Consumer Class Actions and Mass Torts : Class Action Lawyer & Attorney : J. Russell Jackson : Skadden Law Firm : Complex Class Actions : Consumer Class Actions & Mass Torts Law Blog

A recent class action involving the propriety of collecting sales tax from customers highlights the importance of the Executive Branch in the three-branch system of government, and the deference that courts will give it -- particularly in the area of taxation. 

In Stoloff v. Neiman Marcus Group, Inc., 2011 WL 1957694 (Pa. Super. May 23, 2011), a mail order shopper who bought a little black dress from Neiman Marcus objected to the retailer's collection of 6% sales tax on the dress, since most clothing items in Pennsylvania (except accessories, ornamental wear and formal wear) are not subject to tax.  She filed a class action suit, alleging breach of contract, unjust enrichment, violation of the consumer protection statute, and conversion.  She sought injunctive relief to prevent the retailer from collecting such tax in the future and force it to return the tax collected, as well as damages and punitive damages.

The trial court dismissed the claim, arguing that the plaintiff had failed to exhaust her administrative remedies before the Pennsylvania Department of Revenue, thus depriving it of subject matter jurisdiction.  The intermediate appellate court disagreed, but only slightly.  It held that the Department did not have the authority to give the plaintiff all of the relief she sought, so exhaustion of remedies was not really the issue.  Rather, the injunctive relief was within the province of the courts to grant.  But where a party holds on behalf of the State taxes that it has collected for the State, the Department of Revenue has primary jurisdiction on questions of whether the tax should have been collected in the first place.

Thus, the court -- recognizing the primary authority of the Department to interpret legislation and determine whether taxes should be collected -- directed the trial court on remand to reinstate the complaint and then stay the action, giving the plaintiff time to seek an administrative remedy first from the Department of Revenue on the issue of whether the tax was rightfully collected.  If it was not, then the courts could deal with the issue of how to award relief to the class.

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I am traveling on the Left Coast for business this week.  And so it was with a certain amount of bemusement that I read this article that came across my Blackberry yesterday.  It explains that an environmental activist group, "Our Children's Trust," has decided to sue a number of states, seeking to force judges into ordering state governments to mandate the reduction of greenhouse gases, with the goal of preventing global warming. 

One of the activists is quoted as saying:

"We should be getting youths in front of the courts, not polar bears," Wood said, referring to a widely publicized attempt to have courts declare polar bears endangered as rising temperatures melt Arctic ice.

So how are these activists using America's youth to paint a compelling picture for judicial regulation of greenhouse gases?  Read this portion of a complaint apparently filed by the organization in New Mexico:

Climate change is adversely affecting [16-year-old] Akilah Sanders-Reed now.  Akilah is a skiing enthusiast and has been skiing regularly for the last 8 years.  Over that time, Akilah has seen a decrease in the snowpack on the slopes of Taos and Santa Fe.  The snowpack on those slopes has been thin and generally not good for skiing.  Akilah plans to continue skiing and to teach her younger brother to ski.  Therefore she is concerned that if the quality and amount of snowpack on the Taos and Santa Fe ski slopes continues to decline, she will have fewer opportunities to ski during the already abbreviated ski season in New Mexico.

Compl. para. 10.

Really?!!!  This is the tragedy that justifies judicial exercise of Executive Branch powers?  No skiing on Spring Break?  Bring back the cute, cuddly Polar Bears whose very existence is threatened, please!

The group's legal strategy seems as flawed as its storytelling.  It is suing the governors of various states on the so-called "public trust doctrine," which they describe as a common law theory.  But it's hardly a cause of action, like public nuisance.  Rather, it is simply a doctrine recognizing the sovereign's ownership interest in the land underlying navigable waters.  Ironically, the whole reason for the doctrine is to preserve the ability of the public to use such waters for commerce.  Our Children's Trust, of course, wants to invoke the doctrine to impede commerce and economic activity, state by state.

The fact that it can't cite in its New Mexico complaint a single New Mexico case applying the doctrine as they request gives you some idea of just what a long-shot their legal theory actually is.  They do nothing in their pleadings to anticipate the defenses that typically have proven fatal to climate change cases.  For example, they do nothing to establish the children's standing to assert a claim.  In public nuisance -- which is an actual cause of action designed to protect interference with the public's right of enjoyment of property -- the right to sue is reserved to the sovereign unless an individual can prove that he or she suffers a special injury that is different in type and degree from that suffered by the general public.  Notably, a bad ski day (if there really is such a thing) wouldn't cut it.

