More Obstacles for Food Labeling Class Actions

Posted on December 17, 2014 04:14 by James D. Smith

The Ninth Circuit is poised to address the implicit “ascertainability” requirement for class actions in Jones v. ConAgra Foods, Inc., No 14-16327 (9th Cir.). Briefing is underway in that matter in which the district court denied class certification when it concluded that the class wasn’t ascertainable and that the plaintiffs’ proposed damages model wasn’t methodologically sound. I wrote about that district court ruling in a post on June 26, 2014.  

The Jones appeal may provide some benefit to other defendants as a basis to stay other food labeling class actions.  In Gustavson v. Mars, Inc., No. 13-cv-04537-LHK (N.D. Cal. Dec. 10, 2014), Judge Lucy Koh stayed proceedings pending a decision in Jones: “The appellant in Jones has briefed issues concerning ascertainability and damages that could be material to the Court’s disposition of any class certification motion in the instant action.”  Judge Koh concluded that any decision in Jones likely will lead to additional briefing and possibly to more discovery regarding class certification in Gustavson. 

By itself, the stay is good news for food labeling defendants hoping for clarity regarding the ascertainability standard in the Ninth Circuit and the types of damages models that will or won’t suffice in food labeling class actions.  Judge Koh’s stay order is also noteworthy because she issued class certification decisions arguably at odds with the Jones district court decision at nearly the same time.  In Werdebaugh v. Blue Diamond Growers, No. 12-cv-2724-LHK (N.D. Cal. May 23, 2014), and Brazil v. Dole Packaged Foods, LLC, No. 12-CV-01831-LHK (N.D. Cal. May 30, 2014),  Judge Koh adopted fairly lenient standards for ascertainability and accepted the regression analysis methodology of the plaintiffs’ economist, Dr. Oral Capps—who is also the plaintiff’s expert in Gustavson.  In Jones, the district court immediately rejected the same Dr. Capps’ methodology.  Even Judge Koh later rejected Dr. Capps’ methodology when she granted summary judgment for the Brazil defendant on December 8, 2014.  And she decertified the class relying on Dr. Capps’ opinions in Werdebaugh on December 15.

It is too soon to conclude that regression analysis is finished as a damages model in food labeling class actions in the Northern District of California, but that methodology is far from proving itself as viable.  While some judges seemed willing to gloss over myriad problems with regression analyses in general—and Dr. Capps’ opinions in particular—in the early stages of food labeling class actions, the problems proved insurmountable as the cases continued to summary judgment or as more discovery of Dr. Capps’ methodology occurred.  We now have a nice body of case law from the Northern District raising questions about the viability of these classes and the plaintiffs’ favored expert witness.  Every defendant will want to move to stay proceedings while Ninth Circuit addresses Jones.  Based on the number of district court judges finding flaws in these classes, it seems like those jurists may welcome the opportunity to put the brakes on expanding the district’s reputation as the “food court.”  

James D. Smith is a partner in the Phoenix office of Bryan Cave LLP.  He is a member of the Class & Derivative Actions Client Service Group and the Food and Beverage Team.             

 

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Defendants often raise ascertainability when opposing class certification in food, beverage, and personal care products labeling litigation.  District courts in the Ninth Circuit, however, sometimes reach different conclusions regarding a putative class representative’s burden when it comes to establishing ascertainability.  Indeed, the subject has led to divergent decisions in the Northern District of California (often called “the food court”), with judges in that district commenting on the intra-district split.  Two recent decisions, however, bolster defendants’ arguments that ascertainability in contested class certification proceedings (as opposed to settlement classes) is a significant hurdle for such plaintiffs to overcome.  

Martin v. Pacific Parking Systems Inc., 2014 U.S. App. LEXIS 14200 (9th Cir. July 25, 2014), didn’t address consumer product labeling, but it addressed ascertainability.  The Ninth Circuit affirmed the denial of class certification of claims under the Fair and Accurate Credit Reporting Act.  While this is an unpublished decision and short on analysis, it may offer some insight regarding the Ninth Circuit’s leanings regarding ascertainability.  That district court concluded that the putative class was not ascertainable because there was no reasonably efficient way to determine which of the possible class members used a personal credit or debit card, rather than a business card.  That status was important because the claims purported to exclude anyone who used a business card for a transaction.  Id. at *2-3.  The Ninth Circuit agreed with the district court that the plaintiff “has not demonstrated that it would be administratively feasible to determine which individuals used personal, and not business, credit cards to purchase parking . . . .”  Id. at *3.  

Notably, the Ninth Circuit also included a footnote addressing “self-identification” and ascertainability.  We often see plaintiffs in product labeling class actions argue that self-identification is a viable way to identify class members—just have consumers provide affidavits attesting that they bought some quantity of the product during the class period.  But in Martin, the panel suggested that such efforts would not work in a contested class action:

Self-identification may suffice for some settlement-only classes.  But those classes need not satisfy Rule 23(b)(3)(D)’s “manageability” requirement.  “Confronted with a request for settlement-only class certification, a district court need not inquire whether the case, if tried, would present intractable management problems, see Fed. Rule Civ. Proc. 23(b)(3)(D), for the proposal is that there be no trial.”  Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 620 (1997).  

Id. at *4 n.3.  This footnote could be the beginning of the end for plaintiffs’ self-identification arguments in consumer class actions.    

The other recent decision is In re Clorox Consumer Litigation, No. 12-00280-SC (N.D. Cal. July 28, 2014).  Those plaintiffs challenged whether labeling on Fresh Step cat litter misleadingly suggested that product more effectively eliminated odors than products that do not contain carbon.  Several problems existed with the proposed class, but the district court began with its ascertainability analysis.  Judge Samuel Conti noted a split among courts in the Northern District of California regarding ascertainability, but he explained that he has followed Carrera v. Bayer Corp., 727 F.3d 300, 306 (3d Cir. 2013), in other consumer class actions.  In this instance, the plaintiffs did not propose any method for determining who purchased Fresh Step during the class period.  For example, none of the named plaintiffs kept their receipts.  Moreover, even the named plaintiffs had difficulty remembering whether they bought Fresh Step, what sizes, types, or quantities.  That type of uncertainty made it impossible to rely on affidavits from consumers (i.e., self-identification).  

The plaintiffs argued that various retailers’ records could identify class members.  Even those data, however, were incomplete and often depended on a customer participating in the retailer’s loyalty program.  In sum, those types of retailer programs would capture, at best, a tiny fraction of all transactions involving a specific product.  

While the thrust of the Clorox decision is ascertainability, Judge Conti also explained that predominance was lacking.  Fresh Step labeling varied considerably during the proposed class period—not all included statements about the product’s superiority to other cat litter without carbon—making it impossible to conclude that all or even most class members saw the representations.  While the plaintiffs pointed to “deceptive” television commercials, those commercials only ran for a limited part of the class period, so it was impossible to presume that most class members saw or relied on the advertising.  In addition, Clorox pointed to survey evidence indicating that only 11 percent of customers who read packaging at all even looked at the back panel where the allegedly misleading statements appeared.  The putative class also did not satisfy the superiority requirement, largely for the same reasons that ascertainability and predominance were lacking.

Whenever possible, defendants will want to cite Martin in the Ninth Circuit to explain why self-identification does not solve the ascertainability issues that permeate food labeling class actions. In addition, Clorox is another instance of a judge in the Northern District of California embracing a meaningful ascertainability requirement.  Clorox also provides a solid analysis of the lack of predominance in consumer product labeling class actions based on variations in packaging, the short duration of certain advertising programs, and survey data regarding consumer behavior.  

James Smith is a partner in the Phoenix office of Bryan Cave LLP.  He is a member of the Class & Derivative Actions Client Service Group and the Food and Beverage Team.  

