FAL

Safe Harbor From Murky Waters in the Supply Chain

seafood

**Nestle Defends Class Action in the Central District of California with Successful Motion to Dismiss and Sets Valuable Precedent With California Transparency in Supply Chains Act Safe Harbor Defense** . . .                                                                                                                                                                                                                                    

The California Transparency in Supply Chains Act of 2010, requires retailers doing business in California to make specific disclosures on its website about efforts it makes to “eradicate slavery and human trafficking from its direct supply chain.” (Cal. Civ. Code § 1714.43).  In our prior post on this topic we noted the Transparency Act applies to large retailers (those with $100 million in worldwide sales).  Id.  And that the Transparency Act’s focus is on information – the retailer must disclose what efforts it takes to: verify the risks of human trafficking and slavery in its supply chain; audit its suppliers; certify its suppliers’ compliance with laws regarding slavery and human trafficking; maintain internal policies and procedures on the subject; and train its management on these policies and procedures.  Id.  Important to note, the Act does not require that a retailer actually do any of these things – the mandate is to inform the public what efforts are made.  The point of the Transparency Act is consumer empowerment – to give consumers who are concerned about the topic a point of reference  – and ultimately give the market the ability to reward or punish retailers who are (or are not) doing enough.  Nestle USA was one of the first companies to be tested by the Plaintiffs’ bar on whether the Transparency Act created more than an obligation to inform the public about its efforts to eradicate the problem – and whether there is an implied legal obligation to inform the public about the actual occurrences or risk in its supply chain of human slavery or trafficking.  See Barber v. Nestle USA, Inc., No. SACV1501364CJCAGRX, (C.D. Cal.).  The case involved Nestle USA’s branded pet food which sources seafood from Thai fisheries.  The court took judicial notice that it has been reported widely the Thai fishing industry is notorious for having widespread forced and other inhumane labor practices.  Plaintiffs alleged that they would not have purchased Nestle USA’s products if they knew of that connection and therefore that the defendant had violated California’s CLRA (Cal. Civ. Code § 1750 et seq.); FAL (Cal. Bus. & Prof. Code § 17500 et seq.; and UCL (Cal. Bus. & Prof. Code § 17200 et seq.).  However, Nestle USA cited to its compliance with the Transparency Act – to the fact that it had informed the public of its efforts – and therefore that it was squarely within a consumer law “safe harbor.”  A “safe harbor” is the concept articulated by the California Supreme Court that a defendant cannot be liable under the UCL for unlawful conduct if it is doing something that “the Legislature has permitted . . .  or considered a situation and concluded no action should lie.” Cel-Tech Comms., Inc. v. L.A. Cellular Tel. Co., 20 Cal. 4th 163, 182 (Cal. 1999.).  The doctrine has been applied widely to California consumer laws.  Alvarez v. Chevron Corp., 656 F.3d 925, 933–34 (9th Cir. 2011) (applying the safe harbor doctrine to CLRA claims); Pom Wonderful LLC v. Coca Cola Co., No. CV 08-06237 SJO(FMOx), 2013 WL 543361, at *5 (C.D. Cal. Apr. 16, 2013) (applying the safe harbor doctrine to FAL claims).  Nestle USA argued that Plaintiffs could not make an end run around the legislature by making it liable for disclosures that were fully compliant with the Transparency Act.  The district court agreed holding that Plaintiff may not “simply impose their own notions of the day as to what is fair or unfair” – that the “California Legislature considered the situation of regulating disclosure by companies with possible forced labor in their supply lines and determined that only the limited disclosure mandated by § 1714.43 is required.”  Barber v. Nestle USA, Inc., No. SACV1501364CJCAGRX, 2015 WL 9309553, at *4 (C.D. Cal. Dec. 9, 2015).  Accordingly, it granted Nestle USA’s motion to dismiss.  Id.

This dismissal sets an important precedent for the defense bar: Costco has been sued in the Northern District of California under similar circumstances with respect to its sale of seafood sourced from Thailand.  Sud. v. Costco Wholesale Corp., No. 3:15-cv-03783 (N.D. Cal).  Costco’s Motion to Dismiss is currently pending.  Chocolate manufacturers have faced similar lawsuits with respect to slave and child labor in the cocoa supply chain: Mars has been sued in the Central District of California (Wirth v. Mars, Inc., No. 8:15-cv-1470 (C.D. Cal September 10, 2015) and in the Northern District (Hodson v. Mars, Inc., No. 4:15-cv-04450-DMR (N.D. Cal. September 28, 2015).  Hershey’s has also been sued in the Northern District of California (Dana v. The Hershey Company, No. 3:15-cv-04453 (N.D. Cal. September 28, 2015).  Mars’ Motion to Dismiss has been filed in its cases and a decision is currently pending.

