Sodium Putative Class Action Suits to Become Epidemic?
Following the putative class suit filed last month in New Jersey by the Center for Science in the Public Interest (CSPI) against Denny’s, a similar suit was filed in Illinois (apparently CSPI is not directly involved in this action). The Illinois complaint can be found here.
Like the New Jersey complaint, the Illinois action alleges claims of consumer fraud and breach of implied warranty of merchantability. Previous posts on this site have explained why both consumer fraud and implied warranty of merchantability claims should fail on their face.
The Illinois action adds claims for unjust enrichment, accounting and ”breach of contract implied in fact.” Claims for unjust enrichment and accounting seem intertwined and not all that different from consumer fraud and breach of implied warranty claims.
Breach of contract implied in fact is more creative. Instead of directly attacking Denny's representations (which as discussed in previous posts are not really alleged to be inaccurate), this claim asserts something that looks more like a products liability claim. The claim turns not so much on “fraud” but on whether the meals sold “contained excessive amounts of sodium, such that it was not fit for human consumption.” This cause of action alleges that the “bargained for” contract between class members and Denny’s required Denny’s to provide “a meal fit for human consumption.”
While creative, the breach of contract implied in fact claim may be more problematic than the fraud and implied warranty of merchantability claims. First, as discussed previously, Denny’s discloses on its website (and according to CSPI, at its restaurants) sodium content of menu items. Like the fraud claims, proof that plaintiffs could have reasonably bargained for something different seems problematic.
Second, plaintiffs are asking the court to use its equitable powers and step into the shoes of local, state and federal health departments and regulatory agencies to pass on appropriate sodium levels in restaurant food. As a rule, courts use their equitable powers only in extraordinary circumstances (e.g., a building falls down, assets leave the country, an individual’s life or liberties at stake, etc.). If regulators and legislators have not reached consensus on regulating sodium, odds are that most judges will avoid weighing in on the issue.
Despite their problems (and probable lack of merit), best guess is that the plaintiffs' class action bar will continue copy-catting these suits across the country. Doubtful that Denny's will be the only victim.
HFCS Labeling Case: Opening The Floodgates For New Consumer Claims?
The Third Circuit may be close to opening the floodgates of claims against food and beverage manufacturers who use high-fructose corn syrup (“HFCS”) in products labeled “all natural.” Shannon Duffy at the Legal Intelligencer reported recently on a “lively hour-long” oral argument in the Third Circuit about reversing a District Court’s dismissal of state consumer claims against Snapple for use of HFSC.
The District Court dismissed the consumer claims in 2007 on the basis of field preemption. The dismissal predated the Third Circuit’s decision in Fellner v. Tri-Union Seafood, LLC. See our previous blog on the Fellner case. Despite the FDA’s position in Fellner that a state law failure-to-warn claim is preempted by federal law, the Third Circuit ruled to the contrary.
In Fellner, a claim by a person who suffered from mercury poisoning after eating canned tuna literally for breakfast, lunch and dinner for five years may have been an outlier. But reversal of the District Court’s decision in the Snapple case will open the floodgates to consumer class action claims against a whole slew of food sellers and manufacturers.
Captain Crunch Suit Dismissed: Court Finds No "Actual Fruit Referred to as Crunchberry"
Yes, someone has actually filed a putative class action on the basis that she was “mislead by the packaging and marketing, which she argues convey the message that the Product contains real, nutritious fruit.” U.S. District Judge England in the Eastern District of California dismissed the complaint captioned as Sugawara v. Pepsico, Inc.
Though Sugawara seems purely frivolous, the claim follows predictably from the Ninth Circuit’s decision in Williams v. Gerber discussed previously on this blog. In Williams, the Ninth Circuit reinstated a putative class action that alleged labeling on “fruit juice snacks” (1) constituted misrepresentation and breach of warranty under California common law and (2) violated California’s statutes on unfair competition and consumer law. The district court had granted a motion to dismiss under Rule 12(b)(6), finding that statements on the label “were not likely to deceive a reasonable consumer, particularly given that the ingredient list was printed on the side of the box.”