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Three recent decisions from two judges in the Northern District of California provide us with a lot of information regarding where food labeling cases are headed in terms of class certification strategy. Notably, two of the decisions are from Judge Lucy Koh and granted class certification.  Of course, these losses from the defense perspective are disappointing, but it is important to understand them in order to develop effective defense strategies. The third decision is from Judge Charles Breyer and denied class certification. That opinion shows us strategies that work from the defense perspective. In addition, however, the opinion is also interesting because Judge Breyer recognizes the Northern District of California’s status as the epicenter of these cases and because he often expressly acknowledges that his reasoning differs from Judge Koh’s.  So bear with me as we go through three important class certification decisions before identifying some best practices for defendants in these types of claims.

Two Losses for the Defense, but Important Lessons to Learn.

In Werdebaugh v. Blue Diamond Growers, No. 12-CV-2724-LHK (N.D. Cal. May 23, 2014), Judge Koh granted class certification when the plaintiff alleged that he purchased the defendant’s almond milk that allegedly had misleading labels.  That plaintiff contended that using “evaporated cane juice” rather than “sugar” on the label was deceptive and that the phrase “all natural” was deceptive because the products contain potassium citrate.  I won’t address every aspect of this decision but will focus on the ones of most interest to defendants.

That plaintiff had standing to challenge those aspects of the labels because he contended he would not have purchased the almond milk had he known about the misbranding. He contended that the “all natural” label was a substantial reason why he bought the product as well. As to “evaporated cane juice,” Judge Koh distinguished to earlier decisions from the Northern District of California and found that it was plausible for this plaintiff to contend that he did not understand what “evaporated cane juice” meant when he purchased the products. At that point, the court turned to the requirements of Rule 23.

In a minor victory for the defendants, the court refused to certify and injunctive relief class under Rule 23(b)(2). That plaintiff did not allege or even attempt to establish that he intends or wants to purchase these almond milk products in the future. That meant there was no likelihood of future injury to him that could be redressed through injunctive relief.

Turning to the requirements of Rule 23(a), Judge Koh rejected the defendant’s argument that the class was not ascertainable. She concluded that a class is ascertainable so long as it is defined with “objective criteria” and if it is administratively feasible to determine whether a particular member is in the class. Class membership hinged on objective criteria, i.e., purchasing the almond milk products during the class period.  While other courts have held that a class is not ascertainable when there are no corporate records to identify product purchasers or when the purchases are so small that consumers are not likely to have records of them, Judge Koh rejected that approach. She relied on the facts that all purchasers of the almond milk products are within the class definition and all cartons of the products or the alleged mislabeling.  Moreover, “[t]he class period here is also far shorter than in [an earlier case], and inviting plaintiffs to submit affidavits attesting to their belief that they have purchased a carton of Blue Diamond almond milk in the past several years is much likelier to elicit reliable affidavits then asking potential class members to recall whether they had smoked 146,000 of a certain cigarette over the course of several decades.”  [Slip Op. at 20]  

As to Rule 23(b)(3), the court refused to certify a nationwide class because it concluded that the law of each consumer’s state of residence would apply to his or her claims. Thus, it limited the class to California consumers. 

A substantial issue was whether the plaintiff presented a damages model under California consumer protection statutes that is consistent with his liability case. The plaintiff relied on the testimony of an economist, Dr. Oral Capps, to present three damages models. The court rejected two of them. First, a full refund model was not appropriate because consumers received benefits from the almond milk even if it was mislabeled. Second, the court rejected a price premium model in which Dr. Capps tried to compare the price of the Blue Diamond products to allegedly comparable products that did not have the challenged label statements. He planned to attribute the entire price difference between the Blue Diamond products and the “comparable” products to the labeling. That theory also ignored, however, that the “comparable” product also contained potassium citrate, so it was not an appropriate comparator.  Last, this price premium theory also could not account for any other differences between the Blue Diamond products and the “comparable” products that may lead consumers to pay different prices (e.g., brand loyalty, generic vs. brand name).

The court, however, accepted Dr. Capps’ third theory, a regression model. He contended that he could isolate the relationship between a dependent variable (i.e., the price of Blue Diamond almond milk) and other variables (e.g., the alleged mislabeling). Plaintiff’s expert contended he could control for regional price differences, and Blue Diamond did not introduce any evidence about how regional price differences would affect regional price changes.  And it is that price change that the regression analysis purports to measure. That is, what price movement (if any) occurred after Blue Diamond stopped using the challenged labels? Under this theory, by ostensibly controlling for all other factors that could account for the change, all of the resulting change would be attributable to the labeling.

The court did not require the plaintiff to present a regression analysis that actually works at the class certification stage rather, it only required whether he established a workable model. Indeed, Dr. Capps had yet to run his regression analysis at the time of class certification. While two other courts had excluded Dr. Capps’ testimony in prior cases, Judge Koh found it important that Blue Diamond did not question the tool of regression analysis itself.

The second decision from Judge Koh is Brazil v. Dole Packaged Foods, LLC, No. 12-CV-01831-LHK (N.D. Cal. May 30, 2014).  That plaintiff challenged the “all natural” labeling on 10 packaged fruit products.  Each product contains both ascorbic acid (a naturally occurring form of Vitamin C) and citric acid (a natural preservative derived from citrus).  Coming only a week after the Werdebaugh class certification decision, it is not surprising that the analysis in Brazil is similar.  Once again, Judge Koh rejected the defendant’s ascertainability argument. Because the alleged misrepresentations appeared on the product packaging, there was no concern that the class includes individuals not exposed to the alleged misrepresentations. She also rejected the argument that the lack of company records identifying product purchasers affected ascertainability.  Judge Koh seemed satisfied that every purchaser received the same alleged misrepresentations and the class was limited to only 10 products in a specified timeframe.

The court certified a nationwide injunctive relief class under Rule 23(b)(2), rejecting the notion that the plaintiff’s damages were not incidental to the injunctive or declaratory relief requested. And although this plaintiff said he stopped buying Dole products months ago, he said he would remain willing to buy them now. That sufficed under Judge Koh’s analysis.

As to the Rule 23(b)(3) class, the court again refused to certify a nationwide class based on choice of law issues. These plaintiffs also used Dr. Capps as their damages expert, so the court once again rejected a full refund model and price premium model. The court accepted the regression analysis, however, just as it had in the earlier case. Dole’s position had another wrinkle because it had refused to produce certain economic data, contending that was not needed for class certification. Judge Koh viewed that as a bit of gamesmanship. She would not allow Dole to challenge Dr. Capps’ failure to actually create a working regression model when Dole had refused to provide the economic data he contended he needed for that process.

A Defense Victory Quickly Follows.

Soon after Judge Koh’s class certification decisions, Judge Breyer denied class certification in Jones v. ConAgra Foods, Inc., No. C 12-01633 CRB (N.D. Cal. June 13, 2014).  As he noted, “[t]his district has seen a flood of such cases, in which plaintiffs have challenged, with varying degrees of success, marketing claims on everything from iced tea to nutrition bars. This Order does not—and, given their multiformity, could not—speak to the merits of all such cases.”  [Slip Op. at 1 (footnote omitted)]  So it seems Judge Breyer may not be impressed with Northern District of California’s “food court” moniker.

These plaintiffs challenged a variety of Hunt’s tomato products labeled as “100% Natural” and “free of artificial ingredients & preservatives” because they contained citric acid and/or calcium chloride. They also challenged PAM cooking spray labeled as “100% natural” because that spray contains a propellant that is not natural. Last, they challenged a variety of Swiss Miss cocoa products labeled as being a source of antioxidants.

The opinion nicely analyzes standing and typicality, exploring different plaintiffs’ deposition testimony regarding why they bought certain products, what they read on the labels, what was important to them, and what they admitted was not deceptive. I want to focus on different portions of the decision in this article, however, so I will not discuss standing and typicality in detail.

