Ad Law Defense

Actual Injury Required for Biometric Suits

** Biometric Plaintiffs Face Significant Setback in Illinois **                                                                                                                                                                                                                 

In a growing number of states, biometric information has become a new type of protected data.  This form of information has been of particular concern to legislators spurred by its adoption in everyday uses — for example, in fingerprint scanners and facial recognition technology in smart phones — and its increasing use by employers tracking and verifying their employees’ hours.  The use of biometric information poses unique privacy and security challenges, not the least of which is that — unlike other types of personal identifiers (like a PIN or Social Security Number) — biometric information is permanent and cannot be changed if it falls into the wrong hands.

Background: Illinois was the first state to enact biometric data protections.  Its Biometric Information Privacy Act (740 ILCS 14) (BIPA) passed in 2008, created a “notice and consent” regime wherein: (i) private entities may collect, use or store biometric information only after obtaining a written release by the persons whose biometric information is sought; (ii) private entities are required to notice persons in writing about the specific purposes for and the length of time during which their biometric information will be collected, used or stored; and (iii) private entities must follow notice and consent requirements before disclosing a person’s biometric information to a third party.  Under BIPA, individuals have the right to sue private party violators and recover a minimum of $1,000 for a negligent violation and $5,000 for each violation recklessly or intentionally committed. Plaintiffs may also collect attorneys’ fees and costs.  Texas passed a similar law in 2009 (Capture or Use of Biometric Identifier Act) (Bus & Com § 503.001), and in 2017, Washington state passed a biometric law (H.B. 1493).  During the 2017 legislative session, bills dealing with biometric notice and consent regimes similar to BIPA were introduced in several states, including Alaska (H.B. 72), Arizona, Connecticut (H.B. 5522), Massachusetts (H.B. 1985 ), Montana (H.B. 518), Missouri, New Hampshire (H.B. 523) and New York – but all failed to pass.  The Washington and Texas statutes only allow for enforcement by the attorney general’s office.  Accordingly, Illinois remains the only state with a biometric statute that includes a private right of action – and it is thus the only state that has so far caught the attention of the class action bar.

While the Illinois statute has been in force since 2008, it received little attention until the last two years.  In 2016 and 2017, BIPA actions were brought against companies that use facial-recognition technology, such as FacebookShutterflyGoogleSnapchat, and others, as well as companies that use fingerprint scans, such as L.A. Tan.  Employee suits have also become popular, stemming from the use of biometric information in the workplace, such as fingerprint-operated time clocks.  Hotel chain InterContinental Hotels Group, broadband company Zayo Group, and convenience store chain Speedway LLC have all been the subject of employee lawsuits under BIPA.

For the defense bar dealing with BIPA claims, two major questions have been: (i) Can a company be sued for technical violations of the Act where no damages were sustained by the plaintiffs’ class? and (ii) Does BIPA have extraterritorial application?

The first question recently received attention by the Illinois Court of Appeals.  In Rosenbach v. Six Flags Entm’t Corp., 2017 WL 6523910 (Il. Ct. App., Dec. 21, 2017), Stacy Rosenbach, whose son’s thumbprint was taken by Six Flags after he purchased a season pass for one of its Great America theme parks, sued the company for violating BIPA based on her allegation that it failed to properly obtain written consent or disclose Six Flag’s plan for the collection, storage, use or destruction of her son’s biometric identifiers or information.  Six Flags moved to dismiss, arguing that under Section 20 of BIPA any right of action is limited to a “person aggrieved,” which excludes Plaintiff because she failed to allege any actual injury.  The lower court denied the theme park company’s motion to dismiss, but later certified to the appellate court two questions relating to whether individuals “aggrieved by a violation of the act” can rely solely on alleged violations of the notice and consent requirements or whether they must allege some actual harm.  In answering these questions, the Court of Appeals held that in order to meet the definition of an aggrieved person under the statute, plaintiffs must claim some actual harm. The Court noted, “if the Illinois legislature intended to allow for a private cause of action for every technical violation of the Act, it could have omitted the word ‘aggrieved’ and stated that every violation was actionable.  A determination that a technical violation of the statute is actionable would render the word ‘aggrieved’ superfluous. Therefore, a plaintiff who alleges only a technical violation of the statute without alleging some injury or adverse effect is not an aggrieved person under section 20 of the Act.”  2017 WL 6523910 at ¶ 23. The court rejected Plaintiff’s argument that biometric privacy, itself, is a right that is injured by violation of the statute.  Id. at ¶ 20.  This decision has the potential to foreclose on scores of current BIPA class actions – specifically those that have recently been filed and are seeking statutory penalties for naked violations of BIPA without a clear nexus to any consequential harm or injury.

The second question remains unsettled. To be sure, courts appear clear that an Illinois “statute is without extraterritorial effect unless a clear intent in this respect appears from the express provisions of the statute” (Avery v. State Farm Mut. Auto. Ins. Co., 835 N.E.2d 801, 852 (2005)) and recognize that none of BIPA’s express provisions indicate that the statute was intended to have extraterritorial effect (see Monroy v. Shutterfly, Inc., No. 16 C 10984, 2017 WL 4099846, at *5 (N.D. Ill. Sept. 15, 2017) (finding that BIPA does not apply extraterritorially). But what does that mean in the internet age?  For example, in Monroy, Plaintiff was acknowledged to be a resident of Florida and Defendant Shutterfly was acknowledged to be a Delaware Corporation – but the allegations of the Complaint were that Plaintiff’s friend, located in Illinois, uploaded his photo to Shutterfly’s servers triggering the alleged biometric violation.  In those circumstances, was the Florida resident entitled to the protections of BIPA?  The federal district court could not decide, noting that it was unclear where the actual scan of plaintiff’s face geometry took place, where the scan was stored once it was obtained, and, when stored in cyberspace, how physical location is to be determined – thus finding that the ultimate answer to the extraterritorial question raised a question of fact not suited for dismissal under Rule 12.

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No Stopping Web eAccess Consumer Suits

** Web Accessibility Lawsuits Continue to Surge **                                                                                                                                                                                                              

We blogged last year about the rash of lawsuits surrounding accessibility of websites for the visually impaired – specifically suits bought under Title III’s requirement to provide “auxiliary aids and services” (42 U.S.C. § 12182(b)(2)(A)(iii); 28 C.F.R. § 36.303) for the disabled.  The litigation has not abated in 2017 — if anything reports have shown an up-tick: more ADA specific lawsuits have been filed in 2017 than 2016 and 2015 combined.

