FDA

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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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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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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The New Naturals

** Where are Class Action Claims Against Consumer Food and Personal Product Companies Trending in 2016?**                                                                                                                                                                                                                                                        PrintWe have blogged in the past about some of the “usual suspects” in the consumer class action line-up – particularly for food, beverage, cosmetics and related industries – for example, the “all-natural” case – the “evaporated cane juice” case – and the “handmade” or “craft beer” case.   Trends come and go – as Plaintiffs run out of companies to sue and as companies change their labeling and advertising in response to the litigation risks.

Which begs the question:  Where are the current litigation trends leading?  We have surveyed recent filings to identify some of the tropes and traps that plaintiffs lawyers are currently focusing on:

As we have discussed in the past, the attractiveness of the all-natural class claim lies in the gaps between FDA guidance and labeling law and the vagaries of the reasonable consumer standardThat gap may be closing with the FDA taking comments and perhaps looking to expand its policy on “natural” foods.  As the term “Natural” loses some of its vagueness, the term “healthy” appears to be taking its place – particularly in so far as the term has the required “eye of the beholder” quality necessary to support class action claims (although in some respects the term “healthy” is regulated see e.g.,  21 CFR 101.65(d)(2)) .  For example in  Kaufman v. CVS Caremark Corp., No. 16-1199, 2016 WL 4608131, at *1 (1st Cir. Sept. 6, 2016) (reversing district court dismissal on Rule 12), CVS Pharmacy, Inc. was sued for its Vitamin E dietary supplement because its label touts the product as supporting “heart health.”  Plaintiff argues that this is misleading because the medical literature does not support a link between consuming vitamin E and cardiovascular health.  Kaufman v. CVS Caremark Corp., No. CV 14-216-ML, 2016 WL 347324, at *1 (D.R.I. Dkt. No. 1 at 7) (and in some studies cited by Plaintiff – Vitamin E dosage increases the rate of heart failure).  In Hunter v. Nature’s Way Prod., LLC, No. 16CV532-WQH-BLM, 2016 WL 4262188, at *1 (S.D. Cal. Aug. 12, 2016) (denying motion to dismiss), Plaintiff alleges that Nature’s Way’s coconut oil is advertised with various health claims (such as its “Variety of Healthy Uses”, “ideal for exercise & weight loss programs”, “fuel a[] healthy lifestyle”), but according to Plaintiff, coconut oil products are not “healthy” . . . “but rather their consumption causes increased risk of CHD, stroke, and other morbidity.” (Dkt. No. 1-5 Compl. at ¶ 118).  In Campbell v. Campbell Soup Co., No 3:16-cv-01005 (S.D. Cal. August 8, 2016) (Dkt 18) (Def. Mot. to Dismiss), Campbell’s Soup Co is defending against Plaintiff’s claims that its Healthy Request® soups are not “healthy” because they contains partially hydrogenated oil (PHO).  Notably, Campbell’s soups are somewhat unique from other food labelling cases because they contain more than 2% meat or poultry and therefore are USDA regulated (see 21 U.S.C. § 451, et seq.) and their labelling is pre-approved (see 21 U.S.C. § 457; accord 21 U.S.C. § 607).  Campbell’s has doubled-down on that argument – moving for Rule 11 sanctions.  No 3:16-cv-01005 (S.D. Cal. August 29, 2016) (Dkt 18).  In Lanovaz v. Twinings N. Am., Inc., No. 5:12-CV-02646-RMW (N.D. Cal. September 6, 2016) (dismissing remaining claims), Twinings successfully defended against claims that the labeling of its tea as a “healthy tea drinking experience” and having “antioxidant” benefits were misleading.  In particular Plaintiff claimed that Twinings’ health benefits could not be substantiated and  were contrary to FDA regulations.  No. 5:12-CV-02646-RMW (N.D. Cal. Dkt. Nos. 1, 24).  It appears that “Healthy” is the new “Natural.”

Plaintiff’s lawyers are also taking a close look at ingredients – to determine if touted anchor ingredients are prominent enough.  For example in Coe v. Gen. Mills, Inc., No. 15-CV-05112-TEH, 2016 WL 4208287, at *1 (N.D. Cal. Aug. 10, 2016) (Order denying Mot. to Dismiss), Plaintiffs argued (successfully at the pleading stage) that General MillsCheerios Protein product labeling is misleading because it implies that the product is essentially the same as normal Cheerios but with added protein.  While Plaintiffs acknowledge that Cheerios Protein does have more protein than regular Cheerios (Plaintiffs calculate that 200 calories of Cheerios contains 6 grams of protein, whereas 200 grams of Cheerios Protein contains 6.4 or 6.7 grams of protein), they argue that this smidgen of an increase is so immaterial as to be misleading.  In another example, in Nazari v. Gen. Mills, Inc., No. 2:16-cv-02015 (E.D. Cal. Aug. 23, 2016), the Plaintiff sued Target with a proposed class action alleging the retailer’s up & up™ Green Aloe Vera Gel lacks traces of Aloe Vera.  Plaintiff alleges that while the product is labelled as an “aloe vera gel” with “pure aloe vera,” its laboratory testing (which it contends would have revealed acemannan, the key compound in aloe vera) could detect no active aloe ingredient.  In another example, in Torrent v. Thierry Oliver., No. 2:15-cv-02511 (C.D. Cal. Sept. 2, 2016) (denying motion to dismiss), Plaintiff survived dismissal on claims that Natierra brand Himalania Goji berries are misleadingly labeled because they are not berries from the Himalayan mountain region in China – which was inferred by the “Himalania” brand name.  In labelling, as in everything else, attention to detail counts.