Judge Breyer uses a more stringent ascertainability standard than Judge Koh. The plaintiffs proposed having class members identify products they purchased with photographs or affidavits/declarations. The court found it infeasible to believe that consumers would recall such purchases accurately, particularly considering that literally dozens of varieties of different can sizes with different ingredients existed during the class period.  While this is a useful conclusion for defendants, plaintiffs will try to distinguish this case by noting that the products’ ingredients and labels varied during the class period. 

Judge Breyer continued rejecting class certification arguments with his Rule 23(b)(2) analysis. Each of the named plaintiffs disavowed any intent to buy the challenged products in the future. That was fatal to any requested injunctive relief.

Moving to Rule 23(b)(3) predominance was lacking because of different labeling statements and, more importantly, the plaintiffs’ failure to show uniform understandings regarding the challenged labels. In this instance, the plaintiffs used an expert who opined that the labeling statements were material. That expert, however, did not survey consumers and relied on circular reasoning. That is, she opined that the statements were material because defendants would not have included them on the labels if they were not. That did not suffice for the court. The lack of any established meaning of the word “natural” when used on food labeling truly undermined these claims. Plaintiffs’ expert did them no favors by failing to survey consumers and by admitting that some consumers do not read labels, do not care about labeling statements, and would purchase products regardless of their labels.

In the next collision with Judge Koh’s decisions, Judge Breyer rejected the same Dr. Capps’ regression analysis as Judge Koh had accepted. He believed there simply was no way to control all of the variables to conclude that the price difference was attributable to the labeling. Moreover, Dr. Capps could not identify an adequate compared for product. And, absent an accurate way to identify what each class member paid, no damages analysis could succeed. In essence, Judge Breyer would not accept the notion that Dr. Capps theoretically could create a feasible damages model using regression analysis. Rather, he wanted adequate proof that Dr. Capps had done so at this stage.

How These Decisions Guide Defendants’ Strategy. 

Using Experts.

Neither the Werdebaugh nor Brazil decisions granting class certification mentions if the defendants presented survey evidence about consumers’ understandings of “all natural,” either generally or relating to the challenged ingredients specifically (which all are naturally occurring).  These food labeling claims typically rely on California consumer protection laws.  In broad strokes, those laws require that the label be likely to mislead the reasonable consumer.  The difficulty for judges and the parties is that phrases such as “all natural” do not have a set definition.   Class action plaintiffs will use this vagueness to argue that the potential for misleading consumers is a question of fact for the jury to resolve.  Defendants in these cases will benefit from hiring experts to survey consumers to determine their understandings of the phrases at issue.  If substantial percentages of consumers do not share the plaintiff’s understanding of a phrase or disagree with it, it should be untenable to contend that the a cohesive, class-wide understanding of the phrase exists.  The label will not deceive the hypothetical “reasonable consumer.”  Such surveys may also help establish that consumers bought the products for different reasons (e.g., brand loyalty, had a coupon, wanted to try something new).  

While parties to these cases are using economists and other damages experts, retail grocery pricing experts/consultants may be useful, too.  Such experts could be outside consultants who advise retailers on pricing strategy or former pricing analysts for retailers.  Such experts may help establish that too many independent variables affect retail pricing for a regression analysis to work.  In addition to factors mentioned in the cases discussed above, several other variables exist.  For example, an individual store may need to reduce the price of a certain product due to inventory control issues during a particular time frame.  Similarly, certain consumers may pay different prices for the same product based on membership in a retailer’s “club card” program.  In fact, those types of discounts may result in the challenged product having a lower price than the comparator product at a specified time.  Those types of discounts may be the motivating factor for consumers as well.  That is, if they can purchase the challenged product at a lower price due to a “club card” membership, they may have done so.  Those types of consumers would not be misled by any labeling.

Another expert to consider is a food scientist.  This type of expert would explain that ingredients such as ascorbic acid and citric acid truly are natural ingredients, whether created in a laboratory or in nature.  There is no chemical difference.  Similarly, she can explain that research confirms the safety of genetically-modified organisms (another frequent target of such “all natural” litigation).  In theory, this type of evidence arguably relates to the merits and not class certification.  But you always want to give your judge the comfort of knowing that she is not allowing truly bad conduct to go without a remedy if she refuses to certify the class.  

Disproving Your Plaintiffs’ Allegations.

It also is important to evaluate your plaintiff’s purchasing habits and history.  As we saw in Jones, those defendants effectively used testimony from the plaintiffs to defeat class certification. Explore whether they buy other products with similar ingredients and whether they have continued to buy the challenged product even after filing suit.  See if your plaintiff will admit that the labeling statement was not important to her.    

Many grocery retailers offer membership programs to customers.  Typically, these programs track purchasing history at an individual level so the retailer may direct specific advertising and offers to that customer.  Online retailers such as Amazon likewise track customers’ order history.  Try to obtain those data to determine if your named plaintiff buys other products with ascorbic acid or citric acid despite now avowing that he tries to avoid those ingredients.  Does your plaintiff who now avows a passion for healthful food habitually purchase sugary beverages, processed snacks, or other junk food?  Such purchasing history also may have data regarding the prices that plaintiff paid for the challenged product.  Those data may show the dramatically varying prices from week to week as well as discounts that a consumer enjoyed because of membership in that type of program.

Food labeling class actions continue to be a thriving business for plaintiffs’ counsel.  Mounting strong defenses not only helps your client end the current case but also sends a message to the plaintiffs’ bar that bringing suit against your client will not be a good investment for them.   

James Smith is a partner in the Phoenix office of Bryan Cave LLP.  He is a member of the Class & Derivative Actions Client Service Group and of the Food and Beverage Team. 


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A recent decision denying class certification in a cosmetics labeling action provides a useful roadmap for defendants in consumer products labeling class actions.  These particular defendants used several of the strategies discussed in earlier blog posts, and the decision sends a shot across the bow of plaintiffs’ class counsel who bring such consumer fraud claims on the cheap in the hopes of a quick payout.

Representations About “24 Hour” Cosmetics

Algarin v. Maybelline, LLC, No. 12-CV-3000 AJB (S.D. Cal. 5/12/14), involves allegations under California’s consumer protection laws.  Those plaintiffs contend that lipstick and makeup labeled as “24HR” does not provide the promised 24-hour coverage, and they allege that they paid a premium for the products based on those representations.  The proposed class would have included all California consumers who purchased the lipstick or makeup for personal use until the date of class notice.  [Slip Op. at 6]  Of course, California consumer protection laws depend on whether the advertising would mislead the hypothetical reasonable consumer.  I have mentioned in earlier blog entries about the importance of using expert testimony to discuss actual consumer understandings.  Maybelline took the same strategy here, and it carried the day: “Of great importance to the matters in this class certification is the fact Maybelline has introduced unrefuted evidence of who the reasonable consumer in the target audience is, and what drives her in making purchasing decisions.”  [Id. at 8]

Maybelline provided two expert reports, one from a marketing expert and one from an economist.  The marketing expert explained that repeat purchasers of the products could not be considered injured.  After all, they bought the product, used it, and then bought it again (apparently satisfied with its original performance).  Based on his survey research, the expert concluded that only 9 to 14 percent of the sampled consumers were one-time purchasers who expected the products to last 24 hours and were disappointed that it did not.  [Id. at 9]  These data turned out to be very important to the court. 

Rule 23(a) Problems

An initial problem for class certification was whether the class was ascertainable.  As with many of these types of consumer class actions, the plaintiffs did not provide a reliable method of determining who actually purchased the products.  The court was not willing to rely on having class members self-identify themselves with no actual proof of purchase.  “Cases where self-identification alone has been deemed sufficient generally involve situations where consumers are likely to retain receipts, where the relevant purchase was a memorable ‘big ticket’ item; or where defendant would have access to a master list of customers or retailers.”  [Id. at 13]  Without an administratively feasible way of identifying class members, plaintiffs could not satisfy their burden under Rule 23(a).