Judge England distinguished Sugawara from Williams, writing that
while the challenged packaging contains the word “berries” it does so only in
conjunction with the descriptive term “crunch.” This Court is not aware of, nor has Plaintiff alleged the existence of, any actual fruit referred to as a “crunchberry.” Furthermore, the “Crunchberries” depicted on the PDP are round, crunchy, brightly- colored cereal balls, and the PDP clearly states both that the Product contains “sweetened corn & oat cereal” and that the cereal is “enlarged to show texture.” Thus, a reasonable consumer would not be deceived into believing that the Product in the instant case contained a fruit that does not exist.
Even lawsuits as unmerited as alleging that consumers believe Crunchberries grow on trees are expensive to deal with. As we said following the Williams decision, the sad state of affairs is that the only way manufacturers can mitigate against these types of putative class actions is to directly involve lawyers in the marketing and labeling process.
Avoid Unnecessary Labeling Claims - Ensure That Cooking Instructions Are Adequate
Bill Marler funded independent research at the University of Idaho to study the adequacy of cooking instructions found on the packaging on various retail brands of frozen ground beef patties. The research was published this month in Food Protection Trends.
The study found that three of the packages included cooking instructions that “would be inadequate to produce a safely cooked patty.” Most of the issues raised in the article center on the variability in cooking techniques, e.g., pan frying, using a propane grill, or preheating, and variability in cooking temperatures. Suggested solutions for improved cooking instructions are included in the study.
For food sellers trying to minimize or avoid claims, adequate cooking instructions are a good thing. Even if food-borne illness claims cannot be avoided, the scope of the claims and damages can be limited by providing adequate, "bullet-proof", cooking instructions.
Kudos to Bill Marler for “putting skin in the game” and funding this study.
More on Reducing the Risk of Failure - Focus on Shifting Liability For Consumer Claims
Food Safety Magazine ran an interesting piece by Aaron Krauss titled “Reducing the Risk of Failure.” The article was part of the magazine’s focus on limiting liability for food companies. Mr. Krauss includes a good discussion of the pros and cons of indemnities and disclaimers of warranty and liability as ways to shift or reduce liability for claims within the supply chain. Yet, the article does not discuss how to shift liability for claims from outside the supply chain, i.e., consumer claims.
For example, Mr. Krauss advocates that if members of the supply chain limited liability between themselves to the purchase price of the product, this might reduce or eliminate litigation. Mr. Krauss points out that “if everyone in the ‘peanut butter food chain’ had limited their liability, a store might not bother suing, since it could only recover its purchase price.”
Limitation of liability clauses, while effective to reduce exposure between members of the supply chain, will have no limiting effect on consumer claims. Unless a food seller can invoke a “passive retailer” defense, each member of the supply chain will be strictly liable for injuries to consumers caused by the food product.
The only ways for a food seller to shift consumer liability is through either supplier indemnity or insurance. Mr. Krauss is correct that indemnities by suppliers may be hard to secure and harder to enforce. And, claims defended by the seller’s own carrier will invariably result in higher premiums.
Because insureds will generally be penalized through premiums for invoking their own insurance, the best insurance is somebody else’s insurance. Even a food seller that might not have the leverage with its supplier to receive indemnification may be able to secure “additional insurance.” Naming a vendor as an additional insured frequently costs the supplier nothing in added premiums. If seller specifies that this insurance is to be “primary and noncontributory,” the supplier’s insurance may be the first line of defense for claims involving the supplier’s products.
If a supplier will provide additional insurance, follow-through is essential. The seller needs to (1) verify that the supplier has, in fact, named the seller as an additional insured and (2) review the operative language of the additional insured endorsement and/or policy language to ensure that it does not include unacceptable conditions or exclusions.
Court Rules That Retailers Have No Duty to Investigate Suppliers Compliance with Organic Regulations
An important ruling was issued last week dismissing claims that milk produced by an organically certified dairy and labeled as organic was not really organic. Plaintiffs in the action asserted violations of various states’ laws because they claimed that they paid more for the milk because it was labeled as "organic.”
