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Defending Consumer Class Actions Based on Allegedly Deceptive Cosmetic Labeling

Thursday, March 7, 2013
By Thomas J. Sullivan and Kristin M. Hadgis, Morgan Lewis & Bockius

The cosmetic industry has experienced rapid growth in recent years. Promises of younger looking skin, smoother hair, and whiter teeth are advertised extensively on television and in magazines. In 2011, sales of skin care products in the United States reached $10.3 billion, amounting to a 3.6 percent increase over 2010, and an 11 percent increase over 2006.1 Sales of anti-aging products in particular reached almost $2.9 billion, rising by 6.9 percent in 2011.2 The latest target audience is men. According to one source, sales of men's grooming products by American consumers reached $4.8 billion in 2009, a $2.4 billion increase from 1997.3 Sales of men's skincare products, including facial cleansers, moisturizers, and exfoliants hit $217 million in 2009.4

But the marketing of these products has not resulted in just a beauty trend. Recently, the FDA has taken an active interest in certain marketing claims in the cosmetics industry. Plaintiffs' class action lawyers in particular have taken notice, and they are using state consumer protection laws as vehicles to attack cosmetic labeling and marketing.

The cosmetic industry may be experiencing the start of a trend that has impacted companies in other industries. Numerous class actions have been brought against the food industry, for example, alleging that food labels are deceptive. In recent years, food manufacturers also have faced an onslaught of putative class actions challenging product labeling and advertising as violating state consumer fraud statutes.

Plaintiffs' class action lawyers now seem to have an appetite for consumer fraud class action based on alleged deceptive statements in connection with the marketing of cosmetics. For example, complaints recently have been filed against manufacturers of hair care treatment that manages frizzy hair with no lasting effects, and soap manufacturers because the pheremones that are in the soap allegedly do not attract women as advertised.

More recently, Neutrogena Corporation has been defending a class action brought under California's unfair competition and false advertising laws alleging that its anti-wrinkle cream which Neutrogena claims is “clinically proven” to make users appear younger by quickly preventing and repairing wrinkles are false and deceptive, and the plaintiff saw none of the advertised benefits after proper use of the product.5 And, cosmetic company Coty Inc. was hit with a class action alleging that it falsely claimed that its Rimmel London Lash Accelerator Mascara enhances eyelash growth.6

Although there are notable differences between the laws and regulations governing food and cosmetics, cosmetic companies can benefit from lessons learned from the food industry's experience with consumer fraud class actions, particularly with respect to which defenses are easily transferable to consumer fraud class actions challenging cosmetic labeling. This article provides an overview of FDA regulations on cosmetics and aspects of state consumer fraud statutes, as well as recommendations for cosmetic companies to mitigate the risks of consumer fraud class actions, including defenses to be considered in light of their success in the food industry.

Overview of
FDA's Regulation of Cosmetics

Cosmetics are the least regulated of all the products subject to the Federal Food, Drug and Cosmetic Act (“FDCA”).7 Under the FDCA, cosmetics are defined as “(1) articles intended to be rubbed, poured, sprinkled, or sprayed on, introduced into, or otherwise applied to the human body or any part thereof for cleansing, beautifying, promoting attractiveness, or altering the appearance, and (2) articles intended for use as a component of any such articles; except that such term shall not include soap.”8 This definition includes moisturizers, perfumes, lipsticks, fingernail polishes, eye and facial makeup preparations, cleansing shampoos, permanent waves, hair colors and deodorants, as well as any substance intended for use as a component of a cosmetic product.9 Soap is not included in the definition of a cosmetic and is regulated under different rules.10

The Food and Drug Administration's (“FDA”) control of cosmetics is limited to the statutory prohibitions on adulteration and misbranding. A cosmetic product must not be introduced into interstate commerce if it is adulterated or misbranded in any way. “Interstate commerce” applies to all steps in a product's manufacture, packaging and distribution.11 Adulteration includes bearing a poisonous substance, consisting in whole or in part of any filthy, putrid or decomposed substance, or being packed or prepared in a way that it could become contaminated with filth.12 Misbranding of cosmetics includes false or misleading information or packaging, failure to follow labeling laws, or poor readability of required information.13

