California

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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Sugar in Missouri

** Do we have a new “sue-me” State for Food and Class Litigators? **                                                                                                                                                                                                                                      As we 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.  As anticipated this has opened the way forward for cases against companies using the ECJ term, including of course those cases where the matter had been stayed under the primary jurisdiction doctrine.  Much of this ECJ litigation continues to be focused in state and federal courts in California.

That said, plaintiffs are also filing in other venues.  Missouri for one is becoming increasingly well-known as a plaintiff-friendly jurisdiction following full throated verdicts in product liability cases, such as the $70 million talcum powder case.  And food labeling suits are increasingly being filed as well in this new “sue me” State (in particular, St. Louis City – the 22nd Judicial Circuit, has been called one of “worst places in the nation for a corporation to be sued” and the new hot spot for litigation tourists.”)  In a recent win for the Plaintiff’s bar with respect to food litigation and labeling claims, a Missouri state court of appeals recently issued an opinion rejecting defenses successful in sister courts. In Murphy v. Stonewall Kitchen, LLC, 503 S.W.3d 308, 310 (Mo. Ct. App. 2016) brought under the Missouri Merchandising Practices Act (MMPA) the plaintiff (and putative class representative) alleged Stonewall Kitchen misrepresented that its cupcake mix was “all natural” when it contained leavening agent sodium acid pyrophosphate (SAPP).  The trial court, relying on the  decision in Kelly v. Cape Cod Potato Chip Co., 81 F.Supp.3d 754 (W.D. Mo. 2015), granted the motion reasoning that because the ingredient label clearly disclosed the presence of SAPP, it was not plausible that a consumer would believe the “all natural” representation on the product including the SAPP.  The Court of Appeals reversed, expressly rejecting the ingredient list defense.

Since Murphy, at least 16 cases have recently been filed in St. Louis on the topic of evaporated cane juice alone.  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.), Jelly Belly jelly beans(Jason Allen v. Jelly Belly Candy Company, No. 4:17-cv-00588 (E.D. Mo.), and Bakery on Main granola (Callanan v. Garden of Light, Inc., No. 4:17-cv-01377 (E.D. Mo.).  The cases do appear connected, many having the same plaintiff’s counsel.  It is likely too early to call St. Louis the new “food court” – we’ll monitor it throughout the year though to see if it is a “flash in the pan” or not.

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Updating Proposition 65 Warnings for the Online Era

** California Law Makers Turn Their Attention to the Prop 65 Implications of Online Retailing **                                                                                                                                                                                                                                                                                                                      

California’s Proposition 65, requires any person who exposes a consumer to a listed chemical deemed to be either a carcinogen or a reproductive toxicant “in the course of doing business” to first provide a warning about that exposure (California Health & Saf. Code § 25249.5 et seq.).  As many of our readers are no doubt aware, particularly those who represent clients in California, Proposition 65 has generated a substantial amount of litigation since its enactment, largely due to “public interest” standing creating a private right of action to “any person” (§ 25249.7(d)).

California’s Office of Environmental Health Hazard Assessment (OEHHA) is tasked with updating the list of offending chemicals – there are almost a thousand currently on the list – and once a consumer product is shown to contain one of the listed chemicals a defendant has a heavy burden to show that the amount of exposure is within a safe harbor level or that the product is manufactured in such a way which precludes exposure.  The usual practice for consumer companies has been to rely on the warning provision – foreclosing on Prop. 65 litigation.  That said, the warning, in order to properly immunize the consumer company has to be “clear and reasonable” (§ 25249.11(f)).

What does this mean for manufacturers and retailers that deal with consumers online?  Bear in mind that the initial passage of Proposition 65 was in 1985 and unfortunately the implementing rules had not kept pace with changing trends in online retailing (not having been updated since 2008).  So internet sellers have been left somewhat to wonder.  OEHHA has released new regulations to take effect August 30, 2018, and for the first time they provide added specificity for internet sellers, and demonstrate when and how a Prop 65 warning should be provided.

New Reg. § 25600.1 provides a definition of “Retail seller” which means “a person or business that sells or otherwise provides consumer products directly to consumers by any means, including via the internet” (emphasis added).  The new rules do not upend the presumption that “[t]o the extent practicable, warning materials such as signs, notices, menu stickers, or labels shall be provided by the manufacturer, producer, or packager of the consumer product, rather than by the retail seller” (old § 25603) – they recognize that the new implementing rules are intended to minimize the burden on retail sellers of consumer products (see § 25249.11(f) of the Act).  As such it is primarily the burden of the “manufacturer, producer, packager, importer, supplier, or distributor” to provide the written notice of exposure to the retailer seller (Reg. § 25600.2 (b), (c)).

