From:                                   Antitrust Law Daily <AntitrustDaily@wolterskluwer.com>

Sent:                                    Monday, January 06, 2014 8:15 PM

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Subject:                                Antitrust Law Daily Wrap Up - Jan 6

 

Wolters Kluwer

Antitrust Law Daily

January 6, 2014

Wolters Kluwer

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CASES

 

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LAW FIRMS

·        Anderson And Gilbert

·        Berdon, Young & Margolis

·        Bingham McCutchen LLP

·        Drinker Biddle & Reath LLP

·        Farmer, Jaffe,Weissing, Edwards, Fistos & Lehrman, PL

·        Garrity Weiss, PA

·        Gibson, Dunn & Crutcher, LLP

·        Goode Hemme & Peterson PC

·        Goodwin Procter LLP

·        Gray, Plant, Mooty, & Bennett, P.A.

·        Hausfeld LLP

·        Kazerounian Law Group, APC

·        Kunzler Needham Massey & Thorpe

·        Maschoff Brennan PLLC

·        Parr Brown Gee & Loveless, P.C.

·        Pratt & Associates

·        Quinn Emanuel Urquhart & Sullivan LLP

·        Stewart M. Weltman, LLC

·        Wiggin & Dana

·        Winston & Strawn LLP

COMPANIES

·        Baskin-Robbins Franchising LLC

·        Bumble Bee Foods, LLC

·        Cemex Group, Holcim

TOP STORY

TOP STORY—E.D. Cal.: Settlement in tomato products price fixing class action gets preliminary approval

By Jeffrey May, J.D.

A proposed $6.4 million settlement of a consolidated class action brought on behalf of food products manufacturers against processed tomato products sellers for allegedly conspiring to fix prices has been given preliminary approval by the federal district court in Sacramento (Four in One Co. v. SK Foods, L.P., January 2, 2014, Mueller, K.).

The plaintiffs brought multiple actions in 2008 and 2009 against defendants SK Foods, L.P., Ingomar Packing Company, and Los Gatos Tomato Products, and related individuals. The plaintiffs alleged that they were overcharged for processed tomato products. The suits, which arose from a Department of Justice investigation into anticompetitive conduct in the processed tomato industry, were consolidated together in 2009.

The motion for preliminary approval of the settlement follows limited “document discovery” in the matter. The Justice Department was granted a limited stay of discovery in the case in light of the ongoing criminal proceedings. As a result, no depositions have been taken.

Settlement Class. For purposes of the settlement, the court certified a class of hundreds of direct purchasers of processed tomato products from defendants Ingomar, Los Gatos, or SK Foods between February 1, 2005 and December 31, 2008. The plaintiffs satisfied the requirements of Federal Rule of Civil Procedure 23(a) and the requirements of Rule 23(b)(3). With respect to the predominance inquiry of Rule 23(b)(3), the court noted that the major issues in the case stemmed from an alleged overarching conspiracy to raise and fix the prices of processed tomato products. The court also concluded that the class was narrowly defined; there was little suggestion there would be individual issues apart from the calculation of individualized damages; and the class action would promote efficiency by allowing a number of claims to be litigated simultaneously.

Moreover, a class action was superior to individual resolution of the antitrust claim. If each class member were to sue, each company would bring essentially the same claim for a relatively small amount of money and might have to expend significant individual costs to hire experts, the court explained.

Settlement Preliminary Approval. The proposed settlement was within the range of possible approval, the court decided. Thus, the court granted preliminary approval to the settlement. However, it noted that its “preliminary approval at this early stage is not without reservation.”

Under the proposed settlement, Ingomar agreed to pay $3,500,000, and Los Gatos agreed to pay $2,900,000 for release of all class members’ antitrust claims against the companies and their employees. The two proposed settlement agreements were substantially similar, except to the extent that the Los Gatos settlement agreement contained a “blowup provision” where if 25 percent of the class members opted out, then Los Gatos would have the opportunity to rescind the agreement.

The court noted that defendant Ingomar had been accepted into the U.S. Department of Justice’s amnesty program based on cooperation in the criminal investigation under the Antitrust Criminal Penalty Enhancement and Reform Act of 2004 (ACPERA). Thus, the plaintiffs could not recover treble damages from Ingomar or hold the company jointly and severally liable if the company cooperated under ACPERA.

SK Foods, which had declared bankruptcy, was not part of the proposed settlement agreements before the court. However, the plaintiffs might still be able to recover from SK Foods’ owner/chief executive officer separately from the proposed class settlements, through ongoing bankruptcy and criminal restitution proceedings, it was noted.

With respect to attorney fees, plaintiffs’ counsel did not plan to seek fees in excess of 25 percent of the recovery. The settlement agreement contained a “clear sailing” provision, in which the defendants agreed not to contest the class counsels’ application for attorney fees.

The court explained that, before it would consider granting final approval of the settlement, the parties would need to provide some additional information on class counsel’s experience in class action antitrust cases and on the bases for the settlement amounts. Among other things, the parties would need to explain how the monetary settlement terms related to the merits of the class members’ antitrust claims; to provide evidence concerning the mediation and negotiations of the proposed settlement agreements; and to provide information on other individual settlements. A hearing on the final approval of the settlement was set for June 6.

This is Case 2:08-cv-03017-KJM-EFB.

Attorneys: Arthur N. Bailey (Hausfeld LLP) and Steig Olson (Quinn Emanuel Urquhart & Sullivan LLP) for plaintiffs. Paul Robert Griffin (Winston & Strawn LLP) for SK Foods, LP. Colin West (Bingham McCutchen LLP) for Ingomar Packing Co. George A. Nicoud (Gibson, Dunn & Crutcher, LLP) for Los Gatos Tomato Products.

Companies: Four in One Co. Inc.; SK Foods, LP; Ingomar Packing Co.; Los Gatos Tomato Products

MainStory: TopStory Antitrust CaliforniaNews

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CASES

ADVERTISING—E.D. Ill.: Final settlement approval and attorneys’ fees award granted in action over joint health dietary supplement labeling

By Linda O’Brien, J.D., LL.M.