Witt the upswing in litigation, there are three questions we hear most often from website owners:

  1. Does my Website Need to be ADA Compliant?

It depends on what type of operation your website supports and where you operate (and therefore can be sued). As we blogged about in the past, the ADA applies to privates companies operating certain enumerated types of businesses deemed to be “public accommodations” (42 U.S.C. § 12181(7)).  When the ADA was enacted in the pre-internet world of 1990, the descriptions given were understandably to analog, brick-and-mortar establishments.  The Third, Fifth, Sixth, Ninth and Eleventh Circuit courts, therefore, apply the ADA only to websites that are the online version of one of these enumerated offline brick-and-mortar spaces.  The First, Second and Seventh Circuit courts apply the ADA more broadly – concluding that Title III is not intended to be stuck in time, and, therefore, a website need not have a nexus to a physical space to be a public accommodation.  So for example, Netflix, not liable for ADA compliance in one jurisdiction (Cullen v. Netflix, Inc., 600 F. App’x 508, 509 (9th Cir. 2015)), is in another (Nat’l Assoc. of the Deaf v. Netflix, Inc., 869 F. Supp. 2d 196 (D. Mass. 2012)) (see our prior post for other notable cases).  This circuit split has not yet made it to the Supreme Court for resolution.  The issue came close recently – the Supreme Court denied certiorari in Magee v. Coca-Cola Refreshments USA, Inc., 833 F.3d 530 (5th Cir. 2016).  See No. 16-668, 2017 WL 4339924 (U.S. Oct. 2, 2017).  This case concerned whether a Coca-Cola vending machine was a “sales establishment” under 42 U.S.C. § 12181.  The trial court and the Fifth Circuit Court of Appeals held that “establishment” denotes a “physical space” and that under the Act only the owner, lessor or operator of the physical space is liable.  Because Coca-Cola did not own, lease or operate the space, it was not liable.  While not directly dealing with an online seller, had certiorari been granted, the Supreme Court would have been required to weigh in on  the “physical space” issue that underlies the circuit split on the applicability of the ADA to websites.  That did not happen, and so the uncertainty remains.  Notably, Congressional action to amend the ADA to deal with this conflict is not on the radar.  Therefore, given the circuit split,, there is a risk of inaction.  While certain business in certain jurisdictions may be safe, the nature of borderless online commerce means those boundaries are porous.

  1. What Does my Website Need to do to be ADA Compliant?

Because there are no specific regulations on point, businesses with websites have the worst of both worlds: mandates without rules.

There are industry groups that offer some guidance.  For example, the World Wide Web Consortium (W3C) is an international body that develops open standards and guidelines for web developers – it outlines design options to make a website accessible such as providing links to definitions, removing time limits for activities, providing spoken word versions of text, and ensuring keyboard control for all website functions. W3C’s most recent standard is published as the Web Content Accessibility Guidelines (WCAG) 2.1 level AA Guidelines (WCAG 2.1).  In a recent case, these industry guidelines were adopted as a de facto standard.  In this case (which we believe to be the first to go to trial on these ADA web issues), the court looked at the lack of accessibility of supermarket chain Winn-Dixie’s website, finding the company violated the ADA.  Gil v. Winn-Dixie Stores, Inc., 257 F. Supp. 3d 1340, 1350 (S.D. Fla. 2017).  The court did not have difficulty determining whether Winn-Dixie’s website passed muster – because Winn-Dixie had not implemented any particular disability modifications.  (To be fair, it had set aside hundreds of thousands of dollars to make its website accessible – but the project had not been completed).  What is notable about the court’s decision was its willingness to adopt the WCAG guidelines. Indeed, in its order on injunctive relief, the court required that Winn-Dixie “adopt and implement a Web Accessibility Policy which ensures that its website conforms with the WCAG 2.0 criteria.”  257 F. Supp. 3d 1340, 1351.  A website owner can take some comfort that, at least in the eyes of one district court, complying with WCAG presents a defensible case that its site is ADA compliant – even absent a specific regulatory scheme.

  1. Should I wait for the DOJ to Issue Guidance Before Acting?

To quote the noted legal commentator, Dirty Harry, “You could ask yourself a question: ‘Do I feel lucky?’”  As we observed in the past, the Department of Justice issued an Advanced Notice of Proposed Rulemaking (“ANPRM”) on Accessibility of Web Information and Services of State and Local Government Entities and Public Accommodations that presumably would articulate specific requirements and technical standards for website accessibility.  75 Fed. Reg. 43,460 (July 26, 2010).  DOJ has yet to finalize this guidance, however. Instead, on May 9, 2016, DOJ issued a lengthy Supplemental ANPRM (SANPRM) for state and local government websites, and then extended the comment period.  It now appears that any rulemaking has been pushed to the backburner – web accessibility guidelines now being relegated to the Office of Information and Regulatory Affairs’ dreaded “inactive list.”

What to do in the absence of regulatory guidance? Some courts have taken from the fact that the regulatory process has begun (albeit stalled) as a signal that the primary jurisdiction doctrine prevents them from proceeding with a civil ADA web accessibility case.  Robles v. Dominos Pizza LLC, No. CV1606599SJOSPX, 2017 WL 1330216, at *8 (C.D. Cal. Mar. 20, 2017) (dismissing case).  However, more often courts have found the opposite.  In Access Now, Inc., v. Blue Apron, LLC, for example, the court found that there was no reason to believe DOJ would issue rules any time soon, and therefore, a dismissal or stay based on the primary jurisdiction doctrine was not appropriate.  No. 17-CV-116-JL, 2017 WL 5186354, at *9 (D.N.H. Nov. 8, 2017) citing Andrews v. Blick Art Materials, LLC, No. 17-CV-767, 2017 WL 3278898 (E.D.N.Y. Aug. 1, 2017) (“The court will not delay in adjudicating [plaintiff’s] claim on the off-chance the DOJ promptly issues regulations it has contemplated issuing for seven years but has yet to make significant progress on.”); see also Gorecki v. Hobby Lobby Stores, Inc., No. CV 17-1131-JFW(SKX), 2017 WL 2957736, at *1 (C.D. Cal. June 15, 2017) (denying motion to dismiss); Gorecki v. Dave & Buster’s, Inc., No. CV 17-1138 PSG (AGRx), (C.D. Cal. Oct. 10, 2017) (denying motion to dismiss).  It would be risky, indeed, to rely on the primary jurisdiction doctrine.  As we have blogged about in the past, the doctrine is inconsistently applied and often elusive.

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Closer to the End for the Natural Impasse?

** Congress Looking at FDA to Release All Natural Guidelines **                                                                                                                                                                                                                                                                                                                                                                                                                                                 

Set of watercolor green logo. Leaves, badges, branches wreath, plants elements. Hand drawn painting. Sign label,textured emblem set. Organic design template.

 Are the Food and Drug Administration’s (FDA) “natural” guidelines imminent? As we have blogged about in the past, one well-worn path plaintiffs’ counsel have taken is to bring suit against a company using “natural” in its food labelling – set-up against plaintiff’s own particular (and sometime peculiar) definition of what a natural food or ingredient is.  The absence of FDA guidance has given room to maneuver on both sides of the issue in “natural” litigation.  In 2015, FDA opened a comment period on new regulations regarding the use of the term “natural” in food labeling, but there has been radio silence since (notwithstanding a growing volume of cases filed on the subject).  Notably, in a recent bill report accompanying the Agriculture, Rural Development, Food and Drug Administration, and Related Agencies Appropriations Bill, 2018 (H.R. REP. 115-232, 1), the House Committee on Appropriations directed “FDA to provide a report within 60 days of enactment of this Act on the actions and timeframe for defining ‘natural’ so that there is a uniform national standard for the labeling claims and consumers and food producers have certainty about the meaning of the term.” H.R. Rep. No. 115-232, at 72 (2017).  This appropriations bill, though formally introduced, remains pending in Congress – accordingly, the putative 60 day deadline for reporting to the committee has not yet commenced.  Nonetheless, it is a good sign that the issue has the attention of Congress (and in particular the committee that controls funding).  See discussion Rosillo v. Annie’s Homegrown Inc., No. 17-CV-02474-JSW, 2017 WL 5256345, at *3–4 (N.D. Cal. Oct. 17, 2017) (staying all natural case under primary jurisdiction doctrine).

