"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).
The Human Cost of the Peanut Butter Recall Part Two
According to a Bloomberg report, over 100 companies, including Kellogg Company., The Kroger Co., and Unilever plc expect to post losses as a result of the Peanut Company of America debacle. Although it is not specified in the article, I presume these are mainly public companies who have statutory obligations to post information about their expected losses. A CNN report suggests, however, that the real cost may be far greater.
What CNN's story indicates is that even though there is no evidence to suggest that there is anything wrong with peanuts, peanut butter or peanut butter-based products sourced from anywhere other than PCA's facility, consumers are becoming extra cautious and in many cases avoiding peanut butter altogether. It quotes Dr. Douglas Powell, an associate professor at Kansas State University and the creator of the International Food Safety Network as well as the less formal but more memorably named Barfblog. Dr. Powell sympathized with the consumers who aren't buying peanut butter.
If you're a parent packing a lunch and you have all the hectic things going on in the morning, is it really realistic to say, hey, before you put that peanut snack cracker individually wrapped item into your kid's lunch, you're going to go onto the Internet and check a Web site? I think that's a bit much. I think it's prudent to avoid this stuff until we see where this is going.
I expressed similar sentiments in a recent blog entry, so I am not disagreeing with Dr. Powell. Certainly, no one should eat, or give to anyone else to eat, anything that about which they have reason to be concerned as to its safety.
The question is: what should responsible people be saying? The CNN report quotes from spokespeople for ConAgra Foods, the makers of Peter Pan peanut butter, and J.M. Smucker, the makers of Jif peanut butter, in each case describing how their peanut butter products do not and have not used products from PCA. As USA Today reports that PCA's Plainview, Texas plant is shut down after inspectors found salmonella there, and amidst reports we have already blogged about indicating that PCA's actions were exactly the sort that lead to criminal prosecutions, what is the responsible course for dealing with this crisis?
The 100 public companies Bloomberg referred are, I would ask you to remember, the mere tip of the iceberg. Peanut butter products are sold at every mom and pop grocery store, every convenience store, nearly anywhere that sells food. Kellogg's, I dare say, can absorb its losses. In these days when thousands are losing their jobs daily where there is no highly-publicized recall adding to the current economic woes, how many more will be thrown out of work because of lost sales of peanut butter products that are not subject to suspicion?
In subsequent entries, we will be exploring some of the legal consequences of product recalls, as affected buyers try to recover their losses up the distribution chain.