A cosmetic is subject to additional regulation where it also falls within the definition of a “drug.” The intended use of a product determines whether it is regulated as a cosmetic or a drug under the FDCA. Drugs are intended for use in the diagnosis, cure, mitigation, treatment or prevention of disease” and are “articles (other than food) intended to affect the structure or any function of the body of man or other animals.”14 For example, antidandruff treatment, toothpaste with fluoride and moisturizers with SPF are cosmetics and drugs and therefore must comply with FDA guidelines pertaining to both.15

A. Cosmetics Often Less Stringently Regulated
Under FDCA Than Certain Other Products

The regulatory requirements for cosmetics are far less extensive than the regulatory requirements applicable to food and drugs. For example, the FDCA provides that drug manufacturers must register every year with the FDA and update their lists of manufactured drugs twice annually.16 In addition, drugs must be manufactured in accordance with good manufacturing practice regulations.17

Where a cosmetic product is not also a drug, it does not need to be approved by the FDA before it goes to market, with the exception of cosmetic products containing certain color additives. Drugs, however, must obtain pre-market approval through the new drug application (NDA) process or conform to a “monograph” for a particular drug category, as established by FDA's over-the-counter (OTC) drug review.18

On the other hand, the FDCA does not require cosmetic manufacturers to test cosmetic products for safety (although the FDA “strongly urges” cosmetic manufacturers to conduct toxicology or other tests to substantiate the safety of cosmetics because a product may be considered misbranded if it lacks a label bearing a statement that “Warning—The safety of this product has not been determined.”)19 With certain limited exceptions, a cosmetic manufacturer may use any raw material as a cosmetic ingredient and market the cosmetic product without approval.20

Plaintiffs' class action lawyers have recognized opportunities against this regulatory backdrop. Many cases against the companies in the industry involve claims that the labels on the products are deceptive and/or misleading under some state's consumer protection laws. Often, such cases follow closely on the heels of a warning letter.

B. FDA Flexing Muscles With Warning Letters

The FDA has the power to take regulatory action if it finds a cosmetic is adulterated or misbranded. Any false or misleading statements on the label of a cosmetic or the failure to comply with the labeling regulations may expose the manufacturer to liability for false advertising and any number of FDA enforcement actions.21 The FDA may request a federal district court to issue a restraining order against the manufacturer or distributor, seize the cosmetics, or initiate criminal charges against a person violating the law.22

Further, no cosmetic may be labeled or advertised with statements suggesting that the FDA has approved the product. The label must display the nature and use of the product, and a statement about the product’s quantity of contents.23 A cosmetic firm does not have to test the safety of any of its ingredients if it displays a warning on the product, disclosing its untested status.24

There is no private cause of action under the FDCA.25 Thus, plaintiffs cannot sue a cosmetic company alleging that its products are misbranded or fail to comply with the FDA’s statutes or regulations. Accordingly, plaintiffs have turned to state consumer fraud statutes to challenge cosmetic labeling and advertising. As discussed below, these laws typically prohibit deceptive or misleading trade practices in connection with the sale or advertising of consumer goods.

The FDA is increasingly exercising its enforcement power over cosmetics with respect to the issuance of warning letters, in particular. In 2012 alone, the FDA has issued eight letters to cosmetic companies warning of possible FDCA violations, after issuing only a handful between 2004–2011 and none in 2008, 2009 or 2010. These publicly available warning letters have proven dangerous for manufacturers because they are often followed by “piggyback” putative class actions on labeling and advertising.

This has been a common pattern in the food industry. For example, plaintiffs filed class actions against Coca-Cola and Kellogg asserting consumer fraud claims based on the very same labeling and marketing issues in the FDA warning letter.26

Cosmetic companies have not been immune from this trend. For example, on September 7, 2012, the FDA issued a warning letter against L’Oreal and Lancôme stating that the companies’ claims on its website concerning its Genefique products “appear to be promoted for uses that cause these products to be drugs” under the FDCA.27 Because the products “are not generally recognized among qualified experts as safe and effective,” the products are considered “new drugs” that cannot be legally marketed without prior approval from the FDA.28

It took only two weeks for a putative class action to be filed against L’Oreal and Lancôme asserting consumer fraud claims concerning the very same products and the very same representations.29 The Nino complaint extensively quotes from the FDA warning letter as support for the allegation that “there is no genuine scientific research”and “no scientifically reliable studies” to support the companies’ “extraordinary claims.”30

Similarly, Avon, who received an FDA warning letter relating to its marketing of its “Anew” anti-wrinkle product line, was hit with a piggyback consumer class action 18 days after it received a warning letter concerning the same products and same marketing activity addressed in the letter.31 Cosmetic companies that receive a FDA warning letter should prepare for the very real possibility that a piggyback consumer class action will follow.

