POM Finds Class Decertification Wonderful

In a recent decision, Judge Dean Pregerson of the U.S. District Court for the Central District of California decertified the class in an action against POM Wonderful over health claims about its pomegranate juice. You know the juice, it’s the one in the cooler section of the grocery store in the glass jar that looks like a purple snowman. Judge Pregerson had previously certified the class, but after discovery, particularly after plaintiffs’ expert’s testimony on damages, POM Wonderful had moved to decertify and, as the headline tells you, the court agreed. 

The decision to decertify was rooted in a recent U.S. Supreme Court case, Comcast Corp. v. Behrend, which dealt with the relationship between class certification and claimed damages. The court followed the Ninth Circuit’s interpretation of Comcast, which held that, in determining whether class certification was appropriate, “Plaintiffs must be able to show that their damages stemmed from the defendant’s actions that created the legal liability.” When applied to something that costs only a few bucks, this proposition is not easy to demonstrate.

 

Plaintiffs here offered two different theories, neither of which came close to persuading Judge Pregerson. First, the “Full Refund Model”: as plaintiffs’ expert testified: “[I]f the health benefits were what caused the purchase, at least predominantly, then a [full] refund would be appropriate”.   As the Church Lady might say, isn’t that special? And under the Full Refund Model, damages would be $450 million, an amount that would support some really nice legal fees for class counsel. POM argued, and that court agreed, that that model took no account of the benefits class plaintiffs would have received, such as hydration, calories and vitamins, even if the allegations about the untrue health benefits were proven. Heck, someone might simply want the bottle to use to make a snowman for a school project. There is no damages model that gets a plaintiff class those benefits for free.

 

More after the jump . . .

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Plaintiffs Seek New Targets in "All Natural" Class Actions

Recently, there have been both positive and negative developments in California regarding "All Natural" consumer class action litigation. By way of background, these cases are typically brought under California's Unfair Competition Law (Bus. & Prof. Code §17200), False Advertising Law (Bus. & Prof. Code § 17500) and Consumer Legal Remedies Act (Civ. Code §1750) regarding alleged false and misleading labels on food and beverage products.

Plaintiffs have begun to expand the focus of this litigation into new industries, including cosmetics, personal care products, and home cleaning supplies. The list of challenged ingredients also continues to expand. Additionally, some plaintiffs are pursuing claims simply where the product label contains the term "natural," even if it did not state "100% Natural” or "All Natural.”

On the other hand, there have been a handful of recent court decisions demonstrating that a motion to dismiss these consumer class actions can succeed, including under the “reasonable consumer” test, the primary jurisdiction doctrine and standing. This is a positive trend in California, given that in many earlier cases courts routinely denied motions to dismiss, leaving defendants with two bad options—further litigation or costly settlement.

For more information on this topic, including a list of the ingredients often challenged in these lawsuits, see my article, "All Natural: Label Making: Are You a Class Action Target in California."

Federal Judge Orders FDA to Address "All Natural" Labeling on GMO Foods

Coauthored by Claire Mitchell and Thomas Woods:

California federal courts now appear positioned to lead the way nationally on the issue of whether food products containing genetically modified ingredients, commonly referred to as “GMOs” can be labeled “All Natural.” Just last week a federal judge in Colorado stayed the case of Nicole Van Atta v. General Mills, Inc. (Case No. 12-cv-02815-MSK-MJW) (PDF), pending the Food and Drug Administration’s (FDA) input on this very issue recently sought from the agency by a California judge in the case of Cox v. Gruma Corp. (Case No. 12-CV-6502 YGR) (PDF).  

California, a hotbed of consumer litigation activity due to the state’s expansive consumer protection laws, has become a particularly common venue for consumer class actions alleging misbranding and false advertising regarding the use of “All Natural” claims. In particular, many cases have been filed challenging a manufacturer or retailer’s use of “All Natural” labels on products containing GMOs. These lawsuits are typically brought under California’s unfair competition and false advertising laws (referred to as the “UCL” and “FAL” or §§ 17200 and 17500 of the California Business and Professions Code).

Cox v. Gruma Corp. (“Cox”), the case that lead to the Colorado court’s stay, is a class action lawsuit filed in December 2012 in U.S. District Court for the Northern District of California against Gruma Corporation, the manufacturer of Mission® Tortilla chips. The complaint in Cox alleges that the product’s labeling is false and misleading because it claims to be “All Natural” when it is not in fact natural due to the involvement of genetically modified corn seed in the product’s manufacture.

