Earlier this month, on November 11, 2022, a class-action complaint requesting a jury trial was filed in New York’s Northern Federal District Court against Sephora USA, Inc., on behalf of Lindsey Finster, a resident of Oneida, New York, and “others similarly situated” over confusion about products sold as “clean” under Sephora’s “Clean at Sephora” program. Alleged damages, according to this complaint, are said to exceed $5 million, including statutory and punitive damages but excluding interest and costs. The claim was filed by the plaintiff’s attorney, Spencer Sheehan of Sheehan & Associates, P.C. of Great Neck, New York.
This complaint comes on the heels of Sephora settling a customer data privacy lawsuit back in April of this year for $1.2 million, claiming that the company sold customer information without proper notice in violation of the California Consumer Privacy Act, the state’s first such enforcement under the Act, according to California State Attorney General Rob Bonta.
In the Absence of “Clean” Regulations, Retailers Have Led the Way
The “Clean at Sephora” program was launched back in June 2018 to include cosmetics, skincare, haircare, and fragrances that all uphold clean beauty standards set forth by Sephora. The products categorized as “clean” are to be free from a list of ingredients designated by the company, including sulfates SLS and SLES, parabens, formaldehyde, phthalates, mineral oils, and others. Fragrances categorized as “clean” are to be free from an even longer list of ingredients. The company has updated the program and its “free from” ingredient list several times since inception. When it first launched, the program included over 50 brands and 2,000 SKUs.
Let's be clear, the “Clean at Sephora” designation is not different from any other retailer's "clean" classification in its intent or execution. Artemis Patrick, now Sephora’s EVP and Global Chief Merchandising Officer, said at the time of the program’s launch, "the customer—like many of us—is still unclear as to what words like 'clean,' 'natural,' 'wellness,' etc. really mean. This is why we sought to bring a definition to our clients, if it’s of interest to them and a factor in their product selection.” Brands that meet the standard established by Sephora are merchandised in displays grouping clean products together and, online, products that meet the standard have a “Clean at Sephora” sticker displayed on the page. When Sephora launched the “Clean at Sephora” program, the retailer shared that it was informed by research and insights that uncovered that more than 60% of women read beauty product labels before purchase, and that 54% claimed it’s important for their skincare products to have a point of view on clean.
With the lack of regulation or a homogenous description of what constitutes a “clean” beauty product, retailers have stepped in to fill the void and capture consumer demand by establishing clean criteria and seals to designate “clean” products. The Sephora standard is just one of many retailer-led standards in the market, including those from the likes of Credo, Ulta, Target, Walmart, and Whole Foods Market. In the absence of a singular, industry-wide definition of “clean,” brands have taken to formulating and reformulating products based on retailer standards, which has helped bolster opportunities for distribution and draws a line in the sand for some rudimentary adherence to a widely accepted definition of “clean.” Like the “Clean at Sephora” program, each individual program makes their specific definition of “clean” and list of “free from” ingredients widely available to consumers on their websites and in other program marketing materials.
In addition to targeting ingredient transparency and giving consumers some frame of reference for what clean means at a particular retailer, these standards are meant to play into the beauty consumer’s increasing demand for “better for you” beauty products. In 2021, the clean beauty market was valued at $6.46 billion and is expected to reach $15.29 billion in 2028, growing at a CAGR of 13.1% from 2020 to 2027.
The Plague of “Clean” Beauty Class Actions
Class-action complaints alleging “consumer deception” as it relates to “clean” beauty claims is nothing new for the beauty industry. The backbone of the Finster v. Sephora complaint, as with many similar complaints over the last several years, seems to rely on “consumer confusion” between the “dictionary definition” of clean “as describing something free from impurities, or unnecessary and harmful components, and pure” and the very specific standards established and articulated by brands and retailers as to what “clean” means to them.
These types of class-action complaints, as is the case in the Finster v. Sephora complaint, are typically brought under violation of New York General Business Law (“GBL”) §§ 349 and 350. The first provision, GBL § 349, broadly prohibits deceptive acts or practices. A second section, GBL § 350, prohibits false advertising. According to the New York Civil Justice Institute, a nonprofit, nonpartisan research organization committed to providing objective analysis and policy recommendations for issues affecting New York’s civil justice system, “GBL § 349 is particularly attractive for plaintiffs’ lawyers. The law’s vague prohibition of deceptive practices can be used to target virtually any product, service, or activity. Courts interpret the law to not require an individual to show that a business intended to mislead consumers or even that a consumer relied on a misleading practice in deciding to purchase a product or service … a plaintiff needs to claim only that a practice is ‘likely to mislead a reasonable consumer acting reasonably under the circumstances.’ Courts have found that, except in rare circumstances, this determination requires the considerable expense of a full jury trial.”
This has made New York a popular venue for such class-action complaints. Some states actually prohibit consumer protection class-action lawsuits or, when they do, prohibit plaintiffs from collecting statutory damages. New York’s consumer protection laws, combined with its large population, makes the state very attractive for filing consumer class-action complaints with large potential jury awards (or, in many cases, large potential settlements).
