You'll remember the scene from "Casablanca." Ilse (Ingrid Bergman) comes in and Rick (Humphrey Bogart) says, "Your unexpected visit isn't connected by any chance with the letters of transit. It seems as long as I have those letters, I'll never be lonely." That's sort of how I feel about "all natural" product labeling litigation. So long as those cases exist, perhaps I'll never be lonely. But will they always exist? The latest decision in our old friend, Astiana v. Ben & Jerry's Homemade, Inc., provides me with some optimism I might be lonely again.
As you'll recall from our post when this case was first filed, the plaintiff was upset because, she claimed, dutched cocoa was somehow an artificial product. We pooh-poohed that notion, but, presumably for reasons of judicial economy, Ben & Jerry's chose to settle the case.
In the meantime, though, the Ninth Circuit Court of Appeals decided Dennis v. Kellogg Co., which greatly restricted the terms under which settlements of similar cases could be approved. In particular, the case limited the use of the cy pres doctrine, which would dispose of unexpended settlement funds, to charities that benefit the same goals as the unrepresented and unfound members of the plaintiff class. The court said,
Thus, appropriate cy pres recipients are not charities that feed the needy, but organizations dedicated to protecting consumers from, or redressing injuries caused by, false advertising. On the face of the settlement's language, "charities that provide food for the indigent" may not serve a single person within the plaintiff class of purchasers of [the allegedly offending product].
Dennis was decided by the Ninth Circuit literally between the time the court in Astiana had preliminarily approved the class settlement and the date of the hearing on final approval. The court, cognizant of the decision, asked the parties to go back and revise their settlement to one that could be approved in light of Dennis. This they were unable to do, and the settlement collapsed. The plaintiffs then moved to certify the class. And got pounded by the court. After the jump, you'll see how.
We're written a lot about class actions before. In particular, this article by Melissa Jones outlines the issues in California well. In Astiana, the court focused on two related issues needed to certify a class, "ascertainability" and "predominance of common questions". The court found that the plaintiffs had made no showing on either issue. The claim had been that alkalized cocoa was not "all natural." Evidence after discovery showed that the cocoa in Ben & Jerry's ice cream had been dutched using different alkalis, some of which were unquestionably "natural" and some of which were arguably "synthetic". Neither Ben & Jerry's nor its cocoa vendors kept track of what ice cream contained which cocoa, and federal law does not require them to do so. Since the only class members were those who had purchased cocoa dutched using synthetic alkali, it was impossible to ascertain who was a member of the class and who was not.
The issue of "predominance of common questions" in this case focused almost entirely on damages. And here is where Ben & Jerry's experts provided evidence that might start crumbling the walls of these "all natural" cases. Ben & Jerry's, after all, had taken the words "all natural" off their labels (replacing it with a more prominent display of the slogan "Vermont's Finest"), and thus had evidence of the impact the change had had on their sales, which was effectively none at all. The plaintiff, on the other hand, basically had no evidence supporting her claim that there was a market price difference between an ice cream labeled "all natural" and one that was not.
What did she claim? Here is the quote from the decision:
Defendant also notes that plaintiff complains about her "vibe" being "disrupted" upon learning from class counsel that Ben & Jerry's might have used a "synthetic" alkali, but that she provides no evidence that other consumers shared this view.
Since the last Gratetful Dead concert (July 9, 1995 at Soldier Field, Chicago), it's not as easy as it once was to identify a class of people who share the same vibes, disrupted or undisrupted. In any event, the court wasn't going to let the plaintiff channel the vibes of others. What the court was looking for was more in the way of evidence of a common theory of damages, i.e., evidence exactly like the evidence in Ben & Jerry's studies on consumer behavior, only coming to the exact opposite conclusion. The plaintiff had nothing:
Plaintiff has not offered any expert testimony demonstrating that the market price of Ben & Jerry's ice cream with the "all natural" designation was higher than the market price of Ben & Jerry's without the "all natural" designation. Thus, by definition, there is no evidence showing how much higher the price of one was than the other. More importantly, plaintiff has not offered any expert testimony demonstrating a gap between the market price of Ben & Jerry's "all natural" ice cream and the price it purportedly should have sold for if it had not been labeled "all natural" – or any evidence demonstrating that consumers would be willing to pay a premium for "all natural" ice cream that was made with cocoa alkalized with a "natural" alkali, and did in fact pay such a premium.