Similarly, defendants have argued that federal statutes and regulations preempt individual common law claims aimed at regulating greenhouse gas emissions.  Notably, even the cases that Our Children's Trust cite in its complaint expressly recognize the preeminence of federal authority.  For example, in Illinois Central Railroad v. Illinois, 146 U.S. 387 (1892), the court observed that the state's rights and obligations under the public trust doctrine were "subject always to the paramount right of Congress to control [the] navigation [of the state's navigable waters] so far as may be necessary for the regulation of commerce with foreign nations and among the States."  Id. at 435.  Likewise, in Montana v. United States, 450 U.S. 544 (1981) -- also cited by plaintiffs -- the court cautioned that:

The State's power over the beds of navigable waters remains subject to only one limitation:  the paramount power of the United States to ensure that such waters remain free to interstate and foreign commerce. 

Id. at 551.

Moreover, the plaintiffs make no allowance in their pleading for defenses such as the political question doctrine, primary jurisdiction, or causation.  Notably, courts and advocates that have considered the climate change question have acknowledged that the issue of greenhouse gas emissions is a global one; emissions from one part of the globe may travel and have effects in other parts of the globe.  Thus, localized emissions caps -- like plaintiffs advocate -- have no real hope of abating the alleged nuisance locally, and local emissions cannot be deemed the substantial cause of alleged local climate change.

Ultimately, all that Our Children's Trust has achieved is making cash-strapped states that have no ability to solve the problem defendants in frivolous litigation that will cost lots of time and money to defend.  And they did so without finding a more compelling mascot than fluffy polar bears.

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If at first you don't succeed in getting an action dismissed, try, try again.  The Coca Cola Company proved the truth of this old addage last Thursday when it finally won a dismissal with prejudice in its "Diet Coke Plus" litigation.  See Mason v. The Coca-Cola Company, Civ. No. 09-0220, Slip op. (D.N.J. Mar. 31, 2011). 

In Mason, plaintiffs brought a putative nationwide class action against the defendant for allegedly misbranding its "Diet Coke Plus" product, which was Diet Coke fortified with 10% of the USRDA of a number of vitamins and minerals.  The amounts were listed with the Nutrition Facts on the label.

The FDA had sent a letter to the defendant, warning that it considered "Diet Coke Plus" to be in violation of its policy against fortifying snack food with vitamins and minerals, and labeling the product "plus" without providing a comparison product.  Plaintiffs attached the FDA's letter to their complaint, and complained that the term "Plus" had misled them to believe that the product was "healthy," causing them to spend more for the beverage than it was worth.

The defendant had previously moved to dismiss, although the court had rejected its arguments about primary jurisdiction and preemption, it had held that plaintiffs failed to properly plead fraud and ascertainable loss.  I had described this opinion in a prior post.  But that opinion had allowed plaintiffs another bite at the apple.

So the defendant moved again to dismiss the complaint, and this time the district court not only granted the motion, but made it stick.  It refused to revisit its conclusions on primary jurisdiction and preemption, but it analyzed (and ultimately dismissed) plaintiffs' causes of action.

In considering the claim pled under the New Jersey Consumer Fraud Act, the court first concluded that plaintiffs had failed to allege fraudulent or deceptive conduct by the defendant:

In order for these claims to amount to a NJCFA violation for an affirmative act of deception or fraud, plaintiffs must show that defendant's statements on its product are false. . . . [The FDA's warning letter itself] shows that it is not false that Diet Coke Plus contains vitamins and minerals, and plaintiffs have failed to allege with particularity what further expectations beyond these ingredients they had for the product or how it fell short of those expectations.  Instead, plaintiffs simply make a broad assumption that defendant intended for Diet Coke Plus's vitamin and mineral content to deceive plaintiffs into thinking that the beverage was "healthy."  Without more specificity as to how defendant made false or deceptive statements to plaintiffs regarding the healthiness or nutritional value of the soda, plaintiffs have failed to plead the "affirmative act" element with sufficient particularity to state a viable NJCFA claim.

Slip. op. at 7-8 (citations omitted).