Commonality also was lacking because of the objective evidence that the 24-hour statements did not mislead a substantial percentage of class members.  “Indeed, most purchasers expected the product to last less than 24 hours or had no specific duration expectations.”  [Id. at 15-16]  The defendants used an economist’s report to explain that the existence of economic injury was not a common question because many purchasers were satisfied with the products.  [Id. at 16]  

The same shortcomings regarding what consumes believed was important was also doomed typicality.  In sum, the court did not believe that the named plaintiffs’ reliance on the alleged misrepresentations was typical of other class members.  Again, the consumer survey data were crucial to this point.  [Id. at 17]  

No Rule 23(b)(2) Injunction Class

Things did not get any better for the plaintiffs with respect to their Rule 23(b)(2) class.  That class sought injunctive relief, and the plaintiffs argued that any damages were merely incidental to the injunctive relief.  But there is little point in any injunctive relief here.  Any consumer would immediately know if the product met her expectations.  If she nonetheless bought the product again, there would be no basis to allege that she was deceived.  She would have known the “truth” at the time of the repeat purchase.  [Id. at 18]  Moreover, the restitution and disgorgement sought were not incidental to the injunctive relief.  Indeed, the named plaintiffs knew about the products’ alleged shortcomings and would not purchase them again; their only legitimate concern would be with monetary relief, not an injunction.

Rule 23(b)(3) Problems

These plaintiffs used the familiar “price premium” theory of damages.  That is, they contended they paid a premium price for the products that they would not have paid if they knew the “truth” about the 24-hour representations.  Plaintiffs, however, did not have any valid methodology to establish that the difference in price for these products was attributable solely to the alleged misrepresentation.  For example, the price difference could not attributable to different ingredients, the selection of colors, or Maybelline’s internal costs.  “To establish that any difference in price is attributed solely to the alleged misrepresentation, the Court must use a product, exactly the same but without the 24-hour claim.”  [Id. at 21]  The substantial variations in retail prices among the products and competing products made this type of damages analysis impossible.  

Of course, Maybelline does not sell retail and does not set the retail prices—it sells wholesale to retailers or distributors.  That alone made class treatment nearly impossible.  While the plaintiffs argued through an expert that the court could rely on the wholesale prices charged by Maybelline, the same pricing variability existed as to wholesale prices.  That is, the court could not assume that all retailers paid the same wholesale price or that any differences in wholesale price were attributable to the misrepresentations.  [Id. at 22]  Though not mentioned by the court, it also seems impossible to believe that wholesale pricing would directly affect retail pricing in every instance or that plaintiffs could control for those differences.

Finally, the court concluded that class treatment was not superior.  Although Maybelline argued that its own refund program provided a superior alternative, the court was not comfortable comparing judicial remedies to that type of out-of-court resolution program.  Setting that aside, all of the difficulties in identifying class members, determining their injuries, and evaluating whether any misrepresentations were material made class treatment inferior.  Such actions “are not likely to benefit anyone but the lawyers who bring them.”  [Id. at 23 (internal quotations omitted)]

Key Points For Defendants

While Algarin deals with cosmetics, similar class actions target a number of other types of consumer products, particularly food and beverages.  Many of these cases survive motions to dismiss, especially when California law is at issue, but the real battles are at class certification and summary judgment.  That is why it is crucial to work with appropriate experts—typically a marketing/consumer research expert and a damages/economic expert—to build your defense early in the case.  Don’t let the plaintiff’s arguments about what “typical” consumers believe go unchallenged.  Drill into statistically-significant survey data to show the court why consumer buy your product, what they understand certain phrases to mean (or not to mean), and whether they are satisfied with the product.  You also have a host of individual economic issues to address based on the “premium pricing” damages theory in these cases.  Building this evidentiary record takes some time and money, of course, but it is well worth the expense.  Class actions are like any other litigation matter—you need to prepare them as if you are going to take them to trial. You may find that your opponents do not take that approach, and that inevitably works to your benefit.

James Smith is a partner in the Phoenix office of Bryan Cave LLP.  He is a member of the Class & Derivative Actions Client Service Group and of the Food and Beverage Team. 

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In postings in September 2013 and February 2014, I discussed tactics for opposing class certification in food labeling class actions. These tactics included relying on the Supreme Court’s opinion in Comcast Corp. v. Behrend, 133 S. Ct. 1426 (2013), to challenge the sufficiency of the plaintiffs’ damages model, which should be particularly difficult in these types of claims. In late March 2014, the Northern District of California decertified a food labeling class action largely based on those shortcomings.

In re POM Wonderful LLC Marketing & Sales Practices Litigation, 2014 U.S. Dist. LEXIS 40415 (N.D. Cal. Mar. 25, 2014), involves allegations that the defendant falsely advertised that certain of its juice products provide various health benefits and that substantial scientific research demonstrates those benefits.  The plaintiffs alleged familiar theories based largely on California consumer fraud statutes. The court had earlier certified the class, and the plaintiffs proposed two damages models from their expert as part of that process. The first would grant a full refund of the entire purchase price to the entire class--$450 million. That model assumed “that consumers would not have purchased Defendant’s juices if not for the alleged misrepresentations.” Id. at *11.  The court rejected that model, however, because it failed to acknowledge that consumers received some benefit even if they purchased the juice based on the “fraudulent” representations. It would be an improper windfall for the plaintiffs to receive a full refund when they could not “plausibly contend that they did not receive any value at all from Defendant’s products.” Id. at *14.

The second damages model was the “price premium” model. It assumed that consumer demand for the products would have been lower if not for the alleged misrepresentations. That damages calculation was approximately $290 million.  But the plaintiffs did not use any sort of consumer research data to show why consumers purchased these products or the effect of the alleged misrepresentations. Instead, they tried to rely on the fraud on the market theory that familiarly appears in securities fraud class actions. The fraud on the market theory, however, really only applies to establishing or overcoming the need to prove reliance on a class wide basis. It does not calculate damages. Plus, no case seems to have applied this theory to a consumer class-action.  Id. at *16.  Furthermore, the plaintiffs did not establish that an efficient market for the juices exists, which is a predicate to the securities fraud on the market theory.  It truly would be impossible to establish such an efficient market because consumers by such products for a host of different reasons, and the marketplace has not adjust the price to reflect all of those reasons.  “Absent such traceable market-wide influence, and where, as here, consumers buy a product for myriad reasons, damages resulting from the alleged misrepresentations will not possibly be uniform or amenable to class proof.”  Id. at *18.

Things going downhill for the plaintiffs. Even if a fraud on the market theory somehow were relevant, the plaintiffs could not show that the alleged misrepresentations caused the class to pay a price premium. The plaintiffs’ expert tried to compare the POM products to the average prices of refrigerated orange, grape, apple, and grapefruit juice. He never tried to explain why the POM juices were more expensive; he simply observed that they were and assumed that all of that price difference was attributable to the misrepresentations.  The expert “assumed, without any methodology at all to support the assumption, that not a single consumer would have chosen POM juice over some agglomeration of orange, grapefruit, Apple, and grape juice if not for POM’s allegedly deceptive advertising.”  Id. at *21.  But that ignores that consumers purchased products for several reasons-- because they are thirsty, they want to try something new, a friend likes the flavor, it was on sale, etc. That type of damages model did not meet the requirement that class-wide damages be tied to a legal theory, and the court could not conduct a rigorous analysis when “there is nothing of substance to analyze.”  Id. at *22.  Significantly, the court also noted that the expert’s opinions were not admissible under Daubert, implying that the court believes that standard governs the use of expert testimony at class certification.  Id. at *22 n.7.  Admittedly, that is an unresolved question across the Circuit Courts and the United States Supreme Court.