In a class action against three marketing and distributing companies for allegedly falsely labeling their joint health dietary supplements, the plaintiffs established that the proposed settlement was fair, reasonable, and adequate and that they were entitled to an award of attorneys’ fees, the federal district court in Chicago has ruled. (Pearson v. NBTY, Inc., January 3, 2014, Zagel, J.).

NBTY, Inc., Rexall Sundown, Inc. and Target Corp. are in the business of marketing, selling and distributing numerous products, including the “Up and Up” brand of joint health dietary supplements with the active ingredients of glucosamine and chondroitin. Consumers filed an action against the defendants alleging that the labeling of the products made representations of its beneficial effects on joint health. The plaintiffs claimed to have purchased the products based on the representations and did not experience any of the beneficial effects. A preliminary approval order of the proposed class action settlement was entered in May 2013. Objections to the proposed settlement were subsequently filed.

Pursuant to the agreement, the defendants would create a constructive fund for the class who will receive notice either by publication or by direct, individual notice. The settlement guarantees $2 million to the fund, with any unclaimed funds remitting to a cy pres fund, and includes funds for incentive awards, and costs for notices and attorneys’ fees. The injunctive relief would be provided in the form of labeling changes on the defendants’ products.

Reasonableness of the settlement. The settlement was fair, adequate, and reasonable, and the result of protracted, arm’s length negotiations, according to the court. The class action litigation involved numerous complex legal, factual, and scientific issues, including disputed scientific literature and medical studies regarding the benefits of glucosamine and chondroitin. In the absence of settlement, the plaintiffs would be required to pursue extensive litigation to secure a finding of liability, causation, and damages. Extensive discovery had been completed and provided the plaintiffs a thorough record upon which to evaluate the case and determine that the settlement was in the best interests of the class.

The court also found that, although the actual benefit to the class was a fraction of the available constructive fund, the settlement provided adequate economic recovery by the claimants in light of the costs, likelihood of additional relief, and uncertainty of continued litigation.

Attorneys’ fees and costs. An award of attorneys’ fees is generally based on the value of the settlement as a whole and not only on the portion of the fund actually claimed by class members. Since the primary benefit to the class was the creation of a constructive common fund, an initial calculation of attorneys’ fees based on a percentage-of-recovery method was appropriate. In this case, the attorneys’ fees constituted approximately 22% of the total direct monetary benefit to the class. The court also utilized the “lodestar” method and multiplied the number of hours the plaintiffs’ counsel reasonably expended on the litigation by a reasonable hourly rate for region and the experience of the attorneys. Due to the low actual relief secured by the class members and lack of other meaningful benefit to compensate the class for past injuries, the court compared the percentage-of -recovery and lodestar methods and awarded attorneys’ fees exclusively for securing the common fund. Although the cy pres fund and injunctive relief created a benefit to the general public and future glucosamine consumers, it did not directly benefit class members and was not a key factor in determining the fairness of the settlement or the calculation of the attorneys’ fee award, the court concluded.

The case is No. 11 CV 7972.

Attorneys: Stewart M. Weltman (Stewart M. Weltman, LLC) for Nick Pearson. Bradley Joseph Andreozzi (Drinker Biddle & Reath LLP) for Target Corp., NBTY, Inc. and Rexall Sundown, Inc.

Companies: Target Corp.; NBTY, Inc.; Rexall Sundown, Inc.

Cases: Advertising IllinoisNews

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FRANCHISING & DISTRIBUTION—D. Conn.: Transferee not subject to franchise agreement’s arbitration clause

By John W. Arden, J.D., LL.M.

Claims brought by the transferee of a New Jersey Subway sandwich franchise against a former franchisee, the franchisor, and the franchisor’s real estate affiliate were not subject to an arbitration agreement in the franchise agreement, according to the federal district court in New Haven, Connecticut (Doctor’s Associates Inc. v. Edison Subs, LLC, January 3, 2013, Hall, J.). The transferee, which was not a signatory to the franchise agreement, did not knowingly exploit the agreement.

Edison Subs, LLC—a transferee of a Edison, New Jersey Subway restaurant—brought an action in New Jersey state court against the franchisor (Doctor’s Associates, Inc.), the former franchisee (Aliya Patel), and the franchisor’s affiliate (Subway Real Estate Corp.), alleging breach of contract, fraud, violations of the New Jersey Consumer Fraud Act, negligent misrepresentation, and violation of the covenant of good faith and fair dealing.

The action alleged that Edison entered into an oral franchise agreement with Doctor’s Associates, whereby Edison would pay the costs of outfitting franchise premises and pay transfer fees to Patel in exchange for “all of the benefits of ownership of the Subway franchise business.” Edison claimed that Patel fraudulently induced it to enter the oral franchise agreement through a series of material misrepresentations and omissions and breached the terms of the oral franchise agreement by involuntarily ejecting Edison from the franchise premises.

Subsequently, Doctor’s Associates brought an action in the federal district court in New Haven to compel arbitration of the claims brought in the New Jersey state court action. It moved to enjoin Edison from prosecuting its claims, except through arbitration proceedings in Connecticut, as required by the original franchise agreement between Doctor’s Associates and Patel.

It was undisputed that Edison did not sign the franchise agreement. Edison contended that it did not even receive a copy of the agreement. Nevertheless, Doctor’s Associates argued that Edison could be bound by the agreement under common law principles of contract and agency, including estoppel. Under an estoppel theory, a party knowingly exploiting an agreement with an arbitration clause can be estopped from avoiding arbitration, despite never having singed the agreement. In cases where a signatory seeks to compel a nonsignatory to arbitrate, the nonsignatory must have directly benefitted from the agreement to trigger estoppel, the court explained.

In the Second Circuit, a nonsignatory must have “knowingly accepted the benefits of an unsigned agreement, and the benefits must be direct.” The doctrine of “direct benefits estoppel” is a narrow one. Such benefits must flow directly from the written agreement, according to the court. The fact that a nonsignatory is merely a signatory’s successor or corporate parent need not trigger estoppel. However, a nonsignatory may be estopped from refusing to arbitrate if it had notice of the unsigned agreement’s terms and, for example, used a trade name or received a significantly lower insurance rate pursuant to that agreement.

