October 19, 2021 Factors to Consider in Disclosing a Cybersecurity Breach to the SEC

Boch_Brian_COLOR Riely_Charles_COLOR

In this article published by Westlaw Today, Partners Brian R. Boch and Charles D. Riely and Associate William R. Erlain explain that the US Securities and Exchange Commission has ramped up its enforcement against misleading cybersecurity disclosures and announced plans to consider adopting new disclosure obligations. The authors highlight key factors to consider in determining whether and how a public company should disclose a cybersecurity breach in light of recent SEC guidance, enforcement actions and investigations, and private securities actions.

Click here to read the full article.

CATEGORIES: Privacy Data Security, Securities

October 15, 2021 California Law Adds New Restrictions on Recyclability Claims

By Allison A. Torrence

RecyclingOn October 5, 2021, California Governor Newsom signed SB 343, addressing recyclability claims on products and in advertising. The Act amends existing sections of California’s Business and Professions Code as well as the Public Resource Code relating to environmental advertising. These laws collectively provide California’s version of recyclability consumer protection laws, similar to but going beyond the Federal Trade Commission Guides for the Use of Environmental Marketing Claims (Green Guides).

Prior to SB 343, existing California law made it unlawful for any person to make any untruthful, deceptive, or misleading environmental marketing claim, and required that environmental marketing claims be substantiated by competent and reliable evidence. Additionally, a person making any recyclability claims was required to maintain written records supporting the validity of those representations, including whether, the claims conform with the Green Guides.

Those requirements are generally left intact, with additional obligations added by SB 343. The first big change made by SB 343 is to specifically add the use of the chasing arrow symbol as a way that a person might make a misleading environmental marketing claim in marketing or on a product label. (Business and Professions Code § 17580(a).) Next, SB 343 requires the Department of Resources Recycling and Recovery, by January 1, 2024, to update regulations requiring disposal facilities to provide information on recycling data. Based on the information published by the department, a product or packaging is considered recyclable only if the product or packaging is collected for recycling by recycling programs for jurisdictions that collectively encompass at least 60% of the population of the state. (Public Resources Code § 42355.51(d)(2).) The new law also provides additional criteria related to curb-side recycling, that grow more stringent over time, and PFAS content of plastic material, among other provisions. (Public Resources Code § 42355.51(d)(3).) A person making recyclability claims must keep written records of whether the consumer good meets all of the criteria for statewide recyclability pursuant to these new provisions. (Business and Professions Code § 17580(a)(6).)

Finally, while existing California law governed what resin identification code could be placed on plastic containers (i.e., #1 PETE, #2 HDPE), SB 343 states that resin identification code numbers cannot be placed inside a chasing arrows symbol unless the rigid plastic bottle or rigid plastic container meets the new statewide recyclability criteria discussed above. (Public Resources Code § 18015(d).)

This new law is another hurdle facing companies making environmental marketing claims. For companies selling products in California, it is not sufficient to simply follow the FTC Green Guides. Instead, companies must be aware of the specific nuances and requirements in California and developments in other states.

CATEGORIES: Corporate Environmental Lawyer

PEOPLE: Allison A. Torrence

September 2, 2021 Ninth Circuit Puts a Cap on Coca-Cola Class Certification Order

By: Alexander M. Smith

SodaA new decision in the Ninth Circuit significantly limits which consumers may have standing to seek an injunction against false advertising or labeling. For the past several years, the law in the Ninth Circuit was that a “previously deceived consumer may have standing to seek an injunction against false advertising or labeling, even though the consumer now knows or suspects that the advertising was false at the time of the original purchase,” because a consumer’s “[k]nowledge that the advertisement or label was false in the past does not equate to knowledge that it will remain false in the future.” Davidson v. Kimberly-Clark Co., 889 F.3d 956, 969 (9th Cir. 2018). But in August 2021, the Ninth Circuit significantly limited this holding by clarifying that a consumer’s “abstract interest in compliance with labeling requirements” or desire for a manufacturer to “truthfully label its products” does not suffice to establish Article III standing under Davidson. Engurasoff v. Coca-Cola Refreshments USA, Inc., No. 25-15742, 2021 WL 3878654, at *2 (9th Cir. Aug. 31, 2021).

Engurasoff arises out of a long-running multidistrict litigation in which the plaintiffs alleged that Coke, Coca-Cola’s signature cola, is mislabeled as having “no preservatives” and “no artificial flavors” because it contains phosphoric acid, which allegedly functions as both an “artificial flavor” and a “chemical preservative.” In February 2020, the district court granted the plaintiffs’ motion to certify an injunctive relief class under Rule 23(b)(2) and held that they had established standing to seek injunctive relief under Davidson. In reaching this conclusion, the district court reasoned that consumers could satisfy Davidson by alleging either (1) that “their inability to rely on the labels would cause them to refrain from purchasing a product that they otherwise would want” or (2) that they would “purchase the product in the future, despite the fact that it was once marred by false advertising or labeling, because they may reasonably, but incorrectly assume the product was improved.” In re Coca-Cola Mktg. & Sales Practices Litig., No, 14-2555, 2020 WL 759388, at *5 (N.D. Cal. Feb. 14, 2020) (citation and internal quotation marks omitted). The district court agreed with Coca-Cola that the plaintiffs did not satisfy the second test because there was no reasonable possibility that Coca-Cola would stop using phosphoric acid as an ingredient in Coke, whose formula—leaving aside the ill-fated rollout of New Coke—has remained largely unchanged for over a century. But the district court nonetheless found that the plaintiffs had satisfied the first test by alleging that they would purchase Coke in the future, even if it continued to contain phosphoric acid, so long as the labeling either disclosed the presence of phosphoric acid or refrained from representing that Coke was free of preservatives and artificial flavors. See id. at *7-9.

On August 31, 2021, the Ninth Circuit vacated this ruling and held that the plaintiffs had not established standing to seek injunctive relief. In so holding, the Ninth Circuit found it dispositive that “[n]one of the plaintiffs in this case allege a desire to purchase Coke as advertised, that is, free from what they believe to be artificial flavors or preservatives.” 2021 WL 3878654, at 2. Instead, some of the plaintiffs alleged that they would consider purchasing Coke in the future if it were “properly labeled.” The Ninth Circuit concluded that this “abstract interest in compliance with labeling requirements” was “insufficient, standing alone, to establish Article III standing.” Id. at *2. After articulating this rule, the Ninth Circuit concluded that the majority of the plaintiffs lacked Article III standing because they either expressed no interest in purchasing Coke in the future or merely stated that they would “consider” purchasing Coke in the future, which the Ninth Circuit found insufficient to establish an imminent future injury sufficient to give those plaintiffs standing. It then addressed the two plaintiffs who stated that “they would be interested in purchasing Coke again if its labels were accurate, regardless of whether it contained chemical preservatives or artificial flavors.” Id. Although these plaintiffs stated that they would likely purchase Coke in the future if its labeling were truthful, the Ninth Circuit concluded that their “desire for Coca-Cola to truthfully label its products, without more, is insufficient to demonstrate that they have suffered any particularized adverse effects.” Id.

Engurasoff’s central holding—that a plaintiff’s “abstract interest in compliance with labeling requirements” or desire for a manufacturer to “truthfully label its products” does not amount to an injury-in-fact cognizable under Article III—has significant ramifications for false advertising cases in federal court. A plaintiff can no longer satisfy Davidson by stating that they would “consider” purchasing a product in the future or that they would likely purchase the product in the future if the allegedly “untruthful” statements were removed from the labeling. Instead, a plaintiff must allege that they would be likely to purchase the product “as advertised”—which, in many cases, will necessitate a change to the product itself rather than a change to the challenged advertising. And the Ninth Circuit’s holding that an “abstract interest in compliance with labeling requirements” does not amount to a cognizable injury-in-fact may provide additional ammunition to manufacturers faced with cases premised on alleged violations of federal labeling regulations, particularly when the plaintiff is unable to allege a cognizable injury other than a violation of the applicable regulation. It remains unclear how broadly or narrowly courts will apply Engurasoff, but it may provide defendants with a powerful tool to defeat false advertising cases on Article III standing grounds.