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Supreme Court Skips on Ascertainability

** High Court Won’t Weigh in on Whether “All Natural” Class Requires Ascertainability **                                                                                                                                                                                                                                                                              

In federal court, Civil Procedure Rule 23 governs the question of whether a class may be certified.  The rule specifically identifies four primary requirements for certification: numerosity, commonality, typicality and adequacy.  But many courts have added a further requirement – whether the putative class is “ascertainable.”  While the question posed by this requirement is phrased differently from court to court, it can be distilled to this:  Is there a reasonable and reliable way to identify the members of the proposed class?  The Ninth Circuit recently rejected the application of this standard.  And, on  request for certiorari, the Supreme Court has refused to weigh in on this important issue.

Many federal courts were quick to adopt the ascertainability standard after it found its way into case law, particularly some of the district courts of California, which bear the brunt of the dramatic rise in consumer class actions.  See, e.g., Lukovsky v. San Francisco, No. C 05–00389 WHA, 2006 WL 140574, *2 (N.D.Cal. Jan. 17, 2006) (“‘Although there is no explicit requirement concerning the class definition in FRCP 23, courts have held that the class must be adequately defined and clearly ascertainable before a class action may proceed”) (quoting Schwartz v. Upper Deck Co., 183 F.R.D. 672, 679–80 (S.D.Cal.1999)); Thomas & Thomas Rodmakers, Inc. v. Newport Adhesives & Composites, Inc., 209 F.R.D. 159, 163 (C.D.Cal.2002) (“Prior to class certification, plaintiffs must first define an ascertainable and identifiable class. Once an ascertainable and identifiable class has been defined, plaintiffs must show that they meet the four requirements of Rule 23(a), and the two requirements of Rule 23(b)(3)” (citation and footnote omitted)).  Generally speaking, a class is sufficiently defined and ascertainable if it is “administratively feasible for the court to determine whether a particular individual is a member.” O’Connor, 184 F.R.D. at 319.

The ascertainability rule appeals to common sense – particularly in consumer class actions.  Courts don’t want to certify classes without some reasonable assurance that aggrieved class members will be compensated for the wrong they suffered.  Equally important, courts don’t want to create vehicles for petty fraud.  As the court observed in Sethavanish v. ZonePerfect Nutrition Co., No. 12–2907–SC, 2014 WL 580696, *56 (N.D.Cal. Feb. 13, 2014), “Plaintiff has yet to present any method for determining class membership, let alone an administratively feasible method.  It is unclear how Plaintiff intends to determine who purchased ZonePerfect bars during the proposed class period, or how many ZonePerfect bars each of these putative class members purchased.  It is also unclear how Plaintiff intends to weed out inaccurate or fraudulent claims. Without more, the Court cannot find that the proposed class is ascertainable.”

In In re ConAgra Foods, Inc., 90 F. Supp. 3d 919, 969 (C.D. Cal. 2015), consumers brought a putative class action against Con Agra, alleging that the manufacturer deceptively and misleadingly marketed its cooking oils, made from genetically-modified organisms (GMO), as “100% Natural.”  A class was certified , inter alia, on the basis that the proposed class was ascertainable.  The District Court held that:  (i) ascertainability was the law of the Circuit; and (ii) ascertainability was satisfied because membership was governed by a single, objective, criteria – whether an individual purchased the cooking oil during the class period.  Id. at 969.

ConAgra, understandably unhappy with the result, appealed the factual basis for the district court’s ascertainability determination.  It argued before the Ninth Circuit that plaintiffs did not propose any way to identify class members and could not prove that an administratively feasible method existed for doing so – because, for example, consumers do not generally save grocery receipts and are unlikely to remember details about individual purchases of cooking oil.  Briseno v. ConAgra Foods, Inc., 844 F.3d 1121, 1125 (9th Cir. 2017).  The Ninth Circuit, however — rather than analyzing whether the plaintiffs satisfied the ascertainability standard — ruled that it has no place in certification proceedings at all.  “A separate administrative feasibility prerequisite to class certification is not compatible with the language of Rule 23 . . . Rule 23’s enumerated criteria already address the policy concerns that have motivated some courts to adopt a separate administrative feasibility requirement, and do so without undermining the balance of interests struck by the Supreme Court, Congress, and the other contributors to the Rule.”  In short, according to the Ninth Circuit, Rule 23 does not mandate that proposed classes be ascertainable and the lower courts are bound to apply Rule 23 as written.

In so ruling, the Ninth Circuit joined the Sixth, Seventh, and Eighth Circuits. See Sandusky Wellness Ctr., LLC, v. Medtox Sci., Inc., 821 F.3d 992, 995–96 (8th Cir. 2016); Rikos v. Procter & Gamble Co., 799 F.3d 497, 525 (6th Cir. 2015); Mullins v. Direct Digital, LLC, 795 F.3d 654, 658 (7th Cir. 2015), cert. denied, ––– U.S. ––––, 136 S.Ct. 1161, 194 L.Ed.2d 175 (2016).  On the opposite side of the ascertainability issue are the Third, Fourth and Eleventh Circuits.  Marcus v. BMW of N. Am., LLC, 687 F.3d 583, 593 (3d Cir. 2012); EQT Production Co. v. Adair, 764 F.3d 347, 359 (4th Cir. 2014); Karhu v. Vital Pharm., Inc., — F. App’x —, 2015 WL 3560722 at *3 (11th Cir. June 9, 2015).

ConAgra petitioned the Supreme Court to grant a writ of certiorari on May 10, 2017.  It had reason to hope with the Supreme Court recently showing willingness to rule on class action and certification issues.  (See prior posts).  However, on October 10, 2017, the Supreme Court denied the petition without comment.  Conagra Brands, Inc. v. Briseno, No. 16-1221, 2017 WL 1365592 (U.S. Oct. 10, 2017).

With the circuit split still alive, this is not the last we’ll hear on ascertainability.  And no doubt defense counsel in affected jurisdictions will find ways to re-shape the reasoning applied in their ascertainability arguments to other parts of the Rule 23 analysis.  But, no doubt, with this line of defense gone (for now) in the Ninth Circuit – many more consumer class actions will have their day in California courts.

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Is Coconut Oil “Healthy”?

** What are Courts Making of the Plentiful Health Claims Made About Coconut Oil? **                                                                                                                                                                                                                                                                                                                                                                         

Coconut products are taking an increasingly prominent place in the health food aisles – the shelves are stocked with everything from coconut water to coconut milk to coconut flour.  In particular, the last decade has seen the re-emergence of coconut oil (helped by a platoon of celebrity endorsers) as a health food staple.  Many marketers have touted  coconut oil as a “healthy alternative” to other types of cooking oils.  Litigation relating to coconut oil health claims has followed in the last twelve months.  The claims made in such lawsuits follow two main themes.  First, that coconut oil is inherently unhealthy – and to advertise otherwise is misleading.  And second, that health claims made with respect to coconut oil violate specific FDA regulations regarding the term “healthy.”

