How Virgin is Your Olive Oil?
The Agricultural Marketing Service (AMS) of the U.S. Department of Agriculture is finally revising its standards for olive oil, promulgated way back in 1948, to bring them in line with the International Olive Council (IOC), an organization established under United Nations auspices that represents 98% of the world’s olive oil production, nearly all in the Mediterranean basin (the U.S. is not a member). It is doing so at the behest of the California Olive Oil Council (COOC), which is the trade association of U.S. olive oil producers, essentially all of whom are in California.
The new regulations, which are effective on October 25, can be found here, and here is a release the AMS put out describing them. Pretty clearly, terms like "U.S. Fancy" are quaint and obsolete with respect to how olive oil is marketed, and standards for what the terms "Extra Virgin" and "Virgin" olive oil mean are important for olive oil producers, distributors, retailers and consumers.
COOC was also a funder of a study, which has received much press attention, about the accuracy of olive oils labeled as “extra virgin” in advance of the effectiveness of the new AMS regulations. The study has resulted in headlines like, “Olive Oil Study Questions ‘Extra Virgin’ Claims” and the even more provocative, “Olive Oil Study Questions Claims of Virginity.”
The study showed, among olive oils purchased by the researchers in three parts of California (the Bay Area, Sacramento and Los Angeles County) a difference in the accuracy of “extra virgin” labeling between domestic and imported olive oils. Using tests that are used by IOC and in the AMS regulations, as well as other tests used by the German Fat and Oil Society and Australian Olive Association (neither Germany nor Australia being IOC members), there was a distinct difference in the quality of the oils tested, with the domestic olive oil coming off better.
The study makes no claim to any statistical significance for its findings, which is not surprising considering they only examined 14 imported and five domestic brands, buying one of each imported brand in three different places in California and one of each domestic brand in two. Equally unsurprisingly, the North American Olive Oil Association (NAOOA), which represents olive oil importers, has questioned the study's conclusions, which they say are not in line with the results of their own periodic tests of their members' products. Both groups appear to be supportive, however, of the AMS regulatory action.
One thing in the NAOOA press release about the new regulations struck me, however.
But the practice of labeling lower-quality olive oil as top-end — and charging a premium for it — is technically legal in the U.S.
The reason is simple: There are no federal rules that define what is — or is not — "virgin" or "extra virgin" olive oil, said Vito S. Polito, professor of plant sciences at UC Davis and co-chairman of the school's Olive Center, a research group.
I suppose we can all have our own definition of "technically legal." Something could be thought of as technically legal if doing it does not result in criminal sanctions, or result in the product being forcibly recalled from store shelves. In those senses, I suppose selling something as "extra virgin" olive oil would be, until the AMS regulations come into effect in October, "technically legal." But if one took it to mean there are no adverse legal consequences, may I beg to differ? Readers of this blog will remember the implied warranty of merchantability contained in Section 2-314 of the Uniform Commercial Code. One key provision of that warranty is that the goods "conform to the promise or affirmations of fact made on the container or label if any." It doesn't require federal standards to say what extra virgin olive oil is; any form of evidence of a standard, such as, say, the IOC standards, would presumably be admissible into evidence to show what the common understanding of the term is. If the goods sold do not conform to the standard found by the court or jury, then damages under Article 2 will be available.
For consumers, it should be even easier. If you buy something labeled extra virgin olive oil and the bottle, when opened, smells rancid, take it back to your retailer. If it smells delicious, enjoy one of nature's true wonders.
Froot Loops Litigation: An Endless Loop for Kellogg's?
Just over forty years ago, Crosby, Stills, Nash & Young came out with their Déja Vu album. Attorneys at Kellogg USA are undoubtedly thinking, “We have all been here before.”
Froot Loops pre-dated Crosby, Stills, Nash & Young. I remember taking the Kellogg's factory tour in Battle Creek and being handed an individual-sized packet at the end of the tour, even before they hit the market. I was seven years old, but I knew they were cereal not fruit. Apparently, some other people think otherwise.
Ken has already blogged about the related, and dismissed, Crunchberry lawsuit. At the ABA Business Law Section Spring Meeting last weekend, my friend Teresa Harmon Wilton mentioned the Crunchberry case in her annual round-up of commercial law cases, and mentioned that the decision was based on the prior Froot Loops case. I looked down at my Blackberry, and that's when I realized there was an old Froot Loops case but I had just got notice of a new one.
