Unmitigated Chutzpah: The CSPI's Merchantability Claim Against Safeway
Ken posted about some general issues related to the Center for Science in the Public Interest’s claims against Safeway related to the decision not to use its Club Card data to publicize recalls. Hidden among the claims, however, is a claim for breach of the warranty of merchantability that is so breathtakingly extensive it requires a separate post.
The breadth of this claim is astounding. To see why, you must understand two things. First, this is a class action. CPSI and its lawyers seek to represent “All Customers who bought Recalled Products, and whom Safeway did not advise that they bought Recalled Products, for a period of four years prior to the date this complaint is filed until the date of class certification.” “Recalled Products” are those subject to a Class I recall from the FDA or the USDA. I presume the four years states the applicable statute of limitations. If the class were certified, these lawyers would represent everyone in the class.
Second, the count of the complaint that deals with the warranty of merchantability has nothing to do with the requested relief that has garnered so much publicity. It is unrelated entirely to the use of the Club Card to notify customers about recalls. It is a straight breach of contract action. Put simply, these lawyers purport to represent every single person who had a Safeway Club Card, for the value of their Recalled Products. The complaint expressly makes no claim for any injury other than the economic injury of a breach of contract; no one is alleged to have gotten sick, let alone died. Indeed, one of the named plaintiffs consumed some of the eggs subject to recall, apparently without adverse health effects.
Moreover, and this is important to understand, these are not Safeway’s recalls. They are in nearly every case recalls instituted by someone up the food chain. The class consists of everyone Safeway didn’t notify, but the named plaintiffs in fact became aware of both recalls through other means: news reports, a letter mailed by another retailer who had sold similar products, a “neighborhood listserv.” Upon becoming aware of the recalls, there was nothing stopping either plaintiff, who, according to the very complaint their lawyers have filed on their behalf, “frequently shops at her local Safeway store”, from asking for a refund. I suspect Safeway would have granted it without complaint or hassle.
But no. Instead, we need a class action. Who is in the class? Everyone who never got notice from Safeway of the recalls, even though they may have (like both named class plaintiffs) received notice from other means. The parties actually responsible for these recalls purposely put that information out onto the news channels; blogs like this one tend to spread the word gratis when recalls occur. Anyone concerned about the food they buy can check numerous news sources, including the FDA’s own website, for news about recalls. I often walk into the office in the morning to be asked, “did you hear about the latest recall?” This stuff isn’t hidden under a pillow somewhere.
By being subjected to the class action, though, Safeway may be in a dilemma. It really doesn’t want to pay consumers twice (nor should it have to). But how is Safeway, now that the class action has been filed, to know that it will not be required to pay twice, once when the consumer comes to the customer service desk at his or her local store and again when the class action is settled? The answer is that it can’t. Which may make Safeway less likely to pay the consumer at the customer service desk. Is that really the result that is in the best interests of the purported class?
My guess, however, is that this won’t happen. Both because Safeway doesn’t want to have a few thousand store managers explaining to real live customers that some lawyers in California make it impossible to refund your two dollars, and because Safeway’s lawyers, despite the unmitigated chutzpah of CSPI in claiming the right to represent all Safeway’s customers wherever located in connection with their refund rights, think the chance of class certification on this issue is of vanishingly low probability.
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.
The Show Goes On: USDC Allows Vitaminwater Lawsuit to Proceed
In an opinion issued on July 21, 2010, Judge John Gleason of the United States District Court for the Eastern District of New York largely denied the defendant’s motion for dismissal and held that 10 of the 13 claims in a class action suit brought against Coca-Cola for alleged unlawful health claims on its Vitaminwater drinks could proceed. The claims that still must be examined in court include allegations of misleading advertising, fraudulent business acts, and unfair methods of competition.
The plaintiffs in the class action, which include the health advocacy group Center for Science in the Public Interest (“CSPI”) as co-counsel, contended that Vitaminwater’s labeling and marketing is misleading because it (1) communicates a number of purported health benefits (including healthy joints, optimal immune function, and reduced risk of chronic disease), drawing consumer attention away from the significant amount of sugar (33 grams per bottle) in the product; (2) portrays Vitaminwater as healthy when it is essentially a snack food that provides nutritional benefits because it has been specifically fortified to do so; and (3) suggests that Vitaminwater contains nothing but vitamins and water.
While the court concluded, citing applicable Food and Drug Administration (“FDA”) rules and commentary, that sugar was not a “disqualifying nutrient” under applicable FDA regulations, the plaintiffs’ latter two claims were found to accurately describe violations of FDA regulations, and accordingly may serve as a non-preempted basis of state law liability.