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UCL Class Actions in California Expand Beyond "All Natural" Claims

The “All Natural” class action litigation in California has continued into 2012, as expected.  The claims in California are being filed under California’s consumer-friendly unfair competition law (or UCL), which is codified in sections 17200 and 17500 of the California Business & Professions Code, and the Consumer Legal Remedies Act (CLRA).

Given the costs and risks associated with UCL and CLRA class actions, many companies are getting pro-active and are carefully analyzing their labels.  The challenge for such companies, however, is that these lawsuits are not limited to labels that contain the words “All Natural.”  They fall into several broad categories.

 

First, there has been litigation over products that are marketed as being healthy but contain allegedly unhealthy ingredients, such as trans fat, saturated fat, high-fructose corn syrup or sugar.  Consumer protection class actions may also arise like a claim for a defective product-- where an otherwise healthy product experiences a manufacturing, packaging or storage deviation that takes its ingredients outside of the representations made on the label and subjects the manufacturer to litigation over “deceptive labeling” practices.

   

Second, there has been litigation over products that claim to be “All Natural” or “100% Natural” that allegedly contain GMOs or other synthetic or artificial ingredients.  The types of ingredients that have been challenged by plaintiffs include:

 

alkalized cocoa

ascorbic acid (vitamin C)

beta-carotene (vitamin A)

calcium pantothenate (vitamin B5)

cyanocobalamin

dutch cocoa

folic acid (a B vitamin)

glycerine

GMOs

inulin

niacinamide

potassium carbonate

pyridoxine hydrochloride

riboflavin

sodium benzoate

sodium citrate

soy proteins (from hexane)

xanthan gum

zinc oxide

        

Of course, many of these ingredients are used frequently in products and there is no evidence that they are harmful.  But given the California Supreme Court’s recent finding that “labels matter” (as opposed to product quality), plaintiffs are seizing on the opportunity to claim that something that has been processed or contains any “artificial” ingredient cannot possibly be “All Natural.” 

 

Third, there has been litigation over claims about the quality of ingredients, such as “100% Pure” claims on orange juice or coconut water labels.

 

Finally, there has been litigation over products that have unsubstantiated health benefit claims, such as “proven to reduce cholesterol,” “supports digestion, . . . metabolism, . . .[and] liver function,” “supports immunity,” “reduces risk of chronic diseases,” “promotes healthy joints,” or otherwise.

 

In the current environment (with the lack of guidance from FDA and various court rulings that have struck down motions to dismiss), companies cannot afford to ignore the risk of litigation.  The important thing for companies to take away from the morphing UCL class action litigation in California is that a cursory review of product labels is no longer enough to help ensure loss prevention.  The product, whether labeled “All Natural” or not, should be reviewed carefully as the litigation theories in California broaden.  Indeed, as noted above, many of the class action lawsuits in California involve claims other than “All Natural.”  Companies should conduct an intensive review of product ingredients (and consider testing) to ensure compliance with labeling regulations and to assess whether the ingredients and labeling claims are likely to result in unwanted attraction from the plaintiffs’ bar.   

 

For more information on this topic, contact Melissa Jones and Tom Woods in the litigation department of the firm’s Sacramento office.

"All Natural" Class Action Litigation in California: What's in Store for 2012?

California litigators Tom Woods and Melissa Jones have prepared a Litigation Legal Alert on "All Natural" class action litigation in California and what to expect in 2012. 

The Alert, which is linked above, provides background information regarding "All Natural" class action litigation in California.  It also discusses why the authors believe that class action litigation in this area will persist in 2012.  Finally, the Alert concludes with suggestions for companies that have litigation risks regarding "All Natural" claims associated with their products.

 

 

 

 

Health Claims Class Actions Set to Explode

Stoel Rives food liability attorney Ken Odza discussed with NutraIngredients-USA.com the significance of a rise in activism from consumer lobby groups combined with food manufacturers pushing the envelope with more aggressive health claims. General Mills recently lost its bid to invalidate class action certification at the Eleventh Circuit of Appeals in a Florida lawsuit involving digestive claims for Yo-Plus, a probiotic yoghurt product.

Odza said that plaintiff attorneys who have made fortunes out of asbestos and pharmaceutical lawsuits are now turning their attention to the food industry, and predicted that “these kind of [health claims] are going to explode.” He added that the Yo-Plus case was “pretty unusual” in that it wasn’t prompted by an investigation by the FDA (Food and Drug Administration) or the FTC (Federal Trade Commission). “Usually you see a warning letter rapidly followed by a class action piggy-backing off of that.”

Class Action Lawsuits Set to Explode in Health Claims Arena” was published by NutraIngredients-USA.com, April 1, 2011.