A federal judge in the Eastern District of Missouri granted a Rule 12(b)(6) motion to dismiss on a multitude of cases pending against the dairy, various retailers selling the dairy products and others (originally these suits were filed in various federal courts around the country but were consolidated for pretrial purposes by the United States Judicial Panel on Multi-District Litigation or MDL).
The judge ruled that claims against the dairy were preempted because a “conflict exists between federal and state law” (otherwise known as “conflict preemption”). As explained in the opinion, conflict preemption exists where “a party’s compliance with both federal and state law would be impossible or where state law would pose an obstacle to the accomplishment of congressional objectives.” Here, the court found that for “plaintiff’s claims to succeed, the Court would have to invalidate the regulatory scheme established under the OFPA [Organic Foods Production Act] and NOP [National Organic Program].” The court concluded that if plaintiffs were to prevail “producers would be liable even where fully certified and authorized to use these terms and seals.”
For the retailer defendants, the judge ruled that because plaintiffs’ claims against the dairy are preempted, “the retailer Defendants cannot be liable.” But the court went further and dealt explicitly with the plaintiffs’ claims that the retailers “should have investigated” the dairy’s activities to ensure compliance with the OFPA and NOP. The court rejected these arguments:
The Retailer Defendants did not have any duty to inspect [the dairy’s] facilities, or the facilities of any of their other organic producers. Imposing such a requirement “would place an undue burden on the distributor who is least likely to have access to such information.”
This should be good news for organic retailers. Hopefully, this decision will reduce their legal exposure to consumer labeling claims going forward.
Tracking the Food Safety Working Group - More or Less Legal Exposure For Food Sellers?
This week the Obama administration announced the launch of a new website for the recently formed food safety working group. Obama announced the formation of this group in March in the wake of the high-profile food safety issues surrounding PCA peanut products.
This website will assist in tracking the efforts of the working group. As discussed previously on this blog, this group is expected to make recommendations aimed at detection, awareness and government reorganization. Possible examples include increasing funding to states to monitor food-borne illness, combining FDA and USDA food safety efforts, reexamining mandatory recall authority, increasing retail enforcement and implementing more aggressive consumer warnings.
What is not clear is whether the working group will look beyond just detection, awareness and reorganization to bolder initiatives that may result in less consumer illness and less legal exposure for food sellers. Bolder initiatives could include funding for irradiation, consumer food safety education, and fast-track development and implementation of technology that can sample food products for whole colonies of microorganisms.
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Defending Liability in Foodborne Illness Outbreaks
I’m asked frequently about the “anatomy of litigation.” I plan to write more in this space on the topic. For now, some may find useful the slides from a presentation I gave recently on “Defending Liability in Foodborne Illness Outbreaks.” I discussed what I see as three prototypes of consumer claims and possible strategies to respond to each.
Five New Year's Resolutions
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Unfortunately, 2009 does not promise to be any easier than 2008 in protecting your business against food liability claims. Many argue that threats will only increase in the new year. Here are five things you can do to reduce exposure in the coming year:
1. Review Insurance Coverage and Limits Carefully – Both the variety and size of claims are escalating fast. For example, just a couple of years ago consumer claims from non-O157 E. coli, melamine, diacetyl or organic labeling seemed far-fetched, but all are now a grave reality. Federal, state and local governments will continue improving detection techniques since the rash of large, national food-borne illness outbreaks in 2006-08. The Obama administration will likely make increased funding in this area a priority. The odds that your company will be targeted in a nationwide outbreak resulting in claims in the hundreds of millions of dollars are increasing. Because of the exposure, insurance companies now more than ever will be looking for ways to reduce their coverage.
2. Review and Revise Supply Chain Agreements – Aside from insurance, one of the most effective ways to reduce, spread and mitigate risk is to ensure that those in your supply chain provide adequate insurance and indemnity for problems related to their products. But just because your supply agreement happens to mention insurance and indemnity does not necessarily mean those clauses will help when you need them. The only way to ensure that they will be honored and enforced is to ensure that your legal team (experienced in litigating these clauses) drafts these carefully.
3. Reassess Suppliers – Your choice of suppliers may be key to avoiding or reducing risk. Even if you demand sufficient insurance and indemnity from a supplier, a supplier of sufficient size may not be able to access insurance or have assets available to satisfy indemnity obligations. As important as your food safety, HAACP and other programs may be, they are really only as strong as your suppliers’ programs. Careful audit and assessment of your suppliers’ food safety programs is important.