PEOPLE: Alexander M. Smith

September 1, 2021 Customers Cannot Assert a Claim Based on Starbucks’s Alleged Failure to Provide the “Perfect” Coffee Experience

By: Kate T. Spelman

CoffeeOn August 27, 2021, the Second Circuit upheld dismissal of a putative class action brought by Starbucks customers under New York consumer protection statutes. The plaintiffs alleged that Starbucks’s marketing materials promoting the quality of its coffee – including claims such as “the finest whole bean coffees,” “Best Coffee for the Best You,” and a “PERFECT” coffee experience – were misleading due to the chain’s alleged use of pest-control pesticides in some of its Manhattan stores. The district court disagreed, dismissing the complaint on the basis that the plaintiffs did not allege “any statements likely to mislead reasonable consumers.” George v. Starbucks Corp., No. 19-6185, 2020 WL 6802955, at *2 (S.D.N.Y. Nov. 19, 2020). The court found that the vast majority of the challenged statements were patently puffery, while the only statement that could conceivably support a claim for deceptive business practices – that Starbucks baked goods contain “no artificial dyes or flavors” – was not rendered false or misleading by the alleged use of pesticides in Starbucks’s stores. Id.

Undeterred, the plaintiffs appealed to the Second Circuit, arguing that Starbucks’s advertising implied quality and purity inconsistent with the use of pesticides. Again, the plaintiffs were rebuffed by the court. In a short summary order, the Second Circuit agreed with the district court’s reasoning and held that “almost all of Starbucks’s statements referenced in the amended complaint constitute puffery.” George v. Starbucks Corp., No. 20-4050-CV, 2021 WL 3825208, at *1 (2d Cir. Aug. 27, 2021). Those that were “specific enough to be more than puffery” referred only to “how Starbucks sources its products and crafts its coffee and the ingredients it uses in its baked goods” such that “[n]o reasonable consumer would believe that these statements communicate anything about the use of pesticide[s] in Starbucks’s stores.” Id. at *2.

In so holding, the Second Circuit rejected what amounted to an attempt to gut puffery law, as well as an attempt to read into Starbucks’s advertising statements alleged promises unrelated to the plain text and its logical implications. This decision is further evidence of what appears to be a growing willingness by some courts to dismiss at the pleading stage consumer protection claims related to allegedly misleading advertisements when such claims are based solely on idiosyncratic inferences drawn by individual plaintiffs.

PEOPLE: Kate T. Spelman

August 30, 2021 The Ninth and Seventh Circuits Revive Robocall Suits Under the TCPA

By: Lina R. Powell

Smartphone computerCourts have seen a flurry of activity in the Telephone Consumer Protection Act (TCPA) realm this year—and August was no exception. In April 2021, the Supreme Court’s Facebook v. Duguid, 141 S. Ct. 1163 (2021), settled the long-debated question of what constitutes an automatic telephone dialing system under the TCPA, 47 U.S.C. § 227. Many anticipated the Court’s willingness to narrow the scope of claims brought under the statute would narrow the number of lawsuits brought under the TCPA. But TCPA cases continue to proliferate, and two appellate courts recently revived claims based on the TCPA.

On August 10, 2021, the Ninth Circuit revived a lawsuit against Fraser Financial and Insurance Services, holding that job recruitment robocalls received by cell phones fall within the TCPA’s scope if the call “did not involve an emergency and was not made with [the consumer’s] prior express consent.” Loyhayem v. Fraser Fin. & Ins. Servs., Inc., ---F. 4th---, 2021 WL 3504057, *2 (9th Cir. Aug. 10, 2021). The TCPA generally makes it illegal to place robocalls to someone’s home phone or cell phone. The Ninth Circuit held that the district court misread the governing robocall consent standards in dismissing the action. While the plaintiff admitted that the robocalls did not involve “advertising or telemarketing”—which are prohibited under the TCPA—the Ninth Circuit rejected the argument that only robocalls involving “advertising or telemarketing” are subject to the TCPA. Id. Rather, the Ninth Circuit noted that the TCPA applies to “any call” that is “made to a cell phone using an automatic telephone dialing system or an artificial or pre-recorded voice, unless the call is made either for emergency purposes or with the prior express consent of the person being called,” and that such consent be given either orally or in writing. Id. The Ninth Circuit found that the plaintiff’s allegations that he had not consented orally or in writing to receiving Fraser Financial’s call were sufficient to survive a motion to dismiss. Id. at *3.

That same day, the Seventh Circuit also revived a TCPA robocall lawsuit. See Bilek v. Fed. Ins. Co., et al., ---F. 4th---, 2021 WL 3503132 (7th Cir. Aug. 10, 2021). In an action brought against Federal Insurance Co. (Federal), a health insurance company, and Health Insurance Innovations, a health insurance technology company with which Federal contracted to sell insurance, the plaintiff alleged a vicarious liability theory under the TCPA based on the companies’ contracting with agents to telemarket Federal’s health insurance, thus generating unauthorized robocalls on the companies’ actual authority, apparent authority, and ratification. The district court dismissed the action, finding that the plaintiff failed to allege an agency relationship necessary to prove the companies made unsolicited robocalls advertising their services. The Seventh Circuit reversed, holding that the plaintiff had alleged enough at the pleading stage to establish both an agency relationship with Federal and specific personal jurisdiction over Health Insurance Innovations. While the Seventh Circuit’s opinion focused on whether the plaintiff had alleged enough facts to establish that an agency relationship existed and explicitly held—for the first time—that an agent’s conduct attributable to a principal established personal jurisdiction, it is notable that the appellate court made these findings in the context of allowing robocall claims under the TCPA to proceed.

It is too soon to tell whether the Seventh and Ninth Circuits’ decisions will broaden the scope under which future plaintiffs may bring robocall-based claims under the TCPA. Nonetheless, they suggest that Duguid will not put an end to TCPA lawsuits, which look like they are here to stay.

PEOPLE: Lina R. Powell

August 18, 2021 A Benefytt or a Curse: Ninth Circuit Holds That Bristol-Myers Does Not Apply Before Class Certification

Supreme Court Pillars - iStock_000017257808LargeBy: Alexander M. Smith

In 2017, the Supreme Court held in Bristol-Myers Squibb Co. v. Superior Court, 137 S. Ct. 1773 (2017), that a defendant in a mass tort action is not subject to specific personal jurisdiction as to the claims of non-resident plaintiffs whose injuries lack a sufficient connection to the forum state. The Court did not decide, however, whether its holding applied to nationwide class actions. And in the four years following Bristol-Myers, district courts in the Ninth Circuit have reached highly divergent results:

  • Some district courts have “agree[d] . . . that Bristol-Myers Squibb applies in the nationwide class action context” and have dismissed claims brought on behalf of putative nationwide classes, reasoning that “a state cannot assert specific personal jurisdiction for the claims of unnamed class members that would not be subject to specific personal jurisdiction if asserted as individual claims.” Carpenter v. PetSmart, Inc., 441 F. Supp. 3d 1028, 1035 (S.D. Cal. 2020); see also, e.g., Wenokur v. AXA Equitable Life Ins. Co., No. 17-165, 2017 WL 4357916, at *4 (D. Ariz. Oct. 2, 2017) (“The Court notes that it lacks personal jurisdiction over the claims of putative class members with no connection to Arizona and therefore would not be able to certify a nationwide class.”).
  • Other district courts have declined to extend Bristol-Myers to nationwide class actions. Some have reasoned that Bristol-Myers likely does not apply in federal courts at all, or at least not in cases arising under federal law. See, e.g., Pascal v. Concentra, Inc., No. 19-2559, 2019 WL 3934936, at *5 (N.D. Cal. Aug. 20, 2019) (“Bristol-Myers does not apply in this case because Plaintiff asserts his claim in a federal court and under federal law.”); Massaro v. Beyond Meat, Inc., No. 20-510, 2021 WL 948805, at *11 (S.D. Cal. Mar. 12, 2021) (similar). Others have distinguished Bristol-Myers on the basis that it involved a mass tort claim and have “decline[d] to extend Bristol-Myers to the class action context,” reasoning that doing so would “radically alter the existing universe of class action law.” Sotomayor v. Bank of Am., N.A., 377 F. Supp. 3d 1034, 1038 (C.D. Cal. 2019); see also, e.g., Fitzhenry-Russell v. Dr. Pepper Snapple Grp., Inc., No. 17-564, 2017 WL 4224723, at *5 (N.D. Cal. Sept. 22, 2017) (“[T]he Supreme Court did not extend its reasoning to bar the nonresident plaintiffs’ claims here, and Bristol-Myers is meaningfully distinguishable based on that case concerning a mass tort action, in which each plaintiff was a named plaintiff.”).
  • Still others have sidestepped the question of whether Bristol-Myers applies to nationwide class actions by holding that “the claims of unnamed class members are irrelevant to the question of specific jurisdiction” until the court certifies a class. In re Morning Song Bird Food Litig., No. 12-1592, 2018 WL 1382746, at *5 (S.D. Cal. Mar. 19, 2018). These courts have concluded that, “[u]nless and until [the plaintiff] demonstrates that she is entitled to litigate the claims of non-resident potential class members, it is premature for the Court to rule on whether it has jurisdiction over claims belonging to non-resident putative class members.” Robinson v. Unilever U.S., Inc., No. 17-3010, 2018 WL 6136139, at *3 (C.D. Cal. June 25, 2018).