Defeating a Consumer Fraud Putative Class Case Early

Last week at the DRI products liability conference in New Orleans, Lara White from Adams and Reese and I presented "Regulatory Compliance Alone Is Not Enough: Understanding and Mitigating Consumer Fraud Claims." Our presentation dealt with putative class claims aimed at the marketing and labeling of food products. A link to the slide-deck can be found here. A link to the paper we submitted at the conference can be found here.

In our presentation we discussed the kinds of consumer fraud claims that have been litigated recently against the food industry and what can be expected going forward.

We also discussed effective strategies for defeating putative class claims at the earliest possible stage. While some preemption arguments in a limited number of cases may still be viable, lawyers and clients should be aware that preemption defenses are eroding. Even when a preemption argument appears to be on ”all fours” it may be worth focusing instead on a challenge to the plausibility of the pleadings.

The U.S. Supreme Court in its Iqbal and Twombly decisions said that a court must disregard conclusory allegations and scrutinize the complaint’s factual allegations to determine whether it nudges the alleged wrong-doing “across the line from conceivable to plausible.” In other words, the complaint must have meat on its bones. In the case of a consumer fraud class complaint, the plaintiffs’ counsel, to survive a motion to dismiss, must include references to evidence or other substantiation for the claim such as consumer surveys or perhaps a government finding. Bare allegations of consumer behavior, nutrition, or damages may be subject to challenge in a Rule 12 motion to dismiss.

Prop 65 Targets Cooked Food, Coffee and Vitamin Supplements

This blog entry was originally written by Lee Smith from the California Environmental Law Blog.

The Industry Acrylamide Coalition (Coalition) filed suit against the State of California Office of Environmental Health  Hazard Assessment (OEHHA), the agency that manages and revised the Prop 65 list to include 4-metheylimidazole (4-MEI), as a carcinogen.  4-MEI is often found in cooked foods. The Coalition argues that the third party report on which the listing was based, from the National Toxicity Program (NTP), is insufficient to support a valid Prop 65 listing.  The complaint, which was filed in Sacramento, alleges that OEHHA failed to consider the entire file of evidence before making its decision.  The Coalition’s complaint also indicates that 4-MEI is created during normal cooking of food and ingredients and cannot easily be removed.  The Coalition includes the American Beverage Association, the California League of Food Processors, and the Grocery Manufacturers Association of USA.

Acrylamide – In Your Coffee?

In a similar manner, the National Coffee Association is coordinating the joint defense of a number of coffee roasters and retailers with respect to a 60-day notice served on 40 roasters.  The chemical at issue is acrylamide, which is formed when certain proteins are heated.  Original scrutiny for this chemical concentrated on potato products such as french fries, but apparently the same chemical reaction occurs in coffee when it is roasted.  In addition, other beverages that also contain caffeine, such as soft and energy drinks, have also received 60-day notices.

Dietary Supplements and Prop. 65

A dietary supplement company has been ordered to pay 2.65 million as part of a joint settlement with district attorneys in California.  This is one of the larger suits filed and settled by a public enforcement entity, other than the California Attorney General.  People v. Irwin Naturals, Inc., Orange County Superior Court, Case No. 30-2011-00445453.

Irwin Naturals was alleged to have made false and misleading representations with respect to the marketing and sales of its products.  The products were advertised as having Hoodia Gordonii, an alleged appetite suppressant; however, lab results found that the chemical was not present and triggered a mislabeling suit.  Additionally, the suit alleged that many of the products also exceeded the Prop. 65 level of  proposed Maximum Allowable Dose Level (“MADL”) of .5 micrograms/dA1.  Most of the indicated products were green tea products, sold without the Prop. 65 warning as required.

As part of the settlement, 1.95M in penalties were paid to help enforce state consumer protection laws, $100,000 in restitution, and $600,000 in set aside for investigation costs.  Reportedly, prosecutors felt that this prosecution was necessary in part because the FDA does not regulate dietary supplements.

Why CSPI's Loyalty Card Suit Has No Merit and Does Not Promote Food Safety

Following the playbook it has followed in the past with sodium and other issues, the Center for Science in the Public Interest (CSPI) has filed yet another complaint of very questionable legal merit to promote a policy agenda. This time CSPI seeks to compel all retailers to use loyalty cards as a recall alert system.

Some retailers use their loyalty card systems to alert customers of product recalls. Other retailers do not. Retailers who don't use loyalty cards as a recall alert system may have a variety of legitimate reasons why they don't or can't create the technology that CSPI wants a court to order retailers to implement. For example, some may lack the technological ability, have privacy agreements with customers that do not allow loyalty cards to be used as a recall alert system, or have other legitimate privacy concerns.