4. Increase Scrutiny Against Fraudulent Imports – Melamine, tainted rice and now “laundered honey” are all good examples of how fraud in the global food chain can dramatically affect unsuspecting U.S. food sellers. [add more advice here?]
5. Review, Update and Rehearse Crisis Management Plans – How your company is prepared to respond to a crisis is a good predictor of how your company will weather the crisis. With the stakes increasing, you need to be prepared to face the worst. Continual review, updating and rehearsal of your crisis management plan is key. Everybody on the crisis management team needs to understand his or her role and be ready for different scenarios.
Practical Advice for Litigating the Food Case
Click here for the slides from a presentation I gave recently with Shawn Stevens entitled ".jpg)
Practical Advice for Litigating the Case: Retaining Experts, Assessing Damages and Planing Trial Strategy." Two threads of my part of the presentation were organization and relationships (I believe that these were also central to Obama's campaign hence the campaign log).
In the coming months, I intend to use this blog to continue my series on the anatomy of complex, multi-party consumer based claims. Building organization and relationships will be discussed heavily as central to positioning a case succussfully for trial (and settlement).
Court to Rule on Consumers' Expectations For Organic Cosmetics
Dr. Bronner’s Magic Soaps (“Dr. Bronner’s”) received a favorable ruling recently in its suit against competitors that it believes are misleading consumers by labeling cosmetic products as “Organic”. Part of Dr. Bronner’s claim appears to be that “Organic” standards established by the U.S. Department of Agriculture (“USDA”) set the bar for consumer expectations of "Organic" cosmetic products. The USDA’s National Organic Program (“NOP”) standards, according to the USDA, do not apply to “cosmetics, body care, or personal care products”. Dr. Bronner’s argues in its complaint that “[p]ersonal care products labeled as in compliance with ‘Organic’ or ‘Made with Organic [up to three specified ingredients]’ under the NOP criteria reflect basic organic consumer expectations . . . .” (Brackets in original.)
Last week, a California Superior Court in San Francisco overruled the demurrer of Ecocert France (SAS) and Ecocert, Inc. A demurrer is essentially a request made to a court, asking it to dismiss a lawsuit on the grounds that no legal claim is asserted.
According to Dr. Bronner’s, the “Court turned aside the defendants’ arguments that Dr. Bronner’s, in its complaint filed with the Court, had not sufficiently spelled out how actual consumers, the company and competition in the organic personal care industry have been hurt by the defendants’ deceptive practices.” The court’s ruling does not necessarily mean that Dr. Bronner’s is likely to succeed, only that it has articulated colorable claims. The court did not rule on the merits of these claims.
This case should be watched closely by those in cosmetics and food industries. Dr. Bronner’s claims turn, at least in part, on its view of “consumer expectations.” Do consumers have expectations as to what “Organic” means? Does it mean something different for cosmetic products? These are just a few of the significant questions that may be addressed in the litigation.
Anatomy of a Food-Borne Illness Claim - Part I
Recently, I’ve received several requests for resources explaining the anatomy of a food-borne illness claim. In other words, what events can be expected, and when? What can or should a company (in particular the legal department) do in response to a claim?
Part I – Notice of an Outbreak (and Possible Claims)
First off, don’t panic. Your company’s crisis management team (which has been well-rehearsed for this scenario) should convene action upon the first notice of a possible outbreak—even before verification and before claims are apparent. Food safety experts should contact the health departments that may have identified the outbreak. Together with the legal, sales and quality assurance departments, your food safety experts should be involved in a full investigation of the possible outbreak. The earlier the intervention, the greater the possibility of collecting key information that may be useful in determining whether your company is linked to the outbreak and pinpointing other possible sources of the outbreak. Public relations experts should also be consulted at the first possible moment.
Checklist for the legal department:
- Log events, actions and communications. This is critical for responding to government agencies and to claims.
- Record all reported injuries. Collecting information about potential claims early is a key to mitigating those claims and future legal costs.