The plaintiff's utter failure to come forth with a theory of damages was fatal to class certification. And of course, the lack of class certification is practically fatal to plaintiff's case. Even to win as a non-class action, plaintiff will still need to identify both her quantity of purchases of Ben & Jerry's products, prove which ones had cocoa dutched with the allegedly unnatural alkali, and then demonstrate some difference between the price she paid and the price if her vibe had not been disrupted. Even with statutes that can also pay attorneys' fees, it's hard to see how anyone would bring such an action.
The combination of Dennis and Ben & Jerry's market studies for Astiana may finally start to turn the tide against these cases. The application of the cy pres doctrine as required in the Ninth Circuit by Dennis leaves the parties with a dilemma they seemed to have found a way around before that case was decided. The plaintiffs' bar would of course love for the unclaimed funds to go to an organization that can help bring the next “all natural case”. The defendants, naturally, would prefer not to arm the opposition. Before Dennis, the plaintiffs’ bar and the food industry had reached a détente, where the unclaimed funds would go to "good works" organizations. The plaintiffs' bar needed to have the settlements of a certain size to justify their fees. Giving food to the homeless, particularly giving food the defendants already have on hand, was nearly costless to the defendants. Dennis now bars that way, which will be a significant impediment to easy settlements.
One might not want to make too much of the Ben & Jerry's market studies, unless one is Ben & Jerry's. They focused on that specific brand of ice cream, a brand that a large number of consumers have purchased and will continue to purchase based on general satisfaction with the brand and the values it has long stood for. So long as the ice cream appears to taste the same, consumers are not likely to abandon it because it no longer says "all natural", as the studies show. But that doesn't mean that a less established product will have the same market acceptance without an “all natural” label. So maybe I won’t be lonely after all.
At the back of most contracts are provisions that lawyers and parties often refer to as "boilerplate". The Free Dictionary defines it as "inconsequential, formulaic or stereotypical language." A recent decision of the Wisconsin Supreme Court supports the interpretation I've given my colleagues for years: there is no such thing as inconsequential language in a contract. Yesterday's boilerplate is today's most critical wording.
The case involved the standard guaranty required by federal law. At the end of the guaranty form, the supplier had added, "This Guaranty shall not render Seller liable for any incidental or consequential damages of whatsoever nature nor shall it extend to the benefit of persons or corporations other than" buyer. The goods that were shipped under this guaranty were found contaminated with E. coli and the buyer sued for, among other things, its consequential damages. The Wisconsin Supreme Court affirmed the intermediate appellate court's decision that this language was ineffective to disclaim consequential damages. After the jump, we'll discuss why.
The supplier's problem is that this was the only disclaimer in any of its documents. As an Article 2 merchant (see my previous entry), the supplier was subject to another warranty, the implied warranty of merchantability. That warranty is given unless disclaimed, Here, it was not disclaimed, and thus was given. Damages for breach of warranty may also be limited or excluded if not unconscionable. So the question became whether the exclusion of consequential damages in the Guaranty applied to damages for breach of the implied warranty of merchantability.
The court answered that question in the negative, and it relied on the express words used in the disclaimer in the Guaranty. "The words, 'This Guaranty,' focus the limitation of damages on those damages that may flow from a breach of the express warranties set out in 'This Guaranty' . . . . They say nothing about damages that may arise from the breach of an implied warranty . . . ."
Exactly. The standard "boilerplate" provision reads more like this: "Under no circumstances may either party be liable to the other for any special, incidental, consequential or punitive damges in any action arising out of this contract, whether considered in contract, in tort of otherwise." The words attached to the Guaranty were far more limited, and the words were given meaning by the Wisconsin Supreme Court.
There are many factors to consider in deciding whether to disclaim implied warranties and whether to limit damages. In contracts related to food, implied warranties are disclaimed far less frequently than in other sales of goods. Parties often exclude incidental damages without understanding what they are giving up. But the lesson from the Wisconsin Supreme Court is always good: the words you choose matter. There is no "inconsequential" boiilerplate.
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.
