Monthly Archives: February 2016

No Parm, No Foul?

February 25, 2016False Advertising, FDA, FoodCalifornia, Class Acton Suit, FDA, Food Adulteration, Misbranding, New York

** Class actions Filed Following Bloomberg Reports of Cellulose Filling in Parmesan Cheese **

By: Brent E. Johnson

Two putative class action lawsuits have been filed over cellulose in parmesan cheese – one in federal court in New York against Wal-Mart (Moschetta v. Wal-Mart Stores, Inc., S.D.N.Y., No. 16-13770) and one in the Northern District of California against the newly merged Kraft Heinz group (Lewin v. Kraft Heinz Foods Co., 316-cv-00823). Plaintiffs’ counsel wasted no time filing their lawsuits after Bloomberg Business published a February 16, 2016 online article regarding the common practice of cheese makers adding cellulose (plant pulp) to grated parmesan cheese. Bloomberg had various brands of grated parmesan tested by an independent laboratory and reported the results of at least some of those tests — Essential Everyday 100% Grated Parmesan Cheese sold by Jewel-Osco tested at 8.6% cellulose, Wal-Mart’s Great Value 100% Grated Parmesan weighed in at 7.8% cellulose, and the ubiquitous Kraft 100% Grated Parmesan Cheese registered 3.8%. Some grated parmesan makers list cellulose as an ingredient on their labels as an additive “to prevent caking.” The FDA has no specific regulations regarding the amount of cellulose in grated cheeses (and most other foods), and it is a common food additive — cutting calories (it’s non-digestible), reducing fat content, and providing a source of dietary fiber.

While it is unclear what prompted Bloomberg to commission the lab tests, they came in the wake of a federal criminal prosecution of the now-defunct Castle Cheese Inc. and its CEO, Michelle Myrter, on food adulteration and misbranding charges. Castle Cheese, however, was a different beast altogether where the problem was not only the addition of cellulose, but the fact that its parmesan cheese did not contain any parmesan at all (rather, a combination of Swiss, white cheddar, Havarti, and mozzarella – sometimes from the rinds). A ex-employee blew the whistle on Castle, which was investigated by the FDA in 2014. Castle declared bankruptcy shortly thereafter.

The U.S. parmesan business seems beset on all sides by detractors. The Italian Parmigiano Reggiano Consortium recently published the results of a consumer survey it commissioned that purportedly showed that Americans who viewed a package of parmesan cheese that “recalled” an Italian flag believed that Italy was the country of origin for that cheese and, even in less suggestive packaging, 38% of those surveyed believed the cheese to have been made in Italy. The Italian consortium is taking its complaint that U.S. consumers are being duped into buying parmesan they believe is made in Italy to Brussels in the hope that they will be dealt with in the Transatlantic Trade and Investment Partnership trade agreement (T-TIP). Currently, cheese makers are prevented under European Union protected designations of origin regulations (“PDOs”) from labeling their cheeses as parmesan if they are not made by dairies in Parma, Reggio Emilia, Modena and parts of the provinces of Mantua and Bologna. If this regulation was “imported” into the US, would the millions of 4-17 year olds who dump the off-white powder onto their noodles take note?

No New Year Cheer For “Meaningless” Class Settlements

February 23, 2016Certification, FDCPA, Rule 23Attorney Fees, certification, class settlement, FDCPA, New York, Rule 23, Second Circuit, Superiority

** Second Circuit Affirms Denial of Class Certification in Low Ball Settlement of New York Fair Debt Collection Suit **

By: Brent E. Johnson

A recent Second Circuit decision highlights the thorny issues involved in a “low dollar” class settlement. In Gallego v. Northland Group Inc. No. 15-1666-CV (2d Cir. Feb. 22, 2016), Gallego, along with about 100,000 New York residents, received a rather perky dunning letter from defendant collection agency Northland in January 2014 declaring, “IT’S A NEW YEAR WITH NEW OPPORTUNITIES!” and inviting Gallego to settle his debt with a department store credit card company. Rather than heralding the new year by settling the claim, Gallego rang it in by bringing a putative class action lawsuit against Northland under the Fair Debt Collection Practices Act (“FDCPA”). The substance of the claim was dubious – attempting to bootstrap a technical violation of the New York City Administrative Code (not providing the name of an individual to contact) into a false representation or unfair or unconscionable means under the FDCPA.

Northland, apparently calculating that it was cheaper to settle than fight, entered into a proposed settlement with Gallego. In addition to an attorneys’ fee cap of $35,000, Northland agreed to establish a settlement fund of $17,500 – approximately 1% of the net worth liability limit under the FDCPA. Gallego would receive a $1,000 incentive fee and the remaining $16,500 would be distributed pro rata to class members who made a claim. The proposed settlement dissolved if there were 50 opt outs – who could then bring individual actions under the FDCPA with statutory damages of $1,000 each plus attorney fees.