The court also held that plaintiffs failed to plead the second element of an NJCFA claim:  ascertainable loss.  Citing New Jersey case law, the court noted that the loss must be "quantifiable or measurable."  And yet, all the plaintiffs pled was that they paid "money for a product that never should have been marketed to consumers in a misleading manner," and "money for a product that was of lesser value than what was represented."  Slip op. at 9.  The court held that this was hogwash:

When plaintiffs purchased Diet Coke Plus, they received a beverage that contained the ingredients listed on its label.  Plaintiffs have not explained how they experienced any out-of-pocket loss because of their purchases, or that the soda they bought was worth an amount of money less than the soda they consumed.  At most, plaintiffs simply claim that their expectations of the soda were disappointed.  Dissatisfaction with a product, however, is not quantifiable loss that can be remedied under the NJCFA.

Id. at 9-10 (citations omitted).

The court also dismissed plaintiffs' claims for negligent and intentional misrepresentation because they had not pled an ascertainable loss of money or property.  Id. at 12.

In a footnote, the court made this observation:

At its core, the complaint is an attempt to capitalize on an apparent and somewhat arcane violation of FDA food labeling regulations.  But not every regulatory violation amounts to an act of consumer fraud.  It is simply not plausible that consumers would be aware of FDA regulations regarding "nutrient content" and restrictions on the enhancement of snack foods.  The distinction is a fine but important one.  The complaint does not allege that consumers bought the product because they knew of and attributed something meaningful to the regulatory term "Plus" and therefore relied on it.  Rather, they allege merely that they thought they were buying a "healthy" product that happened to apparently run afoul of FDA regulations.

Id. at 12 n.4.  The latter, the court clearly implied, simply is not consumer fraud.

Mason is part of a growing trend of cases that take on consumer fraud allegations at the pleading stage, weeding out those complaints that ultimately fail to plead an actionable falsehood -- particularly in light of the disclosures made on the label of the product itself.

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The Nattering Nutrition Nannies scored a victory last week in the Eastern District of New York -- a victory against beverage giant The Coca-Cola Company and, more important, a victory against common sense and personal responsibility.  Last Wednesday, the Center for Science in the Public Interest and its co-counsel persuaded a federal court to deny Coca-Cola's motion to dismiss a putative nationwide consumer fraud class action challenging the beverage "vitaminwater" made by Coca-Cola's subsidiary, Glaceau.  See Ackerman v. The Coca-Cola Company, No. CV-09-0395 (JG) (RML), Slip op. (E.D.N.Y. July 21, 2010).

In Ackerman, Plaintiffs allege that the name, "vitaminwater," along with a description of the vitamins in the water and slogans about health are deceptive because they mislead people to believe that the beverages do not have sugar or calories in them.  As the court described plaintiffs' theory:

The plaintiffs have sufficiently alleged that the collective effect of the challenged statements was to mislead a reasonable consumer into believing that vitaminwater is either composed solely of vitamins and water, or that it is a beneficial source of nutrients rather than a "food of little or no nutritional value [which has been fortified] for the sole purpose of" claiming or implying that it is "healthy."  58 Fed. Reg. 2478, 2522.

Slip op. at 32.

Of course, there's one major problem with that theory:  the nutrition facts label on every bottle of vitaminwater discloses that there are a certain number of grams of sugar in the product, and that an 8 ounce serving of the drink contains a certain number of calories.  So the fact that there is an ingredient other than vitamins and water -- namely, sugar -- is plain to anyone who can read.  Nevertheless, the court allowed this claim to survive the pleading stage, so now there will be lots of expensive discovery and motion practice on a theory that is patently ridiculous.

(An additional sign to the consumer that there is something besides vitamins and water in the product is the fact that it is sweet -- some might even complain that it is cloyingly sweet.  This has led Glaceau to release "vitaminwater 10," which has ten calories per serving, and now  "vitaminwater zero," which has -- you guessed it -- zero calories per serving.  The court ducked the sweetness argument by stating that "there is no evidence before me concerning vitaminwater's taste."  Slip op. at 35.)

The court's response to the fact that sugar is listed as an ingredient right on the label was to declare that "the presence of a nutritional panel, though relevant, does not as a matter of law extinguish the possibility that reasonable consumers could be misled by vitaminwater's labeling and marketing."  Slip op. at 34.  The court relied heavily on Williams v. Gerber Products Co., 552 F.3d 934 (9th Cir. 2008), in which the Ninth Circuit had held that the packaging of a product called "Fruit Juice Snacks" could be misleading where it pictured various fruits on the label, but did not actually contain the juice of any of the pictured fruits, and only revealed this fact on the product label.