Like CSPI's sodium litigation, this complaint has serious flaws. It seeks broad certification of a "nationwide class" of customers who bought recalled products and whom the retailer "did not advise that they had bought Recalled Products." Even supposing that the claims had some legal merit, few "common issues of fact and law" are apparent. State law varies on the type of consumer fraud claims asserted. Some putative class members surely did get notice of the recall (through means other than loyalty cards).

On the merits, the claims are problematic because we suspect that many (and perhaps most) jurisdictions do not recognize a retailer’s affirmative duty to create some technology to alert customers of manufacturers’ recalls. The complaint utterly fails to acknowledge that retailers employ mechanisms other than loyalty cards to assure customers are aware of recalls.

On its face, a claim for breach of the warranty of merchantability is completely incongruent with a request that the court order retailers to employ new technologies. And, a loyalty card is not a good subject to the warranty of merchantability.

What might be most shameful about CSPI's complaint is its conflict with the Food Safety Modernization Act (FSMA), which CSPI purports to support. Section 211 of the FSMA modifies the Reportable Food Registry to enhance consumer notification of Class I recalls by grocery stores. FDA is tasked to, "[n]ot more than 1 year after the date of enactment of the [FSMA,] . . . develop and publish a list of acceptable conspicuous locations and manners" for grocery stores to notify customers of Class I recalls. CSPI (as well as anyone else) will have the opportunity to submit comments to FDA as part of the rule-making process.

Even if CSPI were somehow successful in its litigation, the outcome of the litigation may be supplanted or even in direct conflict with the FDA's rulemaking and the FSMA. Litigation is rarely a productive, efficient or useful way to create industry regulation. Litigation in the wake of legislation creating the actual policy that CSPI seeks to promote seems utterly wasteful and counterproductive.

Strategies to Defeat Putative Class Claims Challenging Labeling and Marketing of Food Products

April 8, 2011 – Scott Rickman from Del Monte, Lara White from Adams and Reese, and I will be talking at the Defense Research Institute (DRI) food law break-out. This event is held in conjunction with the DRI annual product liability conference in New Orleans.

Click here for the complete manuscript that we’ve prepared to accompany our presentation. The manuscript summarizes some of the most significant and recent rulings concerning putative class claims arising from labeling and marketing of food products. The manuscript also offers suggestions on possible strategies to defeat these claims.

The type of claims discussed involves small-dollar state law “fraud” claims aggregated over millions of products sold. The common fact pattern is this: plaintiffs challenge the labeling or marketing of a food product, alleging that consumers would not have purchased the product or paid the price they did had they known the “truth” behind the representations made. Often, the plaintiffs’ strategy is to achieve class certification and then leverage the threat of a judgment into a settlement that involves a handsome payment of attorneys’ fees.

Recently, we’ve seen a trend toward legal action for labeling and/or marketing claims of products in the “natural” area and those touting health benefits. In many of these cases, preemption has not been successful to knock out claims in their entirety. State law varies considerably, and this can often work to the advantage of a food company. When that doesn’t work and when a jurisdiction doesn’t require an individualized showing of causation or reliance, here’s an alternative strategy to dismiss claims at an early stage:

  • In states where plaintiffs need not show individualized reliance/causation, they may still have to demonstrate that an objectively reasonable consumer would have been damaged by the marketing/advertising campaign. 
  • The Supreme Court in Iqbal/Twombly said that a court must disregard conclusory allegations and scrutinize the complaint’s factual allegations to determine whether it nudges the alleged wrong-doing “across the line from conceivable to plausible.” The complaint must have meat on its bones. In the case of a consumer fraud class complaint, the plaintiffs’ counsel, to survive a motion to dismiss, must include references to evidence or other substantiation for the claim such as consumer surveys or perhaps a government finding.
  • Without a strong factual basis as to how an “objectively reasonable consumer” might behave, consumer fraud/unfair trade practices putative class claims concerning the marketing of a food product may be in jeopardy.

Plaintiffs Question "Carbon Negative" Water

The Fiji Water Company has attracted the attention of plaintiffs lawyers with its “carbon negative” bottled water.  The Newport Trial Group, a law firm representing California consumers, sued Fiji Water last month, arguing that Fiji’s carbon offset claims are deceptive and misleading.  The complaint against Fiji Water argues that the product is not necessarily carbon negative because Fiji’s offsets are premised on a speculative carbon offset method that “may or may not happen in the future.” 

According to the California consumers, Fiji’s carbon offsets are misleading because they  rely on “forward crediting,” a method of accounting for carbon offsets based on future offsetting activities.  The complaint explains that this method of carbon offsetting is unreliable and speculative according to the Stockholm Environment Institute, an independent scientific think tank.  