- Notify insurers. Insurance companies require prompt notice; insurers may also have assets available for crisis response.
- Document the investigation. Litigation may be protracted, and a well-documented investigation may be key to the company’s defense.
- Institute a litigation “hold” on the destruction of any company documents or emails. Don’t turn a bad situation into a nightmare; spoliation claims can take on a life of their own.
- Retain product samples for future testing. This may be critical to support experts’ opinions at trial and to preserve claims against suppliers.
- Review and retain vendor/supplier documents. Recovery against suppliers could be as important as or more important than insurance recovery.
- Assess the merits of a consumer hotline. It could be helpful in disseminating accurate information to consumers (inaccurate or conflicting information can lead to litigation) and in collecting information about the pool of potential plaintiffs.
- Assess the merits of a consumer/vendor reimbursement program. Like having a consumer hotline, providing immediate reimbursement could help dampen the volume of future plaintiffs.
Stay tuned for Part II – Receipt of the Demand Letter.
New York Times on Nutraceuticals
The New York Times has a piece on nutraceuticals that caught my eye as an example of the news media’s skepticism about fortified food. The article begins:
“O[ff] the coast of Peru swim billions of sardines and anchovies: oily, smelly little fish, rich in nutritious omega-3 fatty acids. Their spot on the food chain is low; many will be caught, ground up, and fed as fishmeal to bigger animals.
“But a few have a more exalted destiny: to be transported, purified and served at North American breakfast tables in the form of Tropicana Healthy Heart orange juice and Wonder Headstart bread. These new products promise to deliver the health benefits of fish oil without the smell and the taste — without, in fact, the fish.”
But the article’s author, Julia Moskin, without citation or attribution, poses these loaded questions: “Are we really that close to a world in which food functions as a nutrient delivery system, made possible by microencapsulation and fine-spray coating? And what would this mean for food and human nutrition?”
In the end, Ms. Moskin’s piece appears full of cynicism and doubt about the industry. She writes off nutraceuticals as a cheap marketing ploy:
“[W]ith recent rising costs in raw materials, flavorings and transport, many food companies are refocusing their research and development; instead of adding expensive ingredients like sun-dried tomatoes or honey-roasted almonds to existing products, the search is on for inexpensive ‘value-added’ products that customers will pay extra for.”
Ms. Moskin does quote claims made by the industry but notes that university scientists disagree with the claims—implying that these scientists must be right because they are not employed by industry.
To me, the article demonstrates the need for the industry to invest in more independent research and verification. As the nutraceuticals industry matures and grows, claims by industry will be met with growing suspicion and, inevitably, assertions of “consumer fraud.” Consumers may believe health claims by small health food companies that they “trust.” But once those same companies (and their industries) grower larger, people by their nature become more skeptical.
"Organic Pathogens Exclusion"
Insurers are making efforts to exclude food-borne illness claims from coverage under comprehensive general liability (“CGL”) policies. The "Organic Pathogens Exclusion" is a good example.
While a claim for food-borne illness may normally be covered by a CGL policy, if you have an organic pathogens exclusion, your insurer will not provide a defense and will not cover your losses if your business is sued as a result of a food-borne illness.
Organic pathogens exclusions can take multiple forms. Some policies include an endorsement that excludes any “loss” for “any actual, alleged or threatened exposure to, existence of, presence of, ingestion of, inhalation of or contact with any biological agents.” “Biological agents” are usually defined to include things like bacteria, viruses or other pathogens (whether or not a microorganism).
Other policies simply include an endorsement providing that “this policy does not insure any loss, damage, claim, cost, expense, fine, penalty or other sum either directly or indirectly arising out of, relating to or caused by an “organic pathogen.” These policies generally define “organic pathogen” to mean “any organic irritant or contaminant, including but not limited to fungus, bacteria, virus, or other microorganism of any type, including but not limited to their byproducts such as spores or mycotoxin, or any hazardous substance as classified by the EPA.”
Any business involved in food production should take notice. Insurers are actively marketing policies with organic pathogen exclusions to food businesses whose greatest liability exposure may be food-borne illness. Careful and regular review of insurance policies and coverages is essential.