The final blow to class certification was ascertain ability.  It seems impossible to believe that many consumers would have retained receipts to prove that they purchase these products.  “Here, at the close of discovery and despite Plaintiffs’ best efforts, there is no way to reliably determine who purchased Defendant’s products were when they did so.”  Id. at *24.  See this earlier post for another analysis of using ascertain ability to defeat class certification in these cases.

In sum, this decision is an important victory for food labeling class action defendants that ties together several tactics. First, these plaintiffs tend to rely on that same price premium theory. It seems impossible, however, to create a coherent theory of establishing that damages model under Comcast.  People buy food products for too many different reasons to suggest that alleged fraud harmed everyone. This is where a defendant may want to use its own consumer survey research data to affirmatively demonstrate those different motivations for product purchases. And ascertain ability will continue to be a very difficult hurdle for these plaintiffs to overcome. Not yet addressed in an opinion I have seen is any effort to show which class members actually were “injured,” even under a price premium theory. That is, the actual price someone pays varies greatly from day to day and store to store. A product may be on sale because a particular store has too much in stock. The manufacturer may be running a promotion as well.  Supermarket customer loyalty programs also may result in discounts. It seems impossible to segregate “injured” class members from those who did not suffer any purported injury because they paid a price that is beneath the supposed “premium price.”

James Smith is a partner in the Phoenix office of Bryan Cave LLP.  He is a member of the Class and Derivative Actions Client Service Group and the Food & Beverage Team.

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The tide seems to be turning in favor of food labeling class action defendants with respect to the “unlawful” prong of California’s Unfair Competition Law.  The UCL provides consumers with a claim for “unlawful,” “unfair,” or “fraudulent” business practices.  Cal. Bus. & Prof. Code § 17200.  Since the California Supreme Court’s opinion in Kwikset Corp. v. Superior Court, 51 Cal. 4th 310, 246 P.2d 877 (2011), there has been no doubt that the UCL requires that a named plaintiff prove actual reliance on the challenged advertising when pursuing claims under the UCL’s unfair or fraudulent prongs.  A number of plaintiffs have argued, however, that they need not plead reliance when proceeding under the unlawful prong of the UCL.  Those plaintiffs contend that simply purchasing an “illegal” product that is misbranded in violation of California law is sufficient; thus, they need not prove that they relied on the alleged misbranding in those circumstances.  Admittedly, the decisions of some judges in the Northern District of California in food labeling class actions may support the argument that the plaintiff need not demonstrate reliance under the unlawful prong but need only allege facts showing that it is plausible that the defendant violated the law when selling a product.  E.g., Trazo v. Nestle USA, Inc., 2013 WL 4083218, *9 (N.D. Cal. Aug. 9, 2013).  

Fortunately for class action defendants, however, the trend now seems to require reliance even under the UCL’s unlawful prong.  Judge Edward Davila issued the latest such decision in Thomas v. Costco Wholesale Corp., No. 5:12-CV-02908-EJD (N.D. Cal. Mar. 31, 2014).  There, two named plaintiffs alleged that Costco improperly labeled several products.  Judge Davila granted in part the motion to dismiss and emphasized the need for reliance for such claims under the unlawful prong.  Plaintiffs pursuing these claims allege they would not have purchased a product if he or she had known that it was mislabeled contrary to California law.  Because California law also makes it unlawful for a person to hold or offer for sale any misbranded food, such plaintiffs contend that they received products that are “worthless” and have no economic value, even if those plaintiffs consumed and enjoyed the products.  See Cal. Health & Safety Code § 110760 (unlawful for person to hold or offer for sale any food that is misbranded).

The plaintiffs in Thomas presented that same type of argument and contended that they need not show actual reliance on any of the several allegedly-improper labeling statements at issue. “Plaintiffs argue that their claims are not based on misrepresentation, [but] rather on the illegality of the products themselves as their misbranding violates the Sherman Law, and therefore there is no need for plaintiffs to prove reliance.”  Thomas Slip Op. at 12.  Judge Davila rejected Plaintiffs’ arguments:  “Plaintiffs cannot circumvent the reliance requirement by simply pointing to a regulation or code provision that was violated by the alleged label misrepresentation, summarily claiming that the product is illegal to sell and therefore negating the need to plead reliance.”  Id. As a backstop to the reliance issue, those plaintiffs also argued that they “relied on Defendant not to sell them illegal products (i.e., products misbranded under state law).”  Id. at 13.  The Court also rejected that proposition—Plaintiffs must plead and prove reliance “on the representation,” not on an implied assurance of “legality.”  Id.   

To be sure, Thomas is not a home run for class action defendants.  It denied the motion to dismiss as to several claims.  But it is an important addition to the growing line of cases holding that actual reliance is necessary under the UCL’s unlawful prong.  E.g., Gitson v. Trader Joe’s Co., 2014 U.S. Dist. LEXIS 33936, at *26 (N.D. Cal. Mar. 14, 2014) (holding that plaintiffs must demonstrate actual reliance); Kane v. Chobani, Inc., 2014 U.S. Dist. LEXIS 22258, at *22-23 (N.D. Cal. Feb. 20, 2014) (same).  

Some plaintiffs are successfully arguing that allegedly-illegal labels on certain products also support claims for breach of the implied warranty of merchantability.  They do not contend that they relied on any particular statements to support those claims.  Rather, they allege that they would not have purchased products that could not be legally sold or held, and that the defendant impliedly warranted that the product was “legal.”  These plaintiffs consumed and, apparently, enjoyed the products despite their “illegality,” and the products performed as expected (i.e., they could be safely consumed), so the notion of any sort of breach warranty shouldn’t apply.  With this continuing trend of requiring actual reliance under the UCL’s unlawful prong, I hope that these implied warranty claims also begin falling by the wayside.  It seems untenable to suggest that warranty claims can succeed where consumer fraud claims—which have broader remedial and ameliorative public policy purposes—fail.  
 
James Smith is a partner in the Phoenix office of Bryan Cave LLP.  He is a member of the Class & Derivative Actions Client Services Group and a member of the Food and Beverage Team.   

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Recently, the Eleventh Circuit issued an opinion that stands to be very useful to RICO defendants at the motion to dismiss stage. Undoubtedly, plaintiffs will argue that the decision is limited to RICO cases relying on a specific predicate act. That argument, however, ignores very important language in the opinion and the structure of RICO itself.

Simpson v. Sanderson Farms, Inc., No. 13-10624 (11th Cir. Mar. 7, 2014), involves poultry processing plant employees’ allegations that the plant depressed wages by falsely attesting that illegal employees presented genuine work-authorization and identification documents. Such false attesting violates 18 U.S.C. § 1546 and is a predicate offense under RICO.  This is not an entirely new theory. Indeed, the Eleventh Circuit held only a few years ago that a plaintiff stated a valid RICO claim by alleging that a deliberate scheme to hire illegal employees depressed wages in Williams v. Mohawk Industries, Inc., 465 F.3d 1277 (11th Cir. 2006).  At least two other circuits also have let such depressed wage claims survive motions to dismiss.   Trollinger v. Tyson Foods, Inc., 370 F.3d 602 (6th Cir. 2004); Mendoza v. Zirkle Fruit Co., 301 F.3d 1163 (9th Cir. 2002).  Importantly, however, all three of those opinions predate Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), and Ashcroft v. Iqbal, 556 U.S. 662 (2009), and the pleading standards that those United States Supreme Court opinions embraced. The Eleventh Circuit relied on that important fact when affirming the dismissal of these Plaintiffs’ complaint.