As to the first claim, it is not particularly controversial that low density lipoproteins (LDL) cholesterol — the so called “bad” cholesterol — contributes to fatty buildup in arteries raising the risk for heart attack, stroke and peripheral artery disease.  There also appears to be no question that saturated fats cause the human body to produce excess LDL’s – and that coconut oil is about 90% saturated fat (which is a higher percentage than butter (about 64% saturated fat), beef fat (40%), or even lard (also 40%)).  What is unclear is whether all saturated fats are equally “bad” – as some studies suggest that coconut oil’s particular type of saturated fat (medium-chain triglycerides (MCTs)) actually aids in weight loss and helps lower blood cholesterol levels.  The science behind these benefits is unsettled.

As to the second question, FDA regulates “nutrient content claim[s].”  As we have blogged about in the past, in order to “use the term ‘healthy’ or related words (e.g., ‘health,’ ‘healthful,’ ‘healthfully,’ ‘healthfulness,’ ‘healthier,’ ‘healthiest,’ ‘healthily,’ and ‘healthiness’)” as nutrient content claims, the food must satisfy specific “conditions for fat, saturated fat, cholesterol, and other nutrients.” 21 C.F.R § 101.65(d)(2).  Specifically, under 21 C.F.R. § 101.65(d)(2)(i)(F), to make a “healthy” claim, the food must (1) be “’Low fat’ as defined in § 101.62(b)(2),” (2) be “’Low [in] saturated fat’ as defined in § 101.62(c)(2),” and (3) contain “[a]t least 10 percent of the RDI or the DRV per RA of one or more of vitamin A, vitamin C, calcium, iron, protein or fiber.” See 21 C.F.R. § 101.65(d)(2)(i)(F).  Section 101.62(b)(2)(i)(B) provides the applicable definition of “low fat” for coconut oil products because it has a “Reference Amount Customarily Consumed” (RACC) of less than 30 grams. Under  § 101.62(b)(2)(i)(B)’s definition, a food is low fat only if it “contains 3 g or less of fat per reference amount customarily consumed and per 50 g of food.”  Under 21 C.F.R. § 101.62(c)(2), a food is “low saturated fat” only if it “contains 1 g or less of saturated fatty acids per (RACC) and not more than 15 percent of calories from saturated fatty acids.”  There is very little argument that coconut oil does not meets these metrics.  It is not low in fat or low in saturated fat under the FDA’s definitions.  But is a general claim of healthfulness on a label a claim about its “nutrient content” – or is it a more generic statement regarding the product overall?

These claims have been made numerous times in recent class actions against coconut oil companies.  The facts are not always identical — in some cases the product’s label explicitly states the product is “healthy,” in others the labels use more diffuse terms such that the product is a “superfood” or “nutritious,” and in other cases “healthfulness” is implied by the context of the advertising as a whole.  In any case, to date no court has adjudicated the underlying questions raised.  The first set of questions revolve around the issue of whether or not coconut oil’s saturated fats are inherently unhealthful?  In answering that question, what does “healthy” even mean in the context of cooking oil?  Does it mean that there is a complete absence of anything harmful?  Does it mean that it is going to make you live longer – or just that it is not going to kill you?  Or somewhere in between?  Does context play a part here?  Would a consumer be cognizant that fats, such as oils, may be healthy in limited ways, but are not if consumed in certain forms or in certain quantities?  Is advertising healthy cooking oil different, say, to advertising healthy vitamin supplements?  The second unresolved issue is whether claims made on a label about health benefits “nutrition” claims as that term is used in FDA regulations?  In Hunter v. Nature’s Way Prod., LLC, No. 16CV532-WQH-BLM, 2016 WL 4262188, at *1 (S.D. Cal. Aug. 12, 2016), the District Court held that these questions could not be definitively answered by defendants on a motion to dismiss and so the case has continued to the class certification stage.  The District Court in Jones v. Nutiva, Inc., No. 16-CV-00711-HSG (KAW), 2016 WL 5387760 (N.D. Cal. Aug. 23, 2017), held the same, noting that concepts like “health” and “nutrition” are “difficult to measure concretely” but that the court would not “give the defendant the benefit of the doubt by dismissing the statement as puffery” when the context of the advertising and labeling plays into the analysis of the health claims.  This case is also headed towards a certification decision with a motion hearing set for early 2018.  Likely, these same questions will raise their heads again on certification briefing, i.e., Is “healthfulness” such an amorphous concept that there is no commonality amongst the class?

In Zemola v. Carrington Tea Co., No. 3:17-cv-00760 (S.D. Cal), defendants have taken a different tact – they have moved for a primary jurisdiction stay of their case based on the pending FDA regulatory proceedings to redefine the term “healthy” in the labeling of food products.  As discussed in a prior post, in September 2016, FDA issued a guidance document (Guidance for Industry: Use of the Term “Healthy” in the Labeling of Human Food Products) stating that FDA does not intend to enforce the regulatory requirements for products that use the term healthy if the food is not low in total fat, but has a fat profile makeup of predominantly mono and polyunsaturated fats.  FDA also requested public comment on the “Use of the Term “Healthy” in the Labeling of Human Food Products.”  Comments were received from consumers and industry stakeholders, reaching 1,100 before the period closed on April 26, 2017. FDA has not provided a timeline as to when revisions to the definition of “healthy” might occur following these public comments.  The Zemola Court has yet to rule on the request for a stay.

A number of coconut oil cases have settled.  See James Boswell et al. v. Costco Wholesale Corp., No. 8:16-cv-00278 (C.D. Cal) ($775,000 coconut oil settlement based on “healthy” labelling); Christine Cumming v. BetterBody Food & Nutrition LLC, Case No. 37-2016-00019510-CU-BT-CTL (San Diego Sup. Ct) ($1 million settlement).

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No Love from FDA

**FDA Warns Bakery it Cannot Label “Love” As An Ingredient **                                                                                                                                                                                                                                                                                                                                                                                                                     

A warning letter published by the Food & Drug Administration and issued to Massachusetts-based Nashoba Brook Bakery highlights that FDA has little tolerance for eccentricity when it comes to labelling compliance.  According to the letter, Nashoba sold granola with labeling that said that one of the ingredients was “love.”  Charming as that may be, FDA was not impressed,  writing that “Ingredients required to be declared on the label or labeling of food must be listed by their common or usual name . . . ‘Love’ is not a common or usual name of an ingredient, and is considered to be intervening material because it is not part of the common or usual name of the ingredient.”  It is not clear whether FDA was inspired by 2016 research that found that study participants rated identical food as superior in taste and flavor if they were told it was lovingly prepared using a family-favorite recipe.  We’ll see if there are any repercussions to the bakery from the FDA Love Letter – other than the free publicity it garnered.