On August 10, 2021, the Ninth Circuit issued a published opinion, Moser v. Benefytt, Inc., --- F.4th ----, that endorsed the third approach and held that it is “premature” for a court to determine at the pleading stage whether it can exercise personal jurisdiction over the claims of putative class members. Although Moser deprives defendants in nationwide class actions of a potential jurisdictional challenge at the pleading stage, it leaves that challenge open later in the case—and makes clear that a defendant does not waive a Bristol-Myers challenge by failing to raise it at the pleading stage.

In Moser, a California resident brought a putative class action under the Telephone Consumer Protection Act against Benefytt, a Delaware corporation with its principal place of business in Florida, and sought to represent a nationwide class. Although Benefytt did not raise Bristol-Myers in its motion to dismiss, it opposed the plaintiff’s motion for class certification by arguing, among other things, that Bristol-Myers precluded the court from exercising personal jurisdiction over the claims of non-resident class members. In its order granting the plaintiff’s motion for class certification, the district court declined to reach the merits of Benefytt’s Bristol-Myers challenge, finding instead that Benefytt had waived any objections to personal jurisdiction by failing to raise them in a motion to dismiss or an answer. After granting Benefytt permission to appeal the class certification order pursuant to Federal Rule of Civil Procedure 23(f), the Ninth Circuit vacated the class certification order and held that Benefytt had not waived its Bristol-Myers challenge.

After concluding that Rule 23(f) authorized it to review the district court’s personal jurisdiction ruling, the Ninth Circuit held that the district court erred by finding that Benefytt had waived its Bristol-Myers defense by failing to raise it in a motion to dismiss. The Ninth Circuit reached this conclusion based on two premises: (1) that Federal Rule of Civil Procedure 12(b)(2) only requires defendants to raise a personal jurisdiction defense if it is “available”: and (2) that “a class action, when filed, only includes the claims of the named plaintiff.” “Putting these points together,” the Ninth Circuit reasoned, showed that Benefytt “did not have ‘available’ a Rule 12(b)(2) personal jurisdiction defense to the claims of unnamed putative class members who were not yet parties to the case.” The Ninth Circuit accordingly concluded that Benefytt “could not have moved to dismiss on personal jurisdiction grounds the claims of putative class members who were not then before the court” and that Benefytt was therefore not “required to seek dismissal of hypothetical future plaintiffs.” In so holding, the Ninth Circuit stressed that its conclusion was consistent with the holdings of the Fifth Circuit in Cruson v. Jackson National Life Insurance Co., 954 F.3d 240 (5th Cir. 2020) and the D.C. Circuit in Molock v. Whole Foods Market Group, Inc., 952 F.3d 293 (D.C. Cir. 2020)—both of which concluded that Bristol-Myers does not apply to the claims of nonresident putative class members until and unless a class is certified.

Although the Ninth Circuit held that Benefytt had not waived its Bristol-Myers challenge and vacated the district court’s class certification order, it declined to reach the underlying question of whether Bristol-Myers applies to nationwide class actions and left that issue for the district court to address on remand. In so holding, the Ninth Circuit suggested—albeit in passing—that the analysis may turn on “additional record development,” potentially including additional discovery as to the extent of Benefytt’s contacts with California. And while the Ninth Circuit did not expressly say so, this conclusion appears inconsistent with the holdings of some district courts that Bristol-Myers is categorically inapplicable in federal court or to nationwide class actions. Nonetheless, regardless of how broadly or narrowly one interprets the Ninth Circuit’s decision, it makes clear that the Bristol-Myers analysis must take place at the class certification stage—and gives defendants comfort that they will not waive their Bristol-Myers defenses by waiting until class certification to raise them.

CATEGORIES: Class Action Settlements, Class Action Trends, Class Certification, US Supreme Court

PEOPLE: Alexander M. Smith

July 29, 2021 CFPB Continues to Focus on Debt-Relief and Credit-Repair Services

By: Amina Stone-Taylor

Credit-reportIn recent years, the Consumer Financial Protection Bureau (CFPB) has focused its Bureau resources on companies offering credit repair and debt relief services.[1] In a 2019 consumer advisory, the CFPB reported that more than half the individuals who submitted a complaint to the Bureau about credit repair categorized it as “fraud/scam.”[2] The CFPB has also undertaken a number of enforcement actions focused on the credit repair industry.[3]

On June 28, 2021, the CFPB announced the proposed resolution of another enforcement matter arising from credit repair services—this time against Burlington Financial Group, LLC.  The CFPB and the Attorney General of the State of Georgia filed a joint complaint against Burlington Financial and its owners/executives, along with a proposed joint stipulation of final judgment and order. The complaint alleges that Burlington Financial misled consumers into believing the company could lower or eliminate credit-card debts and improve their credit score, and violated the Telemarketing Sale Rule (TSR) and the Consumer Financial Protection Act (CFPA) through their deceptive marketing tactics.[4] The CFPB stated, “Burlington Financial used telemarketing to solicit people with false promises that the company’s services would eliminate credit-card debts.”[5] The stipulated proposed order permanently bans Burlington Financial and its owners from providing any financial-advisory, debt relief, or credit repair services.[6] The company also will be responsible for paying a civil money penalty of $151,001.[7]

If you would like to read more about the CFPB’s claims against and resolution with Burlington Financial, please click here for access to the CFPB’s press release and filings.

[1] See e.g., Emeri Krawczyk, Nation’s Housing: CFPB cracks down on ‘credit-repair’ companies (July 26, 2017),


[2] Consumer Financial Protection Bureau, Don’t be Misled by Companies Offering Paid Credit Repair Services (December 3, 2019), https://files.consumerfinance.gov/f/documents/092016_cfpb_ConsumerAdvisory.pdf

[3] See e.g., Matt Gephardt, Utah Credit Repair Companies Sued Over Billing Issue (May 3, 2019), https://kutv.com/news/get-gephardt/utah-credit-repair-companies-sued-over-billing-practices

[4] Consumer Financial Protection Bureau, CFPB Takes Action Against Company and its Owners and Executives for Deceptive Debt-Relief and Credit-Repair Services (June 28, 2021), https://www.consumerfinance.gov/about-us/newsroom/cfpb-takes-action-against-company-and-its-owners-and-executives-for-deceptive-debt-relief-and-credit-repair-services/

[5] Id.

[6] Id.

[7] Id.

July 20, 2021 Consumer Financial Protection Bureau Releases Its 2020 Supervisory Highlights Report

By: Felicitas L. Reyes

New-Development-IconThe Consumer Financial Protection Bureau (CFPB) recently released the latest version of its Supervisory Highlights report, which summarizes the findings of the Bureau’s supervisory examinations in 2020. The CFPB identified four findings from the report as “particularly concerning”:

  1. Consumer Reporting Companies’ Use of Data From “Unreliable” Furnishers: The CFPB reported that its examiners found that consumer reporting companies have accepted and reported consumer data received from third-party furnishers, while ignoring signs that the data furnishers were unreliable. The CFPB warned that it “will remain diligent and consumer reporting companies are on notice with respect to risks posed by accepting data from furnishers where there are indications of unreliability.”