Two old ones, actually.
In 2007, the United States District Court for the Central District of California dismissed a claim against Kellogg USA for violations of various California statutes and common law causes of action based on the claim that Froot Loops do not contain fruit.
In 2009, the United States District Court for the Eastern District of California dismissed a claim against Kellogg USA for violations of various California statutes and common law causes of action based on the claim that Froot Loops do not contain fruit.
On April 19, a complaint was filed in the United States District Court for the Northern District of California against Kellogg USA for violations of various California statutes and common law causes of action based on the claim that Froot Loops do not contain fruit.
There is clearly a pattern here. I would note that there is only one other federal court district in California, the Southern District in San Diego. Unless I missed a case there.
In the McKinniss case, the court dismissed claims for:
- Violation of the California Unfair Competition Law
- Violation of the California False Advertising Law
- Violation of the California Consumer Legal Remedies Act
- Negligent Misrepresentation
- Breach of Express Warranty
- Unjust Enrichment
In the Videtto case, the court dismissed claims for:
- Violation of the California Unfair Competition Law
- Violation of the California False Advertising Law
- Violation of the California Consumer Legal Remedies Act
- Intentional Misrepresentation
- Breach of Implied Warranties
In the Werbel complaint, plaintiff seeks damages for:
- Violation of the California Unfair Competition Law
- Violation of the California False Advertising Law
- Violation of the California Consumer Legal Remedies Act
- Intentional Misrepresentation
- Breach of Implied Warranties
Each complaint referenced a study by the Strategic Alliance for Healthy Food and Activity Environments that found that foods it claimed suggested the presence of fruit did not in fact contain fruit. The courts have so far not cared much for this study, which doesn’t in any way demonstrate that anyone could be misled by the actual advertising on the package.
Raise your hand if you’re surprised at the fact that the same attorneys brought all three cases. Under our justice system, a plaintiff is not bound by the decision of a court to which he or she was not a party. An attorney is held to a different standard under Rule 11 of the Federal Rules of Civil Procedure. It will be interesting to see if there is anything that comes from expecting the same conditions to lead to a different outcome.
The Ninth Circuit's iPod Opinion and the Warranty of Merchantability
The warranty of merchantability is a favorite tool of plaintiff's attorneys in food liability cases. We have blogged a good deal about it.
In a case that does not involve food at all, but is sure to get a lot of publicity, the Ninth Circuit yesterday ruled that the common iPod does not breach the warranty of merchantability even if it can be used to damage your ear while wearing ear buds. The decision in Birdsong v. Apple, Inc. will be very helpful in defending future claims of breach of the warranty in many areas, including in relation to food.
The plaintiffs in Birdsong did not allege any injury to themselves. Rather, they alleged that the iPod earbuds were capable of producing 115 decibels of sound, that consumers may listen at unsafe levels and that iPod batteries last 12 to 14 hours and may be recharged, meaning that a consumer may listen for a long time. The plaintiffs requested relief in the form of iPods being modified to have noise-reduction features, better warnings and a decibel meter. The court was having none of it.
The plaintiffs do not allege the iPods failed to do anything they were designed to do nor do they allege that they, or any others, have suffered or are substantially certain to suffer inevitable hearing loss or other injury from iPod use. Accordingly, the district court correctly determined that the plaintiffs failed to allege sufficiently the breach of an implied warranty of merchantability.
The court's analysis may apply equally well to many of the recent food liability cases we've examined where the plaintiffs allege no specific injury to themselves or any inevitable injury to someone consuming the food they have targetted. The warranty of merchantability does not work to protect a consumer from misuse of an item, or use of the item in an absurd, unnatural or harmful way. No one should play heavy metal music on an iPod for 14 hours straight at full volume, and should not claim a breach of the warranty of merchantability if they do. And no one who has been diagnosed with any particular health condition should expect to be able to order anything off the menu at a national chain restaurant, in any quantity, and assume it will not exacerbate that condition.
The noted New York restaurateur and curmudgeon Kenny Shopsin takes this attitude toward people who expect his restaurant to cater to their health needs:
Some people tell me they're deathly allergic to something and that I have to make sure it's not in their food. I kick them out. I don't want to be responsible for anyone's life-or-death situation. I tell them they should eat in a hospital.