Overview of DTPA Statutes

Class action plaintiffs have turned to state consumer fraud statutes, also known as Deceptive or Unfair Trade Practices Acts (collectively “DTPA”), as the preferred vehicle to attack cosmetic labeling and marketing as deceptive or misleading. All states have a DTPA, which protects consumers from unfair or deceptive acts or practices by businesses.32 These DTPA statutes may appeal to plaintiffs because (1) depending upon the state, individual causation or reliance may not be required; (2) they have loose requirements for statutory standing; and (3) many permit recovery of attorneys’ fees and in some cases treble damages. Because plaintiffs cannot bring a private cause of action to enforce the FDCA, they have turned to state DTPA statutes to assert class actions against the food and cosmetic industry.

A typical DTPA has various components such as penalties, causation, actual harm, and reliance. The contours of each of these requirements vary slightly based on the state.

A. Plaintiffs May Not Have to Prove Reliance

Many state DTPAs do not require plaintiffs to prove reliance on a defendant’s unfair or deceptive practice, meaning that a plaintiff does not have to show that he or she specifically relied on a defendant’s representations.33 This requirement is related to, but distinct from, causation. In Florida, for example, a party bringing a claim under the state’s DTPA (including named class plaintiffs) does not have to demonstrate reliance because “the question is not whether the plaintiff actually relied on the alleged deceptive trade practice, but whether the practice was likely to deceive a consumer acting reasonably in the same circumstances.”34

By contrast, California requires a showing of reliance by a named plaintiff in a class action.35 Just this year, however, the Ninth Circuit Court of Appeals was unwilling to presume reliance for an entire class where a named plaintiff allegedly relied on alleged deceptive statements.36 Thus, while actual reliance continues to be a requirement in California, courts may not always have been willing to infer reliance on a classwide basis.

Moreover, states such as Pennsylvania do not require actual reliance, but rather justifiable reliance.37 Different from actual reliance, justifiable reliance requires that “reliance upon the representation of another … be reasonable,” in situations where the “means of obtaining the information in question [are] not equal,” and the representations are made by “the person believed to possess superior information.”38 Though Massachusetts’ courts have not used the “justifiable reliance”terminology in the context of deceptive trade claims, a plaintiff asserting claims under the state’s deceptive trade practices act must similarly prove that “[his] reliance on the allegedly false statements was reasonable.”39

B. Standing Requirements Vary Among DTPAs

Consumer fraud class actions may be attractive to plaintiffs because of the loose requirements to satisfy statutory standing. DTPA statutes typically require that the deception alleged must have occurred in the state where the plaintiff is bringing the action under the DTPA.40 Some states, like California, have determined that only class representatives must meet standing requirements of injury and causation.41

C. Plaintiffs Must Establish Materiality, Causation

Most state DTPAs require the plaintiff to demonstrate causation, specifically that the plaintiff must prove that the defendant’s unfair or deceptive practice caused the plaintiff some type of harm or loss. Courts distinguish between causation and reliance.42 Other states, including California and Florida, require a plaintiff to prove causation only if that plaintiff is seeking monetary relief. Courts in these states require a plaintiff to show that a defendant’s actions caused them harm in order to receive damages.43 Moreover, DTPA statutes typically require that the deceptive act must be material. In New York, for example, a plaintiff must plead that the defendant engaged “in an act or practice that is deceptive or misleading in a material way …to a reasonable consumer.”44

D. DTPAs Often Provide for Potentially
Significant Penalties and Damages

Most DTPAs provide a successful plaintiff with some combination of equitable and monetary relief. Equitable relief generally involves an injunction designed to put an end to the deceptive act or practice. California and New York allow either an individual or an attorney general to bring an injunctive relief action.45 In addition to injunctive relief, some states, like Florida, also permit actions for declaratory relief.46

