On August 15, 2018, plaintiffs filed a putative class action on behalf of advertisers who get less than they pay for when Facebook allegedly overstates its user numbers.

Facebook provides its advertisers with an approximate “Potential Reach,” an “estimation of how many people are in an ad set’s target audience.”  The lawsuit alleges that Facebook fudges the numbers.

The complaint alleges that the “purported Potential Reach among the key 18-34 year-old demographic in every state exceeds the actual population of 18-34 year olds.”  The lawsuit further alleges that Facebook also vastly overstates the number of total users.  For example, the lawsuit alleges that “Facebook asserted its Potential Reach was approximately 4 times (400%) higher than the number of real 18-34 year-olds with Facebook accounts in Chicago.”

Plaintiff Danielle Singer owns an online business that sells aromatherapy fashionwear and accessories, including scarfs, jewelry and essential oils.  She spent more than $14,000 on Facebook ads.  Her suit asserts claims on behalf of any person or entity who advertised on Facebook.com from January 1, 2013 to the present.

The complaint quotes three former Facebook employees (Confidential Witnesses 1-3) who allege that Facebook “did not give a sh—“ about the accuracy of its actual numbers, that it is only concerned that “advertising revenue not be negatively affected,” and that it had no interest in “stopping duplicate or fake accounts in calculating Potential Reach.”

The lawsuit admits Facebook’s “Potential Reach” includes a disclaimer that:

Estimates are based on the placements and targeted criteria you select and include factors like Facebook user behaviors, user demographics and location data.  They’re designed to estimate how many people in a given area could see an ad a business might run.  They’re not designed to match population or census estimates.  Numbers may vary due to performance reasons. (Emphasis in Pleading).

Citing data from the Pew Research Center, the plaintiff alleges that even this disclaimer is false, since Facebook claims to be estimating how many people “could see an ad,” but there simply aren’t that many people, much less that many Facebook users.

The lawsuit, filed in Federal Court in the Northern District of California, alleges Facebook violated California’s Unfair Competition Law and quasi contract claims, seeking restitution or disgorgement of profit.

It will be interesting to see what happens next;  whether: (a) this lawsuit quietly vanishes, with Facebook and Plaintiff/Plaintiff’s counsel reaching quick confidential resolution; (b) Facebook changes its posting regarding its Potential Reach, and/or (c) Facebook stands tall and defends its Potential Reach.

There’s been plenty of news regarding a recent trend that contract provisions precluding class actions and mandating arbitration may have hit their high water mark and appear to be receding. I recently wrote about this in an article entitled “Does the Ninth Circuit’s Ernst & Young Ruling Signal a Tipping Point; Is the Tide Turning Against Class-Action Waivers?“

In further news of this trend, the U.S. Department of Education just issued final regulations prohibiting participating schools “from using certain contractual provisions regarding dispute resolution processes, such as predispute arbitration agreements or class action waivers.”

A student/borrower seeking to avoid repaying his or her student loan “has a defense to repayment on a loan based on an act or omission of a school.” Prior to the Department of Education’s rule, such students were subject to contract provisions requiring that, even if there were thousands of similarly situated student/borrowers, each student/borrower had to arbitrate his or her dispute singly against his or her school, rather than in court or as a member of a larger class action.

College Student Class-Actions

There have been numerous student class-actions claiming that, particularly with for-profit schools, the schools have misrepresented their post-graduate placement rates ,  overcharged students for fees, and in one noted case involving one Donald J. Trump, overpromised but under delivered on revealing Mr. Trump’s secret real estate techniques as taught by Mr. Trump’s “hand picked” professors.

Affected Federal Loan Programs

The Department of Education’s rule applies to colleges or universities that participate in the Federal Perkins Loan Program, the Federal Family Educational Loan Program, the William D. Ford Federal Direct Loan Program, and the Teacher Education Assistance for College and Higher Education Grant program.

Department of Education Following in Consumer Financial Protection Bureau’s Footsteps

The Department of Education indicated that it was following the same logic as the Consumer Financial Protection Bureau’s recent decision to preclude similar provisions in consumer financial agreements. “The CFPB identified several features of class actions in the consumer financial services markets that we consider applicable to the postsecondary education market.”  (at pg. 54).

The Department of Education determined that its new rule was not preempted by the Federal Arbitration Act, (at pg. 57) finding that it “has clear authority to regulate the conduct of institutions that wish to participate in the Direct Loan Program. https://ifap.ed.gov/fregisters/attachments/FR061616BorrowerDefenseRepayment.pdf at 57.