Most restaurateurs, big and small, are more accommodating than Kenny (whose autobiography/cookbook has the title Eat Me for a reason). But ultimately, they are providers of food, not doctors, dieticians, the FDA or the Health Department.
Happy (and healthy) New Year, everyone.
Ninth Circuit Decision Casts Doubt on Merchantability Claim in CSPI Suit Against Denny's
Along, I am sure, with many of you, I was intrigued at Ken's recent post on the case of DeBenedetto v. Denny's Corporation, filed recently in Middlesex County, New Jersey by the Center for Science in the Public Interest. Most interesting to me, of course, was the claim that Denny's food violated the warranty of merchantability contained in contracts for the sale of goods under Article 2 of the Uniform Commercial Code. I have blogged on the warranty of merchantability in connection with food recalls.
Paragraph 59 of the complaint states as follows:
59. Denny's meals purchased by Plaintiff and New Jersey Consumers are not adequately described on the menu to advise Plaintff and New Jersey Consumers that they are consuming high amounts of sodium in one meal that are in excess of the advised daily limit.
In Paragraph 60, the complaint claims that this violates the warranty of merchantability because of, among other claims, the alleged inadequate description.
A recent decision of the Ninth Circuit Court of Appeals, Millenkamp v. Davisco Foods International, Inc., seriously calls into question the validity of the plaintiff's claims in the case against Denny's. That case involved the implied warranty of fitness for a particular purpose, not the implied warranty of merchantability, but the reasoning is sufficiently applicable that it can be inferred that Denny's should prevail on this claim.
In Millenkamp, the plaintiffs had purchased milk permeate as cattle feed. The cows fed the milk permeate subsequently died and the plaintiffs sued the supplier as well as a feed company that had advised them about how to use the milk permeate (they later settled against the feed company). One of the claims was that the failure to label the milk permeate as required by Idaho law resulted in a breach of the warranty of fitness for a particular purpose. After prevailing in the trial court, judgment for the plaintiffs was reversed by the Ninth Circuit, which held,
compliance with Idaho's Milk Permeate Labeling Requirement does not address whether Davisco breached a warranty of fitness for a particular purpose.
In order to breach the warranty, a mislabeling must breach "a part of the bargain between the parties." In Millenkamp, the contract between the parties did not include an express requirement that the milk permeate comply with all laws, or comply with all labeling laws.
Is there a difference with the warranty of merchantability?
The Ninth Circuit, in footnote 3 of its opinion, implies that there might be. That footnote is dictum, however, and with all due respect to the Ninth Circuit, misses an important part of the labeling language of Article 2.
Section 2-314(2)(e) of the Uniform Commercial Code contains as a requirement of the warranty of merchantability that the goods "are adequately contained, packaged, and labeled as the agreement may require." Comment 9 to Section 2-314 states, "Paragraph (e) applies only where the nature of the goods and of the transaction require a certain type of package or label." In other words, the result under the warranty of merchantability should be exactly the same as under the warranty of fitness for a particular purpose: if it's not in the contract, then it's not possible to violate it through the implied warranty. Plaintiffs have expressly disclaimed that there is any kind of special contract involved in buying food at Denny's (they need to, in order to avoid any contract that would have disclaimed these implied warranties). Thus, the claim for breach of the implied warranty of merchantability by means of inadequate labeling should fail.
The Uniform Commercial Code and Food Recalls
Article 2 of The Uniform Commercial Code. The Uniform Commercial Code ("UCC") is my Bible. So, when I read about the pain caused to businesses and charities by the peanut butter recall, I look first to the UCC to see what might be available to help.
Article 2 of the UCC covers transactions in goods. It expressly does not repeal laws on sales to consumers, nor does it change tort law. But my focus here is not on torts, it is on contract law. When a wholesaler buys tainted peanut butter paste from a factory, when a manufacturer buys that same paste from a wholesaler, when a grocer buys the products of that manufacturer directly or from another wholesaler, and when a consumer buys those products from a grocer, there is a simple contract for the sale of goods involved, and that contract is governed by Article 2. When someone is made sick from the tainted product, there is a lot of law you can refer to; Ken has blogged on it a lot and will again. But what happens in the case of a recall to parties who are, fortunately, unharmed by the tainted goods except in an economic way?
To begin with, to apply Article 2, there needs to be a sale. Sale is defined in Article 1 of the UCC (the definition is applicable to Article 2 and the whole UCC) and requires the passing of title for a price. Thus, a food bank that receives donated goods will not have any direct rights under Article 2.
