FTC Says Auto Marketing Co.'s Deceptive COVID Stimulus Ads Violate Fed Law

An automotive marketing company previously accused of bait-and-switching consumers with false promises of federal COVID-19 relief is now also facing an administrative complaint filed by the Federal Trade Commission (FTC). The FTC alleges that the company violated federal law by deceiving consumers about COVID-19 financial relief. The administrative complaint was filed in lieu of the FTC's voluntarily dismissed federal complaint, and contains additional allegations.

Though the connection between used cars and COVID-19 relief might appear murky to some, Traffic Jam Events and its owner David J. Jeansonne II saw the pandemic and ensuing financial uncertainty as an opportunity to take advantage of consumer stress to market their events, according to the FTC. Most of the COVID-19 scams the FTC pursues involve companies marketing false cures or treatments for COVID-19, but Traffic Jam apparently came up with a creative twist to capitalize on the situation: It marketed used car shows by promising fake Coronavirus Aid, Relief, and Economic Security Act (CARES) relief to those who would attend.

Back in March, the CARES Act was poised to provide monetary relief to Americans financially affected by COVID-19. That's when Traffic Jam began sending mailers for its auto shows in Florida and Alabama that falsely claimed to be official CARES Act documents.

Traffic Jam's "advertisements sought to lure consumers to dealerships under the guise that valuable government relief related to COVID-19 was available at designated locations for a short period of time," writes the FTC. The company even tried to sell this advertising strategy to other dealerships as well.

Its mailers indicated that they contained "TIME SENSITIVE IMPORTANT COVID-19 ECONOMIC STIMULUS DOCUMENTS." Meanwhile, the ads promised that those who attended the car shows at "relief headquarters" would be able to obtain federal stimulus checks, along with other perks like a Walmart gift card and, of course, great financing rates on the cars themselves. The company also included counterfeit checks made out from the "Stimulus Relief Program," alleges the FTC.

Not content with one deceptive marketing strategy, Traffic Jam also advertised false claims of prize winnings, according to new allegations in the administrative complaint. In reality, none of these promises materialized. CARES Act stimulus checks were not Traffic Jam's to give, and nobody won any of the $2,500 prizes. Another new allegation: in addition to the deceptive acts, the company neglected to include required disclosures for the car sales, including down payment, monthly payment amounts, and repayment terms.

Key Takeaways

By voluntarily dismissing the federal complaint and filing this administrative complaint, the FTC has added claims under the Truth in Lending Act (TILA) and Regulation Z. This broader pursuit of the company makes sense: The FTC often sets its sights on repeat offenders who act with impunity, and the administrative complaint specifically mentions a separate Florida action against the company over the same wrongdoing, as well as prior actions in Indiana and Kansas over false prize winning claims.

Firmer Skin? Greater Elasticity? Fewer Lines and Wrinkles? Yes and No Says NAD

A little urging by the regulators can go a long way. After refusing to participate in the National Advertising Division's (NAD) self-regulatory process late last year, Zero Gravity came back to the fold, following a referral by NAD to—and a perhaps not so gentle push by—the FTC and the FDA. NAD had opened the self-monitoring case to inquire about a host of claims about the company's Perfecto+ line of "anti-aging" devices. Upon a full review, with Zero Gravity's full participation, NAD found some claims substantiated, but recommended the advertiser discontinue certain claims and modify others.

At issue were claims for the Perfectio+ line of anti-aging devices including "The safest and most effective, advanced Anti-aging product today," allowing consumers to "achieve younger, firmer skin in no time at all" (voluntarily modified by the advertiser to say "in as little as two weeks"), as well as additional "scientifically proven" and related claims based on clinical study results. The claims included representations about the ability of LED light to improve skin issues and, according to NAD, implied that "Perfectio+ provides anti-aging results that are akin to cosmetic procedures." The company also made product claims through testimonials.

Zero Gravity agreed to permanently discontinue its "safest product" claim as well as certain testimonials going to product efficacy, and so NAD did not review those on the merits. Reviewing the submitted substantiation, NAD found that the studies provided by Zero Gravity were sufficient to support its claims that the product was "easy to use" and could provide results in as little as two weeks, but stopped short of approving the message that the product can result in "younger" skin, asking the advertiser to modify this portion of the claim. Although "firmer" skin was measured and supported, NAD noted that "nothing in the evidence presented supported the message that the product was capable of reversing the age of cells or generating "younger" skin cells."

Likewise, NAD found the claim that "dramatic visible improvement" could be seen in "eight weeks" unsupported and recommended it be discontinued. Although Zero Gravity had provided a third-party consumer use study to substantiate this claim, NAD found the study was not blinded, consumers were asked about "visible" results but not "dramatic" ones (there was no attempt to measure the amount of perceived improvement), and the actual objective results, graded by an expert grader measuring change in fine lines and wrinkles, did not match with consumer self-perception. NAD also recommended the advertiser discontinue any claims representing that the product healed broken capillaries.

Although NAD found the evidence provided a reasonable basis for the claim that the product is "scientifically proven" to provide effective anti-aging assistance, a message also confirmed by the product's FDA clearance as an anti-aging medical device, it recommended that Zero Gravity "modify its use of the claim to avoid conveying a broader message regarding claims based on other data taken from the clinical trial conducted … such as the results of the study's subjective questionnaire, which NAD determined to be unsupported."

Finally, with respect to the use of before and after photos to demonstrate happy customers, NAD recommended these be discontinued or modified because they overstated "typical" results. As NAD has repeatedly held, before and after photos convey product performance claims and thus must be supported and "representative of the level of product efficacy that a reasonable consumer can expect to achieve." If modified, the photos should convey whether the depicted results were typical for the product.