Fiji claims that its products are “carbon negative,” based on the purchase of carbon offsets equal to 120% of the company’s carbon emissions.  Even if Fiji can prove that its carbon offsets will ultimately meet that goal, expect the plaintiffs to argue that the carbon negative claim is still deceiving, on the theory that consumers were not apprised of the fact that offsets will occur in the future.  If Fiji’s future carbon offsets are found to be mismanaged, disorganized, or even false, consumers may succeed in obtaining a substantial judgment at trial, or a cash settlement.

The question of whether Fiji Water has actually deceived consumers will certainly be the focus of litigation in the California proceeding for at least a couple years.  In the meantime, while the Federal Trade Commission’s proposed new Green Guides, released last fall signal increasing federal enforcement against greenwashing, the Fiji Water case is an important reminder that environmental marketing claims may also be challenged by private parties.   

Another interesting aspect of this case is that while the California Consumers do not make reference to the FTC’s new Green Guides, the theory of their case is consistent with FTC policy.  The proposed new Guides tell marketers that they should “clearly and prominently disclose if [their] carbon offset represents emission reductions that will not occur for two years or longer.”  FTC regulations are not California law, but California’s consumer protection statute actually makes reference to the Green Guides, establishing a legal defense for companies if they can prove that their marketing claims comply with the Guides.  

Finally, regardless of how the Fiji water case proceeds, it teaches another valuable lesson.  Whether the claim is for carbon offsets, renewable energy, or another type of green claim, marketers must follow the key principles of clarity and disclosure.  A bare claim is risky –  but clear, concise disclosure can reduce and potentially eliminate that risk.
 

Dannon Forced to Open Wallet and Change Advertising (Again)

Note: The following is posted by David Pacheco from the Essential Nutrition Law Blog.

The multinational food company Dannon agreed to a 45 million dollar class action settlement earlier this year based on consumer complaints about advertising claims regarding the health benefits of its probiotic line of dairy products. Now the company has entered into a $21 million dollar settlement with the attorneys general from 39 states. The L.A. Times reports that this is the largest-ever multistate attorney general consumer protection settlement with a food producer. The attorneys general alleged that Dannon made deceptive and unlawful claims in advertising which were not substantiated by competent and reliable scientific evidence at the time the claims were made. According to the allegations, the majority of scientific studies showed improvement in intestinal transit time when an individual consumed three servings of the probiotic products per day for two weeks, and did not support Dannon's advertised claims that one serving per day for two weeks improved digestive health. In addition, the attorneys general alleged that Dannon could not substantiate claims regarding improved immunity against the flu and common cold.

Dannon also agreed with the FTC to drop claims that the probiotic foods help prevent irregularity and offer protection against the flu and common cold. The FTC found no substantiation of these claims. This isn’t the first time Dannon has had to alter its advertising; the March settlement required Dannon to remove specific language about the health benefits of the products from labels and advertising.

 

Between this and the March settlement, Dannon has now agreed to pay $66 million as restitution for the misleading health claims, which comes out to about 1.3% of Dannon reported $5 billion in worldwide net sales of the probiotic line in 2009. This latest settlement should remind companies to keep state governments on the list of watchful eyes monitoring health claims related to food and supplement products.

More on FOP Labeling

Here's a link to an article that appeared recently in Inside Washington's FDA Week concerning the issue of front-of-package labeling (FOP). The article takes aim at the debate about state vs. federal regulation of FOP labeling. Here's a link to a recent post in this blog on the FOP issue.

Front of Package Labeling Claims Survive Motion to Dismiss

A recent decision held that Front of Package (”FOP”) labeling claims may not (yet) be subject to federal preemption. The decision in a putative class action, Chacanaca v. The Quaker Oats Company, involves what has become a common fact pattern: The FDA says an issue is complex and subject to industry guidance and possibly rule-making (for example, use of the terms “natural,” “wholesome,” and “smart choices”), while a court says the issue may not be complex and may be perfectly within the expertise of the judiciary and jury system.

Federal District Court Judge Richard Seeborg of the Northern District of California dismissed plaintiffs’ state law claims targeting the “0 grams trans fat,” “good source,” “made with whole grain oats,” and “no high fructose corn syrup” declarations on preemption grounds. Yet, insofar as Quaker Oats "seeks a favorable judgment at this juncture on all state claims that focus on the term 'wholesome'; on images of children, nuts, or oats; or the 'smart choices made easy' language or decal," the court denied the motion to dismiss.