The two Plaintiffs in Simpson worked at the processing plant in Moultrie, Georgia. They alleged the plant used falsified documents in order to employ illegal immigrants.  Under the Plaintiffs’ theory, that allowed the plant to pay depressed wages to all employees, legal or illegal, because it artificially inflated the pool of potential workers. And, of course, legal workers had to compete with illegal workers who are willing to work for lower wages. While these two Plaintiffs experienced wage increases of more than 30% in approximately two years, that alone did not doom their claims. After all, a logical conclusion of their theory could be that wages increased less rapidly than they otherwise would have. Similarly, wages could have started at a lower position due to the illegal employees with whom they competed.  Instead, the Eleventh Circuit affirmed the dismissal because the Plaintiffs failed to adequately plead basic economic facts showing that the alleged scheme directly caused their alleged injuries.

Despite designating its decision as an opinion for publication, the Eleventh Circuit at times downplayed (incorrectly in my view) the importance of its analysis. “Nevertheless, because this is not a close case, we need not engage in any creative legal analysis to conclude that the plaintiffs have not plausibly shown injury.”  [Slip Op. at 12] The problem with the complaint was the failure to allege or include any wage data. The Plaintiffs did not offer any market data that would allow a court to infer that a gap existed between Plaintiffs’ actual wages and what they would have received but for the false employment documents. They did not offer or estimate wages paid by comparable processing plants in the relevant market, in the state, or even the region. And they certainly did not attempt to distinguish between the wages paid by employers who use illegal employees and those who do not. 

It was not enough to allege an abstract market impact theory. Rather, the court expected the Plaintiffs to quantify the labor market in some way. That is, show or at least estimate the number of unskilled workers in the market and what percentage of that workforce is work-authorized. The Plaintiffs had to establish that the percentage of illegal workers was sufficient to actually depressed or otherwise affect wages. They did not do this for the relevant market or even for this particular plant. And that failure to do so for the relevant market simply highlighted that the Plaintiffs never defined that market. Was it the entire county, a subset of the county or some other geographic region? The Plaintiffs never said, and the court would not guess.   

So what lessons does this case have for defense practitioners?  It has long been the case that the alleged predicate acts must directly injure a RICO’s plaintiff’s business or property.  Hemi Group, LLC v. City of N.Y., 559 U.S. 1, 14-15 (2010); Holmes v. Secs. Investor Protection Corp., 503 U.S. 258, 265-68 (1992); Anza v. Ideal Steel Supply Corp., 547 U.S. 451, 458 (1991).  The plaintiff’s business or property must be injured “by reason of” the RICO violation.  18 U.S.C. § 1964(c).  Thus, if alternative causes exist or if the causal link is too attenuated, a RICO claim typically will fail. While often described in terms of proximate cause, this truly is a more stringent causation requirement than, for example, a common law tort claim.  For example, one of the more influential Court of Appeals opinions emphasized the need for a plaintiff to show how its losses were tied directly to the alleged predicate offenses (i.e., providing false information on commercial loan documents) rather than an overall downturn in the New York real estate market.  First Nationwide Bank v. Gelt Funding Corp., 27 F.3d 763, 770-71 (2d Cir. 1994) (affirming dismissal).  “[W]hen the plaintiff’s loss coincides with a marketwide phenomenon causing comparable losses to other investors, the prospect that the plaintiff’s loss was caused by the fraud decreases.”  Id. at 772.  

In that respect, the Eleventh Circuit’s recent opinion continues the proximate cause analysis that has been part of RICO for some time.  It is the level of detail and economic analysis that the complaint must include that makes the Eleventh Circuit’s opinion so interesting. It also would be a mistake to interpret it as limited to this type of illegal employment case. Any time a plaintiff—particularly a putative class representative—alleges that predicate acts caused widespread economic harm, it is almost inevitable that countervailing economic forces may be at work.  A defendant should point to this opinion and argue that the plaintiff must allege data points and facts supporting an inference of that economic effect in a particularly defined market.  The plaintiff should not be able to argue that discovery is necessary or that he may rely on “commonsense” inferences at the pleading stage.  A defendant should force the plaintiff to define the market and define the specific economic data showing the purported injury to business or property.  When possible alternative causes of the alleged injury exist, the plaintiff needs to address those at the pleading stage as well.

Defendant may see these types of allegations in “no injury” product defect cases.  That is, allegations that a product does not perform as promised, so the plaintiffs paid more than they otherwise would have or the product is now worth less than it otherwise would be. Similarly, allegations regarding real estate transactions, particularly following the housing bust, also often suggests some sort of effect across an entire market. Such claims should have difficulty withstanding this type of pleading requirement.  As defense counsel, you will want to identify all of the plausible alternative explanations for any economic harm alleged in the complaint.  Your plaintiff must do more than allege in conclusory fashion that those alternative causes are not to blame. Rather, he or she must provide a feasible theory that survives basic economic scrutiny.   

James Smith is a partner in the Phoenix office of Bryan Cave LLP and is a member of the firm’s Class & Derivative Actions Client Service Group.  


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Two recent district court decisions emphasize that food labeling class action defendants must carefully review complaints to identify what each named plaintiff contends it reviewed and whether the allegedly deceptive statements even affected the named plaintiff’s decision to purchase a product. These plaintiffs often string together unrelated allegations that have nothing to do with their purchases.  If a defendant connects the dots and shows just how unrelated those allegations are, you have a much better chance of succeeding early in the case.      

The first case involves five gallon bottled water that is municipal tap water that the seller put through a purification process.  In the Chicago Faucet Shoppe, Inc. v. Nestle Waters North America, Inc., No. 12 C 08119 (N.D. Ill. 2/11/14), the plaintiff alleged that the defendant failed to disclose that the water is municipal tap water and not natural spring water.  After buying the bottles for years, that plaintiff realized it was simply purchasing municipal tap water that underwent a purification process.  That defendant apparently referred to “spring water” on its website, invoices, and panels on its delivery trucks. Importantly, it did not include that statement on its labels. That was crucial for purposes of the defendant’s preemption argument. Federal regulations exempt “purified water” from disclosing if the water comes from a community water system.  21 C.F.R. § 165.110(a)(3)(ii) & (a)(2)(iv).  In fact, the FDA considered but rejected requiring disclosure for purified water, concluding that consumers purchasing it were more concerned with purity and not the source.
            
This plaintiff knew it couldn’t force the defendant to add more to its label than federal law required. Instead, it argued that it only wanted the defendant to disclose the source in marketing materials and on invoices. But marketing really is no different than labeling. The federal Food Drug & Cosmetic Act prohibits states from imposing any food labeling that is not identical to a federal standard.  Because the federal regulations do not require “purified water” to disclose if it came from a municipal water source, federal law preempted this plaintiff’s claims even though it framed the targeted materials as marketing materials rather than labeling.  
            
You may wonder why the plaintiff did not allege affirmative fraud based on statements on the website and invoices referring to Ice Mountain “spring water.”  Indeed, the court wondered the same thing, so it analyzed (and rejected) an affirmative misrepresentation claim even though the plaintiff did not plead it.  Of course, the most likely reason that the plaintiff did not pursue an affirmative misrepresentation claim is the near impossibility of getting such a class certified.  The court did not touch on that issue, but anyone familiar with consumer fraud class actions certainly recognizes it.  If the plaintiff built its case on specific statements on the website or on invoices, it would have to explain how the court could certify a class without getting mired in individual issues of who saw the website, who relied on it, and what other sources of information they possessed.  That is why these types of food labeling claims tend to rely entirely on the product labeling as opposed to occasional statements on websites or other places.  
            
The next case is Kane v. Chobani, Inc., No. 12-CV-02425-LHK (N.D. Cal. 2/20/14).  This case is familiar to people following food labeling class actions and began in May 2012.  Since then, the court has granted various motions to dismiss but allowed that plaintiff more opportunities to plead cognizable claims. At this point, the plaintiff was on her fourth attempt and, thankfully, it is the last one.  This case is a little more typical because it is in the Northern District of California and relies on California consumer protection laws.  This plaintiff has been pursuing claims falling into two categories.  The first relates to Evaporated Cane Juice (“ECJ”); she alleges that ECJ is nothing more than sugar or dried can syrup, so referring to ECJ on the label is misleading and violates federal regulations requiring manufacturers to refer to ingredients by their common and usual names.  The second class of claims are “all natural” claims.  She alleges that using fruit and vegetable juice and turmeric for color was false and misleading because those are not “all natural.”
            