For those who follow our blog, you’ll recall we have written in the past about KIND®, who was also on the receiving end of a not so kind letter asking the company to remove any mention of  “healthy” from its packaging and website.  Notably, later in 2016, the FDA had a change of heart – on April 22, 2016 emailing Kind  informing the company that it could return to its “healthy” language – as long as the use of “healthy” is in relation to its “corporate philosophy,” and not a “nutrient claim” (the latter being the statutory predicate under 21 C.F.R. § 101.65).  Unfortunately for Kind, the 2015 letter prompted a suite of lawsuits.  A number were filed in California: Kaufer v. Kind LLC., No. 2:15-cv-02878 (C.D. Cal), Galvez v. Kind LLC., No. 2:15-cv-03082 (C.D. Cal); Illinois and New York: Cavanagh v. Kind, LLC., 1:15-cv-03699-WHP (S.D.N.Y.), Short et al v. Kind LLC, 1:15-cv-02214 (E.D.N.Y).  Ultimately, a multi-district panel assigned the case to the Southern District of New York (In Re: Kind LLC “Healthy” and “All Natural” Litigation, 1:15-md-02645-WHP).  The cases in large part were voluntarily withdrawn after FDA sent its April 22, 2016 “change of heart” email.

That said, plaintiffs in the MDL case also made claims that Kind Bars are not “All Natural.”  The Court stayed the “All Natural” component of the action pending FDA’s consideration of the term under the primary jurisdiction doctrine.  Dkt. No. 83 (see also our previous post on primary jurisdiction “all natural cases.”)  Plaintiffs have recently sought to lift the stay, arguing that FDA is taking too long.  Dkt. No. 109.  Plaintiffs have also amended their “All Natural” claims to encompass the additional question of whether Kind’s “Non-GMO” statements comport with state GMO laws.  Kind responded by arguing that such state law claims are preempted by the National Bioengineered Food Disclosure Standard, Pub. L. 114-216 (“National GMO Standard”) (7 U.S.C. § 1639i).  Dkt. No. 101.  The Court has heard oral argument on the GMO preemption issue and the lifting of the stay, but is yet to rule on either.

 

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Splitting Hairs Over Milk

** Class Actions Dismissed (and Stayed) on Question of Who Can Call Their Product Milk **                                                                                                                                                                                                                                                                                                                                                                                                                                                         

As anyone who has watched “Meet the Parents” knows, “milk” has traditionally been applied to mammalian products.  Recently, however, the term has been expanded to describe a wide range of non-dairy products such as liquids partially derived from almonds, oats, soy, rice, and cashews.  Can these products rightly be called “milk”?  Plaintiffs’ attorneys in California have decided to put that question to the test.  In Kelley v. WWF Operating Co., No. 1:17-CV-117-LJO-BAM, (E.D. Cal), plaintiffs based their suit on Food and Drug Administration (FDA) regulations dealing with “imitation” foods – defined by FDA as a food which “act[s] . . . [a]s a substitute for and resembles another food but is nutritionally inferior to that food.”  21 C.F.R. § 101.3 (e)(1).  Under these regulations, an imitation food must be clearly labelled (in a type of uniform size and prominence to the name of the food imitated) with the word “imitation.”  21 C.F.R. § 101.3 (e).  Otherwise, the product is “misbranded” under  section 403(c) of the Food, Drug, and Cosmetic Act.  In Kelly, plaintiffs alleged that WWF’s Silk Almond Milk beverages should have been labelled with the “imitation” nomenclature because they are not “milk”  and (in some respects) are nutritionally inferior.

Defendant responded with a motion to dismiss, arguing that no reasonable customer would be misled by the use of the term “almond milk” on its products because the consuming public knows exactly what it is getting – what Merriam-Webster Dictionary defines as “a food product produced from seeds or fruit that resembles and is used similarly to cow’s milk.”

The Kelly case follows a broader, and as yet unresolved, public debate on this definition.  Indeed, there’s a war over the definition of milk.  Both the House and Senate are currently contemplating versions of the Defending Against Imitations and Replacements of Yogurt, Milk and Cheese to Promote Regular Intake of Dairy Everyday (DAIRY PRIDE) Act (H.R.778 House Version) (S.130 Senate Version).  The bills are sponsored by senators and congressmen from dairy rich states (Sen. Tammy Baldwin (D-WI) and Rep. Peter Welch (D-VT)). The House bill included five original co-sponsors: Rep. Michael Simpson (R-ID); Rep. Sean Duffy (R-WI); Rep. Joe Courtney (D-CT); Rep. David Valadao (R-CA); and Rep. Suzan DelBene (D-WA).  If enacted, the bills would amend the Food, Drug, and Cosmetic Act to prohibit the sale of any food using the market name of a dairy product that is not the milk of a hooved animal, is not derived from such milk or does not contain such milk as a primary ingredient.  As supporters of the bills have observed (summed up by a quote from the Holstein Association USA): “After milking animals for 40 years I’ve never been able to milk an almond.”

FDA has not stepped into the fray  even though  it has been petitioned to do so.  In March 2017, FDA received a Citizen Petition from the Good Food Institute requesting it promulgate “regulations clarifying how foods may be named by reference to the names of other foods” and specifically requesting, among other things, that FDA issue regulations that would permit plant-based beverages to be called “milk.”  On the other side, the National Milk Producers Federation (NMPF) wrote in a letter addressed to the FDA and sent on August 29th that the application of dairy-related terms like “milk” to market plant-based beverages creates consumer confusion in the marketplace.

In Kelly, the Court was not troubled by FDA’s inaction.  It found that, because FDA was “poised” to consider the question raised by this suit (although it has never said as much), it was “on their radar,” and therefore FDA should have the opportunity to decide the question, itself.  Under the Primary Jurisdiction Doctrine – which we have blogged about in the past – the Court stayed the matter indefinitely.  Kelley v. WWF Operating Co., No. 1:17-CV-117-LJO-BAM, 2017 WL 2445836, at *6 (E.D. Cal. June 6, 2017).

In a similar case filed against Blue Diamond in California state court but transferred to the U.S. District Court for the Central District, the defendant was successful on its motion to dismiss.  Painter v. Blue Diamond Growers, No. 1:17-CV-02235-SVW-AJW, (C.D. Cal. May 24, 2017).  In that case, Judge Wilson held that it was completely implausible that there was consumer confusion.  Judge Wilson held that “Almond milk” accurately describes defendant’s product.  See Ang v. Whitewave Foods Co., No. 13-CV-1953, 2013 WL 6492353, at *3 (N.D. Cal. Dec. 10, 2013) (finding as a matter of law that no reasonable consumer would confuse soymilk or almond milk for dairy milk); Gilson v. Trader Joe’s Co., No. 13-CV-01333-WHO, 2013 WL 5513711, at *7 (N.D. Cal. Oct. 4, 20 13) (finding at the pleading stage that no reasonable consumer would believe that a product labeled Organic Soy Milk, including the explicit statement that it is “LACTOSE & DAIRY FREE”, has the same qualities as cow’s milk).  Quoting from the Ang court, Judge Wilson reasoned that a reasonable consumer knows veggie bacon does not contain pork, that flourless chocolate cake does not contain flour, and that e-books are not made out of paper.  Judge Wilson also held that plaintiff’s case would create a de facto labelling standard using state law that was stricter than the FDCA requirement and, therefore the case was preempted.  See also Gilson v. Trader Joe’s Co., No. 13-CV-01333-VC, 2015 WL 9121232, at *2 (N.D. Cal. Dec. 1, 20 15) (finding state law claims against the use of the term “soymilk” preempted by the FDCA).