Doctor’s Associates argued that Edison directly benefitted from the franchise agreement. Edison argued that its New Jersey lawsuit sounded in fraud, not in contract, and did not rely on the franchise agreement signed by Patel. However, Edison indisputably held itself out as a franchisee and reaped the benefits of being a franchise, including using a Subway operations manual and the franchsior’s marks. The court held that some of Edison’s claims rested on the alleged ownership and operation of a Subway franchise.

Nevertheless, Edison could not be compelled to arbitrate because there was no evidence to support a finding that Edison “knowingly exploited” the franchise agreement containing the arbitration clause. Doctor’s Associates nowhere alleged or offered evidence that Edison, prior to allegedly receiving any benefits as a franchisee, had received a copy of the franchise agreement. Edison explicitly represented that it did not receive the franchise agreement.

Edison’s New Jersey lawsuit was based on an alleged oral franchise agreement, entered into by itself, Patel, and Doctor’s Associates. A fair reading of the complaint showed that the benefits allegedly received by Edison were received pursuant to the oral franchise agreement, the court found. Furthermore, Doctor’s Associates failed to allege or offer evidence that Edison otherwise had notice of the terms of the written franchise agreement signed by Patel. Thus, even if the benefits received by Edison as a franchisee could be construed as being direct, the court could not find that they were “knowingly accepted.”

The franchisor’s allegation that Subway franchise agreements always require arbitration was unavailing, absent a signed agreement containing an arbitration agreement or proof that the case fell within one of the common law exceptions recognized by the Second Circuit.

The case is Civil Action No. 3:13-CV-839 (JCH).

Attorneys: Bethany L. Appleby (Wiggin & Dana) for Doctor’s Associates, Inc. Stuart A. Margolis (Berdon, Young & Margolis) for Edison Subs, LLC.

Companies: Doctor’s Associates, Inc.; Edison Subs, LLC

Cases: FranchisingDistribution ConnecticutNews

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FRANCHISING & DISTRIBUTION—E.D. Mo.: Misrepresenting ownership of corporate franchisee fraudulently induced franchisor to enter agreements

By John W. Arden, J.D., LL.M.

Principals’ knowing misrepresentation of the ownership of their corporate franchisee fraudulently induced Dunkin’ Donuts Franchising to enter franchise agreements, according to the federal district court in St. Louis (Dunkin’ Donuts Franchising LLC v. Sai Food & Hospitality, LLC, December 31, 2013, Fleissig, A.). Thus, termination of the parties’ franchise development agreement was warranted.

On February 5, 2009, Jayant Patel and his wife, Ulka Patel, signed a store development agreement, giving them the exclusive right to open ten Dunkin’ Donut franchises in the St. Louis area, pursuant to a development schedule. The last franchise was scheduled to open in January 2017. Each franchise was to have a 20-year term.

Jayant and Ulka Patel agreed to pay a nonrefundable initial franchise fee of $40,000 for each store—$133,330 upon the execution of the store development agreement and the remainder in installments. They also agreed to sign a unit franchise agreement prior to the construction of each store. The store development agreement provided for a continuing royalty based on a percentage of gross sales; allowed Dunkin’ Donuts to terminate the agreement, without providing an opportunity to cure, if the Patels committed fraud against Dunkin’ Donuts; and required the Patels to obtain written consent from Dunkin’ Donuts before adding or subtracting owners or changing the ownership percentages for a franchise.

In mid-2010, Dunkin’ Donuts offered the Patels the opportunity to open a franchise in Washington, Missouri. On July 31, 2010, the Patels formed Sai Food & Hospitality, LLC to serve as the corporate franchisee of the franchises to be opened under the store development agreement. The ownership percentages were 30 percent for Jayant S. Patel and the Ulkaben Patel Irrevocable Trust; 40 percent for Kamlesh Patel; and 30 percent for Jigar Patel. Dunkin’ Donuts informed Jayant Patel that he would have to remove Kamlesh Patel and Jigar Patel from the entity’s ownership because they were not approved franchisees. Jayant said that he would sign the Washington, Missouri franchise agreement on behalf of Sai Food & Hospitality and drop Kamlesh and Jigar Patel from ownership until they were qualified.

When the Washington franchise agreement was signed, Sai Food & Hospitality paid a franchise fee of $224,000, including $120 for equipment and entered a sublease for franchise premises. The store opened on December 6, 2010.

Jiggar Patel and Kamlesh Patel applied to be franchisees. Dunkin Donuts approved Kamlesh in April 2011. In May 2011, Dunkin’ Donuts began investigating possible underreporting of sales at the Washington franchise. During the investigation, Jayant Patel submitted corporate records showing that Sai Food & Hospitality was owned in 2010 by Jayant Patel (30 percent), Jigar Patel (30 percent), and Kamlesh Patel (40 percent).

That month, Dunkin’ Donuts became aware of a civil forfeiture lawsuit bought by the United States involving $222,000 in confiscated cash and cigarettes, for which Jayant Patel, Jigar Patel, and Sai Enterprises were identified as parties at interest. Dunkin’ Donuts subsequently denied Jigar Patel’s application to become a franchisee for his involvement in the forfeiture action.

The Dunkin’ Donuts investigation of the Washington franchise found that Jayant and Ulka Patel fraudulently induced the franchisor to enter into the franchise agreement by misrepresenting that they were the sole owners of Sai Food & Hospitality. Dunkin’ Donuts decided to terminate the agreements and sent a notice of default and immediate termination of two unit franchise agreements and the store development agreement. The stated cause for termination was fraud in falsely representing that only Jayant and Ulka Patel owned Sai Food & Hospitality.