But Ackerman is no Williams.  There were no allegations that the packaging or marketing for vitaminwater contained any false statements or pictures.  Unlike the "Fruit Juice Snacks" at issue in Williams, which did not contain the juice of the pictured fruits, vitaminwater actually contains the vitamins the marketing discusses.  And the fact that it also contains sugar is stated right on the Nutrition Facts label in close proximity to the disclosures of the percentages of the vitamins and minerals that would surely interest vitaminwater's consumers.

This complaint is as deficient on its face as the Crunchberries complaint that I discussed earlier this month.  Reasonable people should not, as a matter of law, be allowed to claim surprise at the presence of an ingredient that is clearly disclosed on the Nutrition Facts label.

Although the court in Ackerman gave lip service to the pleading requirements of Twombly and Iqbal, it ultimately held that conclusory allegations met the pleading standard.  Indeed, it credited the following as adequately pleading the fact of reliance:

Each plaintiff relied on Defendants' . . . misrepresentations that VitaminWater is a beneficial dietary supplement beverage including, but not limited to, "vitamins + water = all you need" and the name of the product itself -- "VitaminWater" -- in deciding to purchase vitaminwater.  Had Plaintiffs known the truth that the statements they relied on were false, misleading, deceptive, and unfair, they would have neither purchased VitaminWater nor paid the premium price Defendants charged for it.

Slip op. at 40. 

The court refused to dismiss causes of action under California's Unfair Competition Law, False Advertising Law, and the Consumer Legal Remedies Act, as well as under New York's General Business Law sections 349 and 350.  It also refused to dismiss plaintiffs' common law misrepresentation claims for NY and CA plaintiffs and the unjust enrichment claims for all plaintiffs. 

Notably, the court was forced to conclude that plaintiffs' claims under the New Jersey Consumer Fraud Act failed to state a claim because they failed to plead enough specifics as required by Federal Rule of Civil Procedure 9(b). 

The court also held that plaintiffs failed to plead a claim for breach of express warranty because they failed to set forth any statement made about the product that the product failed to meet.  In addition, the court dismissed the implied warranty claims because -- even crediting the complaint as true -- "plaintiffs cannot establish that vitaminwater failed to constitute a merchantable product."  This, of course, begs the question:  if, as a matter of law, everything the defendant said was true (such that it did not constitute a breached warranty), and the sugar content was listed on the product itself and did not make the product unmerchantable, how could the packaging and marketing be "fraudulent"? 

The first half of the court's opinion is comprised of a recitation of the regulatory history regarding adding nutrients to foods and beverages.  Ultimately, the court rejected the defendants' arguments that the lawsuit was expressly and/or impliedly preempted by statutes and regulations preventing states from imposing labeling requirements that are different from those imposed by the FDA.  See, e.g., Slip op. at 27.  The court concluded that although plaintiffs' claims were premised on violations of the federal statutes and regulations, they were not preempted because they sought to impose "identical" requirements under state law as those imposed by the federal scheme.  The court also rejected the defendants' primary jurisdiction argument, stating that the question of what could mislead a reasonable consumer is one courts typically handle, and reasoning that the "FDA is aware of plaintiffs' concerns but lacks the resources to take enforcement action in every instance in which its policies are violated."  Slip op. at 30.

But plaintiffs legal assault on the fortified beverage industry ignores one important fact:  the public wants nutritionally-enhanced foods and beverages.  Indeed, fortified beverages are one of the fastest-growing market segments.  Consumers are capable of reading nutrition labels and ingredients and making dietary choices for themselves, and they do not need the FDA or self-appointed nutrition nannies like CSPI to limit the products from which they can legitimately choose.  Although the FDA has articulated policies about adding nutrients to foods and beverages, it has not acted to eliminate the category of nutritionally-enhanced products from the market.  One benefit of limited regulatory resources is prioritization, and instances of actual fraud should take (and generally have taken) enforcement priority. 

The Ackerman court's opinion on express and implied warranties makes it clear that there is no real fraud or misrepresentation in the marketing or packaging of vitaminwater.  The label clearly discloses the product's sugar content.  As such, CSPI should move on to lawsuits that fight actual fraud, rather than trying to co-opt the courts into doing what the FDA to date has refused to do.