  2. Redlining: The report states that CFPB examiners found evidence of redlining, including direct mail marketing materials showcasing pictures of only white people and locating credit loan offices “almost exclusively” in majority-white neighborhoods. CFPB examiners found that these actions “lowered the number of applications from minority neighborhoods relative to other comparable lenders.”

  3. Regulation X Foreclosure Issues: The report states CFPB examinations identified “several violations” by mortgage servicers of the servicing rules in Regulation X, including filing for a foreclosure before evaluating borrower’s appeals or initiating a foreclosure prior to the date that they told consumers they would.  On June 28, 2021, the CFPB issued a final rule that it contends will help consumers avoid foreclosures as the emergency federal foreclosure protections expire.

  4. Student Loan Servicing for the PSLF Program: CFPB examiners found violations in the type of information that student loan servicers gave consumers about the Public Service Loan Forgiveness (PSLF) program. Examiners found that student loan servicers were giving consumers incorrect information that could potentially bar access to the program and could result in thousands of dollars lost for these consumers.

If you would like to read more about the areas mentioned above and other consumer law violations that the CFPB report discusses, please click here for access to the full supervisory highlights report and press release. 

July 16, 2021 EU Guidance on Forced Labour in Supply Chains


By: Paul FeldbergLucy Blake, and Karam Jardaneh


Earlier this week, the European Commission published its Guidance “On Due Diligence For EU Businesses To Address The Risk Of Forced Labour In Their Operations And Supply Chains”. 

The document, which is not legally binding, provides practical guidance on how to use existing international, voluntary, due diligence guidelines and principles when dealing with the risk of forced labour in supply chains.

The European Commission made clear in its press release, that the Guidance forms part of the EU’s wider strategy to defend human rights and strengthen the resilience and sustainability of the EU supply chain. The European Commission sees the Guidance as encouragement for EU businesses to take appropriate measures regarding their supply chains ahead of the EU’s introduction of a mandatory due diligence duty for businesses operating in the EU. As set out in our previous Client Alert, the due diligence duty will require certain businesses operating in the EU to identify, prevent, mitigate and account for adverse human rights and environmental impacts in their operations and supply chains. We will also cover this in more detail as well as other developments in Europe in a separate Client Alert. 

Who should consider the Guidance? 

Although the Guidance is directed at EU companies, it is based on international instruments aimed at companies globally. This includes the OECD Due Diligence Guidance For Responsible Business Conduct (the OECD Guidelines) and the UN Guiding Principles on Business and Human Rights (UNGPs). While the UNGPs are not “legally binding” and are often referred to as “soft-law”, there are growing expectations for companies worldwide to adhere to them. This “soft law” has been evolving into “hard law” in multiple jurisdictions (the anticipated EU mandatory due diligence laws being a prime example). Therefore, we believe that this Guidance will be a helpful resource for companies globally.

Why is the guidance helpful? 

Repository of International Guidance 

The Guidance pulls together existing general international guidelines on effective due diligence of supply chains (which is not only limited to forced labour) and is therefore a useful source of guidance in this area for companies. In particular, the Guidance highlights the six-step supply chain due diligence process set out in the OECD Guidelines; namely to

  1. Embed responsible business conduct into the company’s policies and management systems 
  2. Identify and assess actual or potential adverse human rights, societal and environmental impacts in the company’s operations, supply chains and business relationships 
  3. Cease, prevent and mitigate adverse impacts 
  4. Track implementation and results
  5. Communicate how adverse impacts are addressed 
  6. Provide for or cooperate in remediation when appropriate

We provide a more detailed explanation of the due diligence process in our previous Client Alert, which covers the “six best practices to promote and support human rights and corporate social responsibility in supply chains”.

Forced labour

The Guidance also adds value by tailoring existing guidance to address forced labour risks in supply chains. The Guidance identifies practical considerations in the implementation of due diligence processes for the purposes of dealing with forced labour risk. For example, the Guidance sets out a list of “red-flags” for forced labour to be taken into account when scoping supply chain due diligence. These risk factors broadly fall into three categories: 

  • Country risk factors 
  • Risk factors linked to migration and informality 
  • Risk factors linked to presence of debt risk 

The Guidance also singles out the following cross-cutting issues which should be taken into account in a business’ due diligence: 

  • Gender: the Guidance acknowledges that risks of harm in the supply chain often differ for men and women and sets out considerations that need to be taken into account in applying a “gender-responsive due diligence”.
  • Ethnic or Religious minorities: the Guidance acknowledges that instances of forced labour targeted against a particular ethnic or religious group, may be part of a wider policy of discrimination, either by government or company policy. However, significantly (particularly in light of the issues in Xinjiang), the Guidance provides that 

“EU companies should still take action to ensure that their businesses or supply chains are neither directly nor indirectly contributing to such policies or practices and to seek to cease, prevent or mitigate adverse impacts (through using leverage or disengagement, for example) to which they are directly linked, even if they have not contributed to those impacts”. 

We will also cover US guidance relating to Xinjiang-specific supply chain due diligence in another Client Alert.

  • Raw materials of unknown or high-risk origin: the Guidance highlights the importance of a business credibly obtaining and verifying information on the origin of raw materials. It notes that if a business is unable to identify the origin of raw materials or their origin is from high-risk countries then it should assess whether independent access to evaluate worksites is feasible. If not feasible, businesses should direct suppliers to source materials from commodity traders outside of high-risk areas.


The Guidance reflects the growing expectations for companies to follow the voluntary global standards in the UNGP and the OECD Guidelines. It also serves as a reminder that companies operating in the EU should start to get ready for the mandatory due diligence requirements that will follow. 

July 16, 2021 Ninth Circuit Not Sweet on Plaintiffs’ Interpretation of Trader Joe’s Honey Label

By: Alexander M. Smith

HoneyOn July 15, 2021, the Ninth Circuit issued a published decision in Moore v. Trader Joe’s Company in which it affirmed the dismissal of a lawsuit alleging that Trader Joe’s mislabeled its Manuka honey as “100% New Zealand Manuka Honey.” While the plaintiffs alleged that this statement was misleading because the honey was derived from floral honey sources other than Manuka flower nectar, the Ninth Circuit found that the labeling was not likely to mislead a reasonable consumer because it satisfied the FDA’s regulations governing the labeling of honey. Because “Trader Joe’s Manuka Honey is chiefly derived from Manuka flower nectar,” the Ninth Circuit concluded that “Manuka is therefore the chief flower source for all of the product’s honey under the FDA’s definition, even if some of it is derived from nectar from other floral sources.” Thus, “there is no dispute that all of the honey involved is technically manuka honey, albeit with varying pollen counts.”

The Ninth Circuit also rejected the plaintiffs’ argument “that ‘100% New Zealand Manuka Honey’ could nonetheless mislead consumers into thinking that the honey was ‘100%’ derived from Manuka flower nectar.” Although it acknowledged that “there is some ambiguity as to what ‘100%’ means in the phrase, ‘100% New Zealand Manuka Honey,’” the court nonetheless found that this ambiguity was unlikely to mislead a reasonable consumer, as “other available information about Trader Joe’s Manuka Honey would quickly dissuade a reasonable consumer from the belief that Trader Joe’s Manuka Honey was derived from 100% Manuka flower nectar.” 

This decision builds upon other recent decisions in which the Ninth Circuit has rejected product mislabeling claims based on decontextualized and therefore implausible interpretations of product labels. See, e.g., Becerra v. Dr Pepper/Seven Up, Inc., 945 F.3d 1225 (9th Cir. 2019) (holding that a reasonable consumer would understand the word “diet” on a soda label in context to make a comparative claim only about the product’s caloric content, not to make a claim that the soda promotes weight loss generally). Although the Ninth Circuit has historically been viewed as friendly to plaintiffs in food-labeling litigation, Becerra and Moore signal that courts in the Ninth Circuit are becoming increasingly skeptical of these claims.

PEOPLE: Alexander M. Smith

July 8, 2021 Supreme Court Limits Article III Standing for Class Action Plaintiffs: Implications for Data Breach Class Actions


By: Clifford W. BerlowAlexander E. Cottingham, and Lindsay C. Harrison


On June 25, 2021, the US Supreme Court in TransUnion LLC v. Ramirez[1] narrowed the scope of Article III standing for plaintiffs who allege the violation of a statute but cannot show they otherwise suffered harm. Though decided in the context of a Fair Credit Reporting Act (FCRA) class action, the decision has major implications for parties litigating state and federal statutory claims of all varieties in federal courts. In particular, TransUnion seems poised to limit the viability of class actions arising from data breaches. The decision likely means, for example, that plaintiffs lack Article III standing when their information may have been accessed but was not misused in a manner causing concrete harm—a subject on which the courts of appeals previously had split. The decision also will limit plaintiffs’ ability to assert Article III standing merely based on the violation of privacy statutes alone without any resulting harm. 