We will update you on these trends as they progress.

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Pokemon GMO

** Update on the National Bioengineered Food Disclosure Standard Law **

 

closeup of a GMO UPC symbol on white

By a stroke of the pen, President Obama put to rest for all time (by “all time,” we mean a decade) the brouhaha over labeling foods containing GMO ingredients.  By signing the National Bioengineered Food Disclosure Standard law on July 29, 2016, the President and Congress proclaimed to the citizenry that GMO labeling is important — but not so important that the labels actually have to be seen.  How did we get to this point?  A brief history is in order.

When one of the editors of this blog watches Netflix with his English Bulldog, he is enjoying the companionship of a genetically modified organism (“GMO”).  Long before the first GMO food – the Flavr Savr tomato — hit grocery store shelves in 1994, humans were engineering crops and livestock the old fashioned way – selective breeding.  Modern GMOs, of course, differ from those derived from selective breeding.  They are developed on a molecular level – a specific gene from a donor organism that expresses a desirable trait is inserted into the genome of the target organism to give the latter that same trait.  While consumer organizations and environmental activists have sounded the tocsin (or toxin) over GMOs since the beginning of bio-engineering, the federal government – particularly the FDA – has not been alarmed.

Two years before Flavr Savr, the FDA published its “Statement of Policy:  Foods Derived from New Plant Varieties.”  In this document, the FDA reminded the public that a food additive must be approved prior to use unless it is “generally recognized as safe” (GRAS).  The FDA concluded that, while a plant gene inserted into another plant is an additive, generally that gene is GRAS.  “The agency is not aware of any information showing that foods derived by these new methods differ from other foods in any meaningful or uniform way, or that, as a class, foods developed from the new techniques present any different or greater safety concern than foods developed by traditional plant breeding.”  Based on that logic, the FDA’s regulations for plant GMOs are the same as those for traditional foods with the exception of a voluntary (“recommended”) consultation procedure with which developers of GMO-containing foods typically comply.  (Note that the USDA’s Animal and Plant Health Inspection Service plays a limited regulatory role with regard to GMOs that pose a risk to other plants or animals and the EPA regulates GMOs that are bio-engineered to produce a pesticide – for example, the infamous, but unblemished, Bt-corn.)

In the 1992 Policy, the FDA eschewed requiring food companies incorporating plant GMOs to label their products as such under the Federal Food, Drug, and Cosmetic Act because “the agency does not believe that the method of development of a new plaint variety (including recombinant DNA techniques) is normally material information within the meaning of 21 U.S.C. 321(n).”  The FDA has not deviated from this position in the past quarter decade.  The agency’s website has a page directed to consumers which rhetorically asks, “Are foods from GE plants safe to eat?”  The response is, “Yes.  Credible evidence has demonstrated that foods from the GE plant varieties marked to date are as safe as comparable, non-GE foods.”

The FDA’s refusal to mandate that food companies label their products containing GMOs does not mean that consumers who care about such things have been stymied.  In 1990, Congress enacted and George Herbert Walker Bush signed the Organic Foods Production Act, which required that the USDA develop national standards for organic products.  Ten years later, the USDA issued its final rule establishing the National Organic Program (NOP), which governs both fresh and processed food products, including crops and livestock.  The “USDA Organic” label means many things under the NOP — but one of them is no genetic engineering.  GMOs are prohibited in organic products as excluded methods of production.  7 CFR § 205.105.  Therefore, a consumer that doesn’t want to ingest a GMO need only look for the “USDA Organic” label.

The NOP was not enough for Vermont.  In 2014, Vermont enacted Act 120 – a manifesto against the federal government’s oversight of GMOs — that required labels on products containing genetically engineered ingredients.  “[F]ood offered for sale by a retailer after July 1, 2016 shall be labeled as produced entirely or in part from genetic engineering if it is a product:  (1) offered for retail sale in Vermont; and (2) entirely or partially produced with genetic engineering.”  Act 120, § 3043.  In addition, “a manufacturer of a food produced entirely or in part from genetic engineering shall not label the product on the package, in signage, or in advertising as ‘natural,’ ‘naturally made,’ ‘naturally grown,’ ‘all natural,’ or any words of similar import that would have a tendency to mislead a consumer.”  Id.