A contract for sales over $500 generally requires a writing. This can be as simple as a purchase order or sales order or as elaborate as a 100-page contract for the sale of an airplane. Even an exchange of e-mails can be sufficient.
Generally, the more elaborate the contract, the more likely it is to protect sellers, not buyers. This is because Article 2 protects sellers by default. Article 2 contains what are called "gap filler" terms, which govern in the absence of express agreement otherwise. Some of the most critical of these protect buyers from exactly the kind of issues that a food recall might generate.
Express and Implied Warranties. Among the gap filler provisions are implied warranties. The UCC implied warranties include:
- A warranty of title
- A warranty against infringement (which is only given by merchants)
- A warranty of merchantability (also only given by merchants)
- A warranty of fitness for a particular purpose
In addition, sellers can give (or be deemed to have given) express warranties.
What are these warranties like and how do they work in the context of food recalls?
The warranty of title is just what you think it is, a warranty that the person selling the goods has the power to sell them to you. This is not exactly the same thing as saying the seller has full title to the goods; under certain circumstances, a buyer in the ordinary course of business can obtain better title than the seller itself has.
The warranty against infringement relates to claims about intellectual property. Food itself can be patented in some circumstances. Infringement may be a topic for another day, though, no one is likely to be claiming intellectual property rights in tainted food.
It is the last three warranties that can be critical to the question of a food recall.
As we'll see in a bit, if these warranties are made, the buyer has some powerful tools in the case of a recall. If these warranties aren't made, then the seller faces a far more favorable legal landscape.
The Warranty of Merchantability. First, the warranty of merchantability requires that goods do all of the following:
- pass without objection in the trade under the contract description; and
- in the case of fungible goods, are of fair average quality within the description; and
- are fit for the ordinary purposes for which such goods are used; and
- run, within the variations permitted by the agreement, of even kind, quality and quantity within each unit and among all units involved; and
- are adequately contained, packaged, and labeled as the agreement may require; and
- conform to the promise or affirmations of fact made on the container or label if any.
If you're a buyer of food, you immediately want all these warranties, don't you? If you buy apples, they should be apples as described by the seller, be of fair average quality, be fit for the ordinary purpose for which apples are used (cooking, eating), be of even kind, quality and quantity, be adequately packaged and labeled and conform to promises on the label (e.g., "Washington Extra Fancy").
If you're a seller of food, you're thinking, "now, wait a minute."
Apples are perishable, they can rot when they're not stored properly, they get worms in them, they get bruised, they get pushed around or dropped in transit, a certain percentage of them aren't perfect. The seller is thinking, I took all those things into consideration in setting the price of these apples, and what I don't want is the buyer to be able to come back to me and say, three apples are bad, pay up. Or worse, three apples are bad, I'm rejecting the whole batch.
So the seller says he doesn't want to make the warranty of merchantability.
The Warranty of Fitness for a Particular Purpose. What about the warranty of fitness for a particular purpose?
What it says is this:
Where the seller at the time of contracting has reason to know any particular purpose for which the goods are required and that the buyer is relying on the seller's skill or judgment to select or furnish suitable goods, there is unless excluded or modified under the next section an implied warranty that the goods shall be fit for such purpose.
We go through the same dance again. Imagine that you're looking to add some peanuts to a cookie dough. You call in a bunch of peanut sellers and tell them your requirements: quality, color, fat content, moisture content, etc. The peanut seller says, have I got the peanuts for you! And again the buyer is thinking, "I sure like this implied warranty of fitness for a particular purpose," while the seller is saying "I don't want to be liable if the peanuts don't make great cookies, I'm not a cookie baker."
Express Warranties. Finally, express warranties.
Here's how they come into being:
- Any affirmation of fact or promise made by the seller to the buyer which relates to the goods and becomes part of the basis of the bargain creates an express warranty that the goods shall conform to the affirmation or promise.
- Any description of the goods which is made part of the basis of the bargain creates an express warranty that the goods shall conform to the description.
- Any sample or model which is made part of the basis of the bargain creates an express warranty that the whole of the goods shall conform to the sample or model.
You won't be surprised to see that sellers and buyers make the same arguments about these warranties as well.