It’s Anybody’s Guess Where the Next Assault on Class-Action Waivers/Mandatory Arbitrations Will Come From

So add student loan contracts to consumer financial contracts and employment contracts (at least in the Seventh and Ninth Circuits) to the list of contracts where class-action waivers/mandatory arbitration provisions may not be enforceable.

In the latest sequel to the ongoing legal drama, DreamWorks has agreed to pay $50 million to settle a class-action based on DreamWorks conspiring with other animation studios not to poach/hire one another’s employees.

As discussed in my prior blogs, there were two major class-actions regarding wage-fixing/anti-poaching agreements.  The first involved most of the major animation studios, including Pixar, LucasFilm, Walt Disney, Sony, Blue Sky and others.

The second class-action involved major Silicon Valley titans, like Google, Apple, Intel, Microsoft, Adobe, Oracle and Intuit. (Id.)

In both cases, defendants were alleged to have agreed not to poach one another’s employees, thereby quashing competition and keeping wages artificially low.

Most of the animation defendants agreed to pay settlements totaling $19 million when “smoking gun” emails came out which clearly showed collusion like the one from Pixar’s VP of Human Resources: “we have a gentlemen’s agreement not to directly solicit/poach from their employee pool.”

Most of the Silicon Valley defendants settled for $415 million when “smoking gun” emails came out which clearly showed collusion like a Google internal memo that we “will not pursue manager level and above candidates for Product, Sales or G&A [General and Administrative] roles –even if they have applied to Google.”

This latest DreamWorks proposed settlement is scheduled for hearing for Court approval in January 2017, leaving Disney/Pixar/LucasFilm as the last animation defendants that have not reached settlement.

I previously wrote about two wage-fixing class actions, where some of the largest high-tech and Hollywood companies conspired not to hire one another’s employees to keep wages low.  Google, Apple, Intel and Adobe attempted to settle the high-tech class action for $324 million, but the Court found the amount too low.  They ultimately settled for $415 million.

Meanwhile, the Hollywood wage-fixing case against Pixar, Dreamworks, Disney, LucasFilm and other studios continued to move towards trial when the Court denied the studios’ motion to dismiss.

Initial evidence indicated that Sony was clean; it had rebuffed the other studios’ efforts to recruit Sony into the “gentlemen’s agreement” not to hire one another’s employees. But apparently there was sufficient evidence against Sony that it decided to settle. Sony, which has given us such animated classics as the Smurf franchise, Cloudy with a Chance of Meatballs, and Hotel Transylvania, agreed to pay $13 million to settle its portion of the wage-fixing claims and further agreed to cooperate with Plaintiffs in their action against the other studios.

It will be interesting to see whether Sony’s settlement will inspire the other studio defendants to cut their losses and settle or fight on.

SNAP QUIZ-Which type of lawsuit would divide the Supreme Court Justices along the following lines?

Justices Breyer, Roberts, Scalia, Kennedy, Alito and Kagan vs. Justice Thomas, Ginsburg and Sotomayor?

If you guessed federal arbitration preemption you are a winner.

Yesterday, the Supreme Court smacked down another rogue California Court for allowing consumers to circumvent DirecTV’s service agreement.  The agreement included a black hole of an arbitration provision, specifically drafted to suck all life from any court litigation claim that ever was, is, or could be.

In DirecTV v. Imburgia the consumers’ service contract provided that “any Claim either of us asserts will be resolved only by binding arbitration” and “neither of us [most specifically you-Mr. or Ms. Consumer] shall be entitled to join or consolidate claims in arbitration.”  However, the contract provided that “if the law of your state” makes the waiver of class arbitration unenforceable, then the entire arbitration provision “is unenforceable.”  But, and it’s a really big but, “the arbitration provision shall be governed by the Federal Arbitration Act.”

The consumers filed a putative class action in California state court, DirecTV sought to enforce the arbitration provision, the trial court refused, DirecTV appealed and the Court of Appeal affirmed, mis-remembering that, while in olden times [pre 2011] California law forbade class-action waivers like the one at issue, the US Supreme Court gutted that law in AT&T v. Concepcion, holding that the Federal Arbitration Act preempts and invalidates such laws.

The California Court of Appeal decided that by including the “if the law of your state” provision, DirecTV and the consumers [really just DirecTV, the consumers had nothing to do with drafting the contract] intended the specific language to trump the general provision, i.e. “the arbitration provision shall be governed by the Federal Arbitration Act. Following the canons of contract interpretation, the Court also found an ambiguity and interpreted it against the drafter, DirecTV.