The FDA regulations restricting health claims or implied claims of healthiness related to foods that meet certain minimum nutrient levels, colloquially termed “the jelly bean rule,” were developed in an effort to prevent food producers from encouraging the consumption by consumers of junk food by fortifying the food in question with nutrients. The “jelly bean rule” is applicable only to (1) health claims, and (2) nutrient content claims that use the word “healthy” to suggest that a food may help consumers maintain healthy dietary practices because of its nutrient content. Finding that Vitaminwater’s labeling contains claims in each of these two categories, the court ruled the plaintiffs could proceed with this claim.
The plaintiffs alleged Vitaminwater’s labeling is misleading because it uses a product name that includes two of the product’s ingredients (vitamins and water), but fails to mention another notable ingredient (sugar). FDA regulations on this subject recognize that such product names have the potential to mislead consumers. Thus, the court held that the plaintiffs were allowed to pursue this claim. In the aftermath of this ruling, Coca-Cola released a statement expressing their confidence that the plaintiffs’ claims are without merit and will ultimately be rejected. Given that the implications this case could carry into the growing functional food and beverage segments of the market, we will continue to track it closely.
District Court to CSPI: No Standing Any Time
Standing is one of those basic concepts they teach everyone in law school. Courts, law students are told, are for the resolution of disputes between parties with a real stake in the outcome, not for the delivery of advisory opinions. Then, it being law school after all, you are taught a number of ways in which you can legally obtain standing and essentially get an advisory opinion. A single plaintiff with a small stake can bring a class action. A public official may agree that he or she will not sign a required document, and so be sued for a writ of mandamus; when the court decides whether the official can be forced to sign, it is also deciding on the constitutionality of the law the parties seek to have determined.
Although these and other methods of obtaining standing are recognized, it is not always possible to obtain a proper plaintiff. Two renowned securities fraud plaintiffs' lawyers spent time in prison for paying people to act as plaintiffs in their cases.
It would be so much easier, of course, for certain organizational plaintiffs if they could turn their organization's mission into standing. The Sierra Club, most notoriously, tried this in the seventies, and the Supreme Court smacked them down in Sierra Club v. Morton, a case notable for Justice Douglas claiming in dissent that the valley itself should have standing.
The Center for Science in the Public Interest appears to have tried it again, with, so far, the same result. The case was a drug case, not a food case, but the elements of the claim were not all that different from ones we've seen in the past. Bayer had made claims for its One-a-Day "Men's Health Formula" Vitamins that selenium in the vitamins would reduce the risk of prostate cancer. CSPI made public demand on Bayer to withdraw the ads and, failing that, sued, which brought it a lot of publicity. Only the case wasn't "John Smith who bought Bayer and was shocked that he wasn't getting prostate cancer protection v. Bayer," it was CSPI against Bayer. Like the plaintiffs in Sierra Club v. Morton, they made no claim of any injury to themselves or their members. Rather, they claimed standing under the California's Unfair Competition Law. But that statute contains its own express standing requirement, conferring standing on
a person who has suffered injury in fact and has lost money or property as a result of the unfair competition
CSPI didn't get within a mile of that standard, according to the District Court. In an opinion dismissing the case, federal district court Judge Jefrrey S. White held that CSPI was benefited, not harmed, by Bayer's alleged conduct. Citing to Sierra Club v. Morton, the court said,
An organization's mere interest in a problem is insufficient to demonstrate a cognizable injury sufficient to confer standing. Rather, the allegations as currently pled indicate that, in reaction to Bayer's alleged misrepresentations, CSPI as an organization reacted by disseminating information about nutritional science and by educating its members. This conduct, rather than causing CSPI to incur injury, fulfilled the espoused mission of the organization.
In other words, CSPI's mission was enhanced by Bayer's alleged actions. Thus, the action under the Unfair Competition Law was dismissed with prejudice. A similar claim under the Consumer Legal Remedies Act, which has a lesser standing requirement, was dismissed with leave to amend, but with the court expressing skepticism that CSPI would be able to meet the standing requirement there as well.
Jim Prevor Deconstructs CSPI's List of "Ten Riskiest Foods"
The Center for Science in the Public Interest has released its list of "Ten Riskiest Foods Regulated by the FDA." The list has gotten a lot of publicity, particularly because some unexpected foods like potatoes made the list.