Defendants litigating data breach class actions can take advantage of this new precedent in federal court to seek dismissal of data breach class actions for lack of Article III standing. But doing so is not without consequence. If federal courts are not available to adjudicate these claims, plaintiffs likely will pursue them in state courts, where standing precedent may be more lenient for plaintiffs. Defendants thus will need to be strategic about how aggressively they pursue TransUnion-based dismissals.


A class of 8,185 individuals sued TransUnion under the FCRA for failing to use reasonable procedures to ensure the accuracy of their credit files.[2] Each of their credit reports contained inaccurate information added by TransUnion that mislabeled them as matches for potential terrorists, drug traffickers, or other serious criminals from a list maintained by the Treasury Department’s Office of Foreign Assets Control (OFAC).[3] The parties stipulated that TransUnion actually provided credit information to potential creditors for just 1,853 of those class members, and maintained in its database but did not share with anyone inaccurate credit file information for the remaining 6,332 class members.[4] The question presented was whether the mere existence of inaccurate information, absent dissemination, constituted sufficient harm to supply the basis for Article III standing.[5]

Court’s Opinion

The Court, with Justice Kavanaugh writing for a five-justice majority, held that the class members whose credit reports were distributed had Article III standing because they demonstrated a concrete harm, but the 6,332 class members whose erroneous credit reports were never distributed lacked standing.

The Court’s decision focused on the requirement for Article III standing that the plaintiff allege an injury-in-fact that is “concrete.” In Spokeo v. Robbins,[6] the Court held that a “bare procedural violation” of a statute was not enough to plead a concrete harm.[7] But recognizing that Congress could “elevate” legally cognizable injuries that were previously inadequate,[8] the Court left open exactly when a statutory violation may reflect the kind of concrete harm necessary to confer standing. As a result, courts remained divided over how to evaluate standing where a plaintiff alleged the violation of a state or federal statute. Some circuits focused on whether the harm alleged was a “bare procedural” violation of the statute or an intrusion on a “substantive” statutory right. Other circuits focused on whether the statutory harm alleged bore a “close relationship” to a harm “traditionally” recognized as providing a basis for a lawsuit in American courts.[9] 

In TransUnion, the Court reaffirmed that “Article III standing requires a concrete injury even in the context of a statutory violation” and that a plaintiff does not automatically satisfy the injury-in-fact requirement by pleading the violation of a statute.[10] Then, the Court held that for a harm to be “concrete,” the harm attributable to the claimed statutory violation must bear a “close relationship” to a harm “traditionally” recognized as providing a basis for a lawsuit in American courts.[11] That test narrows the path for Article III standing in those circuits that had previously rejected the “close relationship” test, though lower courts have some room to determine how to apply this test moving forward.

The Court also addressed when a risk of future harm may be sufficiently concrete to supply a plaintiff with Article III standing—another question on which courts remained divided following Spokeo. Although the plaintiffs had urged the Court to hold that a risk of future harm is sufficiently concrete, the Court rejected that theory. In a suit for damages, the Court held that the “mere risk of future harm” does not confer standing unless exposure to the risk of future harm causes a separate concrete harm or the risk of harm materializes into actual harm.[12]

Takeaways for Data Breach Class Actions

While TransUnion addressed standing in the context of the FCRA, its holding on risk of future harm and concrete injury is broadly applicable to data breach class actions. Defendants litigating data breach class actions in federal court regularly move to dismiss for plaintiffs’ lack of Article III standing. In many of those cases, courts face the perennial question of a tree falling in the forest: if a plaintiff’s data is accessed but not misused in a manner causing concrete injury (such as for identity theft), was that person harmed? Courts in different circuits have resolved that question differently, with some accepting broader theories of standing related to risk of future harm than others.[13] Courts deciding those motions now have clear direction from the Supreme Court as to two key issues: a plaintiff’s ability to demonstrate standing based on the mere risk of future harm, and a plaintiff’s ability to demonstrate standing based purely on the violation of a statute.

First, in the context of suits for damages, TransUnion appears to foreclose Article III standing where plaintiffs claim only the risk of future harm from a data breach without actual misuse of their data to cause injury. In TransUnion, the plaintiffs had attempted to demonstrate a risk of future harm, but the Court rejected each of their theories, explaining that they could not plead a “sufficient likelihood” that third parties would request their personal information or that TransUnion would intentionally or accidentally release their information.[14] Those theories are remarkably similar to those pled by plaintiffs in data breach class actions, such as the risk that they will suffer identity theft, or that their information may be sold on the dark web and used to blackmail them. Just as the TransUnion class could not demonstrate standing by theorizing about hypothetical future harms, so too will data breach plaintiffs fail to satisfy Article III by pleading an imaginary parade of horribles yet to befall them.

Second, after TransUnion, plaintiffs may no longer rely on a violation of a statutory right alone to demonstrate Article III standing. In data breach cases, plaintiffs sometimes invoke state privacy statutes to bolster their standing claims, arguing that the violation of a state data breach notification or consumer protection law provides them with standing. Those sorts of arguments are likely to face greater resistance following TransUnion because plaintiffs will have to identify some historical common-law analogue to the statutory violation—a tall task in a data breach suit. Accordingly, TransUnion appears to close the door on several of the more creative arguments plaintiffs have used to assert Article III standing in data breach suits.

What to Look for Now

TransUnion is a clear win for corporate defendants, in particular corporate defendants seeking to dismiss federal class actions arising from data breaches on standing grounds. But the legacy of TransUnion may prove to be more complex, including in data breach cases. 

It is important to remember that the Court’s decision places a limit only on the jurisdiction of federal courts. The states remain free to define the parameters for standing to sue in their own courts.[15] At present, roughly half the states do not have lockstep Article III standing rules.[16] And, as Justice Thomas noted in dissent, courts in states with more lenient standing requirements may still adjudicate statutory claims that now cannot proceed in federal courts under TransUnion.[17] As a result, moving to dismiss federal class actions for lack of standing under TransUnion is not a panacea. Instead, in cases where Article III standing may be lacking under TransUnion, plaintiffs may be able to proceed in state court. And if defendants attempt to remove a state court lawsuit to federal court only to dismiss for lack of standing, courts may not only remand the case, but also may force the defendant to pay the plaintiffs’ attorney’s fees. 

In short, as the doors to the federal courthouse close, companies can expect plaintiffs to cross the street to state court, at least when companies are subject to the jurisdiction of a state that is not in lockstep with federal Article III standing rules. Companies therefore will want to be strategic about how they advocate for the application of TransUnion, bearing in mind local conditions in the states where they are amenable to suit and local standing rules in those states. As a result, the ultimate consequence for corporate defendants of the Supreme Court’s decision to limit Article III standing remains to be seen. 


[1] TransUnion LLC v. Ramirez, No. 20 - 297, slip op. (U.S. June 25, 2021).

[2] TransUnion, slip op. at 1.

[3] Id. at 4.

[4] Id. at 5 - 6.

[5] Id. at 6.

[6] 578 U.S. 330 (2016).

[7] Id. at 341.

[8] Id.

[9] Id.

[10] TransUnion, slip op. at 1 (quoting Spokeo, 578 U.S. at 341).

[11] Id. at 9.

[12] Id. at 20–22.