The food industry went into an uproar over Vermont’s law because – given the realities of interstate commerce – companies would have to change their labeling nationwide to satisfy the demands of Vermont.  While manufacturers have had to bend to the legislative will of California from time to time (“Made in the USA”/Prop 65), it’s quite another thing to answer to Vermont.

Due, in part, to persistent lobbying, Congress enacted the Bioengineered Food Disclosure Standard law just in time to pre-empt Vermont’s organic labeling law from going into effect.  The law requires that the USDA “establish a national mandatory bioengineered food disclosure standard with respect to any bioengineered food and any food that may be bioengineered” by July 2018.  Therefore, GMO labeling will be required nationwide sometime after 2018.  But because Congress clearly believes that this law is a solution in search of a problem, the statute has a unique labeling provision that “require[s] that the form of a food disclosure under this section be a text, symbol, or electronic or digital link . . . with the disclosure option to be selected by the food manufacturer.”  What does this mean?  Simply put, food companies will have the option of either a product label with a bar code accompanied by the words, “scan here for more food information” or a toll-free telephone number with “call for more food information.”  In short, an actual GMO disclosure on the label is not required.  Consumers who care will roam supermarket aisles – smart phones in front of their faces – scanning bar codes to find their non-GMO groceries like Pokemon Go zombies looking for Poke Balls.

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No Pay, No Play

** District Court Rejects Settlement Deal That Extracts a Broad Release of Claims But Provides No Money to Class Members **

Pay writing on Keyboard

It is not common for judges to reject class settlements, usually because lawyers for the opposing sides — putting aside their adversary roles — are savvy enough not to give the judge cause.  That was not the case recently, however, in a long running homeopathic product false advertising case in the Southern District of California.  Allen v. Similasan Corp., No. 12-CV-376-BAS-JLB, 2016 WL 4249914, at *1 (S.D. Cal. Aug. 9, 2016).

The allegations in this case, which are similar to those of other recent homeopathy cases (see e.g., Nat’l Council Against Health Fraud v. King Bio Pharms., 107 Cal. App. 4th 1336, 1348 (2003); Herazo v. Whole Foods Mkt., Inc., No. 14-61909-CIV, 2015 WL 4514510, at *1 (S.D. Fla. July 24, 2015); Conrad v. Boiron, Inc., No. 13 C 7903, 2015 WL 7008136, at *1 (N.D. Ill. Nov. 12, 2015)) complain that Similasan engaged in false advertising by omission by not including on its products’ labels statements to the effect that (i) the product was not FDA approved as medically effective and (ii) the active ingredients were diluted.  Notably, neither of those disclaimers is required on homeopathic products – but even so, many companies voluntarily include them.

In Similasan, after four years of hard fought litigation  the Defendant had successfully narrowed the claims by summary judgment [Dkt. No. 142] and Plaintiffs had certified  a class [Dkt. No. 143].  Similasan, however, filed a motion to decertify, arguing that Plaintiffs would not be able to prove materiality or falsity with their expert witnesses’ survey evidence [Dkt. No. 164].  With the motion to decertify pending, the parties settled and sought judicial approval of their agreement [Dkt. No. 196].  But the settlement was not a cure the district court could swallow.  Judge Bashant noted her role in the fairness hearing was to look for “subtle signs that class counsel have allowed pursuit of their own self-interests and that of certain class members to infect the negotiations.” (2016 WL 4249914, at *3 citing In re Bluetooth Headset Prods. Liab. Litig., 654 F.3d 935, 947 (9th Cir.2011)).  In this case, the signs were not subtle, and it was not a close call for the Court to deny approval.

In particular, Judge Bashant took exception to the following features of the proposed agreement:

  • The remedy for the unnamed class was injunctive relief only. While the company agreed to add the disclaimers that Plaintiffs’ counsel had complained were omitted, Similasan was not required to compensate class members;
  • The only money went to the class representatives who would pocket $2,500.00 each and Plaintiff’s counsel who secured a clear-sailing agreement which would permit an award of fees in excess of $550,000.00;
  • In exchange for injunctive relief, class members released Similasan from all claims identified in the complaint;
  • The release covered a nationwide class even though the Court had certified a California class only.

These settlement terms were not good enough for the Court.  The class was being asked to give up the right to sue but receiving nothing in return.  Indeed, to the extent the remedy was an injunction, a class member who opted out would receive the same benefit without forfeiting any rights.  Tellingly, eight State Attorneys General (Arizona, Arkansas, Louisiana, Michigan, Nebraska, Nevada, Texas and Wyoming) filed an amicus curiae brief urging the Court to reject the proposed settlement. [Dkt. No. 219].

The Court also discussed the role that notice (or lack thereof) played in its decision making.  The Court observed that the proposed class would have been in the tens of thousands [Dkt. No. 216], but the settlement notice prompted only 136 views of the settlement information website and 21 phone calls to the settlement hotline.  The Court attributed this lackluster response to the weakness of the notice, which consisted of a single ad in USA Today and some incidental online placements.  But the reality is the paucity of the economic return (i.e. zero) likely resulted in mass indifference.

 

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