DISH

Classless Actions

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Following a spirited debate in 2004, the ERA Board of Directors voted to establish the Electronic Retailing Self-Regulation Program (ERSP). In the end, the majority felt it would be better for the industry to police itself in tandem with government regulators, rather than the alternative, which would likely invite heightened scrutiny. A decade and hundreds of reviewed cases later, the program is generally regarded as a success, though it is not without unintended consequences. Simply put, a form of ambulance-chasing has developed, whereby ERSP decisions are used as the basis for class action lawsuits aimed at harassing marketers and forcing settlements of the low-hanging, rotten-fruit variety.

 

To understand how we got here, let’s review how ERSP works. Essentially, anyone who believes a marketer is making deceptive claims can submit a complaint to ERSP anonymously. And “anyone” means anyone—consumer or competitor. It’s a stipulation essential to creating as nonpartisan and objective a system as possible. In fact, if ERSP staffers notice something they deem particularly egregious, they can initiate a review themselves.

 

ERSP then reviews the advertising in question, and—if it deems that certain claims need additional substantiation—requests that the advertiser provide it. After reviewing the evidence, ERSP publishes a ruling that gives the marketer’s claims a clean bill of health, or recommends changes the marketer can address voluntarily in order to achieve compliance. If a marketer refuses to cooperate, the case can be turned over to the Federal Trade Commission (FTC) for further review.

 

Working together, direct marketers and their supply-chain partners can help discourage nuisance claims in the future.

 

Enter class action attorneys who are looking for easy pickings. As Ed Glynn, a partner in the Washington, D.C., office of Edwards Wildman and the current chairman of the ERA Government Affairs Committee, says, “Class action attorneys are looking for cases that are easy and don’t take a lot of effort.” In the case of an ERSP ruling, much of the legwork for legal action has already been gathered because the marketer has attempted to substantiate its claims in writing to the self-regulatory body. Therefore, all a tort attorney has to do is serve a discovery request demanding to review the information that the marketer provided to ERSP, which the attorney can then use as a basis to mount a class action lawsuit. In such instances, it is often easier for the marketer to settle the matter by writing a check to avoid prolonged and costly litigation. The marketer gets played, and the litigator gets paid.

 

While this sort of class action litigation impacts so-called traditional advertisers as well, this outcome was not the intention of the ERA Board when it established ERSP. The idea that a program intended to protect the overall industry through self-regulation could potentially be used as a bully pulpit to exploit its members is hardly anyone’s idea of fairness. But there is hope. In recent rulings in California and New Jersey, state courts have ruled that in order to state a cause of action under the Unfair Deceptive Active Practices laws, the litigator bringing a class action lawsuit has to prove not just that the claim was unsubstantiated, but also patently false.

 

When ERSP turns a case over to the FTC, the federal regulatory body requires that claims be substantiated, which means a marketer must have evidence in its possession that the claim is true at the time it makes it. “When the FTC settles with a marketer due to unsubstantiated claims, it isn’t saying that what the advertising claims is false, it is saying that the marketer did not have the level of substantiation it should have had,” Glynn says. Under the recent state rulings referenced above, litigators can’t use an FTC settlement as evidence that what the defendant was doing is wrong because it’s hearsay. In other words, the judges in these cases have ruled that private plaintiffs have to meet a tougher, higher standard than the FTC. And that means the ambulance-chasers are going to have to huff and puff harder to get their ill-gotten gains.

 

So where do we go from here? ERA and its members must be alert for opportunities to assist courts in other states in following this promising trend. ERSP will conduct a half-day workshop on Tuesday, May 20,2014, during the ERA Government Affairs Fly-In scheduled for May 20–21 in Washington, D.C. Both events are ideal opportunities to continue the dialogue and build an industry plan of action.

 

As someone who has been a member of ERA since its inception, I’ve learned that if you’re waiting around for someone else to be what Gandhi called “the change you seek,” you could be in for a long, frustrating haul. But I’ve also discovered that when like minds in the industry collaborate, virtually anything is possible. Working together, direct marketers and their supply-chain partners can help to substantiate this claim—and hopefully discourage nuisance claims in the future.

 

 

Rick Petry is a freelance writer who specializes in direct marketing and is a past chairman of ERA. He can be reached at (503) 740-9065 or online at rickpetry.com and @thepetrydish on Twitter.