Justice Breyer, writing for the majority, basically wrote what part of ‘NO’ don’t you understand?: “The Federal Arbitration Act is a law of the United States, and Concepcion is an authoritative interpretation of that Act.  Consequently, the judges of every State must follow it.”

In a bit of snark, Justice Breyer wrote that the parties to the contract could have decided to “have portions of their contract governed by the law of Tibet, the law of pre-revolutionary Russia or (as is relevant here) the law of California including the [prior anti-class action waiver law]….”  But the contract’s reference to “the law of your state” can only mean the valid law of your state and not the law of your state before the US Supreme Court trumped California’s quaint and antiquated laws that allowed consumers to band together in class-actions.

Justice Thomas dissented that the Federal Arbitration Act does not apply to state court proceedings. Justice Ginsburg, joined by Justice Sotomayor dissented, attempting to give the “customer, not the drafter [DirecTV], the benefit of the doubt.”  She noted that the DirecTV litigation was three years old when the US Supreme Court issued the Concepcion decision, and thus when the contract was formed “the law of your state,” at least in California, rendered DirecTV’s arbitration provision unenforceable.  Calling DirecTV’s service contract a “take-it-or-leave-it contract,” Justice Ginsburg bemoaned the societal costs of decisions like Concepcion which, she noted, “predictably resulted in the deprivation of consumers’ rights to seek redress for losses, and, turning the coin, they have insulated powerful economic interests from liability for violations of consumer protection laws.”

And the California Supreme Court said “Let there be more litigation” and there was more litigation.

This week, the California Supreme Court held that private citizens (i.e. class action plaintiffs’ attorneys) can bring state court actions against produce companies that falsely label their products “organic.”

The Plaintiff in this case alleged that she paid a premium for Defendant Herb Thyme’s “Fresh Organic,” believing they were in fact 100 percent organic. She was vexed to discover that Herb Thyme allegedly blends its organic produce with non-organic produce, selling it under the “Fresh Organic” label.  She filed a putative class action for violation of California’s Consumer Legal Remedies Act, unfair competition law and false advertising.

Defendant Herb Thyme argued that the federal  Organic Foods Production Act of 1990 (OFPA) vests the USDA with “exclusive authority to regulate the labeling and marketing of organic products and both expressly and implicitly preempts state truth-in-advertising requirements.”  The trial court agreed with Herb Thyme’s arguments and dismissed the case.  The intermediate Court of Appeal agreed that OFPA implicitly preempted state law claims, but disagreed that it did so explicitly.

But the California Supreme Court reversed, finding that OFPA neither expressly nor implicitly preempts state court actions.  The Court noted that while OPFA preempts states from creating alternative: (A) definitions for the term “Organic,” and (B) certification processes that growers must meet to qualify as “Organic,”   OPFA does not preempt state court actions like the one against Herb Thyme.  The Court noted that OPFA permitted states to enact more stringent standards regarding organic production and that other courts, including the Eighth Circuit, had also found that OPFA did not preempt state court actions.

So, we can add state litigation regarding the term “organic” to the virtual smorgasbord (check out the U.S. Chamber report “The New Lawsuit Ecosystem,” p.88) of food labeling litigation buzz words like “natural,” “hand-crafted,” “healthy,” “all-natural,” “whole-grain,” “lite,” “pure,” and “100%.”

Last week the Seventh Circuit’s decision in Lewis v. Epic Systems Corporation, invalidated employment contract provisions requiring employees to arbitrate employment disputes and precluding them from bringing class-actions.

The Seventh Circuit found such provisions violate the National Labor Relations Act.   This decision contradicts decisions by the Second, Fifth, Eighth, Ninth and Eleventh Circuits. which have upheld such provisions.  But those decisions rested at least partially on the Supreme Court’s 2011  AT&T Mobility LLC v. Concepcion decision, which upheld contract provisions requiring arbitration and precluding consumer class-actions.

The Concepcion decision was five to four, with the late Justice Scalia writing the majority opinion for the conservative block of the Court.  With Justice Scalia’s passing, Supreme Court observers are questioning whether a reconstituted Court might scale back or even reconsider the Concepcion decision.    The battle over mandatory arbitration and class-actions waivers must also be viewed in the wider context of the Consumer Financial Protection Bureau’s recent proposed rule prohibiting such provisions in financial services contracts and House Republican’s efforts to quash the rule and reign in the agency.

The Seventh Circuit’s decision sets the stage for a potential showdown regarding whether and when such provisions are enforceable, but in the meantime, employers should continue to include and enforce such provisions.