The plaintiffs’ challenges to Quaker Oats’ use of the term ”wholesome” and images of the children seem targeted exactly at the claims that were preempted: the trans-fat issue. The court concedes that the FDA has recently indicated its intent to explore rule-making in the area of FOP labeling claims and that the FDA already “has extensively regulated food labeling in the context of a labyrinthine regulatory scheme.” “Nonetheless,” according to the court, ”plaintiffs advance a relatively straightforward claim: they assert that defendant has violated FDA regulations and marketed a product that could mislead a reasonable consumer. As courts faced with state-law challenges in the food labeling arena have reasoned, this is a question ’courts are well-equipped to handle.’”

Are the plaintiffs’ claims really that straightforward? How is a court "well-equipped" to determine the meaning of ”wholesome,” ”natural,” or other FOP claims? Is a court able to fully consider comments and information from all corners of the food manufacturing world? Isn’t this really in the wheelhouse of the regulators (or possibly the legislators)? Can the food business in the United States function effectively with individual courts and states determining their own common law (or even statutory) rules for product labeling?

FTC Green Guides, Sustainability & Third Party Certification

Our previous blog entry discusses last week's release of the Federal Trade Commission's ("FTC") revised, proposed "Green Guides" generally, discussing how the FTC is focused on "deception" and is not taking a radical departure from the 1998 version (the last version) of the Green Guides. But under the new Guides what are the consequences of the FTC's position on sustainability and third-party certification, especially as it relates to food products? The bottom line is that marketers of sustainable food products should re-evaluate (1) what sustainability claims are made and (2) the benefits of proper third-party certification.

The FTC, in its commentary to the revised, proposed Green Guides, reports that it "is unable to provide specific advice on sustainable as an environmental marketing claim. Unlike other claims we tested, the term contains no cue alerting consumers that it refers to the environment."

Yet the FTC acknowledges that sellers of food (and non-food) products are using the term “sustainable,” and consumer awareness of sustainability issues is growing rapidly. The FTC seems to be leaving itself room for action against marketers of "sustainable" products if it’s clear that consumers are meant to believe that “sustainable” is an environmental marketing claim. And, as discussed in our previous entry, marketers need to be wary of compliance with not only the FTC but also state consumer protection laws, which often reach further than federal law on the marketing of food products.

FTC has also chosen for the first time to address in the Green Guides what it calls "Certifications and Seals of Approval." FTC makes clear that "It is deceptive to misrepresent, directly or by implication, that a product, package, or service has been endorsed or certified by an independent third-party." And, even
"third-party certification does not eliminate a marketer’s obligation to ensure that it has
substantiation for all claims reasonably communicated by the certification."

Food manufacturers and retailers who use a seal or logo to designate sustainability should evaluate whether the seal or logo could be read by the FTC, a consumer or a plaintiff’s lawyer to imply third-party certification or endorsement. In other words, if independent third-party certification isn't used, you should ask yourself the following questions:

  1. Is it clear to anybody reading your label (FTC, consumers, plaintiffs, bar, etc.) that the claim is only your claim and not a third-party claim?
  2. Do you have substantiation (i.e., science) to back up any claims of environmental sustainability (whether yours or a third party’s)?

If you as a food manufacturer or seller can't answer both questions affirmatively, your marketing may be a liability. The SC Johnson Company, for example, is the subject of a consumer class action alleging that the company's own "greenlist" certification program was deceptive. Often, the realistic choice may be a) not to market the product as environmentally sustainable or b) to switch to a substantiated third-party certification.

For food, your best choice may be Food Alliance certification, which is now the most comprehensive certification for sustainable food and the gold standard.*

*In the interests of full disclosure, I serve on the non-profit Board of Directors for Food Alliance and am a staunch advocate of the organization.

A Tale of Two Orders

Two recent court orders in motions to dismiss consumer fraud class actions illustrate the fine lines that exist in the analytical process courts engage in when determining whether or not a claim may continue forward.

In Zeisel v. Diamond Foods, Inc., the U.S. District Court for the Northern District of California denied Diamond Foods' motion for dismissal of the plaintiff’s claims. The complaint alleged that the plaintiff and other consumers in the class purchased the company’s shelled walnut products based on false claims of health benefits that consumption of the omega-3 fatty acids in walnuts provides. The complaint alleged (1) unfair competition, (2) false advertising, (3) violation of California’s Consumers Legal Remedies Act and (4) unjust enrichment.