Our friend Jim Prevor, the Perishable Pundit, has written a Special Edition of his newsletter that pretty much says everything about the list that we would say, so I'm just linking to his article. The only thing I'd add is that Stoel Rives were co-sponsors of the conference he mentions in the article, along with Bill Marler. Otherwise, thanks for doing the good work, Jim.
UPDATE: Being the total gentleman that he is, within hours of Friday's post Jim emailed me that he would add a credit to Stoel Rives on his entry. And of course he did.
Ninth Circuit Decision Casts Doubt on Merchantability Claim in CSPI Suit Against Denny's
Along, I am sure, with many of you, I was intrigued at Ken's recent post on the case of DeBenedetto v. Denny's Corporation, filed recently in Middlesex County, New Jersey by the Center for Science in the Public Interest. Most interesting to me, of course, was the claim that Denny's food violated the warranty of merchantability contained in contracts for the sale of goods under Article 2 of the Uniform Commercial Code. I have blogged on the warranty of merchantability in connection with food recalls.
Paragraph 59 of the complaint states as follows:
59. Denny's meals purchased by Plaintiff and New Jersey Consumers are not adequately described on the menu to advise Plaintff and New Jersey Consumers that they are consuming high amounts of sodium in one meal that are in excess of the advised daily limit.
In Paragraph 60, the complaint claims that this violates the warranty of merchantability because of, among other claims, the alleged inadequate description.
A recent decision of the Ninth Circuit Court of Appeals, Millenkamp v. Davisco Foods International, Inc., seriously calls into question the validity of the plaintiff's claims in the case against Denny's. That case involved the implied warranty of fitness for a particular purpose, not the implied warranty of merchantability, but the reasoning is sufficiently applicable that it can be inferred that Denny's should prevail on this claim.
In Millenkamp, the plaintiffs had purchased milk permeate as cattle feed. The cows fed the milk permeate subsequently died and the plaintiffs sued the supplier as well as a feed company that had advised them about how to use the milk permeate (they later settled against the feed company). One of the claims was that the failure to label the milk permeate as required by Idaho law resulted in a breach of the warranty of fitness for a particular purpose. After prevailing in the trial court, judgment for the plaintiffs was reversed by the Ninth Circuit, which held,
compliance with Idaho's Milk Permeate Labeling Requirement does not address whether Davisco breached a warranty of fitness for a particular purpose.
In order to breach the warranty, a mislabeling must breach "a part of the bargain between the parties." In Millenkamp, the contract between the parties did not include an express requirement that the milk permeate comply with all laws, or comply with all labeling laws.
Is there a difference with the warranty of merchantability?
The Ninth Circuit, in footnote 3 of its opinion, implies that there might be. That footnote is dictum, however, and with all due respect to the Ninth Circuit, misses an important part of the labeling language of Article 2.
Section 2-314(2)(e) of the Uniform Commercial Code contains as a requirement of the warranty of merchantability that the goods "are adequately contained, packaged, and labeled as the agreement may require." Comment 9 to Section 2-314 states, "Paragraph (e) applies only where the nature of the goods and of the transaction require a certain type of package or label." In other words, the result under the warranty of merchantability should be exactly the same as under the warranty of fitness for a particular purpose: if it's not in the contract, then it's not possible to violate it through the implied warranty. Plaintiffs have expressly disclaimed that there is any kind of special contract involved in buying food at Denny's (they need to, in order to avoid any contract that would have disclaimed these implied warranties). Thus, the claim for breach of the implied warranty of merchantability by means of inadequate labeling should fail.
Another High-Profile California Labeling Case
Center for Science in the Public Interest (CSPI) recently filed a putative class action in federal court in the Northern District of California claiming that Glacéau’s VitaminWater is mislabeled under California law. This suit comes on the heels of the recent Ninth Circuit decision that remanded the Gerber foods case. We previously discussed the Gerber case on this blog and how it presents “serious questions as to whether there are any clearly defined legal standards as to when a food label is misleading and when it’s not.”
The VitaminWater case appears to raise similar issues. CSPI fails to point to anything directly in VitaminWater’s labeling or advertising that is actually incorrect. Instead, CSPI asserts that “the central message” of VitaminWater’s labeling “is that drinking VitaminWater is good for one’s health.” CSPI asserts this is misleading because “VitaminWater is loaded with sugar” and as a result “may actually harm consumers’ health.” CSPI also faults the product labeling because it fails to disclose that Glacéau, the company that manufactures VitaminWater, was purchased by a soft drink manufacturer.
