Food Liability Law Blog : Food Safety and Liability Lawyer & Attorney : Stoel Rives Law Firm : Food Safety, Organic Food, Recalls

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.

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Can products packaged defectively for consumer sale really be usable? According to a recent case adjudicating commercial general liabilty ("CGL") and commercial umbrella insurance policies, products packaged in defective cans are not necessarily unusable. 

In Silgan v. National Union Fire Insurance Co., Judge Hamilton from the U.S. District Court for the Northern District of California, recently ruled against Silgan, a can manufacturer, seeking insurance coverage for a $6.5 million customer claim arising from a large-scale food packaging failure. Del Monte made a claim against Silgan for $6.5 million because of a failure of four-ounce pull-tab cans of fruit. Del Monte consumers increasingly complained in 2005 that the pull-tabs broke.

The case is notable for a variety of reasons, as the court granted summary judgment against Silgan on several bases, including that the loss of fruit constitutes neither “physical injury to tangible property” nor “loss of use of tangible property that is not physically injured.” Joseph A. Arnold at Cozen O’Connor has an article discussing the ruling in full. 

Judge Hamilton ruled that there was no "loss of use" coverage because there was no proof that the fruit inside the defective cans was “unusable.” The judge ruled that

without proof that the fruit itself was unusable, rather than proof that Del Monte made a business decision not to expend money on re-packaging the cans, plaintiff has not satisfactorily discharged its burden to establish that Del Monte lost use of its tangible property, such that qualifying “Property Damage” under the National Union Policy
occurred.

But how can product canned for consumer sale not be unusable if the container fails? Implicit is a finding by the court that the fruit could have been repackaged for sale. But is it ever feasible to re-can fruit for sale? To answer this question I consulted nationally renowned food safety expert Gale Prince. As I suspected, Mr. Prince’s response was not consistent with the court’s ruling on usability:

If you open the containers you would have to reprocess the fruit. This would require heat. I would question the saleability of the reprocessed product after the addition[al] processing that would be required to achieve safety. The product would be expected to be mushy and discolored. You would expect a problem with organoleptic qualities. The economic cost of opening effective cans and processing [may] exceed the economic value of the resulting reprocessed fruit product.

Insureds can expect to see their carriers deny coverage coverage more frequently using National Union's "loss of use" argument. Though it may seem obvious how flawed the argument is, insureds cannot assume that either their insurers or the courts will see it that way.  Retaining experts such as Mr. Prince and marshalling the case for unusability will be critical in securing coverage.

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