Diamond Foods moved for dismissal on the basis that the plaintiff’s claims were preempted by the Federal Food, Drug and Cosmetic Act (the “FDCA”), as amended by the Nutrition Labeling and Education Act (the “NLEA”). The court found that the plaintiff’s claims were not expressly preempted on the plain language of the NLEA’s preemption clause, and further that the plaintiff’s unfair competition claims were based on California’s Sherman Food, Drug and Cosmetic Law, not the FDCA. The court also held that the plaintiff’s claims were not impliedly preempted, as Congress expressly stated its intent that the NLEA was not to be construed to preempt any provision of state law, unless such provision is expressly preempted under section 403A of the FDCA. As such, the plaintiff’s claims were allowed to move forward.

However, in Loreto v. Procter & Gamble, the background and core issues of which we blogged about here and here, the U.S. District Court for the Southern District of Ohio granted Procter & Gamble’s motion for dismissal, and dismissed the plaintiffs’ claims with prejudice. The plaintiffs alleged that Procter & Gamble violated consumer fraud statutes in New Jersey and all other states and the District of Columbia through false and misleading advertising practices involving Vick’s DayQuil Cold and Flu Symptom Relief Plus Vitamin C and Vick’s NyQuil Cold and Flu Symptom Relief Plus Vitamin C.

The court initially held that the plaintiffs, residents of New Jersey, lacked standing to pursue any claims under any state consumer protection statute other than that of New Jersey. Next, the court agreed with Procter & Gamble’s contention that despite presenting their cause of action in the form of a claim under the consumer protection statutes of New Jersey and other states, the plaintiffs’ cause of action was in actuality an improper attempt to assert a private right of action under the FDCA. Finally, the court held that even if it were to assume the plaintiff’s claims were not an improper attempt to assert a private right of action under the FDCA, the plaintiff’s claims merited dismissal as the alleged no actual injury, failed to allege causation, and otherwise failed to assert other essential elements of the individual state consumer law causes of action. The court, holding that the plaintiffs had ample opportunity to amend their complaint on notice of Procter & Gamble’s positions and failed to address the pleading deficiencies in their amended complaint, ultimately found that dismissal with prejudice was warranted.

Regulatory Compliance Alone Is Not Enough: Understanding and Mitigating Consumer Fraud Claims

Click on the image below to view the slide-deck from the presentation that I recently gave with Scott Rickman from Del Monte at ACI’s summit on Food Safety and Regulatory Compliance in Chicago. The ACI summit was a nice introduction to food regulation byFDA, USDA, FTC, EPA and DHS. Our presentation was intended to start from the premise that the job of a food lawyer (whether inside or outside counsel) does not end at ensuring regulatory compliance. Products that are regulatory-compliant may still be subject to putative class claims.



Please feel free to contact me if you have any trouble finding the cases or other references in the slide-deck.

Strategy to Defeat Consumer Class Claims

As we've discussed previously in this blog, the Supreme Court's plausibility pleading standard, as articulated in the Iqbal and Twombly cases often provides a rapid (and relatively inexpensive) pathway to defeat consumer fraud claims.

At the ACI food regulatory conference last week, we discussed a strategy to take advantage of the plausibility pleading standard in jurisdictions that have liberal class certification standards.
In states where individualized reliance or causation is required to make out consumer fraud or unfair trade practices claims, defendants’ first line of attack may be class certification. But where individualized reliance and/or causation is not required, courts will often deny class certification under Rule 23(b) because common issues of law or fact do not predominate over individual issues.

So here's a strategy in jurisdictions where a defeat of class certification may not work:

  • In states where plaintiffs need not show individualized reliance/causation, they may still have to demonstrate that an objectively reasonable consumer would have been damaged by the marketing/advertising campaign. 
  • The Supreme Court in Iqbal/Twombly said that a court must disregard conclusory allegations and scrutinize the complaint's factual allegations to determine whether it nudges the alleged wrong-doing "across the line from conceivable to plausible." The complaint must have meat on its bones. In the case of a consumer fraud class complaint, plaintiffs’ counsel, to survive a motion to dismiss, should need to include references to evidence or other substantiation for the claim such as consumer surveys or perhaps a government finding.
  • Without a strong factual basis as to how an "objectively reasonable consumer" might behave, consumer fraud/unfair trade practices putative class claims concerning the marketing of a food product may be in jeopardy. Defendants should take advantage and seek dismissal at the outset of the case.

Dismissal of "I Can't Believe It's Not Butter" Claims: Another Example of Iqbal/Twombly Succeeding Where Preemption Cannot

Judge James Ware dismissed on an FRCP 12(b)(6) motion putative class claims against Unilever alleging violations of the California Consumers Legal Remedies Act , Unfair Competition Law, and False Advertising Law . Judge Ware's decision can be found here. Plaintiff alleged that Unilever misrepresented the ingredients of its butter-substitute product through its advertising and product labeling.