Plaintiffs in the Painter case have appealed to the Ninth Circuit.  Painter v. Blue Diamond Growers, No. 17-55901 (9th. Cir. June 26, 2017).  We’ll keep you updated on the progress of the case.

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FYI on ECJ

** In the Wake of FDA’s Guidance, Evaporated Cane Juice Cases Continue . . . .   **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        As we have blogged about in the past the Food and Drug Administration (FDA) issued guidance in 2016 that it is false or misleading to describe sweeteners made from sugar cane as “evaporated cane juice” (ECJ). Guidance for Industry: Ingredients Declared as Evaporated Cane Juice.

It is common knowledge that cane sugar is made by processing sugar cane – crushing the cane to extract the juice, evaporating that juice, and crystalizing the syrup that remains.  To make white sugar, the crystals undergo additional crystallization to strip out molasses.  The primary difference between standard white sugar and the product known as ECJ is that the latter skips the second crystallization process.  ECJ is sold as a standalone product (e.g., in health food stores) and since the early 2000’s has been introduced as a white sugar substitute in products such as yogurt and lemonade.

The plaintiffs’ bar alleges that ECJ is identical to refined sugar from a nutrient and caloric standpoint and, therefore, food labelling using the term ECJ misleads health-conscious consumers into thinking it is a better sweetener option (or not sugar at all).  Defendants respond that ECJ is precisely what it says — the evaporated juice from the cane of the sugar plant — and is therefore a wholly accurate term to describe a type of sweetener that is made from sugar cane but undergoes less processing than white sugar.  See e.g., Morgan v Wallaby Yogurt Company, No. CV 13-0296-CW, 2013 WL 11231160 (N.D. Cal, April 8, 2013) (Mot. to Dismiss).

FDA regulations are implicated in this controversy because they prohibit the use of an ingredient name that is not the “common or usual name” of the food.  21 CFR 101.3 (b) & (d).  The common or usual name of a food or ingredient can be established by common usage or by regulation.  In the case of “sugar,” FDA regulations establish that sucrose obtained by crystallizing sugar cane or sugar beet juice that has been extracted by pressing or diffusion, then clarified and evaporated, is commonly and usually called “sugar.”  21 CFR 101.4(b)(20).  The question for the FDA in 2016 when it was considering its ECJ Guidelines, therefore, was whether ECJ fits under this definition and therefore should be identified by the common or usual name – sugar.  This question was complicated by FDA’s heavy regulation of the term “juice,” which is also defined in the federal register.  21 CFR 101.30.

On October 7, 2009, FDA first stepped into the ECJ fray, publishing a draft guidance entitled “Guidance for Industry: Ingredients Declared as Evaporated Cane Juice” (74 FR 51610) to advise the relevant industries of FDA’s view that sweeteners derived from sugar cane syrup should not be declared on food labels as “evaporated cane juice” because that term falsely suggests the sweetener is akin to fruit juice. On March 5, 2014, FDA reopened the comment period for the draft guidance seeking further comments, data, and information (79 FR 12507).  On May 25, 2016, FDA updated this guidance (81 FR 33538), superseding the 2009 version, but not changing its position that it is false or misleading to describe sweeteners made from sugar cane as ECJ.  FDA reasoned that the term “cane juice”— as opposed to cane syrup or cane sugar—calls to mind vegetable or fruit juice, see 21 CFR 120.1(a), which the FDA said is misleading as sugar cane is not typically eaten as a fruit or vegetable.  As such, the FDA concluded that the term “evaporated cane juice” fails to disclose that the ingredient’s “basic nature” is sugar. 2016 Guidance, Section III.  As support, FDA cited the Codex Alimentarius Commission — a source for international food standards sponsored by the World Health Organization and the United Nations.  FDA therefore advised that “‘evaporated cane juice’ is not the common name of any type of sweetener and should be declared on food labels as ‘sugar,’ preceded by one or more truthful, non-misleading descriptors if the manufacturer so chooses.” 2016 Guidance, Section III.

Bear in mind that FDA guidance is not binding on courts and, in and of itself, does not create a private right of action.  21 U.S.C. § 337(a) (“[A]ll such proceedings for the enforcement, or to restrain violations, of [the FDCA] shall be by and in the name of the United States”); see POM Wonderful LLC v. Coca-Cola Co., 573 U.S. ___ (2014); Buckman Co. v. Pls.’ Legal Comm., 531 U.S. 341, 349 n.4 (2001); Turek v. Gen. Mills, Inc., 662 F.3d 423, 426 (7th Cir. 2011); see also Smith v. U.S. Dep’t of Agric., 888 F. Supp. 2d 945, 955 (S.D. Iowa 2012) (holding that there is no private right of action under USDA statute).  In false advertising cases, the governing test is what consumers, themselves, think – not what FDA thinks.  For example, in Mason v. Coca-Cola Co., plaintiffs alleged that “Diet Coke Plus” was misleading because the word “Plus” implied the product was “healthy” under FDA regulations.  774 F. Supp. 2d 699 (D.N.J. 2011).  The court begged to differ: “At its core, the complaint is an attempt to capitalize on an apparent and somewhat arcane violation of FDA food labeling regulations . . .  not every regulatory violation amounts to an act of consumer fraud . . . . It is simply not plausible that consumers would be aware of [the] FDA regulations [plaintiff relies on].”  Id. at 705 n.4; see also Polk v. KV Pharm. Co., No. 4:09-CV-00588 SNLJ, 2011 WL 6257466, at *7 (E.D. Mo. Dec. 15, 2011);  In re Frito-Lay N. Am., Inc. All Natural Litig., No. 12-MD-2413 RRM RLM, 2013 WL 4647512, at *15 (E.D.N.Y. Aug. 29, 2013) (“[T]he Court [cannot] conclude that a reasonable consumer, or any consumer, is aware of and understands the various federal agencies’ views on the term natural.”)  That said, while FDA’s guidance is not alone dispositive – it certainly lends weight to the question of what a consumer’s state of mind would be with respect to the question of false and misleading labelling.

In the interim between FDA opening up public comment in 2014 on the ECJ question and its release of the 2016 guidance, many cases on this issue were stayed awaiting the outcome of FDA’s deliberations (based on the primary jurisdiction doctrine).  Saubers v. Kashi Co., 39 F. Supp. 3d 1108 (S.D. Cal. 2014) (primary jurisdiction invoked with respect to “evaporated cane juice” labels) (collecting cases) see, e.g., Gitson, et al. v. Clover-Stornetta Farms, Inc., Case No. 3:13-cv-01517-EDL (N.D. Cal. Jan. 7, 2016); Swearingen v. Amazon Preservation Partners, Inc., Case No. 13-cv-04402-WHO (N.D. Cal. Jan. 11, 2016).  With that guidance published, the stayed suits are now set to proceed.  And, as to be expected, many new cases have been filed over ECJ labeling.  Notably, complaints have been filed far away from the traditional “food court” in the Northern District of California.  For example, more than a dozen ECJ cases have recently been filed in St. Louis – the targeted defendants include manufacturers of Pacqui Corn Chips (Dominique Morrison v. Amplify Snack Brands Inc., No. 4:17-cv-00816-RWS (E.D. Mo.) and Bakery on Main Granola (Callanan v. Garden of Light, Inc., No. 4:17-cv-01377 (E.D. Mo.)

