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.
"I Can't Believe It's Not Implausible" - Iqbal/Twombly Doctrine Does Not Result in Dismissal of Yumul Claims
As our own Ken Odza recently blogged, the plausibility pleading standard articulated by the Supreme Court in the Iqbal and Twombly cases resulted recently in the FRCP 12(b)(6) dismissal of misrepresentation claims against Unilever. That ruling seemed to indicate that consumer fraud claims would be vulnerable to motions for dismissal. However, in an order granting in part and denying in part the defendant’s motion for dismissal in Yumul v. Smart Balance, Inc., the U.S. District Court for the Central District of California did not apply the plausibility pleading standard as stringently as the court in the Unilever decision, lending some question as to precisely how far Iqbal and Twombly will reach.
In Yumul, the plaintiffs alleged Smart Balance violated the California Unfair Competition Law, False Advertising Law, and Consumers Legal Remedies Act. These exact same violations were alleged in the Unilever case. In Yumul, the plaintiffs alleged that Smart Balance misled consumers with its marketing of Nucoa margarine as “cholesterol free” and “healthy,” despite the presence of artificial trans fat in the product.
In addressing Smart Balance’s motion for dismissal, the court noted the plaintiffs’ reliance on the delayed discovery exception in support of its assertion that tolling of the statute of limitations was appropriate. Stating the applicable law, the court offered that:
A plaintiff whose complaint shows on its face that his claim would be barred without the benefit of the discovery rule must specifically plead facts to show (1) the time and manner of discovery and (2) the inability to have made earlier discovery despite reasonable diligence. The burden is on the plaintiff to show diligence, and conclusory allegations will not withstand demurrer.
In its order, the court directed the plaintiffs to specify the manner of discovery (how and when the plaintiffs actually discovered the fraud or mistake) within 14 days of the July 30 order in an amended complaint. The court denied Smart Balance’s motion to dismiss on all other grounds. While this is no guarantee of success for the plaintiffs by any means, the decision of the court not to dismiss the allegations in Yumul on the basis of the plausibility pleading standard under Iqbal and Twombly stands as an example of the type of inconsistency we may see as courts attempt to apply the standard. We will continue to closely follow this case.
Cleaning Up the Docket - Northern District of California Dismisses Lanham Act Claim Alleging Mislabeling of Personal Care Products
As we have blogged about, litigation regarding product labeling has been a hot topic within the food and beverage industry. A recent decision from the Northern District of California could hold interesting implications for Lanham Act claims centering on the labeling of products as “organic.” While the case, One God Faith, Inc. v. Hain Celestial Group, Inc., involved personal care products rather than agricultural products, the rationale used by the court in reaching its decision to dismiss the claims of the plaintiff is illustrative for the general category of “organic”-labeled products.
In One God Faith, plaintiff, a manufacturer of personal care and cosmetic products, including soap labeled as United States Department of Agriculture (“USDA”) certified “organic” or “Made with Organic” oils in compliance with USDA National Organic Program (“NOP”) standards, sued multiple defendants under § 43(a) of the Lanham Act alleging defendants falsely, misleadingly, and confusingly labeled and advertised similar products as “organic” even though they did not meet NOP standards for the designation, resulting in a loss of sales for plaintiff.
As we blogged about in our discussion of the POM v. Ocean Spray decision, pursuing a false advertising claim under the Lanham Act can be a difficult task for plaintiffs. When Congress enacted the Organic Food Products Act (“OFPA”) in 1990, the legislation that authorized the USDA to implement the NOP, it expressly declined to create a private right of action to enforce the statute or any of its implementing regulations. The plaintiff in One God Faith argued that the OFPA by its statutory language applies only to “agricultural products,” and the USDA has made clear that its comprehensive regulatory scheme governing the use of the term “organic” does not apply to personal care products, the category of products at issue in the case.
However, the court in One God Faith was not persuaded by this argument. While the court did find that it was undisputed that the USDA has declined expressly to impose the NOP standards on personal care products, this was not sufficient to justify the exercise of subject-matter jurisdiction by the Northern District. The court noted that the issue of amending existing regulations to include “organic” claims with respect to personal care products has generated significant recent discussion and that the USDA has asserted its authority over personal care products in other significant ways, including allowing producers and handlers of such products (including the plaintiff) to seek USDA certification under the NOP. As stated by the court, the mere fact that the USDA has not to date expressly imposed the NOP standards does not excuse plaintiff from exhausting available remedies under the USDA’s administrative appeal procedure. Consequently, the court held that granting the plaintiff its requested injunctive relief would negate the legislative bar on private actions and effectively enforce the NOP standards against defendants. As such, plaintiff’s complaint was dismissed for lack of subject-matter jurisdiction.
Opening the Door to More Litigation Between Food Companies? See POM v. Ocean Spray Decision
False advertising claims under the Lanham Act and corresponding state law claims for food companies can be tough going. Many intersect issues regulated by the FDA under the Federal Food, Drug, and Cosmetic Act (FFDCA). No private right of enforcement of the FDA regulations exists. Only the FDA is allowed to bring a legal action to enforce its regulations. Lanham Act claims are generally barred where private litigants ask the court to determine preemptively how the FDA will interpret its own regulations.
Now comes the recent decision in POM Wonderful LLC v. Ocean Spray Cranberries, Inc. POM is aggrieved because Ocean Spray markets pomegranate and cranberry blended juices though, according to POM, the juices are “almost entirely comprised of apple and grape juice.” POM is alleging Lanham Act false advertising claims and California state law false advertising and unfair competition claims.
The court denied a Rule 12(b)(6) motion to dismiss. Threading the needle, the Court found that the claims were not seeking FFDCA enforcement. According the Court, POM’s claims are not for “mislabeling,” but for false advertising and promotion. The court determined it would not have to interpret FDA regulations and that “POM’s Lanham Act claim ‘extend beyond the packaging and name . . . to its advertising and marketing including . . . website.” Applying similar logic, the court found that the FFDCA did not preempt POM’s state law claims.
Lesson from the POM court: Whether one food company can bring false advertising claims against another depends in part on whether a court believes that the claims are focused on non-FFDCA-regulated issues such as advertising, websites, social media or other marketing efforts.
Bottled Water Association Sues Over Water Bottle Ads
The International Bottled Water Association (IBWA) is taking aim at an advertising campaign for Eco Canteen stainless steel water bottles, claiming the ads wrongly suggest that plastic water bottles are unhealthy and unsafe.
In a lawsuit filed in the U.S. District Court for the Western District of North Carolina, IBWA claims that Eco Canteen’s television ads and content on various Eco Canteen websites deceive the public into believing that single-serve and reusable plastic water bottles constitute a safety and health risk to consumers. Among other things, IBWA’s lawsuit alleges that some of Eco Canteen’s ads have:
- Improperly linked plastic water bottles to breast and prostate cancer and stated that plastic water bottles “could be poisoning you and your family”;
- Matched images of single-serve plastic water bottles with Eco Canteen’s claims “relating to an organic compound called Bisphenol A (BPA) with the intent to confuse consumers into believing that single-serve bottles also contain BPA even though they do not”;
- Conveyed false and misleading information regarding the alleged health risks of BPA; and
- Suggested that exposing certain water bottles to warm temperatures can lead to leaching of chemicals.
IBWA brings two claims against Eco Canteen: (i) a false advertising claim under the Lanham Act, 15 U.S.C. § 1125; and (ii) an unfair competition claim under North Carolina law. A copy of the complaint (including exhibits showing some of the Eco Canteen ads about which IBWA complains) is available here.