However, a retailer sellers is responsible for providing a Prop 65 warning in the following instances (§ 25600.2(e)):

  • The retail seller is selling the product under a brand or trademark that is owned or licensed by the retail seller or an affiliated entity;
  • The retail seller has knowingly introduced a listed chemical into the product, or knowingly caused a listed chemical to be created in the product;
  • The retail seller has covered, obscured or altered a warning label that has been affixed to the product by a manufacturer; or
  • Where the seller has “actual knowledge” from a “reliable source” of the potential of consumer product exposure to a listed chemical AND where the manufacturer, producer, packager, importer, supplier, or distributor of the product is: EITHER not “doing business” (because for example, they have less than 10 employees ” ( 25249.11(b))) OR has no registered agent or place of business in California. See Reg. § 25600.2 (e)(5).  In essence this broadens the reach of Prop 65 to retailers as a proxy for manufacturers who were not otherwise caught by Prop 65, either because they were too small or not connected to California.  “Actual knowledge” means specific knowledge of the consumer product exposure received by the retail seller from any reliable source.”  If the source of this knowledge is a notice served pursuant to Section 25249.7 (d)(1) of the Act (i.e. the 60 day notice required under Prop 65 before litigation can commence), the retail seller shall not be deemed to have actual knowledge of any consumer product exposure that is alleged in the notice until five business days after the notice.  This 5 day rule provides an important safe harbor for retailers – and begs the question as to whether there is any incentive for retailers to investigate products – or just wait until notice is provided. The fact that the provision also only applies to retailers when they are dealing with small (or out of state companies) also begs the question whether they’ll be a perhaps unintended consequence – retailers refusing to deal with these small businesses out of fear of the pass-along risk.

A retail seller can also be liable to provide Prop 65 warning where the manufacturer , importer, etc. provides notice and materials for the retailer to affix them, to shelves, products, or the text to provide on internet listings.  (Reg. § 25600.2 (b), (c)). The retailer’s correlative obligation is the “placement and maintenance of warning materials, including warnings for products sold over the Internet, that the retail seller receives” from the manufacture, producer etc.  (Reg. § 25600.2 (d)).  However, a retailer who agrees in writing with the manufacturer, importer, etc., that allocates legal responsibility to the latter will be binding and effective against Prop 65 liability (provided the consumer receives the relevant warning) (Reg. § 25600.2 (d)).  This provision provides another important safe harbor for retailers.  It will be interesting to see in which retail-manufacturer relationships the retailer has the bargaining power to demand this agreement.

The new regulations also provide guidance on how a Prop 65 warning should be given (Reg. § 25602 (b)): “For internet purchases, a . . .  must be provided by including either the warning or a clearly marked hyperlink using the word “WARNING” on the product display page, or by otherwise prominently displaying the warning to the purchaser prior to completing the purchase.  If an on-product warning is provided pursuant to Section 25602(a)(4), the warning provided on the website may use the same content as the on-product warning. For purposes of this subarticle, a warning is not prominently displayed if the purchaser must search for it in the general content of the website.”  As many of you are aware, the new 2018 Regulations also provide new warning requirements, including a symbol, hyperlink and warning language more specific to the carcinogen, reproductive toxicant, etc. (Reg. § 25603).  There are also slightly different rules for specific products such as Food (Reg. § 25607.2), Raw Wood Products (Reg. § 25607.10), Furniture (Reg. § 25607.12), Products With Diesel Engines (Reg. § 25607.14), etc.

These new rules provide clarity . . . but also raise new questions.  For example, is an online platform which is merely connecting the ultimate seller and buyer, such as eBay (and to some extent Amazon) the actual “retail seller” or is the vendor who uses the site the “retail seller.”  See Tiffany (NJ) Inc. v. eBay Inc., 600 F.3d 93, 96–97 (2d Cir.2010) (eBay does not “does not itself sell the items listed for sale on the site nor does it ever take physical possession of them.”); Butler v. eBay, Inc., No. 5:06–cv–02704–JW (N.D.Cal. 12, 2006) (“[T]he seller is in control of the sale, not eBay…. Thus, the sale transaction is between the seller and the bidder.”); see also Cal. Att’y Gen. Op. No. 02–111 (2003) (“We have little doubt that eBay does not sell or offer to sell or buy or offer to buy, on behalf of another or others, any of the items.”). Should retailers, as discussed above, be required to be affirmative or have constructive knowledge of Prop 65 chemicals?  And if online retailers, as a practical matter, have to make the warning nationwide – does this trigger dormant commerce clause challenges?  These developments and more to follow as the rules begin implementation next year.