Mediation has become a critical process for resolving large, multi-party consumer claims. Settlement of these claims is often complicated by insurance and third-party recovery. Often a brokered process is the only practical way to get to a meeting of the minds. Yet, in my experience mediations that can succeed fail because of the lawyers and mediators. Having been through a number of multiparty mediations (sometimes with more than 20 separately represented interests) and having been trained as a mediator, here are my top five tips entering into a multiparty mediation:
1. Bargain from Strength—Be Prepared to Try the Case. Go into the mediation with well-developed trial themes, a trial plan, an opening statement, prepared expert witnesses, and, if possible, jury research. Whether the mediation occurs early on in the case or on the eve of trial, your opponents will know whether you are prepared to try the case. If you are not prepared, settlement will be harder and your client will be asked to compromise more. While trial preparation is critical in any case, it is most critical where the liability and damages claims against your client are the strongest and your client is in a difficult position (i.e., those cases your client would least like to try). For these cases, any leverage your client can bring to the table is important. Creating the perception that your client is ready to go to trial will create leverage.
2. Make Sure the Right Players Are Present and Educated. Mediation cannot succeed unless each party includes a client/insurer representative with full settlement authority (or easy access to full settlement authority). For large multiparty claims, having those representatives physically present is critical. Perhaps more important is that those with authority be prepared in advance of mediation to exercise authority. It should go without mention that a lawyer should prepare his or her own client for mediation by providing a complete and honest assessment of the settlement value.
As or more important may be educating the opposing party, though this is easier said than done. Communicating your adversary’s weaknesses to your adversary is tricky. In most situations, a lawyer’s assessment of the opponent’s weaknesses is not considered credible and is written off as “chest-beating.” The only way a lawyer can succeed in communicating with an opponent about the opponent’s weaknesses is if the lawyer has worked in advance at building a relationship and credibility with the adversary.
3. Select the Right Mediator. For difficult multiparty cases, mediator selection is an important, though often overlooked, key to success. Look for a mediator who will work hard in advance of the mediation to understand the barriers to settlement (see number 4 below). Look also for a mediator who (1) has the ability to quickly grasp complex issues impeding settlement; (2) is not afraid to confront parties with difficult questions; and (3) understands the mediation process, possesses good people skills, and is creative. Avoid at all costs a mediator whose primary tool is to brow-beat, make rulings, or intimidate the parties (this never works unless the mediator also happens to be your trial judge).
4. Educate the Mediator (Well in Advance of the Mediation if Possible). If a mediator has waited until the morning of mediation to first meet with the parties, it may be too late. If there are more than a few interests represented, the entire mediation session may be consumed in educating the mediator about the relevant issues. Worse, the mediator may feel a need to take “short-cuts” and end up alienating the parties before negotiations have really begun. At minimum, the mediator should spend time well in advance of the mediation date, preferably in person, talking with counsel from each side. In advance of mediation, parties should also consider setting up a session for the mediator to hear directly from key expert witnesses. On the morning of the mediation, the mediator should have learned enough to understand the major settlement impediments and should come with a plan of action.
5. Diffuse Personality Conflicts and Emotions. If your client’s goal is to settle the case if at all possible, a trial lawyer must do what he or she can to set aside the skirmishes, grudges, or ill will that might have built up during discovery, motion practice, pretrial preparation, etc. While I’m a big proponent of setting aside ego and of building relationships in litigation, this may not always be possible. But mediation/settlement negotiations are the one time in the litigation process where consensus building is the objective. Lawyers should do what they can (swallow pride, move on, etc.) to extricate personality conflicts from the mediation.
Similarly, lawyers should assess during the mediation the degree to which personality conflicts and emotions among the parties are inhibiting consensus. When practical, lawyers should consider counseling their clients on setting aside ego and emotions. If a heart-felt apology or another message can bridge the difference between the parties, the client should be told and given the opportunity to make the apology or to communicate.
Last week’s ACI conference included a great session on crisis management. David Hermann from the GMA gave a presentation on “Effective Crisis Leadership: 5 Basic Rules You Learned as a Kid.” His presentation reflected a proactive approach and showed ways to build an effective crisis-management plan. Mr. Hermann’s points were as follows:
1. Clean up your mess.
- Take action and assume control of the situation.