Dunkin’ Donuts brought an action, claiming that the ownership misrepresentation constituted a breach of contract and that the use of its trademarks constituted trademark infringement, trade dress infringement, and unfair competition. The defendants made counterclaims for wrongful termination under the Missouri Franchise Act, breach of contract, and promissory estoppel. After trial, the district court stated that the defendants had committed fraud in representing that the Jayant and Ulka Pate were the sole owners of Sai Food Hospitality, that this was a material misrepresentation, and that the misrepresentation had fraudulently induced Dunkin Donuts to enter the franchise agreements.

After the parties filed post-trial briefs, the court held as follows:

Breach of contract. Under Massachusetts law, which governed the agreements, the true ownership of the corporate franchisee was a material matter in Dunkin’ Donuts’ decision to enter the agreements. The franchise relationship “was tainted by fraud almost from its very inception,” the court found. Jayant and Ulka Patel’s actions constituted fraud justifying immediate termination under the terms of the franchise agreements.

Trademark and unfair competition. In light of the conclusion that the termination was justified, Dunkin’ Donuts was entitled to the requested injunctive relief, enjoining the defendants from continued use of the franchise trademarks and trade dress.

Missouri Franchise Act. The counterclaim that Dunkin’ Donuts failed to give 90 days’ written notice, in violation of the Missouri Franchise Act, was rejected by the court. The notice requirement was inapplicable “because fraud was the basis for termination of the franchise agreement.”

Promissory estoppel. To prevail on a claim of promissory estoppel under Missouri law, a party must establish a promise made by the defendant; foreseeable, detrimental reliance on the promise; and injustice unless the promise is enforced. The defendants claimed that Dunkin’ Donuts allowed them to continue to operate the Florissant store, during the pendency of the termination litigation, and that they should receive relief from their expenditures in developing that store. However, the defendants failed to submit proper evidence of damages sustained as a result of their detrimental reliance on the franchisor’s allowing them to continue developing the store, the court concluded.

The case is No. 4:11CV01484 AGF.

Attorneys: Eric L. Yaffe (Gray, Plant, Mooty, & Bennett, P.A.) for Dunkin’ Donuts Franchising LLC. and Baskin-Robbins Franchising LLC. Francis X. Duda (Anderson And Gilbert) for SAI Food & Hospitality, LLC

Companies: Dunkin’ Donuts Franchising LLC; Baskin-Robbins Franchising LLC; Sai Food & Hospitality, LLC

Cases: FranchisingDistribution MissouriNews

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PRIVACY—S.D. Cal.: Used car buyer required to arbitrate TCPA claim against dealership

By Peter Reap, J.D., LL.M.

An enforceable arbitration clause in a used car purchase contract required consumer Rafael David Sherman to arbitrate his two Telephone Consumer Protection Act (TCPA) class action claims against car dealership RMH, LLC, the federal district court in San Diego has decided (Sherman v. RMH, LLC, January 2, 2013, Hayes, J.). The provision was not unconscionable and Sherman’s claims were within its scope.

Background. On June 25, 2010, Sherman purchased a pre-owned 2006 Mazda Tribute from RMH’s auto dealership in San Diego. The purchase transaction was memorialized in a “Retail Installment Sales Contract” (“Contract”), which was signed by Sherman and a representative of RMH on June 25, 2010. The Contract is a one-page document, with terms on both sides of the document. Sherman signed the front side of the Contract, and above his signature is the following language written in capital letters and boldface type: “YOU ACKNOWLEDGE THAT YOU HAVE READ BOTH SIDES OF THIS CONTRACT, INCLUDING THE ARBITRATION CLAUSE ON THE REVERSE SIDE, BEFORE SIGNING BELOW.”

On the reverse side of the Contract, at the bottom of the page, is a large box containing the contract’s mandatory arbitration provision with the following heading in capital letters and boldface type: “ARBITRATION CLAUSE” and “PLEASE REVIEW - IMPORTANT - AFFECTS YOUR LEGAL RIGHTS.”

Sherman’s attorney submitted a transcription of “what appears to [the attorney] to be a prerecorded voice message that was allegedly received on Plaintiff’s cellular telephone [in late June of 2013] by [Defendant] or someone acting on behalf of [Defendant].” The message notified Sherman that it was the anniversary of his vehicle’s purchase and stated it was “time for another status review of your ownership experience.”

RMH’s motion to enforce the arbitration provision was before the court.

Federal Arbitration Act

The basic role for courts under the FAA is to determine (1) whether a valid agreement to arbitrate exists and, if it does, (2) whether the agreement encompasses the dispute at issue.

Agreement to the arbitration clause. Sherman contended that “arbitration cannot be compelled under the FAA due to lack of mutual assent to the terms of the arbitration agreement because Plaintiff did not read the arbitration clause or understand that Plaintiff was agreeing to arbitration.” Pursuant to California law, the “general rule” is that “one who signs an instrument which on its face is a contract is deemed to assent to all its terms, the court noted.

Sherman relied upon Windsor Mills, Inc. v. Collins and Aikman Corp., 25 Cal. App. 3d 987 (1972), wherein the court found an arbitration provision unenforceable because it was in small print on the reverse side of a form on which a carpet manufacturer acknowledged receipt of yarn shipments from the yarn distributor. The court stated that an offeree “is not bound by inconspicuous contractual provisions of which he was unaware, contained in a document whose contractual nature is not obvious.” Id. at 993.

Here, the Contract is entitled, “Retail Installment Sales Contract,” and the “contractual nature” of the document is “obvious,” the court determined. Windsor Mills, 25 Cal. App. 3d at 993. Sherman made no showing that any representative of RMH engaged in fraud or misrepresentation as to the terms of the Contract or the arbitration clause. Based upon the record, the “general rule” that “one who signs an instrument which on its face is a contract is deemed to assent to all its terms” should apply in this case, the court reasoned.

Unconscionability. Under California law, a contractual provision is unenforceable if it is both procedurally and substantively unconscionable. The more substantively oppressive the contract term, the less evidence of procedural unconscionability is required to come to the conclusion that the term is unenforceable, and vice versa.

Substantive unconscionability focuses on the one-sidedness or overly harsh effect of the contract term or clause. Sherman argued that “[t]he arbitration clause is substantively unconscionable because it would not permit Plaintiff to vindicate his statutory rights under the TCPA, is unfairly one-side, and therefore shocks the conscience.”