[13] Some courts have accepted broader theories of standing. See, e.g., Attias v. Carefirst, Inc., 865 F.3d 620, 629 (D.C. Cir. 2017); Galaria v. Nationwide Mut. Ins. Co., 663 F. App’x 384, 387–89 (6th Cir. 2016); Remijas v. Neiman Marcus Grp., LLC, 794 F.3d 688, 692, 694–95 (7th Cir. 2015); Krottner v. Starbucks Corp., 628 F.3d 1139, 1142–43 (9th Cir. 2010). Other courts have limited standing more narrowly. See, e.g., Tsao v. Captiva MVP Restaurant Partners, LLC, 986 F.3d 1332 (11th Cir. 2021); Beck v. McDonald, 848 F.3d 262, 273–76 (4th Cir.), cert. denied sub nom. Beck v. Shulkin, ––– U.S. ––––, 137 S. Ct. 2307, 198 L.Ed.2d 728 (2017); Whalen v. Michaels Stores, Inc., 689 F. App’x 89, 90–91 (2d Cir. 2017); In re SuperValu, Inc., 870 F.3d 763, 770–72 (8th Cir. 2017); Reilly v. Ceridian Corp., 664 F.3d 38, 42–44 (3d Cir. 2011).

[14] TransUnion, slip op. at 22–23.

[15] State courts “are not bound by the limitations of a case or controversy or other federal rules of justiciability even when they address issues of federal law.” ASARCO Inc. v. Kadish, 490 U.S. 605, 617 (1989).

[16] See Bennett, The Paradox of Exclusive State-Court Jurisdiction Over Federal Claims, 105 Minn. L. Rev. 1211 (2021).

[17] TransUnion, slip op. at 18 n.9 (Thomas, J., dissenting).

CATEGORIES: Class Action Trends, Decisions of Note, US Supreme Court

June 24, 2021 Supreme Court Gives More Tools for Defendants to Challenge Class Certification in Securities Fraud Cases


By: Ali M. Arain, Stephen L. Ascher, Howard S. Suskin, and Reanne Zheng

Supreme Court PillarsIntroduction

On June 21, 2021, the US Supreme Court issued its decision in Goldman Sachs Group Inc. v. Arkansas Teacher Retirement System,[1] providing guidance to lower courts regarding class certification in securities fraud class actions. On balance, the opinion favors defendants, and potentially signals a backlash against the tide of securities fraud class actions based on vague and generic misstatements. Importantly, the Court instructed that all relevant evidence should be considered when making the class certification decision, sending a message that lower courts must grapple with and cannot ignore relevant evidence at the class certification stage simply because it overlaps with the merits-related evidence. The Court also stressed that the generic nature of a misrepresentation is often important evidence of lack of price impact, which lower courts should consider when deciding whether to grant or deny a class certification motion. 

Although the Supreme Court’s decision was not as sweeping as the defendants wanted, it does signal the Supreme Court’s concern that companies are too frequently held liable for securities fraud as a result of adverse legal or business developments, even where the company had never made any specific statements about the matters in question.


The underlying facts of this case relate to Goldman’s now well-publicized involvement in the Abacus CDO transaction and subsequent settlement with the SEC in the aftermath of the 2008 financial crisis. In the consolidated complaint, which was filed in 2011, plaintiff shareholders alleged that Goldman had violated securities laws by making repeated misrepresentations in its SEC filings and other public statements in connection with the Abacus CDO transaction, beginning in late 2006/early 2007. The alleged misrepresentations were generic statements regarding Goldman’s conflict of interest policies and business practices, including statements like: “We have extensive procedures and controls that are designed to identify and address conflicts of interest”; “Our clients’ interests always come first”; and “Integrity and honesty are at the heart of our business.” According to the plaintiffs, these alleged misrepresentations allowed Goldman to maintain an inflated stock price until 2010, when the SEC filed a complaint against Goldman for securities fraud. Goldman later disclosed that it had agreed to pay $550 million as part of a settlement with the SEC and acknowledged that it should have disclosed certain conflicts of interest in 2007 when underwriting the Abacus CDO that cost its clients $1 billion.  The plaintiffs argued that once the SEC enforcement action and related news reports revealed that Goldman in fact engaged in conflicted transactions, the stock price dropped and caused Goldman shareholders to suffer losses.

The Southern District of New York denied Goldman’s motion to dismiss, and the plaintiffs moved for class certification. The plaintiffs argued that Goldman’s generic statements regarding its business practices and conflict of interest procedures artificially maintained an inflated stock price. Goldman argued that the alleged misstatements were too generic to have any impact on stock price. Following extensive expert testimony on the issue, the District Court certified the class. The Second Circuit vacated the class certification order, holding that the burden was on Goldman to prove a lack of price impact by a preponderance of the evidence, but that the District Court erred by holding Goldman to a higher burden of proof. On remand, the District Court certified the class again, finding that Goldman’s expert testimony failed to establish by a preponderance of the evidence that the alleged misrepresentations had no price impact. The Second Circuit affirmed in a divided decision, holding the District Court’s price impact determination was not an abuse of discretion. 

The Supreme Court’s Decision

On appeal, the Supreme Court was asked to resolve two questions: first, whether the generic nature of Goldman’s alleged misrepresentations is relevant to the price impact inquiry; and second, whether Goldman has the burden of persuasion to prove lack of price impact.

On the first question, Goldman argued that the Second Circuit erred in holding that the generic nature of alleged misrepresentations was irrelevant to the price impact question. Goldman’s initial position was that generic statements could not impact stock price, while the plaintiffs argued that the generic nature of the alleged misrepresentations had no relevance to the price impact inquiry at all. The parties later agreed that the generic nature of the statements was relevant to price impact and should be considered at the class certification stage. The Court agreed, holding that district courts should consider all probative evidence in assessing price impact and clarifying that courts may consider the generic nature of misrepresentations at class certification “regardless whether the evidence is also relevant to a merits question like materiality.”[2] The Court further explained that the generic nature of an alleged misrepresentation “often will be important evidence of a lack of price impact, particularly in cases proceeding under the inflation-maintenance theory” where it is less likely that a specific, negative disclosure actually corrected a prior generic misrepresentation.[3]  Ultimately, the Court remanded on this issue and instructed the Second Circuit to “take into account all record evidence relevant to price impact” because the Court concluded the Second Circuit’s decision left “sufficient doubt” that it properly considered the generic nature of the statements.[4]

On the second question, Goldman argued that the Second Circuit erred in placing the burden of persuasion on Goldman, as a defendant, to prove a lack of price impact. According to Goldman, the presumption of fraud on the market, articulated in the Court’s seminal Basic v. Levinson ruling,[5] only shifts the burden of production to the defendant, but the defendant can rebut the presumption by producing any competent evidence of a lack of price impact, while the plaintiff carries the burden of persuasion to prove price impact. The Court rejected Goldman’s argument, concluding that a defendant “bears the burden of persuasion to prove a lack of price impact” and agreeing with the Second Circuit that the defendant carries that burden by a preponderance of the evidence.[6] However, the Court noted that, because the parties in most securities fraud class actions typically submit competing expert evidence on price impact, its decision regarding the allocation of the burden was “unlikely to make much difference on the ground.”[7]

Key Takeaways

Overall, the Court’s decision favors defendants by holding that all relevant evidence, including merits-based evidence, should be considered when evaluating price impact at the class certification stage, which gives a lower court more discretion to deny class certification based on the entire record before it. 

In addition, in cases premised on generic misstatements, the Court’s holding should make it easier for defendants to rebut the Basic presumption, given that the Court expressly recognized that the general nature of a misstatement “will often be important evidence of lack of price impact.”[8] Importantly, the Court noted that this is especially true in cases based on the “inflation maintenance” theory, where price impact is the amount of price inflation maintained by an alleged misrepresentation. The Court emphasized that in these type of cases, there is less of a reason to infer front-end price inflation based on a back-end price drop. In doing so, the Court seemed to reject the idea that negative disclosures or allegations of wrongdoing necessarily “correct” prior generic statement by the defendant company. While defendants still bear the burden of disproving price impact, this should make it harder for plaintiffs to succeed in cases relying on inflation maintenance theory unless they can show a link between the front-end price and the back-end price drop.

Finally, on the burden issue, the Court made clear that its holding is unlikely to have much practical effect, noting that the defendant’s burden of persuasion would only become dispositive “in the rare case” in which the parties’ evidence of price impact is perfectly balanced.[9] In most cases, however, the “district court's task is simply to assess all the evidence of price impact — direct and indirect — and determine whether it is more likely than not that the alleged misrepresentations had a price impact.”[10] 


[1] Goldman Sachs Grp. Inc. v. Arkansas Tchr. Ret. Sys., No. 20–222, slip op. (U.S. June 21, 2021).

[2] Goldman, slip op. at 7.

