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NAD Decisions Become Fodder for Class-Action Lawyers

Though Meant to Fend Off Costly Litigation, Some Cases Are Leading to It

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Rulings about disputed ads from the Council of Better Business Bureaus' National Advertising Division traditionally haven't generated much fuss. They don't carry fines and often deal with ads that have completed their runs.

But some of its rulings now appear to be playing a vital role in spawning class-action lawsuits.

Recent NAD decisions faulting claims by Procter & Gamble's Crest Sensitivity toothpaste and Johnson & Johnson's Neutrogena Rapid Wrinkle Repair cream have been cited by plaintiffs' attorneys in three recent federal lawsuits—two against P&G, one against J&J. (The two companies have said their ad claims were adequately supported, both before the NAD and in answers to the lawsuits.)

In the past two months, attorneys have cited NAD decisions in federal suits concerning POM Wonderful juice ad claims and a California chef who said that his foie gras was sourced "humanely."

While those two cases cited 3- to 5-year-old decisions, NAD's findings against P&G and J&J made their way into class-action complaints within one to two months.

NAD decisions have contributed to lawsuits in the past, but rarely, Lawrence Weinstein, a lawyer with Proskauer Rose in New York, wrote on the InsideCounsel blog. He called the Crest suit one of the top-five developments in advertising law last year and the potential start of a disturbing trend.

That NAD, established in 1971 as an industry self-regulatory body to help avert litigation, has become a tool for plaintiffs' attorneys is something the organization also finds troubling.

Class-action lawyers have historically focused on "big consumer concerns, like big tobacco, phen phen, asbestos, cleaning up the Gulf after the oil spill," said NAD Director Andrea Levine. "It's unfortunate that enough of the class-action bar is looking for cases that they would be moving into advertising. ... Then the class action isn't about fixing the advertising or protecting the public, but because there are so many sales and so many consumers that there's money there."

She said that she's concerned the threat of class-action litigation may discourage advertisers from participating in NAD cases. "That's a terrible thing for consumers, because they won't have the benefit of having the advertising affected," she said. "I'm hoping it's not lucrative enough [for plaintiffs' attorneys] to encourage it to go a lot further."

NAD findings are turning up in false-advertising class-action suits for reasons other than the overall increase in such litigation.

One reason is that its published decisions have become far more detailed over the past decade. The one- or two-page rulings of the 1990s can now be 15 pages or more, and often include descriptions of research and contrary research, or critical evaluations by NAD staff and outside experts.

Two U.S. Supreme Court rulings last year also likely played a role. They made it harder for class actions based on limited evidence to survive motions for early dismissal. Evidence presented in NAD proceedings can help plaintiffs leap the initial hurdle in false-advertising suits and make it to discovery, where they can subpoena records and try for more lucrative settlements, said Chris Cole, a lawyer with Manatt Phelps & Phillips in Washington.

Some advertisers may push to settle before going to NAD or try private arbitration, which won't generate records readily available to plaintiffs' attorneys, Mr. Cole said.

Challengers brought fewer cases to NAD last year—only 60, vs. 85 in 2010. Ms. Levine said the higher number may be attributable to the more-aggressive comparative-advertising claims and challenges resulting from the recession.

When competitive challenges decline, NAD staff step up self-initiated cases based on their own monitoring, Ms. Levine said. That was the case with an ad for Cover Girl mascara, which she spotted in an issue of People magazine (P&G pulled the ad after a NAD challenge that it had digitally enhanced Taylor Swift's eyelashes.)

"We definitely are starting to bring in more cosmetic companies," Ms. Levine said. That industry has "been very poor at challenging one another's claims."

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