Where are courts landing on the ECJ question?

In Swearingen v. Santa Cruz Natural, Inc., No. 13-cv-04291 (N.D. Cal.), a complaint was filed on September 16, 2013, stating that plaintiffs were health-conscious consumers who wish to avoid “added sugars” and who, after noting that “sugar” was not listed as an ingredient, were misled when they purchased Santa Cruz Lemonade Soda, Orange Mango Soda, Raspberry Lemonade Soda, and Ginger Ale Soda which contained ECJ.  On July 1, 2014, the matter was stayed by Judge Illston pursuant to the primary jurisdiction doctrine.  The stay was lifted in June 2016 following a status conference noting the FDA’s final guidance on ECJ – and thereafter supplemental briefing on Santa Cruz’s motion to dismiss was considered.  The Court issued its order on August 17, 2016 (2016 WL 4382544), refusing to dismiss under Rule 12, noting the following:

  • Products not purchased. Santa Cruz argued that plaintiffs had not claimed to have personally purchased every single beverage referred to in the complaint and therefore lacked standing as to those products.  Judge Illston, however, sided with those courts that have concluded that an actual purchase is not required to establish injury-in-fact under Article III, but rather, that when “plaintiffs seek to proceed as representatives of a class . . . ‘the critical inquiry seems to be whether there is sufficient similarity between the products purchased and not purchased.”  2016 WL 4382544 at *8 (quoting Astiana v. Dreyer’s Grand Ice Cream, Inc., 2012 WL 2990766, at *11 (N.D. Cal. July 20, 2012). Because all of the fruit beverages at issue were of the same type of food product, Judge Illston concluded the plaintiffs had standing for all of them.
  • Ingredient Lists. Santa Cruz also argued that plaintiffs could not meet the “reasonable consumer” test of the California consumer protection statutes because it was implausible that a consumer would read the mandatory Nutrition Facts label immediately adjacent to the impugned ingredient list – which clearly identified the product as having 29 grams of sugar — and conclude that it did not contain added sugar.  Judge Illston noted that she had “some reservations as to whether a reasonable consumer would be misled as regarding added sugars in the Lemonade Soda and Ginger Ale Soda” – whose 35 grams and 32 grams of sugar, respectively, were unlikely to occur naturally in ginger root or lemon juice.  She found that the other sodas were closer calls (a reasonable consumer might conclude that the 29 grams of sugar in the Orange Mango Soda, for example, occurred naturally in the orange juice and mango puree listed as ingredients).  Nonetheless, she concluded the question of whether a reasonable consumer would have been misled was a question better decided by a jury and on that basis could not be dismissed under Rule 12.

The matter was thereafter voluntarily withdrawn on May 5, 2017, prior to certification.  One can reasonably assume the withdrawal was the result of settlement – but because the settlement was pre-certification pursuant to Federal Rule 23(e) and was not a class action resolution — no notice or court oversight was required.

In a similar case involving Steaz flavored ice teas, Swearingen v. Healthy Beverage, LLC, No. 13-CV-04385-EMC (N.D. Cal.), the complaint was filed on September 20, 2013, and followed the same allegations of the Santa Cruz case.  On June 11, 2014, Judge Chen stayed the matter pursuant to the primary jurisdiction doctrine.  The stay was lifted on July 22, 2016, and on October 31, 2016, Healthy Beverage moved to dismiss.  The Court ruled on the motion on May 2, 2017, finding for the defendant.

Website Disclosure.  Judge Chen found (in some respects) the opposite of Judge Illston in the Santa Cruz case on this issue of whether disclosure of the sugar content in the product negates whatever confusion may arise from  ECJ labelling.  Healthy Beverage argued that, because it stated on its website [but not on its packaging] that “cane juice is natural sugar,” and plaintiffs’ counsel acknowledged that the plaintiffs “may have looked” at the website,  , plaintiffs could not have been under any illusions that ECJ is anything but sugar.  Plaintiffs’ counsel at the motion hearing answered that plaintiffs “did not focus” on that information on the website.  Judge Chen did not consider this qualification sufficient,, finding that whether or not the plaintiffs “focused” on Healthy Beverage’s disclosure, they conceded that they read it and, therefore, reliance on the packagaging’s ECJ label was not reasonable.

Reese v. Odwalla, Inc., No. 13-CV-00947-YGR (N.D. Cal.) followed the same path as the previous two cases – a Complaint filed in 2013, stayed in 2014, and revived in 2016 after FDA released its ECJ guidance.  The product is Coca-Cola’s Odwalla brand smoothies and juices labelled with ECJ.  On October 10, 2016, a motion to dismiss was filed by Odwalla that the Court ruled on in February of 2017:

Premption:  The crux of Odwalla’s motion to dismiss was express federal preemption.  Odwalla argued that, where the FDCA provides that “no State . . . may directly or indirectly establish under any authority . . . any requirement for a food . . . that is not identical to such standard of [the FDCA]” (21 U.S.C. § 343-1(a)(1)) and the FDA’s guidance on the use of the term ECJ only became final in August 2016, there were no laws prohibiting the use of ECJ prior to the issuance of the 2016 Final Guidance.  Thus, the retroactive imposition of such prohibition would amount to an imposition of non-identical labeling requirements and would therefore be preempted (citing to Wilson v. Frito-Lay N. Am., Inc., 961 F. Supp. 2d 1134, 1146 (N.D. Cal. 2013) (finding that retroactive application of FDA’s clarification of an ambiguous regulation would offend due process); Peterson v. ConAgra Foods, Inc., No. 13-CV-3158-L, 2014 WL 3741853, at *4 (S.D. Cal. July 29, 2014) (finding that federal law preempted state claims based on labels prior to FDA’s clarification of labeling requirements).  Judge Rogers rejected this argument, noting that neither the 2009 Draft Guidance nor the 2016 Final Guidance announced a new policy or departure from previously established law.  Judge Rogers reasoned that FDA merely confirmed that ECJ fits the definition of sucrose under the regulations, and, therefore, needs to be labeled as “sugar.”  Thus, the Court found that the State law claims did not contradict Federal law and were not preempted.  This same preemption argument was also rejected in Swearingen v. Late July Snacks LLC, No. 13-CV-04324-EMC, 2017 WL 1806483, at *8 (N.D. Cal. May 5, 2017).

 

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Are You Shipping Me! Is Delivery Charging The Next Big Thing In Consumer Class Actions?

