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NAD Attempts To Deter Copy-Cat Class Actions

February 20, 2013

Behnam Dayanim

Our Conclusion: A Work In Progress

Loyal readers of our blog’s prior incarnation may recall that my colleague Lily Woodland and I

about a growing relationship between decisions issued by the nationally regarded, voluntary dispute resolution forum overseen by the Advertising Self-Regulatory Council – the National Advertising Division (“NAD”) – and subsequent “piggyback” consumer class actions.

At the time, we noted a series of putative class actions in which enterprising plaintiffs’ attorneys had largely cribbed their complaints from the pages of a NAD decision. Examples included claims involving Eclipse gum, Yoplait yogurt and SunnyD orange juice drink. Since that time, the trend has accelerated, with complaints against the manufacturers of Frontline Plus flea and tick products, ACT Total Care mouthwash, Preston De-Icer Windshield Washing Fluid, Crest Sensitivity Treatment & Protection toothpaste, Neutrogena Rapid Wrinkle Repair and GravityDefyer-branded footwear, among others, all drawing heavily upon prior NAD decisions.

How is this happening? In part, plaintiff attorneys are drawing on the ever-increasing level of detail and analysis in most NAD decisions. We noted in our earlier article the “double-edged” nature of this phenomenon. On the one hand, the well-reasoned decisions give companies a much-needed foundation for crafting future advertising campaigns and making necessary modifications to existing claims. On the other hand, one of the primary benefits of participating in the NAD forum is that it avoids costly litigation, time-intensive discovery and substantial publicity. That benefit seems much less consequential if the advertiser subsequently must defend the same claims in a consumer putative class action.

We posited our own suggestions of how NAD could forestall the avalanche of copy-cat suits in our prior article and write again today to note a recent change in the

apparently intended to address this very concern. Those procedures, which govern NAD disputes, now expressly provide that NAD decisions “do[ ] not constitute a finding that the law has been violated. An advertiser’s voluntary participation in the self-regulatory process is not an admission and shall not be interpreted to constitute an admission by the advertiser or a finding that the law has been violated.”

According to an interview with Lee Peeler described in

, the “change was prompted in part by the recent rise of ‘piggyback’ class action lawsuits filed based on NAD decisions.”

The change is clearly a step in the right direction. Brandishing an adverse NAD decision in front of a jury is a key tactic for plaintiff attorneys. An express disavowal by NAD of any intent to adjudicate violations of law may convince some judges to bar mention of those decisions. (Along those lines, it will be interesting to read how NAD frames its conclusions in its future rulings.)

Nonetheless, the procedures do not – and cannot – prevent a plaintiff from invoking NAD decisions with a judge, in initially framing a case. In that setting, a negative NAD decision can prove a powerful tool in convincing a judge not to dismiss an action – that plaintiff’s claim has some merit – and to allow discovery to proceed.

Moreover, the NAD’s change will not address perhaps the biggest problem – namely, that the decision itself highlights claims that are potentially viable targets for challenge and, because of the detail in NAD’s decisions, lays out a roadmap for a plaintiff to follow. How to deal with that issue remains unclear.

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