The district court denied class certification under Rule 23(b)(3) superiority observing that class members would receive 16.5 cents each while, if they brought individual actions, they might each recover $1,000 statutory damages and attorney fees. Gallego v. Northland Group Inc. 102 F.Supp.3d 506 (S.D.N.Y 2015). The court opined that the prospects of a recovery measured in pennies would likely result in “mass indifference” among most class members who would be deterred from filing individual lawsuits or joining the class. This could result in a few class members reaping a windfall from the settlement. “The prospects of mass indifference, a few profiteers, and a quick fee to clever lawyers is hardly the intended outcome for Rule 23 class actions.”

On appeal, the Second Circuit agreed that the district court did not abuse its discretion by denying certification. Gallego argued that it was unlikely that all 100,000 class members would make claims so the individual class member recovery would be higher (a particularly noteworthy admission given that because Northland sent the offending letters in the first place – individual notice was practical and would likely be effective in this case) – basically agreeing with the district court that there would be “mass indifference” to the settlement. The Court of Appeals retorted, “An expected low participation rate is hardly a selling point for a proposed classwide settlement.” The Second Circuit went even further, determining that the district court would have been right in doubting that Gallego would “fairly and adequately protect the interests of the class,” as required by Rule 23(a)(4) pointing out that the proposed settlement included a release – not only of class members’ FDCPA claims – but all “claims arising out of any of the facts, events, occurrences, acts or omissions complained of in the Lawsuit, or other related matters . . . relating to letters sent to them that are substantially similar to the letter” received by Gallego.

It is important to reiterate that the FDCPA provides for an individual right of action with statutory damages as well as attorney fees, which are often absent from general consumer protection statutes. This made it easy for the district court to find that the class action lawsuit was not a superior method for resolving the dispute given the proposed settlement value. Nevertheless, the district court’s “a plague on both your houses” conclusion on class certification serves up a cautionary note: “Because I find that certifying a class would do little more than turn [Nortland’s] settlement with Mr. Gallego into a general release of liability from all similarly situated plaintiffs at minimal extra cost while furthering a cottage industry among enterprising lawyers, class certification is denied.”

No Standing for NFL Superbowl Ticket Class Action Representatives

February 7, 2016Article III Standing, Consumer Class Action, UncategorizedArticle III standing, class action representative

the beginning of a football match

** Third Circuit Affirms That Purported Class Representative Super Bowl Ticket Buyers Do Not Have Standing To Sue For NFL Ticket Practices That “Forced” Them to Buy Scalped Secondary Market Tickets **

By: Brent E. Johnson

In 2014 a purported class action representatives purchased tickets to the 2014 Super Bowl held at the Meadowlands Stadium in New Jersey – at a price of $2,000.00 each (even though their face value was around $800.00). Finkelman v. Nat’l Football League, No. 15-1435, 2016 WL 158507, at *1 (3d Cir. Jan. 14, 2016). Plaintiff alleged that the NFL distributed 99% of tickets to teams, sponsors and the media and that the shortage of general public tickets caused the inflated price. Id. He further alleged that New Jersey’s Consumer Fraud Act (N.J. Stat. Ann § 56.8-35.1) in particular the provisions that make it unlawful to withhold more than 5% of tickets to an event from the general public – was violated by the NFL’s ticket allocation practices. Id. Plaintiff sued on the theory that this alleged violation of New Jersey law caused him to miss out on a face value ticket and thus forced him onto the inflated secondary market – with the difference between the two prices being his “injury.” Id. On the NFL’s motion to dismiss, however, the District Court agreed that there was no Article III standing. Id. The Third Circuit affirmed – outlining that Article III requires a fairly traceable injury – i.e. “but for” causation – and the court could not say that but for the NFL’s restrictions Plaintiff still would have been able to buy a face value ticket. Indeed, the court said that “demand for Super Bowl tickets so far exceed

s supply that [Plaintiff’s] probability of obtaining a face-price ticket in a public sale would have been effectively nil regardless of the NFL’s ticketing practices.” Id. at *8. Further, the court disagreed that it could determine whether the high market price was caused by the NFL – “[t]o state the problem succinctly: we have no way of knowing whether the NFL’s withholding of tickets would have had the effect of increasing or decreasing prices on the secondary market . . . [w]e can only speculate—and speculation is not enough to sustain Article III standing.” Id. at 10. A second purported class representative did not buy a ticket to the Super Bowl – his allegation was that he was dissuaded from doing so because of the high resale price – and that lost opportunity was his “injury”. Id. at *6. This position on standing was treated with greater incredulity by the Third Circuit – the court concluding that Plaintiff’s lack of standing is not a hard call: “[i]f the Court were to credit [plaintiff’s] concept of injury, everyone who contemplated buying a Super Bowl ticket but decided against it would have standing to bring a claim under the Ticket Law. Article III is simply not that expansive.” Id. With no standing – to either purported class representative – the Third Circuit affirmed the dismissal.