The arbitration clause in the Contract states: “Any claim or dispute is to be arbitrated by a single arbitrator on an individual basis and not as a class action. You expressly waive any right you may have to arbitrate a class action.” Sherman contended that this ban on class arbitration was unconscionable under California law. However, that argument was now expressly foreclosed by the Supreme Court’s recent AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740, 1745 (2011), according to the court. Furthermore, Sherman’s contention that the single violation of the TCPA alleged in the complaint would cost more for an attorney to litigate than a plaintiff could expect to recover was similar to another argument rejected by the Supreme court in Concepcion, the court ruled.

The arbitration clause in the Contract contains a provision that RMH “will advance [the purchaser’s] filing, administration, service or case management fee and [the purchaser’s] arbitrator or hearing fee all up to a maximum of $2,500, which may be reimbursed by decision of the arbitrator at the arbitrator’s discretion.” The arbitration clause also allows the arbitrator to award attorney’s fees “under applicable law.” In light of the provision requiring RMH to advance a consumer’s arbitration fees, and the lack of evidence demonstrating that the arbitration clause would preclude Sherman from vindicating his rights under the TCPA, Sherman failed to meet his burden of showing that the arbitration clause is substantively unconscionable.

Procedural unconscionability focuses on the factors of surprise and oppression. Sherman contended that the arbitration clause is procedurally unconscionable because the “arbitration agreement is a contract of adhesion where the inconspicuous arbitration clause was not called to Plaintiff’s attention by Defendant or read by Plaintiff,” and “[t]here is no evidence that Defendant provided Plaintiff with the arbitration rules for the National Arbitration Forum.”

In light of the Supreme Court’s decision in Concepcion, the adhesive nature of the agreement did not weigh strongly in favor of a finding of procedural unconscionability, the court explained.

California courts have found that a degree of procedural unconscionability may be found when an arbitration provision refers to arbitration rules, but a copy of those rules are not provided to the individual, the court noted. In this case, the arbitration clause does not require the purchaser to choose the National Arbitration Forum or the American Arbitration Association, but simply offered those two organizations as options for the purchaser. The arbitration clause also mitigates any small degree of procedural unconscionability by directing the consumer to the organizations’ websites to obtain each organization’s rules, the court reasoned.

Finally, as noted above, the arbitration provision is not hidden in the Contract; it is referenced in boldface type close to Plaintiff’s signature line, and the clause itself is set out in a prominent fashion on the reverse side of the one-page contract. Sherman failed to make an adequate showing of unconscionability necessary to render the arbitration clause in the Contract unenforceable.

Scope of arbitration agreement. Sherman argued that the motion to compel arbitration should be denied because the arbitration clause does not cover the misconduct alleged.

Specifically, the arbitration provision states: “Any claim or dispute, whether in contract, tort, statute or otherwise …, between you and us or our employees, agents, successors or assigns, which arise out of or relate to your credit application, purchase or condition of this vehicle, this contract or any resulting transaction or relationship … shall, at your or our election, be resolved by neutral, binding arbitration and not by a court action.”

The alleged phone message that forms the basis of the TCPA claims states: “I am calling to let you know it’s the anniversary of your vehicle’s purchase and it’s time for another status review of your ownership experience…. We truly hope your vehicle continues to perform as expected, your interactions with our team remain positive, and your overall ownership experience is going well. If you have any questions or concerns, we encourage you to contact us directly….” Sherman’s TCPA claims related to his Contract with RMH, and, accordingly, were subject to arbitration, the court held.

Thus, the motion to compel arbitration was granted, and the complaint dismissed without prejudice.

The case is No. 13cv1986-WQH-WMc.

Attorneys: Abbas Kazerounian (Kazerounian Law Group, APC) for Rafael David Sherman. Michael C. Rogers (Goode Hemme & Peterson PC) for RMH, LLC.

Companies: RMH LLC

Cases: Privacy CaliforniaNews

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PRIVACY—S.D. Fla.: TCPA claim adequately pleaded against text messaging company

By Peter Reap, J.D., LL.M.

Plaintiff Christopher Legg, in his putative class action, adequately pleaded that text messaging company Voice Media Group (“VMG”) violated the Telephone Consumer Protection Act (“TCPA”), 47 U.S.C. § 227, on the basis of VMG’s alleged practice of sending unwanted text messages, the federal district court in Fort Lauderdale has decided (Legg v. Voice Media Group, Inc., January 3, 2014, Cohn, J.) Legg sufficiently pleaded both the use of an automatic dialing system and the revocation of his prior consent to the messages sent by VMG.

Background. VMG operates text alert services which transmit text messages to the cell phones of consumers across the country. Legg alleged that he subscribed to VMG’s services in 2012 and early 2013. In July 2013, however, Legg had second thoughts about receiving text messages from VMG, and sought to unsubscribe from VMG’s services by sending the message “STOP” to VMG.

VMG responded by instructing Legg to reply “STOP ALL,” or “STOP” in combination with a number of other options, to stop receiving text messages. Legg sent the message “STOP ALL” and other similar messages to VMG, but VMG continued to send text messages to Legg through the commencement of this action in September 2013.

VMG moved to dismiss Legg’s complaint on two grounds: (1) Legg failed to plead that VMG used an automatic telephone dialing system, which was a requirement of Legg’s TCPA claim; and (2) Legg could not bring a claim upon text messages from VMG because Legg consented to receive the messages.

Automatic telephone dialing system. One element of a TCPA claim is that the defendant used an automatic telephone dialing system, the court noted. VMG contended that Legg failed to state a claim for a TCPA violation because he did not allege VMG’s use of an automatic telephone dialing system. VMG’s argument boiled down to a conclusory assertion that, because Legg provided his phone number to VMG, Legg’s allegation that VMG used an automatic telephone dialing system was “frivolous,” according to the court.

Whether Legg provided his phone number to VMG was of questionable relevance to his task of pleading the sort of equipment used by VMG. Moreover, Legg stated sufficient facts to plead VMG’s use of an automatic telephone dialing system, the court held.