One of the most useful portions of this order is its discussion of California UCL claims under that statute’s “unlawful” prong.  Some plaintiffs have successfully argued that they need not rely on a labeling statement that is “unlawful”; rather, they only need to plead that it is plausible that a defendant broke a law (typically, a federal food labeling requirement).  In fact, a handful of other courts in the Northern District of California have accepted that rationale.  But Judge Lucy Koh was having none of it.  She reasoned that any UCL named plaintiff must allege that they relied on the offending statement or conduct, even under the “unlawful” prong.  This will be a developing area under California consumer fraud law.  At some point, the California Supreme Court or the Ninth Circuit will resolve this growing split among lower courts interpreting allegations of “unlawful” conduct and UCL claims.  For now, unfortunately, the outcome in such cases may turn on which judge handles a particular case.  
            
The court then analyzed whether this plaintiff actually relied on the alleged misstatements. This really is an interesting portion of the opinion, particularly considering how Judge Koh evaluated the plaintiff’s changing allegations over the course of the case.  As to ECJ, the plaintiff initially contended she did not realize that ECJ was just another sweetener.  But in other portions of the amended pleading, the plaintiff repeatedly referred to sugar and dried cane syrup interchangeably.  Judge Koh did not believe it was plausible that the plaintiff could realize that “dried cane syrup” was a form of sugar, but that “evaporated cane juice” was not.  Similarly, the plaintiff earlier sought a preliminary injunction (perhaps an unwise move) and submitted a declaration indicating she would not have purchased the product if she knew it contained “dried cane syrup”; again, this showed she knew that dried cane syrup was the same as sugar.  And despite the court’s earlier rulings, this latest pleading failed to explain how the plaintiff could understand that dried cane syrup was a form of sugar but was oblivious to that fact regarding ECJ, particularly considering that she purported to read and rely on the label.  
            
Perhaps showing some desperation, the plaintiff and her counsel suggested that the “cane” in ECJ could have referred to some other type of cane, such as bamboo cane or sorghum cane.  But during the hearing on the plaintiff’s preliminary injunction motion (again, probably not a good idea), the plaintiff’s counsel admitted that he does not know what people might think when they see ECJ on a label or whether they may believe it is something other than sugar cane.  It was too much for Judge Koh, who found the “which cane is it” argument to be nonsensical.    

The plaintiff also tripped over her own allegations because she acknowledged that “fruit juice concentrate” is a well-known added sugar.  In light of that admission, it was implausible that the plaintiff thought “evaporated cane juice” was something healthful when she admittedly knew that “fruit juice concentrate” was little more than sugar.  Juice was juice from the court’s perspective.
            
The court then turned to the “all natural” claims that relied on Chobani using fruit or vegetable juice concentrate as coloring.  The defendant’s labeling explicitly disclosed that it adds fruit or vegetable juice for color, and the plaintiff purported to read the label.  Hoping to salvage this claim, the plaintiff now alleged that the juices added were actually processed, unnatural substances. The court was not impressed.  In three prior complaints and several hearings, the plaintiff never before disclosed a theory that the juice concentrate used for coloring somehow was not “natural” due to some unidentified aspect of its processing.  It was not enough that the plaintiff alleged the juices were “highly processed unnatural substances far removed from the fruits or vegetables they were supposedly derived from”; that was nothing more than a conclusory statement without any factual support.  Judge Koh wanted to know how or why the juices were not natural, and this plaintiff never answered that question despite several opportunities.
            
Some take away points from Chicago Faucet Shoppe and Kane to consider:
  • In terms of substantive law, reliance and the “unlawful” prong of California’s UCL needs clarifying.  The Northern District of California likely is the federal court with the greatest volume of such claims, and some of its judges are split on whether a named plaintiff must have relied on the allegedly-unlawful statement.  
  • Dissect the plaintiff’s allegations and take the court step-by-step to identify: (1) what the plaintiffs actually saw or relied on; (2) what they included in the complaint as “fluff” (e.g., perceived bad facts that didn’t play a role in their purchase); (3) how their allegations may disprove their claims (e.g., they admit elsewhere that a listed ingredient is known to be “unnatural”); (4) conclusory assertions about ingredients that lack factual bases (e.g., something is “unnatural,” but the plaintiff doesn’t describe how or why); and (5) implausible assertions—courts are slowly showing more willingness to recognize that a label didn’t deceive a plaintiff merely because he or she alleged as much.      
Food labeling cases continue to be a favorite among the plaintiffs’ class action bar.  No doubt, the initial success in surviving motions to dismiss—often followed by quick class-wide settlements—encouraged them. Many courts, however, seem to be taking a closer and more skeptical view of these claims.
 
James Smith is a member of the Bryan Cave Food and Beverage Team and of the Class and Derivative Action Client Service Group.  He is a partner in the firm’s Phoenix office.     

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A recent decision from the Northern District of California provides defendants with reason for cautious optimism regarding food labeling class actions.  In Sethavanish v. ZonePerfect Nutrition Co., No. 12-20907-SC (N.D. Cal. Feb. 13, 2014), the court denied the plaintiff’s motion for class certification. That plaintiff alleged that the “all natural” representations on ZonePerfect bars were false and misleading because the bars contain at least one of ten specified non-natural ingredients.  The plaintiff alleged that she regularly purchased those bars for her then-fiancé, who was an active-duty Marine who eventually deployed overseas.  The plaintiff alleged that she and her fiancé relied on those representations and paid more for the ZonePerfect bars than she would have paid for other bars that were not all natural.  She alternatively alleged that she would have purchased another brand of nutrition bar that truly was all natural.

In ruling on class certification, the court first addressed whether the plaintiff had standing to bring her claims.  While the court’s ruling in this regard is not helpful to defendants, it is also not surprising.  The defendant argued that the plaintiff did not suffer any injury because its bars are less expensive than the Pure Protein bars that the plaintiff now purchases.  The defendant also noted that the plaintiff admitted that she and her fiancé were willing to purchase non-natural nutrition bars so long as they were less expensive than “all natural” alternatives.  Plaintiff also admitted that she has always been willing to eat foods with artificial and synthetic ingredients.  While the court saw some tension among the plaintiff’s declaration, her pleadings, and her deposition testimony, that tension was not enough to eliminate standing.  From the court’s perspective, “[i]t is enough that she has asserted that she would not have purchased the product but for Defendant’s alleged misrepresentation.  She bargained for a nutrition bar that was all natural, and she allegedly received one that was not.”  Again, the standing threshold is not a terribly difficult one to overcome, so this ruling is not too surprising.  
            
More helpful for defendants, however, is the court’s ruling on ascertainability.  The court agreed with the defendant that the plaintiff could not define an objectively ascertainable class.  The defendant overwhelmingly sells to retailers, and not directly to consumers.  Records could only identify a very small fraction of consumers who purchased ZonePerfect bars in the last several years.  Thus, no method existed to identify the members of the class.  
            