 

 

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Phantom Discounts Hurting Retailers

**Momentum Building Against Retailers and Department Stores Sued by Purported Class Representatives Alleging that Advertised “Sales Price” Marketing and Labels are Misleading Consumers** . . .                                                                                                                                                                                                                                                                                                                                         

 

On October 9, 2015 Nordstom failed in its attempt to have the district court in its California’s Unfair Competition Law (UCL) (Cal. Bus. & Prof. Code § 17200 et seq.) and Fair Advertising Laws (FAL) (Cal. Bus. & Prof. Code § 17500 et seq) purported class action case dismiss under Rule 12Branca v. Nordstrom, Inc., S.D. Cal., No. 3:14-cv-02062, Order, ECF No. 30, October 9,  2015.  Plaintiff bought his case alleging that the companies outlet Nordstrom Rack stores used tags with two prices on it: a “Compare At” price and below that the “Actual Price” – the latter a steep discount on the former.  Plaintiff alleges he believed the Compare At price was the price for the item at Nordstrom’s mainline stores, or at least the prevailing market price in department stores.  Accordingly, when he found out that his purchased items were never sold at mainline stores – he alleges that his perceived “discount” was illusory and that he was misled.  Judge Michael M. Anello of the U.S. District Court for the Southern District of California disagreed with Nordstrom’s motion to dismiss, holding that Plaintiff’s theory of being misled was robust enough to pass the reasonable consumer test at the crux of California consumer law.  Equally problematic for Nordstrom, Judge Anello ruled that Plaintiff could represent a class of consumers wider that those who could identify with respect to the exact item he purchased.  The district court here considered cases such as Anderson v. Jamba Juice Co., 888 F. Supp. 2d 1000 (N.D. Cal. 2012) and Astiana v. Dreyer’s Grand Ice Cream, Inc., Nos. C-11-2910 EMC, C-28 11-3164 EMC, 2012 WL 2990766 (N.D. Cal. July 20, 2012) – where courts found that Plaintiffs had standing with respect to items not identical – but substantially similar to the product to which Plaintiff purchased (i.e. a different flavor in the same range) – as analogous and persuasive.  Here the court found that the “Compare At” labels were identically used across the store, even though the products which they might have been affixed to differed.  This has the potential to create a class of consumers who purchased hundreds, if not thousands of items, not just the limited class of people who purchased the exact sweatshirt and cargo shorts that Plaintiff Branca in this case alleged that he bought.

This marks another notch in the belt of Plaintiffs’ lawyers against major department stores.  In a similar case, JCPenny were sued in relation to its use of “Discounted Price” and “Sales Rack” pricing – and the retailer lost on its motion for summary judgment.  Spann v. J.C. Penney Corp., No. SA CV 12-0215 FMO, 2015 WL 1526559, at *2 (C.D. Cal. Mar. 23, 2015).  It subsequently also lost on it opposition to class certification.  Spann v. J.C. Penney Corp., 307 F.R.D. 508 (C.D. Cal. 2015).  In Gattinella v. Michael Kors, No. 14-cv-5731, 2014 WL 7722027 (S.D.N.Y.), a similar “outlet” discount case was litigated and ultimately settled for $4,900,000. See 32 NY. J.V.R.A. 6:8.  Similar cases are pending against TJ Maxx (Chester v. The TJZ Companies., 5:15-cv-01437-DDP-DTB (C.D. Cal.)) Kohl’s (Chowning v Kohl’s Department Stores, Inc., 3:15-cv-01624-JAH-WVG (S.D. Cal.)).

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Google Reversed on Rule 23

**Ninth Circuit Chips Away at Individualized Damage Preclusion under Rule 23 Predominance – reversing Google’s District Court Win on Certification ** . . .                                                                                                                                                                                                        

The Ninth Circuit has held in Pulaski & Middleman, LLC v. Google, Inc., No. 12-16752, 2015 WL 5515617 (9th Cir. Sept. 21, 2015) that under California’s Unfair Competition Law (UCL) (Cal. Bus. & Prof. Code § 17200 et seq.) and Fair Advertising Laws (FAL) (Cal. Bus. & Prof. Code § 17500 et seq there is no need for a court to make individual determinations regarding entitlement to restitution.  In this case, Google was sued in the Northern District of California in relation to its ubiquitous AdWords advertising.  Plaintiff alleged that it was unfair and misleading for Google to charge AdWords users for ads that were served up on error pages and parked domains (i.e. on pages with no real content).  The district court denied certification holding that it could not simply assume that every AdWords member who had ads placed on error or parked pages derived no economic benefit from the ads.  Rather, an individualized analysis was required that precluded class treatment.  The Ninth Circuit panel disagreed.  It held that under California’s UCL and FAL, the test is whether members of the public were “likely to be deceived” – thus an individualized inquiry is not required to achieve certification.  In other words, the Ninth Circuit parsed between an entitlement to restitution (a common question) and what the restitution actually is (an individual question) and held that only the former was required at the certification stage.  As such, the circuit panel held it was legal error for the district court to focus on individualized restitution.  The court held that its ruling in Yokoyama v. Midland Nat. Life Ins. Co., 594 F.3d 1087 (9th Cir. 2010) that damage calculations alone cannot defeat certification governed.   The Ninth Circuit’s laser focus on “liability” and its warning to district courts not to  conflate restitution calculations with liability inquiries (which can be traced back to the California Supreme Court In re Tobacco II Cases, 46 Cal.4th 298 (2009)) sets a difficult course for UCL and FAL defendants to navigate.