- Mitigate your damages.
- Hire independent investigators if needed.
- Respond to the emotional needs of the public.
- Get the facts out before the rumors start.
- Cooperate with regulatory authorities.
3. Tell the truth.
-Honesty is not just the BEST policy, it’s the ONLY policy.
- Accept responsibility.
- An apology is not necessarily synonymous with liability.
5. Keep your hands to yourself.
- Resist the urge to “hit back.”
- Blaming others is not conducive to crisis closure.
Who should lead a crisis-management team was another interesting part of the discussion. Several in-house lawyers thought that the CEO should not take the helm. They believed that the team should be headed by another executive, such as the VP, because the CEO may not be as fully immersed and familiar with the product and also has other ongoing responsibilities that will reduce his or her focus on the crisis.
As restaurant chains operating in King County, Washington are readying to comply with the new menu labeling law, serious questions arise. Does each menu item have to be sent to an expensive lab for testing? How accurate does the nutritional information need to be? How does a restaurant account for the inevitable variables of made-to-order meal preparation (an extra tablespoon of cooking oil can add 120 calories to a dish)? Does a restaurant that complies with the King County law open itself to consumer labeling claims because its nutritional information cannot be 100 percent accurate?
According to the Seattle Post Intelligencer (“PI”), the question concerning the tools that can be used by a restuarant chain to determine nutritional information may have been resolved in King County. The article reports that restaurant chains in King County have been given authority to “use nutritional software to calculate what was in each menu item rather than the pricey proposition of sending every dish off to a laboratory.”
What is not clear are what protections against consumer protection/tort liability a restaurant may have for “the natural variations that come with cooking restaurant food” or the variability between laboratory analysis and nutritional software. As one restaurateur said, “If you’re working by hand and making pasta, putting in cream and tossing in things as you go, it’s probably fairly close, but there are going to be variances because it’s not prepackaged . . . . Even if you’re cutting a meatloaf, if the specifications [sic] on the meatloaf is 12 ounces and (instead) cuts 13 ounces, it’s going to be off by 6 to 8 percent.”
Legal liability from variables in restaurant cooking is “not a theoretical fear.” As pointed out by the PI, “Applebee’s is facing a $5 million lawsuit over just that issue, after an independent lab found more calories and fat in a menu item than the chain’s nutritional information claimed.” One of the complaints filed against Applebee’s was by a person from the Seattle area.
Serious hurdles exist for any plaintiff’s attorney to prove liability and damages or certify as a class a nutritional labeling case against a restaurant:
1. Menu labeling suits are based on the theory that the nutritional information disclosed was 80, 90 or even 95 percent accurate and not 100 percent accurate. Does a reasonable consumer really believe that nutritional labeling of restaurant menu items has no room for error? Given the inherent and obvious variabilities involved, isn’t 80, 90 or 95 percent accuracy for nutritional information reasonable?
2. Even more significant, how does a plaintiff prove causation? Obesity, heart disease and other medical problems are complex medical problems. Even the medical community does not agree on causes of obesity. Surely, obesity , diabetes, and heart problems can't stem from a single meal or even a series of meals from just one restaurant that was 5 percent off in its estimate of nutritional information.
3. Even if liability can be established, class certification seems dubious. How can issues of liability or damages, which by definition vary with each person, ever be considered “common” or “typical” among a vast group of customers sufficient to justify class certification?
As we have seen over and over again in recent legal history, none of these barriers will deter every lawyer. The potential recovery and the targets (i.e. large restaurant chains) are too big not to try. Already, multiple putative class actions have been filed against Applebee’s.
Practically, several things should happen to protect restaurants doing their best to disclose nutritional information to their customers. First, restaurants should be advised to make sure their customers appreciate the variabilities and room for error in their nutritional information. The better a restaurant can prove that a plaintiff was not reasonable in reliance on 100 percent accuracy, the better its chance of having the plaintiff’s claims dismissed.
Second, there should be a legislative solution. The state legislature should exempt from the state consumer protection statute claims for nutritional labeling that meet an accepted standard. Why should restaurants that make their best efforts to disclose nutritional information to their customers be penalized? Without legislation, tort law and consumer protection statutes have the perverse effect of discouraging restaurants from providing disclosures to their customers.