Key Takeaways

The FTC is often held up as NAD's muscle, however NAD advertiser referrals for failure to participate or comply with a NAD decision rarely lead to an FTC investigation. Zero Gravity's agreement to participate, following the referral here, is a good reminder that even when it doesn't investigate, the FTC's push to return to NAD, and the implicit threat behind that urging, can be a very useful self-regulatory tool.

"Natural" Arizona Gummies False Ad Suit Mostly Continues, Says Judge

A plaintiff's presumptive class action alleging Arizona Beverage Company falsely advertises its fruit snacks as "all natural" will go on despite Arizona's attempt to dismiss the case, albeit without some of plaintiff's consumer protection claims. Ruling on Arizona's motion to dismiss, the New York federal court denied Arizona's motion to stay the action pending Food and Drug Administration (FDA) guidance, and partially denied its motion to dismiss.

Putative class action plaintiff Christopher Silva claimed that Arizona falsely advertised its fruit snacks as "all natural" on product packaging. In fact, he alleged, the product contains a number of ingredients, including gelatin, citric acid, ascorbic acid, dextrose, glucose syrup, and modified food starch, all of which are synthetic. These render Arizona's claims that the product is natural to be false advertising and evidence that the product violated New York's General Business Law (NYGBL), various other state consumer protection statutes, and warranty and unjust enrichment causes of action.

Judge Allyne R. Ross ruled that, contrary to Arizona's argument that the case should be stayed pending FDA guidance on the word "natural" in food products, Silva's claims were not preempted. The court reasoned that given the FDA has been considering the issue for five years with no word of progress it was unlikely to provide guidance soon.

Further, plaintiff's arguments centered on whether the term "natural" "is misleading to the reasonable consumer," not the "technical and policy considerations" that would fall within the purview of the FDA. "[T]his case requires a determination of whether labeling the Product as 'all natural' is misleading to a reasonable consumer. That type of legal question is within the conventional experience of the court and does not require FDA guidance," said the court.

Arizona also argued that plaintiff's NYGBL claim should be dismissed because plaintiff failed to allege that he relied upon any advertised misstatements, but the court found that argument unpersuasive based on plaintiff's allegations that he purchased the fruit snacks in reliance on the "all natural" moniker "which, in his view, means a lack of synthetic ingredients."

However, two state consumer protection statutes are out, said the court. The Wisconsin Consumer Protection Act is inapplicable as it regulates consumer credit transactions, and the Ohio Deceptive Trade Practices Act does not confer a private cause of action. But the majority of the state law consumer protection claims advanced by plaintiff continue, said the court, rejecting Arizona's argument that plaintiff failed to state the elements of each law.

Key Takeaways

Courts continue to address "natural" cases and preemption arguments differently, as we continue to wait for FDA guidance. Judge Ross, like many, is tired of waiting. The court even swatted away Arizona's argument that experts said the FDA is "diligently working on the" natural claim, saying since that statement was made, more than one year had passed with no sign of progress.

Majority of Plaintiffs' Claims Flow Through SJ Motion In Poland Springs False Ad Suit

The class action suit accusing Nestle of lying to consumers about the origin and quality of its Poland Spring water will go forward with almost all claims intact, now that a court dismissed the majority of Nestle's summary judgment motion. In doing so, the court largely rejected claims that state water laws don't allow for private causes of action, and preserved plaintiffs' fraud and breach of contract claims.

The suit's long and winding road began in 2017, when plaintiffs filed a class action suit alleging that Nestle falsely markets its Poland Springs water, because the water is not spring water as that term is defined by law. Initially, Connecticut federal judge Jeffrey Alker Meyer dismissed the suit in its entirety, based on Nestle's arguments that the claims were preempted by the Food, Drug and Cosmetic Act (FDCA).

Undeterred, plaintiffs amended their complaint by rooting their claims firmly on state common law fraud and breach of contract claims, and on state statutory claims for unfair trade practices in eight states. All but the Vermont claims survived a second motion to dismiss, with the court reasoning that the claims were not preempted by federal statute.

Judge Meyer's 51-page decision examined and then rebuffed Nestle's arguments for dismissal of all but the Rhode Island state law statutory claims. The court held that there was at least a genuine question of fact as to whether the state laws under which plaintiffs claimed violations of "spring water" standards provided a private cause of action.

The court also rejected Nestle's argument that the company was clearly protected from suit under these statutes by safe harbor standards "in light of alleged regulatory approvals" of its "spring water" for sale in these states. Nestle was also unable to prove that the lawsuit was an impermissible collateral attack on state administrative regulation of the water.

As for Rhode Island, the small but mighty state, its Deceptive Trade Practices Act (RIDTPA) has a "safe harbor exemption [that] is significantly broader in scope than the safe harbor exemption under the laws of the other states at issue in this case." For that reason, and because Nestle showed it was "subject to monitoring in relevant respects by the Rhode Island Department of Health, Nestle has shown that it qualifies for the RIDTPA safe harbor exemption," said the court.

Judge Alker also rejected Nestle's arguments that the court should dismiss plaintiffs' common law fraud and breach of contract claims, finding them "insubstantial."

Key Takeaways

The provenance of water has been challenged before and will likely be again. And it matters where those challenges take place since, like so many false advertising class actions, they work in some places and not others, making them difficult to handicap. As for Nestle, the company issued a statement that "The court cited no evidence that Poland Spring Brand spring water is not what it claims to be."

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