The district court noted that courts in the Ninth Circuit are split on the issue.  It cited Xavier v. Philip Morris USA, Inc., 787 F. Supp. 2d 1075 (N.D. Cal. 2011), as an example of a case concluding a class could not be certified when there is no way to ascertain class membership.  That court declined to rely on affidavits from potential class members, reasoning that such a procedure could invite fraudulent or inaccurate claims.  In that respect, the Third Circuit’s opinion in Carrera v. Bayer Corp., 727 F.3d 300 (3d Cir. 2013), also was instructive.  There, the Third Circuit found that retailer records were not sufficiently thorough or accurate to identify class members.  In addition, the Carrera court “held that fraudulent or inaccurate claims could dilute the recovery of absent class members, and, as a result, absent class members could argue that they were not bound by a judgment because the named plaintiff did not adequately represent them.”  The court also pointed to Ries v. AriZona Beverages USA LLC, 287 F.R.D. 523 (N.D. Cal. 2012), as an example of a court rejecting a defendant’s ascertainability argument when dealing with “all natural” claims.  Nonetheless, this court found the reasoning in Xavier and Carrera more persuasive.  While those cases may restrict types of consumer class actions that may be certified, they do not bar such classes altogether.  Because this plaintiff did not identify any method to determine class membership, let alone an administratively feasible method, the court denied class certification without prejudice.  
            
One effect of such decisions may be to encourage class counsel to try to certify narrower classes.  For example, if a manufacturer sells directly to consumers through its website, a class action plaintiff may contend that a court could certify a class of those consumers.  Of course, that assumes that the manufacturer maintains adequate records of such customers.  Similarly, class representatives may argue that the court may certify a class of consumers who purchased the products at retail locations with robust consumer loyalty programs.  Those types of programs often track individual customer’s purchases, though the extent of data maintained varies considerably. This is not to say that such narrowed classes would be appropriate.  They would bring a host of other difficult issues.  Nonetheless, it would not be surprising to see plaintiffs resort to that tactic in hopes convincing a court to certify a class.  Such class certification would, of course, provide the type of leverage that class counsel seek to negotiate a broader settlement.  

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A recent federal court decision rejected a preemption argument under the Food, Drug, and Cosmetic Act and the Nutrition Labeling and Education Act regarding Smart Balance “fat-free” milks.  Admittedly, those defendants advocated a novel preemption theory.  It also did not help that a competing product used labeling that the plaintiffs acknowledged complied with all federal laws and would not provide a basis for state law claims.

In Koenig v. Boulder Brands, Inc., No. 13-CV-1186 (ER) (S.D.N.Y. Jan. 31, 2014), the plaintiffs alleged that the defendants deceptively labeled milk products as “fat free” when they truly contained one gram of fat per serving.  The defendants added an Omega-3 oil blend to fat-free milk, so the product contained less than 0.5 gram of milk fat per serving, but contained one gram of fat per serving due to adding the oil blend.  As is common in these types of claims, the plaintiffs alleged that the “fat-free” labeling deceived them and that they paid a premium for the products because of that deceptive labeling.
 
While the product labeling touted the “fat-free” nature of the milk, the front label also disclosed that it contained “(1 g fat from Omega-3 oil blend),” albeit in smaller font.  Of course, the nutrition facts panel also disclosed that the milk contained one gram of fat per serving, and the oil blend was the third ingredient listed. Unfortunately for the defendants, however, the nutrition facts panel did not contain an asterisk or disclaimer modifying that description.  As we will see below, that was an important omission from the court’s perspective.
 
It is well-recognized now that states cannot impose labeling requirements different from those imposed by the Food, Drug, and Cosmetics Act (“FDCA”) and the Nutrition Labeling and Education Act (“NLEA”).  Federal law, however, does not preempt state laws that only impose identical labeling requirements.  A state consumer law may provide a claim even though the relevant federal laws do not provide any private remedies for consumers.  Thus, these plaintiffs had to establish that their state law claims only imposed the same obligations as federal law, while the defendants argued the opposite.
 
Not surprisingly, a specific regulation regarding labeling of “fat free” products exists.  Under that regulation, products labeled as “fat free” and that have an added ingredient consisting of fat must have an asterisk next to the ingredient and a statement along the lines of, “adds a trivial amount of fat,” “adds a negligible amount of fat,” or “adds a dietarily insignificant amount of fat.”  21 C.F.R. § 101.62(b)(ii).  That is why the lack of an asterisk came back to haunt these defendants.
 
The defendants argued, however, that FDA compliance policy guides allowed them to treat this milk product essentially as two combined products—one that is “fat-free milk” and the other that is not fat-free Omega-3 oil.  The defendants pointed to such policy guides regarding water with added minerals and peas and carrots.  No such guidance existed for a “fat-free” product with added fat, though.  The court rejected the argument that the policy guides for other products somehow pointed to preemption here.  After all, no policy guide exists for this type of milk product, and a competing milk product appropriately uses the asterisk to note added oil.  In fact, the court could not find any FDA policy guide involving combining an ingredient that is fat with a “fat-free” food.  Considering that a regulation specifically addresses such situations of adding fat to “fat-free” foods, there was no reason to try to analogize to other policy guides for different types of food.  Thus, the court concluded that the plaintiffs’ claims only sought to impose requirements that were identical to federal law.
 
The court then turned to the sufficiency of the state law claims.  First, the plaintiffs alleged consumer fraud under New York’s General Business Law (“GBL”) § 349.  That law relies on an objective test to assess whether practices are likely to mislead reasonable consumers acting reasonably under the circumstances.  The court noted that a reasonable consumer may conclude that the product contains a gram of fat per serving, but also noted that a reasonable consumer might focus on the more prominent wording on the label touting the product as “fat-free milk and Omega-3s.”  That was enough to defeat the motion to dismiss.  The court also concluded that the plaintiffs adequately alleged injury because they contended that they paid price premiums based on the defendants’ misrepresentations.
 
The court dismissed the plaintiffs’ breach of express warranty claims, however, due to the lack of privity.  It did so without prejudice, so the plaintiffs may attempt to replead that claim.  It seems difficult, however, to conceive of retail plaintiffs buying products directly from the manufacturers, rather than from a grocery store.  The court also dismissed the plaintiffs’ unjust enrichment claims as duplicative of other claims.
 
At this point in food and beverage labeling class actions, several courts have ruled on preemption issues and provide fairly consistent guidance on that doctrine.  That guidance, of course, cuts both ways for manufacturers—plaintiffs have fairly clear road maps for how to plead claims to avoid preemption.  More interesting questions, and perhaps more successful defenses, will arise in later proceedings such as summary judgment and class certification.  For example, nearly every state’s consumer fraud laws purport to rely on an objective standard.  That is, what would the reasonable consumer believe or would the labeling deceive the reasonable consumer?  It is not clear how class action plaintiffs intended to satisfy this burden in many respects.  Labels typically disclose the relevant information even when a plaintiff seizes on only one portion of the label (e.g., “fat free” or “all natural”).  It should not be sufficient for class action plaintiffs to rely only on the named plaintiff’s subjective interpretations.  There should be some requirement that they establish that a “reasonable” consumer would not have read other portions of the label, would not have understood them correctly, or would have disregarded them.  This seems particularly difficult to do and, at a minimum, should require statistically significant and valid survey data regarding consumer perceptions of the labels.  If a plaintiff does not offer that type of survey, a defendant should have grounds for summary judgment or to defeat class certification.
 
Another issue that these types of plaintiffs do not thoroughly address is injury due to alleged “premium” payments.  In sum, plaintiffs argue that they paid more for a mislabeled product than they otherwise would have.  That tends to be the entire measure of damages proffered by these types of class actions.  But this should be a difficult proposition to prove.  Grocery prices vary significantly depending on several factors.  Was the product on sale?  Did a customer belonging to a store’s “membership” program buy the product at a price lower than that for a non-offending product because of that membership?  Did a customer buy the product because her preferred alternative product was sold out?  Any number of differences may explain (1) whether a consumer actually paid a “premium” price and (2), if so, whether she paid that price because of the labeling or for unrelated reasons.  The United States Supreme Court’s recent decision in Comcast Corp. v. Behrend, 133 S. Ct. 1426 (2013), gives class action defendants considerable ammunition to attack plaintiffs’ proposed methodologies for establishing injuries and damages.  That ruling should play a significant role in defending any of these labeling class actions.
 
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