Disclaiming Warranties. Sellers argue for, and often obtain, provisions in contracts like this:
SELLER MAKES NO WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
The language is specific because the UCC requires that the word "merchantability" appear (unless some other phrases approved in the UCC such as "with all faults" is used), and it is in all caps and bold because the UCC requires the disclaimers to be conspicuous.
The Battle of the Forms. Section 2-207 of the UCC, the so-called "Battle of the Forms" section, is the single most litigated section of the UCC. Its revision was a central part of the abortive attempt to revise Article 2, which was not adopted in any state and was the subject of major controversy. The current version has its own problems.
What the battle of the forms covers, or tries to cover, is the situation that arises so often in commercial transactions when two parties act like they have a contract, but there is no one definitive expression of that contract. The buyer sends out a purchase order with a lot of fine print on the back; the seller sends out a sales confirmation with a lot of fine print, too. No one signs anything but the seller ships goods and the buyer pays for them and then a problem arises. What are the terms of the parties' contract?
2-207(b) is where the real difficulties with this section of Article 2 lie. It provides that "between merchants", terms in an acceptance that materially alter an offer become part of the contract unless one of three things has occurred:
- the offer expressly limits acceptance to the terms of the offer;
- they materially alter it; or
- notification of objection to them has already been given or is given within a reasonable time after notice of them is received.
The critical issue that is covered in 2-207(c) is that a contract has in fact been formed even though the parties do not agree on all its terms.
Conduct by both parties which recognizes the existence of a contract is sufficient to establish a contract for sale although the writings of the parties do not otherwise establish a contract. In such case the terms of the particular contract consist of those terms on which the writings of the parties agree, together with any supplementary terms incorporated under any other provisions of this Act.
This is, essentially, why the buyers often win in a battle of the forms. If one form says "you are making me a warranty" and the other form says "I'm not making any warranty", then the warranty clause is not a clause on which the parties agree. Since the implied warranties of Article 2 are "supplementary terms", however, the seller will be subject to them unless it can disclaim them effectvely.
Who Wins? There are three times when a buyer can complain to a seller, with a cascading series of rights and obstacles depending on where you are in the timeline.
The easiest situation is upon delivery. At the point of delivery, you have the "perfect tender" rule, which provides that if goods "fail in any respect to conform to the contract", they may be rejected. Not only that, but you may reject all of them, accept all of them, or reject any commercial unit and accept the rest. Thus, if you get a box of rotten apples in a carload, you can choose to reject them all, accept them all or reject the rotten box and keep the rest. Indeed, you can technically reject them if a single apple is rotten.
Applied to a food recall, this is again the simplest case. If the food has been recalled, it will not conform to the contract and may be rejected. Even if all warranties have been disclaimed, the delivered food would not conform to the contract because it will not, in any meaningful sense, be food.
What if delivery has occurred, but the food is recalled before it is processed, consumed or sold?
This is where the rules for revocation of acceptance may apply. In order to revoke your acceptance of goods, the following must be true:
- the non-conformity must substantially impair the value of the goods to the buyer
- it was accepted because its non-conformity was difficult to discover
- the revocation of acceptance occurs within a reasonable time of discovery of the non-conformtiy
- the revocation occurs before any substantial change in the goods
- the buyer notifies the seller
In the case of recalled food, the first requirement should be easy to satisfy, and the second would appear to be easy as well--the recalled status of food is usually not the buyer's responsibility vis-a-vis the seller. The third and fifth requirements will depend on the buyer's diligence, but ordinarily in the case of a food recall, at least a merchant buyer will tend to be relatively diligent.
The real action is in the question of whether substantial change has occurred to the goods.
Interestingly, one of the leading cases in this area involves peanuts. It held that peanuts that had been blanched were not substantially changed, and thus were eligible to have their acceptance revoked, while those that had been processed were substantially changed.
If revocation of acceptance is not available, then the action will be for breach of warranty. If the seller has made a warranty that the goods will be fit for human consumption, then it will not be difficult to make a claim for breach of warranty with respect to recalled goods. If the warranty was disclaimed, then of course the situation would be reversed.
The reality is that in the case of recalls that involve deaths, the really culpable party will, like PCA, most likely end up in bankruptcy. Everyone else in the distribution chain, from distributors of raw materials to processors to distributors of processed foods to retailers to consumers, will be essentially an innocent party seeking to find some way out of its loss. In general, whoever supplied the contract may end up with the best chance of prevailing.