[3] Id. at 8.

[4] Id. at 9.

[5] Basic v. Levinson, 485 U.S. 224 (1988).

[6] Id. at 11.

[7] Id. at 12.

[8] Id. at 8.

[9] Id. at 3.

[10] Id. at 12.

CATEGORIES: Class Action Trends, US Supreme Court

June 24, 2021 Future of Fintech Charter Unclear

By: Lindsey A. Lusk

FintechA legal battle over a charter to allow Fintech companies to become special purpose national banks has been put on pause. But for how long will the future of the charter remain in limbo? On June 16, 2021, the Conference of State Bank Supervisors (the CSBS) and the Office of Comptroller of the Currency (OCC) agreed to stay the litigation, and the district court approved a motion formalizing the parties’ agreement to put the litigation on hold for 90 days,[1] though some analysts have warned that the fate of the charter still may not be easily resolved.[2]

The pause follows the recent dismissal of a similar case in the Southern District of New York. In Lacewell v. Office of the Comptroller of the Currency, the New York Department of Financial Services (DFS) was attempting to block the OCC’s special purpose national bank charter (the “Fintech charter”). The Fintech charter would allow certain non-depository Fintech companies to operate as “special purpose national banks” under the National Bank Act (NBA). Accordingly, the Fintech companies would not be subject to state-by-state regulation and licensing. DFS argued that the charter is unlawful because it exceeds the OCC’s authority under the NBA.[3]

The case had been pending on appeal in the Second Circuit since April of 2020, after the district court denied the OCC’s motion to dismiss and found that DFS had standing to sue.[4] The Second Circuit heard oral argument in March 2021, and reversed the lower court’s ruling on June 3, holding that DFS lacked standing to challenge the Fintech charter.[5] It remanded the case to the district court with instruction to dismiss without prejudice.[6]

The dismissal of Lacewell and the agreement between the CSBA and OCC comes at a time when the acting Comptroller, Michael Hsu, has signaled that he may slow down efforts to implement the Fintech charter, noting that the OCC needs to determine how to charter Fintech firms in a “safe and sound way, where we can adapt to the innovation.”[7]

While the future of the Fintech charter is unclear, were the OCC to succeed in court and move forward with the charter, it could have significant implications for both Fintech companies as well as consumers. For example, the charter would preempt state money transmitter and lender licensing laws, among other state laws. This would also mean that Fintech companies operating pursuant to this charter would be subject to a single regulator and with a single set of regulatory requirements. On the other hand, these regulatory requirements may be more onerous than their state-law counterparts. Additionally, because a Fintech company operating under the charter would be a special purpose national bank, it may be considered a “bank” within the meaning of that term under the Securities Act of 1933.[8] If so, securities issued by a Fintech company operating pursuant to this charter would be exempt from the registration requirements of the Securities Act.

For consumers, the charter could potentially expand access to financial services. In its white paper on the Fintech charter, the OCC concluded that the charter would expand banking services to the underserved.[9] Notably, applicants for the charter are encouraged to explain how they intend to foster financial inclusion.[10] Comments the OCC received to its white paper revealed that the market reaction was one of agreement “that the innovation that has occurred and is occurring in the financial services marketplace is moving the market toward affordability and ease of access in a manner that is much more tailored to the needs of individual consumers and small businesses, leading to inclusion of many more consumers and small business owners.”[11]


[1] Conference of State Bank Supervisors v. Office of the Comptroller of the Currency, et al., No. 1:20-cv-03797-DLF (D.C. 2020).

[2] Brendan Pedersen, OCC, States Declare Cease-fire in Fintech Charter Case. Will it Hold?, Am. Banker (June 18, 2021), https://www.americanbanker.com/news/occ-states-declare-ceasefire-in-fintech-charter-case-will-it-hold.

[3] Vullo v. Off. of Comptroller of Currency, 378 F. Supp. 3d 271, 280 (S.D.N.Y. 2019), rev’d and remanded sub nom. Lacewell v. Off. of Comptroller of Currency, No. 19-4271, 2021 WL 2232109 (2d Cir. June 3, 2021).

[4] Id. at 300.

[5] Lacewell v. Off. of Comptroller of Currency, No. 19-4271, 2021 WL 2232109, at *13 (2d Cir. June 3, 2021)

[6] Id.

[7] ABA Banking J., OCC’s Hsu Says Fintech Firms Should Be Chartered in ‘Safe and Sound Way’ (May 19, 2021), https://bankingjournal.aba.com/2021/05/occs-hsu-says-fintech-firms-should-be-chartered-in-safe-and-sound-way/.

[8] 15 U.S.C. § 77a et seq., available at https://www.govinfo.gov/content/pkg/COMPS-1884/pdf/COMPS-1884.pdf.

[9] Office of the Comptroller of Currency, Exploring Special Purpose National Bank Charters for Fintech at 2 (Dec. 2016), https://www.occ.gov/publications-and-resources/publications/banker-education/files/exploring-special-purpose-nat-bank-charters-fintech-companies.html.

[10] Id. at 12.

[11] Christina Gattuso, How an OCC Fintech Charter Could Benefit the Underserved, BankDirector.com (April 17, 2017), https://www.bankdirector.com/issues/how-occ-fintech-charter-could-benefit-underserved/.

PEOPLE: Lindsey A. Lusk

June 23, 2021 Two Recent Circuit Court Decisions Provide Insight Into How Attorneys’ Fee Awards Can Impact Class Settlement Approval

By: Elizabeth Avunjian

New-Development-IconEarlier this month, and just two days apart, the Ninth and Eleventh Circuits reached opposite conclusions regarding two class action settlements: the Ninth Circuit overturned approval of a class settlement related to the alleged mislabeling of cooking oil in Briseno v. Henderson, while the Eleventh Circuit upheld all but one element of a class settlement related to the 2017 Equifax data breach in In Re Equifax Inc. Customer Data Sec. Breach Litig. Despite the courts’ divergent holdings, their analyses provide insight into how federal courts review fee awards in assessing the reasonableness of class settlements.

Notably, the Ninth Circuit took one step further than the Eleventh Circuit in applying newly-revised Federal Rule of Civil Procedure 23(e)(2) to impose a “heightened inquiry” obligation on district courts “to scrutinize attorneys’ fees for potential collusion that shortchanges the class, even in post-class certification settlements.” Briseno v. Henderson, No. 19-56297, 2021 WL 2197968, at *6, 13 (9th Cir. June 1, 2021).

The Ninth Circuit’s Decision in Briseno

The Ninth Circuit previously held in In re Bluetooth Headset Products Liability Litigation that district courts must apply a heightened level of scrutiny to pre-certification class settlement agreements to root out “subtle signs that class counsel have allowed pursuit of their own self-interests . . . to infect the negotiations.” 654 F.3d 935, 947 (9th Cir. 2020). Those signs include (1) “when counsel receive[s] a disproportionate distribution of the settlement”; (2) “when the parties negotiate a clear sailing arrangement,’’ under which the defendant agrees not to challenge a request for an agreed-upon attorney’s fee award; and (3) when the agreement contains a kicker or reverter clause that returns unawarded fees to the defendant rather than the class funds. Id.

However, the Ninth Circuit in Bluetooth left open the question of whether such heightened scrutiny applies to post-certification class settlements. The court’s recent decision in Briseno answered that question in the affirmative, holding that “[u]nder the newly revised Rule 23(e)(2), courts should apply the Bluetooth factors even for post-class certification settlements.” Id. at *5, 6. The Ninth Circuit went on to specify that under this revised text, district courts are obligated to consider “’the terms of any proposed award of attorneys’ fees’ when determining whether ‘the relief provided for the class is adequate.’” Id. at *6 (quoting Fed. R. Civ. P. 32 (e)(2)(C)(iii)). Recognizing that its sister circuits have yet to directly address the requirements of this provision, the Ninth Circuit nonetheless held that “the plain language indicates that a court must examine whether the attorneys’ fee arrangement shortchanges the class” and “makes clear that courts must balance the ‘proposed award of attorney’s fees’ vis-à-vis the ‘relief provided for the class’ in determining whether the settlement is ‘adequate’ for class members.” Id. at *6.

