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Consumer Law

: CL&P Blog

New Jersey Supreme Court Allows Mass-Marketing Fraud Class Action

By Deepak Gupta

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Yesterday, the New Jersey Supreme Court handed down a unanimous 50-page opinion reversing the denial of certification in a mass marketing consumer fraud case.

The case involves a dietary supplement known as Relacore -- a pill marketed as causing stress and weight reduction. According to its advertisting, Relacore attacks the "stress-to-belly-fat cycle." The complaint alleges that there's no basis to believe the pill delivers any of its claimed benefits. The trial court and intermediate appellate court both held that class certification was inappropriate because the mass marketing for Relacore took a variety of forms -- sometimes it was advertised as a weight-loss product and sometimes as a stress-reduction product -- and because there was no way of knowing which consumer relied on which claims, individual issues would necessarily predominate.

Public Citizen wrote an amicus brief, joined by other consumer groups. We argued that the lower courts' decision would mean that companies that commit fraud in multiple ways would be better off than companies that make only one false claim. We argued that pills like Relacore are what economists call "credence goods" -- you don't know anything about them until someone tells you something about them. Nobody grabs pills off the shelf randomly, so people must have decided to buy the pills in reliance on advertising.

The opinion quotes at length from our argument about "credence goods" and makes that concept central to its predominance analysis. It also relies heavily on our argument that making multiple false claims shouldn't put deceptive advertisers in a better position that those that make a single false claim:

Amici Curiae Public Interest Groups argue that that the
trial court and Appellate Division erred in denying class
certification by disregarding "the fact that all of Relacore's

claimed benefits are alleged to be false and that all of those
false claims appear on the product label itself." Amici contend
that both courts "fundamentally misunderstand[] the nature of a
product like Relacore." Amici explain that Relacore is a
"credence good," that is, Relacore is known to consumers only by
the representations made about the product by its distributor,
Carter Reed. Thus, "[c]onsumers cannot possibly know what
Relacore does, let alone have any predilections for it, unless
and until they are exposed to messages about its properties or
benefits." In other words, consumers would only purchase
Relacore if exposed to Carter Reed' advertising campaign.
According to amici, because every purported benefit of Relacore
claimed by Carter Reed was false, in making a purchase every
class member must have been exposed in some way to the false
advertising of Relacore, particularly the misrepresentations on
the packaging and labeling of the product.

* * *

Plaintiff has declared that she will show that Carter Reed
falsely represented the essential characteristics of Relacore.
Significantly, Relacore -- a pill -- is a "credence" good that
is known only through the benefits promised by the product's
manufacturer and distributor at the time of purchase. See
Richard A. Posner, An Economic Approach to the Law of Evidence,
51 Stan. L. Rev. 1477, 1489 (1999) ("A good is a credence good
if the consumer cannot readily determine its quality by
inspection or even use, so that he has to take its quality 'on
faith.'"); Charles J. Walsh and Marc S. Klein, From Dog Food to
Prescription Drug Advertising: Litigating False Scientific
Establishment Claims Under the Lanham Act, 22 Seton Hall L. Rev.
389, 399 (1992) ("Drugs are true 'credence' goods because they
possess qualities that cannot be evaluated through normal use.
The assessment of a drug's qualities normally requires complex,
time-consuming, and costly studies."). A rational consumer does
not randomly take a bottle of pills off a shelf and then

purchase it without reading the packaging and labeling or
without knowing something about the product.

If Relacore offered none of the benefits claimed in Carter
Reed's multi-media advertising campaign, then it would make
little difference whether a class member purchased the product
because of one false promise, e.g., belly-fat reduction, or
another, e.g., anxiety reduction, or whether Carter Reed
communicated its deceptions through magazines, commercial
advertisements, or packaging and labeling, or through third
persons who themselves were deceived by the overall marketing
scheme. If the entire marketing scheme was based on the
fictional benefits that Relacore offered, then whether the class
member enjoyed good or impaired health or took other medication
would hardly matter.

A corporate defendant engaged in a marketing scheme founded
on a multiplicity of deceptions should not be in a better
position in fending off a motion for class certification than a
defendant engaged in a sole marketing deception. If all of the
promised benefits of Relacore are based on untruths and
disseminated through false advertising, whatever the medium, a
trier of fact may fairly infer that a consumer purchasing the
product was influenced, in some way or other, by the false marketing
scheme.

Full post as published by CL&P Blog on September 30, 2010 (boomark / email).