In his complaint, Legg alleged that VMG operates its text alert services by sending mass text messages via an automatic telephone dialing system known as an “auto-dialer” or “predictive dialer.” VMG sends these mass messages from a “short code,” which is a type of telephone number typically used by companies to communicate with large numbers of consumers, the complaint continued. Legg supported his allegations of VMG’s mass messaging by reference to VMG’s presence in over 50 major metropolitan areas and voluminous consumer complaints about text messages received from VMG’s short code. Legg argued that such mass messaging would be impracticable without the use of an automatic telephone dialing system.

These factual allegations of mass messaging from VMG’s short code that could only be achieved via an automatic telephone dialing system were sufficient to support a reasonable inference that VMG used such a system, the court determined.

Revocation of consent. The TCPA prohibits only calls made without “prior express consent.” VMG argued that, because Legg consented to receive messages by subscribing to VMG’s text alert services, Legg could not state a TCPA claim on the basis of messages from VMG.

Legg did not dispute that he initially consented to receive messages from VMG. Instead, he argued that he revoked his consent, but continued to receive text messages in violation of the Act.

Though the TCPA is silent regarding revocation of consent, courts considering the issue have held that it is possible for consumers seeking to halt calls to their cell phones to revoke prior consent to such calls. The Eleventh Circuit has not addressed precisely what is required to revoke consent under the TCPA once it has been given. Nevertheless, because the TCPA is a consumer protection statute that is remedial in nature, it should be construed liberally in favor of consumers, according to the court.

Legg alleged that VMG instructed him to send the message “STOP ALL” to stop receiving text messages. Legg alleged that he sent the message “STOP ALL” to VMG. In other words, Legg alleged that he took the steps VMG had established for consumers to communicate a desire to stop receiving messages. Taken in a light most favorable to Legg, these facts were sufficient to plead that Legg revoked his consent to receive text messages from VMG, and accordingly that messages postdating the revocation were sent without his consent, the court explained. Further, VMG’s contention that its system’s failure to process Legg’s revocation of consent by the means allegedly provided by VMG rendered the revocation ineffective as a matter of law was without merit.

The case is No. 13-62044-CIV-COHN/SELTZER.

Attorneys: Mark S. Fistos (Farmer, Jaffe,Weissing, Edwards, Fistos & Lehrman, PL) for Christopher Legg. Joseph David Garrity (Garrity Weiss, PA) for Voice Media Group, Inc.

Companies: Voice Media Group, Inc.

Cases: Privacy FloridaNews

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STATE UNFAIR TRADE PRACTICES—D. Utah: Trademark infringement allegations did not support Utah Unfair Practices Act violation

By Cheryl Beise, J.D.

A trademark owner’s allegations of wilful trademark infringement were insufficient to support a claim under Utah Unfair Practices Act (“UUPA”), the federal district court in Salt Lake City, Utah has decided (Icon Health and Fitness, Inc. v. Relax-a-Cizor Products, Inc., January 2, 2014, Furse, E.).

Relax-a-Cizor Products, Inc., d/b/a The Stick/RPI of Atlanta (“RPI”) owns the registered trademark “THE STICK” for goods identified as “hand held body massage devices, namely, non-electric rolling pins attached with hand grips.”

In 2011, RPI learned of a similar massage product marketed as the “MASSAGE STICK” and sold by Gold’s Gym International (“GGI”). In January 2012, RPI sent a cease-and-desist letter to GGI, stating that its product infringed RPI’s “THE STICK” trademark.

In response, GGI and Icon Health & Fitness, Inc. (“Icon”) filed suit against RPI, seeking a declaratory judgment that their use of “MASSAGE STICK” did not infringe RPI’s “THE STICK” mark. RPI counterclaimed for various causes of action.

Before the court was the plaintiffs’ motion to dismiss RPI’s ninth counterclaim asserting violations of the Utah Unfair Practices Act (“UUPA”) based on the plaintiff’s alleged trademark infringement. Essentially, RPI argued that its allegations—that the plaintiffs’ “deliberate, knowing, and willful use of RPI’s mark and the reputation and goodwill associated therewith to distribute, market, [to] sell their ‘MASSAGE STICK’ in violation of the Registration”—sufficed to state a claim under the UUPA.

The UUPA enjoins “[u]nfair methods of competition in commerce or trade.” The UUPA’s declaration of policy states that its purpose “is to safeguard the public against the creation or perpetuation of monopolies and to foster and encourage competition, by prohibiting unfair and discriminatory practices by which fair and honest competition is destroyed or prevented…” and that the Act is to be “liberally construed that its beneficial purposes may be subserved.”

Based on the UUPA’s policy statement, RPI asked the court to interpret the scope of the UUPA broadly to include a violation based on trademark infringement. However, despite the UUPA’s broad policy language, Utah courts generally interpreted the UUPA narrowly, the court said, because the statute explicitly describes the specific anticompetitive behavior it prohibits, such as advertising goods one cannot supply (Utah Code Ann. § 13-5-8).

Moreover, a narrow interpretation of the UUPA was endorsed by the Utah Supreme Court in Garrard v. Gateway Fin. Servs., Inc., 207 P.3d 1227 (2009). In Garrard, Utah’s high court found that the state legislature “intended the [UUPA] to apply only to anticompetitive behavior” as opposed to all commercial activity. The Utah Supreme Court declined to expand the UUPA to reach activity by a party that was not a competitor of the plaintiff. Similar to the plaintiff in Garrard, RPI did compete with ICON and GGI, the court said.

RPI also argued that the UUPA should be read to make trademark infringement unlawful because the Lanham Act and UUPA share similar language. To support the argument that the UUPA applies to trademark infringement, RPI cited Klein-Becker USA, LLC v. Englert, No. 2:06-CV-378 TS, 2011 WL 147893 (D. Utah Jan. 18, 2011), aff’d, 711 F.3d 1153 (10th Cir. 2013). Klein-Becker, however, was inapposite because it only dealt with the issue of damages under the UPPA and did not reach the issue of whether the UUPA permits a state cause of action for trademark infringement.