The heart of plaintiff's complaint was Unilever's marketing of the product as "Made with a Blend of Nutritious Oils." Plaintiff alleged that "[t]his message . . . is misleading and deceptive because Defendant's Product contains a highly unhealthy, non-nutritious oil known as partially hydrogenated oil."

Unilever's preemption argument was rejected. The court followed what's becoming a familiar line of reasoning that while federal law governs the labeling of the product, state advertising and marketing claims are not preempted: 

Although the "oils" referred to in the advertisement on the label are the same oils that are subject to the NLEA labeling requirement, the Court finds that there is no inherent conflict in allowing relief under state law with respect to what is said in the advertisement on a label about characteristics of those oils that are not regulated by the NLEA.

Judge Ware dismissed the claims against Unilever on the basis of the plausibility pleading standards articulated by the Supreme Court in the Iqbal and Twombly cases. He ruled that plaintiff's claims concerning the oils were "conclusory" and explained that the "implausibility of Plaintiff's allegations can more readily be seen if the allegations are expressed as a categorical syllogism:"

For the representation "blend of nutritious oils" to be true, all constituent oils
must be nutritious. One of the constituent oils in the product [partially hydrogenated oil] is not nutritious. Therefore, the product representation is false.

The court went on to explain why plaintiff's claims, even if accepted as true, were implausible. The court found faulty the logic underlying plaintiff's complaint about the use of partially hydrogenated oil in the "blend of nutritious oils." The court found that plaintiff's argument suffered from (1) “petitio principii (begging the question)”, (2) the "fallacy of composition" and (3) the "fallacy of division." In short, the Unilever case demonstrates that without a solid scientific and factual basis, consumer fraud claims are frequently vulnerable to attack on an early motion to dismiss (though maybe not for preemption).

Difficult Week for the Food Industry (Good Week for the Plaintiffs' Bar): HVP Salmonella and FDA Warning Letters

The week of March 1 saw a double whammy hit food manufacturers.

I. Open Letter to Industry on Marketing Claims

First, on March 3, FDA sent warning letters to 16 food manufacturers concerning their labeling practices. FDA also issued an Open Letter to Industry warning against certain practices. For example, FDA warned that:

o Nutrient content claims that FDA has authorized for use on foods for adults are not permitted on foods for children under two. Such claims are highly inappropriate when they appear on food for infants and toddlers because it is well known that the nutritional needs of the very young are different than those of adults.
o Claims that a product is free of trans fats, which imply that the product is a better choice than products without the claim, can be misleading when a product is high in saturated fat, and especially so when the claim is not accompanied by the required statement referring consumers to the more complete information on the Nutrition Facts panel.
o Products that claim to treat or mitigate disease are considered to be drugs and must meet the regulatory requirements for drugs, including the requirement to prove that the product is safe and effective for its intended use.
o Misleading “healthy” claims continue to appear on foods that do not meet the long- and well-established definition for use of that term.
o Juice products that mislead consumers into believing they consist entirely of a single juice are still on the market. Despite numerous admonitions from FDA over the years, we continue to see juice blends being inaccurately labeled as single-juice products.

II. HVP Recall

A day later, on March 4, FDA announced a recall of hydrolyzed vegetable protein (HVP). As of noon on March 4, 56 products containing HVP have been recalled. Some have suggested that HVP is the "Next Peanut Butter.”

III. What Food Companies Can Do in the Wake of FDA's Warning Letters and HVP Recall

What do last week's FDA warning letters and HVP recall have in common? The answer is, of course, litigation and exposure of brand value.

The first thing any affected food seller should do is engage its crisis management team. While lawyers and public relations staff are critical in crisis response, management of the crisis should not be left solely in the hands of either. Decisions should be made holistically, examining legal, public relations, business, financial and public health implications.

As discussed previously in this blog, companies faced with putative class claims filed as a result of the FDA warning letters on labeling should develop strategies to challenge the merits of the claims and class certification at the earliest possible stage. The end game for the plaintiffs' class action law firms is to obtain class certification and use that "litigation blackmail" to enter into a settlement with a handsome payout of attorneys’ fees.

For those companies with products that include recalled HVP, the good news is that there are few, if any, reported illnesses. The bad news is that recalls are very expensive and, for some companies without recall coverage or sufficient resources, financially devastating. Many food manufacturers were driven out of business in 2009 after being overwhelmed with the expenses of recalling products that included ingredients manufactured by Peanut Corporation of America (PCA).

For those affected companies with recall coverage or financial means, proactive measures can pay dividends. For example, offering refunds to consumers mitigates against putative class claims. Setting up consumer hotlines and payment of medical expenses for persons with illnesses linked to recalled products mitigates against personal injury suits.