Some state DTPAs allow for potentially significant financial recovery. In addition, several state DTPAs provide for punitive and treble damages. California has capped its damages at $2,500 per violation, and such damages are not available in private actions.47 Illinois allows punitive damages, but requires a showing that the defendant acted maliciously or with a reckless disregard of others’ rights.48

In contrast, restitution is the primary form of monetary relief in California because damages are not allowed in private actions.49 On the other hand, in New York, restitution is available only if the attorney general brings the action.50

E. A Preemption Defense Is Generally
Not Available to Cosmetic Companies

The FDCA specifically provides for preemption of state law claims concerning “the labeling or packaging of a cosmetic that is different from or in addition to, or that is otherwise not identical with, a requirement specifically applicable to a particular cosmetic or class of cosmetics” regulated by the FDCA.51 In practice, however, this defense may be more challenging for cosmetic manufacturers than manufacturers of other FDA regulated products because: (1) there is no law or regulation specifically governing the content of a cosmetic’s label52 and; (2) there is no preapproval process for cosmetics whereby the FDA specifically approves the language contained in the cosmetic product’s label and packaging. There has yet to be a case in which a cosmetic manufacturer has succeeded on a preemption defense.53

For example, the preemption defense was recently rejected in Feinberg v. Colgate-Palmolive Co.54

In Feinberg, the plaintiff claimed that the defendant failed to adequately warn of the hazards associated with asbestos on its label for its talcum powder product. The defendant moved to dismiss the complaint on preemption grounds, citing to 21 U.S.C. §379s(a). The court rejected the preemption argument holding that the plaintiff’s common law claim was not expressly preempted by §379s(a) because “there is nothing to show that the FDA ever issued a formal, binding regulation regarding the content labeling of cosmetic talc products. Absent this critical component, there is no preemption.55 Because there is “no published requirements specifically applicable to cosmetic talc, preemption is not triggered.”56

The court noted that “[w]hat is important for purposes of this motion is that the FDA had not implemented any labeling requirement for cosmetic talcs and had not made an informed choice whether to implement any labeling requirement for cosmetic talcs during the relevant time period.”57 The court also declined to adopt an implied preemption argument, and distinguished the preemption cases in the pharmaceutical and food industry because unlike the food cases, “there is no competing federal requirement” for cosmetics.58

Risk Mitigation Strategies

The following section provides suggestions for cosmetic companies to mitigate the risk of a consumer fraud class action and evaluates defenses to defeat such actions in light of their relative success in the food and cosmetic industry to date.

A. Smart Labeling and Marketing Decisions

First and foremost, cosmetic companies should be vigilant in product labeling and marketing. Because the FDA determines whether a product is a cosmetic or a drug based on use, companies may want to consider whether their products “affect the structure or any function of the human body” because the product could be considered a “drug”under §201(g) of the FDCA. In such a case, a cosmetic company may be at risk of a letter from the FDA warning that such a product has not been approved as safe and effective and has not been subjected to the preapproval process. The most recent warning letters issued to cosmetic companies, for example, have tended to focus on anti-aging products where companies promise that skin can be transformed or improved. See, e.g., FDA Warning Letters to L’Oreal and Avon. Plaintiffs’ class action lawyers carefully track FDA warning letters and use them as a tool to try to attack cosmetic companies.

B. Initial Procedural Considerations

When faced with a consumer fraud class action in state court, cosmetic companies should consider removal to federal court under the Class Action Fairness Act (CAFA), 28 U.S.C. §1332(d), or Grable & Sons Metal Prods., Inc. v. Darue Engineering & Manufacturing.59 CAFA was enacted to allow a greater number of large, interstate class actions to be heard in federal court where Congress believed that they would be subject to procedures that would better protect the rights of both defendants and consumers.

