Take-Aways from November 17 Webinar: Sustainable Foods Increase Litigation Risks: Developing Strategies to Minimize Exposure
On November 17, we held our final webinar in a three-part series on bringing sustainable food products to market. Take-aways from the third webinar include:
• Be aware that "natural" is a hot button when advertising and labeling sustainable food products.
• "Sustainable" is not addressed in FTC Green Guides so it is imperative to be specific with your claim and/or use third-party certification.
• Truitt Brothers packaging/labels depict the source of their ingredients.
• Food-borne illness issues affect all food producers. Large producers have made significant investments in prevention in recent years; small producers of sustainable products without capital to improve farming or manufacturing practices are at a competitive disadvantage and possibly more susceptible to legal exposure from food borne illness claims.
• Food sellers should identify a crisis management team, review supplier agreements and understand insurance coverage to mitigate risk.
• Food sellers should understand that product recall coverage is excluded on most Commercial General Liability coverage forms.
Thanks again to our presenters and attendees. The recorded webcast was archived and is accessible here. Click here to access a PDF copy of the presentation slides.
Stay tuned for a possible new webinar series on food traceability. We're tracking the latest regulatory and legislative developments.
Preemption v. Plausibility: Will There Be More or Fewer Successful Consumer Fraud Suits?
Products Liability Law360 ran a piece this week entitled “Suits Over Deceptive Food Marketing Likely To Increase” (unfortunately, this is a subscription-only site) authored by Liz McKenzie. The article discusses rightly how increased FDA enforcement action may lead plaintiffs attorneys to file “piggy-back” putative class actions. For example, it took just 13 days following the FDA’s warning letter to General Mills concerning Cheerios for the first putative class suit to be filed.
Compounding increased FDA enforcement, recent rulings from the Supreme Court and the Third Circuit, like the Snapple Decision, have made it more difficult to assert a preemption defense in food cases in the absence of formal FDA rulemaking.
But, what one hand giveth the other taketh away. The hope for food companies is that that the Supreme Court’s recent decisions in Twombly and Iqbal will negate the preemption decisions and effectively heighten the bar for consumer fraud claims related to product marketing. Dismissal for failure to meet the new “plausibility” pleading standard and not preemption is exactly how the District Court ruled in Wright v. General Mills. Wright involved a putative class complaint involving Nature’s Valley products sold as “100% Natural” “even though the products contained one or more non-natural or artificial ingredients such as high-fructose corn syrup (’HFCS’).”
In Wright, the court found defective, under the Iqbal/Twombly “plausibility” standard, the plaintiffs’ injury-in-fact allegation. The Wright court ruled that the injury-in-fact allegation “conclusory,” “sparse” and “defective.” The plaintiff alleged only that “Defendant caused Plaintiff and other members of the Class to purchase, purchase more of, or pay more for, these Nature Valley products.”
Following the Supreme Court's new standard of notice pleading and its application in the Wright case, query how any putative consumer fraud class complaint can survive a Rule 12 motion without having first completed market surveys or gathering of other evidence of consumer injury.
Before the Outbreak, Preapprove Defense Counsel with Insurer
When a food-borne illness outbreak happens, few food companies (especially those whose brand is at stake) want an unfamiliar defense lawyer who has little knowledge about food-borne illness responding to claims asserted against them. Unless a food company maintains a high, self-insured retention or has the lawyer of its choosing preselected, its insurer might appoint on the food company’s behalf low-cost defense counsel ill-equipped to respond to the claims and protect the brand.
Commercial General Liability insurance and Products liability insurance commonly maintained by food companies to protect them from the risks of food-borne illness outbreak usually will not cover the damage an outbreak can have on a company’s brand, stock value or sales. Lawyers appointed by insurers may have little understanding of the insured’s business or the impact the outbreak can have on its brand. Unlike in other areas, such as securities litigation, insurers are not as likely to have a panel or preapproved list of experienced food liability lawyers ready to deploy.
What a food company should consider before a food-borne illness outbreak happens:
1. Identify lawyers who are:
A. Familiar with (or will pledge on their dime to learn) the food company's business and brands;
B. Experienced in responding to consumer claims and food-borne illness; and
C. Knowledgeable about potential expert witnesses (about both those that the company will hire and those that plaintiffs will hire).
For companies with active crisis management plans , these lawyers likely have already been identified and included on the crisis management team.
2. Work with your broker, insurance coverage lawyer and preselected defense lawyer(s) to get preapproval of your chosen lawyers and agreement on their fees
For the sake of the business relationship (and self-interest), many insurers may agree to preapproval. Consider seeking preapproval at the time of renewal when a commercial insured may have the most leverage with an insurer.
For those with preapproved defense counsel, please consider sharing your experiences and insights. Comment or email.
A Reminder To Review Insurance
Law 360 has an article up this week titled “Coverage May Be Tricky For Food Recalls.” I am among the lawyers quoted in the article. For me, the takeaway is that any food company should have in place a strong team of insurance coverage counsel and brokers. Food companies need to ensure that they have in place the coverage they intend to have in place.
The article also suggests that the markets for recall insurance may be evolving and becoming more accessible. Recalls can be financially devastating. To the extent that recall insurance is affordable and provides relevant coverage, it should be considered.
Salmon Labeling Probably Headed to Supreme Court
The U.S. Supreme Court signaled last week that it may review a California Supreme Court decision finding that federal law does not preempt claims for violations of state consumer protection laws concerning “selling artificially colored farmed salmon without disclosing to . . . customers the use of color additive.” Following a petition for certiorari filed in April, the Supreme Court issued an order last week inviting the Solicitor General “to file a brief in this case expressing the views of the United States.”
The Bush administration generally favors federal preemption of state consumer protection laws. Most Supreme Court watchers believe that the Court will grant certiorari if the Solicitor General advocates doing so. This case, if considered by the Supremes, is sure be significant with wide ranging implications for consumer protection claims concerning food product labeling.