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Craft, Draft or Daft?

 

**Plaintiffs’ Lawyers Failing to Get Traction in Craft Beer and Spirit False Advertising Claims That “Handmade” or “Craft” is a Misleading Term in the Context of Alcohol Labels ** . . .                                                                                                                                                                             

Plaintiff lawyers have recently set their site on beer and spirits manufacturers claiming that terms used in advertising such as “handcrafted”, “handmade” or the imprimatur of “craft beer” are being used misleadingly by mass producers.  Several defendants have been successful to date in having the cases dismissed on the pleadings.  In Nowrouzi v. Maker’s Mark Distillery, Inc., No. 14CV2885 JAH NHS, 2015 WL 4523551, at *1 (S.D. Cal. July 27, 2015), plaintiffs allege that they purchased Maker’s Mark Bourbon because its label contained the statement that it was “handmade,” which allegedly led plaintiffs to believe the spirit “was of superior quality” than other bourbon (thus justifying spending more for defendant’s product than other bourbons).  Unsurprisingly, Maker’s Mark bourbon is made with machines.  In a similar action (bought by the same Plaintiff firm) In Welk v. Beam Suntory Imp. Co., No. 15CV328-LAB JMA, 2015 WL 5022527, at *1 (S.D. Cal. Aug. 21, 2015). plaintiffs allege they were misled by the word “handcrafted” on Jim Beam Bourbon bottle labels.  In each case plaintiffs sued under the usual tripartite in California: the CLRA (Cal. Civ. Code § 1750 et seq.); FAL (Cal. Bus. & Prof. Code § 17500 et seq.; and UCL (Cal. Bus. & Prof. Code § 17200 et seq.).  In both cases the district court dismissed with prejudice finding that the use of the impugned terms “handmade” and “handcrafted” were non-actionable puffery.  Those terms were generalized, vague, statements and it was unreasonable to imbue in them that the product literally was created by hand without any involvement of equipment or automated process.  This reasoning follows a Florida case with respect to Jim Beam where the court dismissing with prejudice held that “no reasonable person would understand ‘handmade’ in this context to mean literally by hand. No reasonable person would understand ‘handmade’ in this context to mean substantial equipment was not used.”  Salters v. Beam Suntory, Inc., 2015 WL 2124939 (N.D.Fla. May 1, 2015).

That said, not all Defendants have been so lucky – a few plaintiffs have navigated their way out of the pleading stage.  In Aliano v. Louisville Distilling Co., LLC, No. 15 C 00794, 2015 WL 4429202 (N.D. Ill. July 20, 2015), plaintiffs argued that Angel’s Envy Rye Whiskey, which is described in advertising as “hand crafted” and “small batch” was mass-produced and thus deceptive.  The court permitted the Illinois Consumer Fraud and Deceptive Trade Practices Act case to proceed.  It distinguished Salters noting that Angel’s Envy was a much smaller brand and a consumer could reasonably believe the phrase “hand crafted” on the finished whiskey label meant it was not mass-produced.  In Hofmann v. Fifth Generation, Inc., No. 14-CV-2569 JM JLB, 2015 WL 5440330, at *8 (S.D. Cal. Mar. 18, 2015), the court deferred on this same question refusing to dismiss the complaint against the makers of Tito’s Handmade Vodka, stating that as a matter of law it could not make the determination that the reasonable consumer would not be misled.

A couple of similar cases in this area are currently pending.  In Parent v. MillerCoors LLC., No. 15-cv-01204-GPC-WVG (S.D. Cal.), MillerCoors is being sued on an allegation that its Blue Moon beer misleads consumers into believing it is a “microbrew” or “craft” beer” by using those terms in its advertising and by withholding the name “MillerCoors” from its label.  Plaintiff claims that the definition of “craft beer” set forth by the Brewer’s Association, a not-for-profit trade association, governs.  While it is undisputed that MillerCoors does not qualify as a “Craft Brewer” pursuant to those guidelines, Miller has moved to dismiss on the basis that such guidelines are not controlling.  Miller has also moved on the basis that the use of the words “craft” and “crafted” in their advertising are colorful and vague – i.e. mere puffery – and not actionable.

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