CAFA primarily expands federal diversity jurisdiction, which, with a few narrow exceptions, confers federal jurisdiction over a class action if: (a) the claims of all plaintiffs exceed $5,000,000 and (b) at least one member of the class is diverse from at least one defendant.60 Similarly, cosmetic companies should consider removal where federal question jurisdiction exists under Grable, a case in which the Supreme Court recognized that, even when a complaint asserts only state law causes of action, the resolution of such claims may involve “disputed and substantial” issues of federal law, and therefore satisfy the requirements for federal question jurisdiction.61 Cosmetic companies should strongly consider these favorable procedural devices to get into federal court.

C. Challenge State and Constitutional
Standing When Appropriate

Cosmetic companies have had success challenging standing in consumer fraud class actions. Companies should focus on whether plaintiff actually purchased and/or used the product at issue to determine whether he or she is a “consumer” under a particular state’s DTPA.62 Many state DTPAs allow only three persons who have engaged in a transaction within the state to pursue a claim.63 While the statutory standing requirement may be interpreted differently in some states, a plaintiff is not relieved of satisfying Article III standing in federal court and must allege a concrete, actual injury-in-fact. Accordingly, cosmetic companies facing consumer fraud class actions can and should challenge standing, particularly where the face of the complaint reveals that plaintiffs have not suffered an injury and instead allege a “risk of harm” or economic harm.

D. Attack Allegations: Twombly/Iqbal, Rule 9(b)

At the pleadings stage, an efficient and effective defense to consumer fraud class actions, which has been successful in the food industry, is a motion to dismiss for failure to state a claim under Bell Atlantic Corp. v. Twombly64 and Ashcroft v. Iqbal.65 To date, at least one court has dismissed a class action complaint claiming that a cosmetic label was misleading.66

Cosmetic companies have had better luck obtaining dismissal of class consumer fraud claims for failure to plead a claim with the required particularity pursuant to Federal Rule of Civil Procedure 9(b).67

Cosmetic companies, therefore, should consider attacking allegations in class complaints on Rule 9(b) grounds, particularly where the complaints are vague concerning the products purchased and contain conclusory statements about alleged affirmative misrepresentations or omissions concerning the products.

E. Defending Against the Class Action Allegations

Finally, when faced with a putative nationwide consumer fraud class action, cosmetic companies should consider filing a motion to strike the required elements for a class action under Federal Rule of Civil Procedure 23(b).68 Such motions have been especially effective when plaintiffs allege putative nationwide class actions that are almost always unmanageable under Rule 23 due to variations in the 50 states’ laws.

In particular, cosmetic companies should challenge commonality under Wal-Mart Stores, Inc. v. Dukes.69 It is clear that merely identifying common questions is not enough to certify a class, but those questions must be capable of classwide resolution.70 Defendants should also be prepared to argue that individual issues predominate over common questions, arguing that individual differences in each consumers’ experiences with the cosmetic product preclude the court from finding commonality. In this regard, it is critical to develop a cost efficient but comprehensive discovery plan that is designed to develop evidence to knock out the named plaintiff’s case on summary judgment or defend the class certification motion. Among other things, such discovery should focus on reliance issues, whether plaintiff still uses the product, and the reasons the customer purchased the product.

Conclusion

Cosmetic companies are under increasing scrutiny from the FDA, and not surprisingly like the food industry before it, are facing piggyback consumer fraud class actions challenging cosmetic labeling and marketing. Compared to drugs and food, cosmetics are not as extensively regulated by FDA, which may present difficulty for cosmetic companies defending such class actions.

Cosmetic companies can greatly benefit from the “lessons learned”from the food industry, but without a meaningful preemption defense—a crucial weapon in the food industry—cosmetic companies may face a more difficult road in defending such cases. This dynamic makes other defense strategies especially important.

Because cosmetic labeling is now under a regulatory microscope (and therefore the target of consumer class actions), cosmetic companies must continue to be vigilant in evaluating their labeling, advertisements and website to ensure that any representations will not later form the basis for an FDA enforcement action or a consumer fraud class action.

Thomas J. Sullivan is a partner at Morgan Lewis & Bockius and a member of the firm’s Class Action Steering Committee and Class Action Working Group. Kristin M. Hadgis is an associate and works on class action matters. Ayana S. Boswell assisted with research for this article. The authors can be reached at tsullivan@morganlewis.com and khadgis@morganlewis.com, respectively.

© 2013 Morgan, Lewis & Bockius LLP

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