inc. is another Internet marketing law-related class action suit. The case dealt with the alleged “misappropriation” of Facebook users’ names and likeness in “sponsored story” advertisements. Plaintiffs first filed the case in March 2011 and Judge Lucy H. Koh presided.

Judge Koh eventually granted Facebook’s motion, but only in part; the plaintiffs were allowed to continue. Miraculously, however, in May 2012, right before the certification hearing and just after Facebook went public, the two parties reached a settlement in which 10 non-profits would get $10 million to establish a privacy and online advertising research project. Facebook also agreed that users could have more control over their appearances in advertisements.

Interestingly, Koh recused herself from the case one day before the settlement was scheduled to be heard and was replaced by Richard G. Seeborg. He ultimately denied settlement. Seeborg took issue with the “propriety of a settlement that provides no monetary relief directly to class members.” He also didn’t understand how the parties arrived at the $10M figure. Moreover, the “clear sailing” proposal that would allow plaintiff attorneys to collect $10M from court unopposed didn’t sit well with Seeborg.

Upon the judge’s rejection, lawyers went back to the drawing board. As the judge strongly suggested, they removed the “clear sailing” provision. In addition, lawyers beefed up the language involving minors’ ability to control their likeness in advertisements. By December 2012, the preliminary settlement was amended, approved, and the class membership defined as:

All persons in the United States who have or have had a Facebook account at any time and had their names, nicknames, pseudonyms, profile pictures, photographs, likenesses, or identities displayed in a Sponsored Story at any time on or before the date of entry of the Preliminary Approval Order.

Additionally, a Minor Subclass was defined as:

All persons in the Class who additionally have or have had a Facebook account at any time and had their names, nicknames, pseudonyms, profile pictures, photographs, likenesses, or identities displayed in a Sponsored Story, while under eighteen (18) years of age, or under any other applicable age of majority, at any time on or before the date of entry of the Preliminary Approval Order.

Recently, a proposed settlement called for a $20M fund. A fairness hearing related to the case was held in San Francisco on June 28, 2013. At the time of this writing, Seeborg is expected to approve the settlement soon.

Vroegh v. Eastman Kodak Company, et al Class Action

In 2004, Iconic camera brand, Eastman Kodak, got caught in a class action lawsuit. The size of the company’s flash memory drives and cards were at the heart of the legal conflict. Legally speaking, the company was charged with false advertising, unfair business practices, breach of contract, fraud and violations of the California Consumers Legal Remedy Act.”

One of the original defendants in the case settled separately and was dismissed from the case on March 15, 2005. At that point, Eastman Kodak became the first defendant. By 2006, all parties reached a settlement: class members would either get a 5% refund on their original purpose or get a 10% off coupon on other Eastman Kodak products.

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