Applying this heightened scrutiny to the settlement in Briseno, the Ninth Circuit found that the settlement structure prompted concerns about the amount of funds awarded to class counsel versus the class. Specifically, the court noted that where “[t]he lion’s share of the money – almost $ 7 million – will end up in the pockets of attorneys, while the class receives relative scraps, less than a million dollars,” and the injunctive relief was virtually valueless, the “gross disparity in the distribution of funds between class members and their class counsel raises an urgent red flag demanding more attention and scrutiny.” 2021 WL 2197968, at *8. The Ninth Circuit was unpersuaded by the fact that the attorneys’ fees award “amounted to less than half of [plaintiffs’ counsel’s] lodestar,” since “even attorneys’ fees based on a reasonable percentage of an unreasonable number of hours … are still unreasonable.” Id. at *8. In addition to the “gross disparity” in funds, the Ninth Circuit noted that the settlement agreement also included the other two Bluetooth red flags, and thus raised concerns of collusion that required reversal of the district court’s approval.

 In short, Briseno calls on district courts to “balance the ‘proposed award of attorney’s fees’ vis-à-vis the ‘relief provided for the class’ in determining whether the settlement is ‘adequate’ for class members,” even in post-certification class settlements and even where the attorneys’ fees are less than counsel’s lodestar amount. Id. at *6.

The Eleventh Circuit’s Decision in In Re Equifax Inc.

 In In Re Equifax Inc. Customer Data Sec. Breach Litig., the Eleventh Circuit upheld class certification, and all but one element of a classwide settlement: incentive fees for class representatives, on the basis that it has previously held that such awards are prohibited. Id., No. 20-10249, 2021 WL 2250845, at *1 (11th Cir. June 3, 2021). The district court described this settlement as “the largest and most comprehensive recovery in a data breach case in US history by several orders of magnitude.” Id. at *2. The settlement provided an initial $380.5 million into a fund to benefit the class members and to pay attorney’s fees and expenses and incentive awards, as well as notice and administration costs. Id. at *2. The terms of the settlement awarded $77.5 million in attorneys’ fees. Equifax also agreed to pay an addition $125 million, if necessary, to satisfy claims for out-of-pocket losses and potentially $2 billion more if all 147 million class members signed up for credit monitoring. Id. at *3. Notably, the settlement agreement provided that “[i]n no circumstance does money in the settlement fund revert back to Equifax.” Id.

 Despite objectors’ challenges to the $77.5 million attorneys’ fee award as unreasonable, the Eleventh Circuit affirmed the award using a “percentage method” to evaluate its reasonableness. Id. at *19. The “percentage method” stems from Eleventh Circuit precedent, and provides that attorneys’ fee awards in common fund settlements “shall be based upon a reasonable percentage of the fund established for the benefit of the class.” Id. (internal citations and quotations omitted). In applying this method, the district court found that the $77.5 million in fees was reasonable because it constituted approximately 20 percent of the common settlement fund.

Notably, the Eleventh Circuit rejected any requirement that the district court consider either the lodestar method or economies of scale – i.e., whether the percentage of attorneys’ fees should diminish as the settlement fund increases – when assessing the reasonableness of attorneys’ fees. In rejecting the economies of scale requirement, the Eleventh Circuit noted that such a factor may (1) “lack rigor because it provides no direction to courts about when to start decreasing the percentage award, nor by how much,” and (2) “create perverse incentives,” by “encourage[ing] class counsel to pursue quick settlements at sub-optimal levels.” Id. (internal citations and quotations omitted).

In short, the Eleventh Circuit upheld the attorneys’ fees awarded in the Equifax settlement because such fees constituted approximately 20 percent of the total class recovery. In so holding, the Eleventh Circuit – just like the Ninth Circuit in Briseno – rejected plaintiffs’ counsel’s lodestar amount as a controlling factor in its reasonableness analysis, and instead focused on the amount of attorneys’ fees as compared to the total relief provided for the class. While that analysis led to the rejection of the Briseno settlement due to the “gross disparity” between attorneys’ fees and class recovery, a similar analysis led to the affirmance of the Equifax settlement due to the court’s conclusion that the attorneys’ fees were proportional to the class recovery in that case.

PEOPLE: Elizabeth Avunjian

June 22, 2021 Another Vanilla Bean Lawsuit is Nipped in the Bud

By: Madeline Skitzki

VanillaOn June 14, 2021, Judge Jeffrey S. White of the Northern District of California dismissed yet another lawsuit challenging representations about vanilla on food products.  In that lawsuit—Lisa Robie v. Trader Joe’s Company, Case No. 4:20-cv-07355-JSE—the plaintiff alleged that Trader Joe’s mislabels its Almond Clusters cereal as “Vanilla Flavored With Other Natural Flavors,” when in fact (1) the cereal contains only trace amounts of real vanilla, and (2) the predominant source of the vanilla taste is from the artificial flavors vanillin and ethyl vanilla.

The court dismissed the claims on several grounds, with leave to amend. First, the court found that, to the extent the plaintiff challenged the product’s flavors—as opposed to its ingredients—as unnatural, those claims were preempted by the FDA’s flavor regulations. Second, the court found that the statutory and common law claims failed as a matter of law because the plaintiff did not plausibly allege that a reasonable consumer would interpret the “vanilla” representation to mean that the product’s flavor is derived exclusively from the vanilla plant. In so holding, the court found that the plaintiff failed to plausibly allege that the vanillin in the cereal is necessarily artificial. The court also noted that the label did not include any words or pictures suggesting the cereal’s vanilla flavor is derived exclusively from the vanilla bean or plant. And even if the label’s reference to “vanilla” would lead consumers to believe that the product contains vanilla from the vanilla plant, the court found no deception because the plaintiff conceded that the product does contain some real vanilla. The court also dismissed the plaintiff’s equitable claims because she had not alleged that she lacked an adequate remedy at law.

Other courts have recently dismissed similar lawsuits challenging vanilla representations on various products for failure to plausibly plead consumer deception. See Steele v. Wegmans Food Mkts., Inc., 472 F. Supp. 3d 47, 50 (S.D.N.Y. 2020); Pichardo v. Only What You Need, Inc., No. 20-493, 2020 WL 6323775, at *3–5 (S.D.N.Y. Oct. 27, 2020); Cosgrove v. Blue Diamond Growers, No. 19-8993, 2020 WL 7211218, at *3–5 (S.D.N.Y. Dec. 7, 2020); Barreto v. Westbrae Nat., Inc., --- F.Supp.3d ----, 2021 WL 76331, at *2–6 (S.D.N.Y. Jan. 7, 2021); Clark v. Westbrae Natural,  Inc., No. 20-3221, 2020 WL 7043879, at *2-4 (N.D. Cal. Dec. 1, 2020); Cosgrove v. Oregon Chai, Inc., No. 19-10686, 2021 WL 706227, at *12–14 (S.D.N.Y. Feb. 21, 2021).

At the same time, a handful of similar vanilla lawsuits have proceeded past the motion to dismiss stage. See Sharpe v. A&W Concentrate Co., 481 F. Supp. 3d 94, 101–04 (E.D.N.Y. 2020) (denying motion to dismiss and finding that plaintiffs “plausibly alleged that the ‘MADE WITH AGED VANILLA’ representation—prominently displayed underneath the A&W logo and on front of the bottle or box, bolded and in all capital letters—falsely implie[d] that any vanilla content derive[d] predominantly from the vanilla plant, instead of its artificial and synthetic counterpart”); Vizcarra v. Unilever United States, Inc., No. 20-2777, 2020 WL 4016810 (N.D. Cal. July 16, 2020) (in case concerning Breyers Natural Vanilla Ice Cream, denying motion to dismiss that did not challenge whether plaintiff plausibly pleaded deception); Dailey v. A&W Concentrate Co., No. 20-CV-02732-JST, 2021 WL 777114, at *1 (N.D. Cal. Feb. 16, 2021) (noting that the “case is ‘a near-duplicate’ of Sharpe” and finding “[f]or the reasons stated in Sharpe, Plaintiffs’ allegations are sufficient to withstand a motion to dismiss”). The plaintiff in Vizcarra filed a motion for class certification on June 11, 2021, which is scheduled to be heard on September 14, 2021. A denial of class certification in Vizcarra would tip the scales even further in favor of the defendants that have been prevailing in most of the vanilla cases thus far.

PEOPLE: Madeline Skitzki