The court therefore declined to extend the UUPA beyond the unfair and discriminatory practices expressly prohibited by the Act itself. Because RPI’s conclusory allegations of a UUPA violation and its generalized assertion of trademark infringement failed to state a claim under the UUPA, RPI’s UUPA claim was dismissed. As the claim could not be cured by amendment, the dismissal was with prejudice.

The case is No. 1:12-CV-00017-EJF

Attorneys: David R. Wright (Maschoff Brennan PLLC) for Icon Health & Fitness. Alan L. Edwards (Kunzler Needham Massey & Thorpe) for Relax-a-Cizor Products.

Companies: Icon Health & Fitness, Inc.; Gold’s Gym International; Relax-a-Cizor Products, Inc.

Cases: StateUnfairTradePractices UtahNews

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STATE UNFAIR TRADE PRACTICES—N.D. Cal.: Issues of material fact existed in seafood labeling dispute

By Linda O’Brien, J.D., LL.M.

Genuine issues of fact precluded summary judgment on a consumer’s claims against a seafood producer for allegedly making unlawful, false, and misleading advertising regarding the omega-3 nutrient content of certain of its products in violation of California’s Unfair Competition Law (UCL), False Advertising Law (FAL), and Consumers Legal Remedies Act (CLRA), the federal district court in San Jose has ruled (Ogden v. Bumble Bee Food, LLC, January 2, 2014, Koh, L.). However, the consumer lacked standing to pursue claims under the UCL, FAL, and CLRA, based on statements of the quantities of vitamin A, iron and purported health claims.

Bumble Bee Foods, LLC is a producer of seafood products that are sold to consumers through grocery and retail stores throughout the United States. Tricia Ogden, a consumer, routinely purchased Bumble Bee and its King Oscar brand products. Ogden filed a class action suit against Bumble Bee claiming that the products were misbranded due to false and misleading statements about the amount of omega-3 fatty acids, vitamin A, and iron in the products and certain health benefits as advertised on product labels and on the company website, in violation of the UCL, FAL, and CLRA, among other claims. She also claimed that she relied on the product labels in deciding to purchase the products and she would have purchased other lower-priced products if it were not for the company’s nutrient content statements. Bumble Bee moved for summary judgment on the grounds that Ogden lacked standing to pursue the UCL, FAL, and CLRA claims and there was no genuine issue of material fact regarding whether Ogden purchased Bumble Bee products as a result of any false or misleading statement.

Standing. To establish standing under the UCL, FAL, and CLRA, the plaintiff must allege that she relied on the defendant’s misrepresentations and suffered economic injury as a result of the defendant’s conduct. Bumble Bee argued that, under the Federal Food, Drug, and Cosmetic Act (FDCA), a food manufacturer could petition the Food and Drug Administration (FDA) for permission to use nutrient content claims not previously authorized and the omega-3 statements on the Bumble Bee and King Oscar brand products were authorized by federal law. The court found that Bumble Bee could not rely on the FDA notification by another food manufacturer to place a materially different nutrient content claim on its own product labels.

Since Bumble Bee’s omega-3 statements were not authorized by the FDA, the statements should not have appeared on the company’s product labels. Ogden provided evidence that she saw the misrepresentations, relied on them substantially in purchasing Bumble Bee products, and suffered economic harm as a result. Her evidence was sufficient to create a genuine issue of material fact regarding whether Ogden has standing to pursue her UCL, FAL, and CLRA claims with respect to the omega-3 nutrient content claims, according to the court.

Additionally, the plaintiff demonstrated the existence of a material fact regarding whether she relied on the company’s failure to include the FDA-mandated front-of-package disclosure statement on the fat and cholesterol content when deciding to purchase the Bumble Bee and King Oscar products. Although Ogden stated that she did not generally read the nutrition information panel on food products, it was reasonable to infer that the presence of disclosures on the fat and cholesterol conduct would have alerted the plaintiff to check the nutrition information and may have changed her decision to purchase the products as a result.

Vitamin and health claims. The court found that Ogden lacked standing to pursue claims based on statements of the quantities of vitamin A, iron and purported health claims. The sole mention of vitamin A and iron appeared on the nutrition information panel which the plaintiff stated that she did not generally read. Moreover, Ogden conceded that she did not go to the company website for nutrition information before purchasing the products. Finally, she failed to show how the company’s use of a heart symbol on the product label was unlawful. Accordingly, the court concluded that the plaintiff failed to raise a genuine issue of material fact concerning these claims.

The case is No. 5:12-CV-01828-LHK.

Attorneys: Ben F. Pierce Gore (Pratt & Associates) for Tricia Ogden. Forrest Arthur Hainline (Goodwin Procter LLP) for Bumble Bee Foods, LLC.

Companies: Bumble Bee Foods, LLC

Cases: StateUnfairTradePractices CaliforniaNews

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NEWS

ANTITRUST NEWS: Canada Competition Bureau discontinues LIBOR investigation

The Canada Competition Bureau is discontinuing its investigation of alleged collusive conduct into the setting of Yen LIBOR rates and their use in pricing Interest Rate Derivative products, according to a January 3 announcement.

The investigation was discontinued because evidence was insufficient to justify prosecution under the former criminal conspiracy provision in section 45 of the Competition Act, the Competition Bureau stated. Prior to March 2010 amendments to the Act, the criminal conspiracy provision required proof of significant anticompetitive economic effects.

The Bureau began investigating the alleged collusive conduct in early 2011, using formal powers—such as court orders—to obtain evidence from numerous parties. It coordinated its investigation with enforcement agencies in numerous jurisdictions.

The agency insisted on compliance with the court orders by all parties. It opposed a Royal Bank of Scotland Group (RBS Canada) challenge to a document production order by the Ontario Superior Court of Justice, requiring RBS Group to produce records located outside of the Canada. When RBS Canada abandoned its challenge, the Bureau moved forward with the investigation.

