"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.
Dismissal of "I Can't Believe It's Not Butter" Claims: Another Example of Iqbal/Twombly Succeeding Where Preemption Cannot
Judge James Ware dismissed on an FRCP 12(b)(6) motion putative class claims against Unilever alleging violations of the California Consumers Legal Remedies Act , Unfair Competition Law, and False Advertising Law . Judge Ware's decision can be found here. Plaintiff alleged that Unilever misrepresented the ingredients of its butter-substitute product through its advertising and product labeling.
The heart of plaintiff's complaint was Unilever's marketing of the product as "Made with a Blend of Nutritious Oils." Plaintiff alleged that "[t]his message . . . is misleading and deceptive because Defendant's Product contains a highly unhealthy, non-nutritious oil known as partially hydrogenated oil."
Unilever's preemption argument was rejected. The court followed what's becoming a familiar line of reasoning that while federal law governs the labeling of the product, state advertising and marketing claims are not preempted:
Although the "oils" referred to in the advertisement on the label are the same oils that are subject to the NLEA labeling requirement, the Court finds that there is no inherent conflict in allowing relief under state law with respect to what is said in the advertisement on a label about characteristics of those oils that are not regulated by the NLEA.
Judge Ware dismissed the claims against Unilever on the basis of the plausibility pleading standards articulated by the Supreme Court in the Iqbal and Twombly cases. He ruled that plaintiff's claims concerning the oils were "conclusory" and explained that the "implausibility of Plaintiff's allegations can more readily be seen if the allegations are expressed as a categorical syllogism:"
For the representation "blend of nutritious oils" to be true, all constituent oils
must be nutritious. One of the constituent oils in the product [partially hydrogenated oil] is not nutritious. Therefore, the product representation is false.
The court went on to explain why plaintiff's claims, even if accepted as true, were implausible. The court found faulty the logic underlying plaintiff's complaint about the use of partially hydrogenated oil in the "blend of nutritious oils." The court found that plaintiff's argument suffered from (1) “petitio principii (begging the question)”, (2) the "fallacy of composition" and (3) the "fallacy of division." In short, the Unilever case demonstrates that without a solid scientific and factual basis, consumer fraud claims are frequently vulnerable to attack on an early motion to dismiss (though maybe not for preemption).
Consumer Fraud Claims: Examples of Good and Bad Motion Practices
The Good: Tropicana recently brought a motion to dismiss the Zupnik putative consumer fraud class claims pending against it. Zupnik alleges that Tropicana misled consumers in the promotion of its “Pure 100% Juice Pomegranate Blueberry Flavored Blend of 5 Juices from Concentrate with other Natural Flavors” because its front label did not include pictures of fruits other than pomegranates and blueberries.
Tropicana’s motion, brought under both FRCP 9(b) and 12(b)(6), appears as a good example of how putative consumer class claims can be challenged at the outset of the case. Though we don’t yet know whether Tropicana will be successful, its pleading is a sharp attack on the plaintiff’s complaint and takes advantage of the heightened pleading requirements announced recently by the Supreme Court.
Tropicana moved on the basis that the complaint lacks particularity required under Rule 9(b) (the rule requires pleading of the “particularity of the fraud”). It also challenged whether the plaintiff had any injury in fact or alleged any reliance on particular advertising. Finally, Tropicana argued that Zupnik’s claims were expressly preempted by federal law.
Tropicana cites to Twombly to urge the court to disregard “plaintiffs legal conclusions . . . even when made, as here, in the guise of factual allegations.”
Tropicana also attacks Zupnik’s complaint on the basis that “she got what she paid for.” Tropicana points out that its product sold for far less than juice with a higher level of pomegranate or blueberry juices. Because she got what she paid for (presumably regardless of whether she understood it at the time of purchase), she lacks standing to bring a claim for consumer fraud.
The Bad: Coincidently, in another case involving a putative consumer fraud class claim over depictions of fruits on a label, Judge Gorton of the United States District Court for the District of Massachusetts in Wiley v. Gerber Products Company granted Gerber’s motion to transfer to the Southern District of California for consolidation with the Williams case pending in California. (The Williams case was previously discussed in this blog.)
The lesson from Wiley v Gerber: if your strategy is to avoid transfer of venue, think about this when pleading. For example, do not include allegations in the complaint about a nationwide class and the application of different states’ consumer protection laws.
Wiley argued against transfer, contending that the “Court’s familiarity with Massachusetts law, under which several claims are brought weights against transfer.” The problem is that “in her amended complaint, Wiley added several claims under New Jersey state law which only undermines her contention that this Court is especially competent to adjudicate the state laws at issue in this dispute.” Wiley also alleged a nationwide class. The court found that the plaintiff’s choice of forum mattered little when she alleged a nationwide class.