** Shipping and Handling Case Dismissed in California – Beginning of the End? **                                                                                                                                                                                                                                                                                                                                            

Lately, there’s been quite a bit of buzz over a couple of lawsuits filed in California alleging that internet retailers are charging too much for shipping and handling:  Reider v. Electrolux Home Care Products, Inc., No. 8:17-cv-00026-JLS-DFM (C.D. Cal) and McCoy v. Omaha Steaks International, Inc., No. BC 658076 (Cal. Sup. Ct, L.A. Cnt’y).  Much of the reporting on these cases focuses on the possibility that this claim may be the next big thing in consumer class actions.  How likely is that?

The answer, of course, is “Who knows?”  But a closer inspection of the lawsuits suggests that this litigation too shall pass — and perhaps quickly.  First, both lawsuits were filed by Scott J. Ferrell, the founder of Pacific Trial Attorneys, who is no stranger to consumer class actions against online retailers having brought several under California’s Automatic Renewal Statute. California Business and Professions Code §17600, et seq.  But there hasn’t yet been a break out of these shipping and handling cases.  And second, the Electrolux action is over via a joint stipulation to dismiss filed just yesterday after the District Court granted Electrolux’s motion to dismiss with the observation that any attempt to amend would likely be futile.  Dkt. No. 30, May 8, 2017.

The plaintiff in Electrolux pursued a novel theory of liability in a case where it was undisputed that he was apprised of the shipping charges prior to purchase.  Indeed, there was no way plaintiff could have missed the disclosure because he had to actually choose between shipping options with different charges at the time of purchase:  Ground Service at $7.99; Second Day Air at $15.00; and Next Day Air at $25.00.  (He judiciously chose ground service given his purchase was for a $1.99 vacuum bag.)  Faced with those facts, plaintiff honed in on the unfair prong of California Business & Profession Code § 17200, which prohibits and makes actionable “unlawful, unfair or fraudulent” business practices.

While California courts have not addressed the unfair prong in consumer lawsuits, the Ninth Circuit has – holding that for a business practice to be unfair to consumers it must either:  (1) violate a “legislatively declared” policy; or (2) fail a balancing test that weighs the benefit to the company against the harm to consumers.  Lozano v. AT&T Wireless Servs., Inc., 504 F.3d 718, 736 (9th Cir. 2007).  In Electrolux, the plaintiff argued that the guidelines of the Direct Marketing Association (“DMA”) that encourage retailers to make sure that their shipping and handling charges bear a reasonable relationship to the actual costs of shipping and handling and a 1980 FTC consent order prohibiting a car dealer from charging more than its actual costs in shipping cars to its showroom reflect a public policy against excessive shipping and handling charges and show that the balance tilts to consumers.

The District Court disagreed.  Dkt. No. 27, April 21, 2017. The “legislatively declared” policy was an easy call – neither the DMA nor the FTC are legislatures.  On the balancing test, the District Court found that there was simply no harm to the plaintiff and, therefore, nothing against which to balance Electrolux’s benefit.  Striking a blow for free markets everywhere, the court observed, “Online shoppers are aware that online merchants are in the business of making money and generating profit, and those looking for the best deals will find their way to the merchants who offer the best combination of quality, price, and service.”  In what should become known as the “Mini Bar Rule,” the court cited Searle v. Wyndham Int’l, Inc., 102 Cal. App. 4th 1327, 1330 (2002) – a case where plaintiffs unsuccessfully challenged a hotel chain’s mandatory 17% service charge:

“Perhaps the best analogy is the one made in Searle. The hotel room guest knows he could buy the $3 minibar candy for less at a neighborhood store. Perhaps he pays the high price so he can stay in his comfortable robe and enjoy the high-priced, in-room movie. In any event,“[t]he minibar patron, like the room service patron, is given both clear notice the service being offered comes at a hefty premium and the freedom to decline the service.” Searle, 102 Cal. App.4th at 1334.” (Dkt. No. 27 at 6).

The District Court in short order dispatched plaintiff’s Consumer Legal Remedies Act claim that the practice of charging inflated shipping and handling fees is deceptive because consumers believe that the charges are reasonably related to the company’s actual costs by noting that Electrolux makes no such representation.

But what of the second shipping and handling charge case —  McCoy v. Omaha Steaks International, Inc., CA Sup. Court, County of Los Angeles, Case No. BC 658076?  That case was filed in Los Angeles Superior Court on April 14, 2017 – a week before the District Court’s decision in Electrolux.  The claims are the same.  The support is the same.  We’ll have to wait and see if the superior court and the federal court agree.

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Healthy Conscious

** FDA Updating Requirements for “Healthy” Claims on Food Labeling **

One of the trending areas we have blogged about last year was “healthy” claims in food labelling becoming the new “all natural” target; see Hunter v. Nature’s Way Prod., LLC, No. 16CV532-WQH-BLM, 2016 WL 4262188, at *1 (S.D. Cal. Aug. 12, 2016) (Coconut Oil); Campbell v. Campbell Soup Co., No 3:16-cv-01005 (S.D. Cal. August 8, 2016) (Dkt 18) (Healthy Request® canned soups); Lanovaz v. Twinings N. Am., Inc., No. 5:12-CV-02646-RMW (N.D. Cal. September 6, 2016) (Twinings bagged tea).  It is a lucrative area for the plaintiff’s bar.  James Boswell et al. v. Costco Wholesale Corp., No. 8:16-cv-00278 (C.D. Cal) (recent $750,000 coconut oil settlement based on “healthy” labeling).

In many respects this trend was kicked off in 2015 by the Food & Drug Administration (FDA) who issued the KIND® company a not so kind letter asking the company, pursuant to 21 U.S.C. § 343(r)(1)(A) to remove any mention of the term “healthy” from its packaging and website.  See our prior blog post.  The basis for the FDA’s action is that the term “healthy” has specifically defined meanings under 21 CFR 101.65(d)(2) which includes objective measures such as saturated fat content (must be > 1 g) (see 21 CFR 101.62(c)(2)).  Later in 2016 the FDA seemingly had a change of heart – emailing Kind and stating that the company can return the “healthy” language – as long use “healthy” is used in relation to its “corporate philosophy,” not as a nutrient claim.

Notably, this sparked a wider public health debate about the meaning of “healthy” and whether the focus, for example on the type of fat rather than the total amount of fat consumed, should be reconsidered in light of evolving science on the topic.  In September 2016 the FDA issued a guidance document (Guidance for Industry: Use of the Term “Healthy” in the Labeling of Human Food Products) stating that FDA does not intend to enforce the regulatory requirements for products that use the term healthy if the food is not low in total fat, but has a fat profile makeup of predominantly mono and polyunsaturated fats.

The FDA also requested public comment on the “Use of the Term “Healthy” in the Labeling of Human Food Products” – which comment period ended this week. Comments poured in from consumers and industry stakeholders, reaching 1,100 before the period closed on April 26, 2017. The FDA has not provided a timeline as to when revisions to the definition of “healthy” might occur following these public comments – and it is not clear if President Donald Trump’s January executive order, requiring that two regulations be nixed for every new rule that is passed, will hinder the FDA’s ability to issue a rulemaking on the term “healthy” in the near future.  It is also not clear whether the FDA will combine the rulemaking with its current musing of use of the term “natural” – as the terms are sometimes used synonymously.  Industry groups (and the defense bar) are hopeful though that some clarity will come sooner rather than later.

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