Companies: Royal Bank of Scotland Group; RBS Canada

News: Antitrust

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ANTITRUST NEWS: EC will not refer review of cement supplier’s proposed acquisition to Germany

By Jeffrey May, J.D.

The European Commission (EC) will continue its investigation of global cement supplier Holcim’s proposed acquisition of operations from rival Cemex in western Germany (Cemex West). The EC announced today that it has rejected Germany’s referral request to assess the planned acquisition under its national competition law.

In the proposed transaction, Holcim intends to acquire part of Cemex’ activities in cement, ready-mix concrete, aggregates and cement materials in western Germany and a small number of plants and sites located in France and the Netherlands, according to the EC. Because the geographic scope of the affected cement markets is wider than national, the EC concluded that it could not refer the assessment of the transaction to Germany. The German competition authority or Bundeskartellamt had contended that referral was appropriate because the transaction threatened to affect significantly competition in the cement markets in Northern and Western Germany.

In October, the EC confirmed that the transaction was the subject of an in-depth investigation. At that time, the EC expressed concern that the deal might reduce competition in parts of Germany and Belgium where Cemex West is an actual or potential competitor of Holcim.

The EC’s initial market investigation indicated that the deal might substantially lessen competition in parts of Germany and Belgium where Holcim and Cemex West compete or are well placed to compete. The EC is concerned that the transaction could enable cement producers active in Germany and Belgium to coordinate their market behavior, or facilitate such coordination.

Swiss-based Holcim announced in August a series of transactions with Cemex Group, which is based in Mexico. Holcim disclosed its intention to purchase Cemex operations in the western part of Germany, including one cement plant, two grinding stations, one slag granulator, 22 aggregates locations, and 79 ready-mix plants. The company intends to combine these assets with its existing Northern German operations. This is the transaction that is now subject to the in-depth investigation. A larger deal between the parties involves other markets in Europe as well.

The EC has until March 10, 2014, to decide whether to block the deal.

Companies: Cemex Group, Holcim

News: Antitrust

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CONSUMER PROTECTION NEWS: FTC announces initiative against deceptive marketers of fad weight loss products

The FTC has announced that it will hold a press conference tomorrow, January 7, 2014, at 11:00 a.m. ET, to outline an initiative against deceptive advertising of weight-loss products. Jessica Rich, Director, FTC Bureau of Consumer Protection, will host the press conference.

The event will be held at the Federal Trade Commission, 600 Pennsylvania Ave., NW, Room 432, Washington, D.C.

For further information, contact the FTC Office of Public Affairs at 202-326-2180.

News: ConsumerProtection FederalTradeCommissionNews

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FRANCHISING & DISTRIBUTION NEWS: Custom sign franchisor alleges breach of contract and trademark infringement by former franchisee

By Linda O’Brien, J.D., LL.M.

A former franchisee has breached the franchise agreement and infringed the trademark of a custom sign franchisor, among other claims, according to a complaint filed in the federal district court of Salt Lake City (YESCO Franchising LLC v. Roth, January 3, 2014).

YESCO Franchising LLC is a designer and builder of custom signs, including outdoor advertising billboards, electric signs, specialty signs, and custom signs. The complaint alleges that, in November 2012, William Roth, d/b/a Signcraft, entered into a franchise agreement with YESCO and was granted certain non-exclusive rights related to the territory of Charlotte, North Carolina and some surrounding areas. Roth also executed a secured promissory note to repay a loan by YESCO for the franchise fee.

In December 2013, YESCO notified Roth of various breaches that existed under the franchise agreement. The complaint asserts that Roth failed to achieve certain sales quota, license equipment, use proprietary software provided by YESCO, or repay the amounts owed under the promissory note. He had also infringed YESCO’s trademark and interfered with YESCO’s existing and prospective customer relationships. Roth responded by making various threats in an email to YESCO representatives and operated his business in violation of the franchise agreement, according to the complaint. In January 2014, YESCO notified Roth of its termination of the franchise agreement and intent to enforce its rights under the agreement and promissory note.

YESCO asserts claims for breach of contract, breach of implied covenant of good faith and fair dealing, tortious interference with economic relationships, and trademark in violation of the Lanham Act. The action seeks declaratory and injunctive relief, damages, pre- and post-judgment interest, costs of suit, attorneys’ fees, and any other just and proper relief.

The case is No. 2:14-cv-00003-RJS.

Attorneys: James L. Ahlstrom (Parr Brown Gee & Loveless, P.C.) for YESCO Franchising LLC.

Companies: YESCO Franchising LLC

News: FranchisingDistribution UtahNews

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In the News

LAW FIRMS

Anderson And Gilbert |Berdon, Young & Margolis |Bingham McCutchen LLP |Drinker Biddle & Reath LLP |Farmer, Jaffe,Weissing, Edwards, Fistos & Lehrman, PL |Garrity Weiss, PA |Gibson, Dunn & Crutcher, LLP |Goode Hemme & Peterson PC |Goodwin Procter LLP |Gray, Plant, Mooty, & Bennett, P.A. |Hausfeld LLP |Kazerounian Law Group, APC |Kunzler Needham Massey & Thorpe |Maschoff Brennan PLLC |Parr Brown Gee & Loveless, P.C. |Pratt & Associates |Quinn Emanuel Urquhart & Sullivan LLP |Stewart M. Weltman, LLC |Wiggin & Dana |Winston & Strawn LLP

COMPANIES

Baskin-Robbins Franchising LLC | Bumble Bee Foods, LLC | Cemex Group, Holcim | Doctor’s Associates, Inc. | Dunkin’ Donuts Franchising LLC | Edison Subs, LLC | Four in One Co. Inc. | Gold’s Gym International | Icon Health & Fitness, Inc. | Ingomar Packing Co. | Los Gatos Tomato Products | NBTY, Inc. | RBS Canada | Relax-a-Cizor Products, Inc. | Rexall Sundown, Inc. | RMH LLC | Royal Bank of Scotland Group | Sai Food & Hospitality, LLC | SK Foods, LP | Target Corp. | Voice Media Group, Inc. | YESCO Franchising LLC

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