Claims related to “natural,” “no preservatives,” “natural,” “pure,” or “100%” seemed to peak in 2016, according to the New York Civil Justice Institute, as brands learned to adapt their packaging and marketing to avoid such issues, but “still, this litigation made up about 10% of New York’s consumer class actions in 2020.”
While class-action complaints alleging consumer deception for “clean” claims are nothing new to the beauty industry, the size and scope of the defendant, Sephora, is a bit of an anomaly. This is because the plaintiff legal strategy that underlies these types of cases typically seeks an out-of-court settlement versus the long and expensive outcome of a full jury trial. These cases can be difficult to litigate and there’s no guarantee of a win, particularly as courts have become sensitive to the rise in “frivolous” lawsuits.
A much more lucrative strategy for plaintiff’s attorneys is to threaten litigation and a long and expensive jury trial (which has the potential to bankrupt brands and retailers without formidable financial and legal resources and also presents a brand and reputational risk) and seek a lucrative out-of-court settlement. While this strategy works very well with brands and retailers at that small-to-mid-sized sweet spot of having enough financial resources to agree to a meaningful settlement but without the resources to defend themselves in court (irrespective of whether or not they have a shot at winning the case), it’s not a sure shot with a retailer the size of Sephora.
It’s also worth noting that the plaintiff’s attorney in the Finster v. Sephora complaint, Spencer Sheehan of Sheehan and Associates, P.C., according to the New York Civil Justice Institute, “brought more than half of New York’s deceptive practices litigation in 2019 and nearly two thirds of these lawsuits in 2020.” Sheehan is one of a handful of attorneys notorious for filing these types of consumer protection cases in the New York courts. According to the New York Civil Justice Institute, “Businesses often make the judgment that it makes more financial sense to settle these cases. When there is a private settlement, the attorneys who filed the case receive several thousand dollars for their efforts and the individual class representative (the named plaintiff) gets a more modest sum. Consumers who were purportedly harmed receive no money and, at best, an insignificant change is made to the products’ labeling, packaging, or marketing.”
Why Sephora and Why Now?
Why Sephora has been singled out here is anyone’s guess. Perhaps any retailer with a similar “clean” standard should be on high alert for a wave of consumer class-action complaints potentially coming their way. The timing of this complaint might have something to do with Sephora’s $1.2 million settlement of a customer data privacy lawsuit back in April. They’ve shown a willingness to settle, so that potentially makes them a target. It’s important to note, however, that the April settlement was in direct response to a lawsuit filed in violation of an actual law, the California Consumer Privacy Act. The Finster v. Sephora complaint alleges harm in response to “clean” claims, which isn’t codified in any sort of law or regulation.
Sephora’s Pain Could Be the Beauty Industry’s Gain
The issue of problematic and costly litigation and threats of litigation as it relates to “clean” is a direct result of a lack of clear, regulatory guidance from lawmakers and other regulatory bodies. Unlike the term “organic,” which was defined in law in 1990 in the Organic Foods Production Act and is regulated by the USDA’s National Organic Program, terms like “clean” have been left without such clarity and forced brands and retailers to create their own standards and self-policing mechanisms. Let’s face the facts—beauty products require their own set of standards and guidelines. It is absolutely essential that beauty products be adequately stabilized, preserved, and delivered in a way that is safe for the consumer. This requires the use of ingredients, processes, and systems that might not and should not live up to a consumer’s own interpretation of pure or the dictionary’s definition of clean. Five ingredients mixed together from one’s organic garden that sit on a store shelf or in a warehouse for six months before reaching the consumer could never meet the beauty industry’s standards for safety. In the absence of clear regulation, we have well-established industry standards and practices and, as it relates to “clean,” we have the standards established by retailers who have taken the lead in providing a framework to give consumers a tool set for comparing products and making purchase decisions.
If Sephora were to go to court and win, the industry would also win in the sense that a line would be drawn in the sand in the form of case law, and other such programs would be better insulated from the threat of consumer complaints seeking lucrative damages and settlements. This would keep the industry where it is today in terms of its patchwork of disparate retailer clean standards, but would maintain the current level of transparency and the tool set provided by these standards to help consumers make informed decisions about beauty products.
If Sephora were to go to court and lose, we’d likely see a swift rollback of retailer “clean” standards to avoid any future litigation. In this scenario, consumers hungry for an easy way to compare products and determine whether or not a product contains an ingredient they want to avoid would be left without a tool set, and have to return to the arduous task of digging through INCI lists. This would most definitely be a loss for both the consumer and the industry but, longer term, a Sephora win or loss could potentially be a win for both the consumer and the industry if a homogenous industry standard put forth by an existing or newly established regulatory body replaces the disparate system we have today.
The absolute worst-case scenario for both the consumer and the beauty industry would be for Sephora to settle this case out of court. This will likely cause a wave of class-action litigation from emboldened attorneys and will almost certainly reduce consumer transparency and, in the worst case, put companies out of business.