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Alert: Ninth Circuit Opens A Door For All Natural Class Claims

** Appeal Court Panel Holds That Genuine Dispute Remained As To Whether All Natural Claims Would Survive Reasonable Consumer Test **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      hires-2Judge Lucy H. Koh gave all natural class defendants cause for celebration back in 2014 when she closed the door on a putative class representative’s claim that Dole’s fruit juices and fruit cups were wrongfully labelled as “All Natural.”  Brazil v. Dole Packaged Foods, LLC, No. 12-CV-01831-LHK, 2014 WL 6901867 (N.D. Cal. Dec. 8, 2014).  Last week, however, the Ninth Circuit re-opened that door slightly – at least enough for the plaintiffs’ bar to try to squeeze their feet in.

Mr. Brazil alleged in his 2012 Complaint that Dole’s fruit cups and fruit juices were falsely labelled as “All Natural” because they contained citric acid (i.e. vitamin C) and ascorbic acid (used to prevent discoloring).  Dole successfully argued on summary judgment that Plaintiff had failed to show that a significant portion of the consuming public or of targeted consumers, acting reasonably under the circumstances, would be misled by its labeling.  Id. at *4, citing Lavie v. Procter & Gamble Co., 105 Cal.App. 4th 496, 507 (2003).  Plaintiff’s own opinion about the added Vitamin C and absorbic acid was not enough.  Id.  Neither was his rationale that a reasonable consumer could be misled by virtue of a label that violated FDA guidance on the topic (the FDA is not a reasonable consumer and vice versa, Judge Koh reasoned).  Further, in a prior ruling, Judge Koh decertified Plaintiff’s main damages class because Plaintiff’s damages model (or lack thereof) failed the threshold test of Comcast Corp. v. Behrend, 569 U.S. ___ (2013), i.e., that damages could be adequately calculated with proof common to the class.  Brazil appealed both the summary judgment and decertification decisions.

The Ninth Circuit affirmed in part and reversed in part.  Brazil v. Dole Packaged Foods, LLC, No. 14-17480, 2016 WL 5539863, at *1 (9th Cir. Sept. 30, 2016).

The good news is that the Ninth Circuit agreed with Judge Koh’s decertification of the damages class – and by so doing signaling that the Circuit will continue adhering to the Comcast principle that Plaintiffs have the burden of demonstrating a viable class-wide basis of calculating damages.  It held that the lower court correctly limited damages to the difference between the prices customers paid and the value of the fruit they bought—in other words, the “price premium.”  2016 WL 5539863, at *2 – 3, citing In re Vioxx Class Cases, 103 Cal. Rptr. 3d 83, 96 (Cal. Ct. App. 2009).  The Ninth Circuit reiterated that under the price premium theory, a plaintiff cannot be awarded a full refund unless the product she purchased was worthless – which in this case – the fruit was not.  Id. citing In re Tobacco Cases II, 192 Cal. Rptr. 3d 881, 895 (Cal. Ct. App. 2015).  Because Mr. Brazil did not (and presumably could not) explain how this premium could be calculated across a common class, the motion to decertify was rightly decided.  Id. at *3.

The bad news is that the Appeals Court rejected the lower court’s reasoning that bare allegations of an individual’s claims of deception were insufficient to show the reasonable consumer would be equally deceived.  Troublingly, the court used the FDA’s informal policy statement (see Janney v. Mills, 944 F. Supp. 2d 806, 812 (N.D. Cal. 2013) (citing 58 Fed. Reg. 2302–01)) on the issue as determinative of the reasonable consumer standard.  As one commentator has noted, this converts informal guidance into binding authority.

With the damages class gone, the Ninth Circuit remanded the case for a determination of Plaintiff’s injunctive relief class.  That may be a pyrrhic victory in the end.  As we have blogged in the past, a plaintiff who is aware of the supposed deception is not in a position, as Pete Townshend penned, to be fooled again.

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