To read CSPI Litigation Project Director Steve Gardner's take on the decision, click here.

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This seems to be turning into food and beverage week at Ye Olde Consumer Class Actions Blogge.  First, we had our Tort Twits suing Yoo-hoo out the ying-yang.  And now these two decisions, which demonstrate a judicial willingness -- even on a motion to dismiss -- to employ some common sense and dismiss claims that obviously fail to plead a plausible fraud.

The first decision -- Werberl v. Pepsico, Inc., 2010 WL 2673860 (N.D. Cal. July 2, 2010) -- was covered earlier this week by Sean Wajert over at Mass Tort Defense.  I won't completely rehash the case here, other than to note that Werberl is an excellent example of a jurist who does not feel compelled to check her brain at the door when adjudicating Rule 12 motions.  In Werberl, plaintiff alleged that the packaging for Cap'n Crunch's Crunch Berries cereal -- which is delicious and was a favorite of mine growing up -- is deceptive because the name and the pictures lead one to believe that it has actual berries in it when it does not.  Of course, anyone who has ever seen a box of Crunch Berries knows that this allegation is pure horse puckey.  (As does anyone who has actually tasted the cereal.)

Many judges faced with such a ridiculous theory still might hesitate to dismiss such claims pled under California's pro-plaintiff Unfair Competition Law, Consumer Legal Remedies Act, and False Advertising Law.  They might be tempted to allow some discovery, or say the theory presents a jury question.  But not Judge Saundra Brown Armstrong!  She began her analysis by noting that although the question whether a business practice is deceptive is generally a question of fact not suitable for resolution in a motion to dismiss, "where a court can conclude as a matter of law that members of the public are not likely to be deceived by the product packaging, dismissal is appropriate."  Id. at *3.

She then looked to the facts pled in the putative class action to conclude as a matter of law that there was no deception here:

[T[here are no pictures or images of any berries or any other fruit depicted on the Cap'n Crunch cereal box.  Nor are there any representations that the cereal is made with real fruit or is nutritious.  Rather, the Crunch Berries -- which are not fruit -- are described as a "SWEETENED CORN & OAT CEREAL" and shown as brightly-colored balls of cereal that no reasonable consumer would believe are made from real berries. . . . [T]here simply is nothing in the Cap'n Crunch packaging that would lead a reasonable consumer to believe that the brightly-colored cereal balls depicted on the product cover and described as Crunch Berries are, in fact, made or derived from berries or fruit.

Id. at *4.  Accordingly, the court dismissed the UCL, CLRA, and FAL claims.  It also dismissed the intentional misrepresentation claims for lack of a misrepresentation and because any reliance by the consumer to conclude that the cereal had real berries would be unreasonable per se.  The court also dismissed the breach of express and implied warranties as frivolous because there was no express or implied representation on the packaging that Crunch Berries contain real fruit.  The court even refused to grant leave to amend the complaint because no amendment could cure the fact that the packaging was not deceptive as a matter of law.

Judge Armstrong's analysis is an excellent example of a court that -- faced with a motion to dismiss a ridiculous claim -- was not hamstrung by the rules to avoid applying basic common sense to a consumer fraud claim.  We need more judges like that.

The second opinion I wanted to share in today's post was Mason v. The Coca-Cola Co., 2010 WL 2674445 (D.N.J. June 30, 2010).  In Mason, the plaintiffs brought a putative nationwide class action against Coca-Cola alleging that Diet Coke Plus was misleading under federal and state law because "'the term "Plus" connotes a more robust amount of vitamins and minerals in the product when, in fact, that was not the case at all.'"  Id. at *1.

The defendant began by invoking the primary jurisdiction doctrine and federal preemption to dismiss the claims.  The court wasn't buying it.  As for primary jurisdiction, the court concluded that the lawsuit asked the court to do what courts routinely do:  apply federal regulations.  Indeed, the court said that "[a]t its heart, this case calls for the determination of whether Plaintiffs received what they bargained for."  Id. at *2. 

The court also rejected the defendant's express preemption and conflict preemption arguments.  It quickly dispatched the express preemption argument, reasoning that plaintiffs were simply seeking a state law remedy for a violation of federal labeling requirements, and this was not expressly preempted by the Food, Drug and Cosmetics Act.  As for conflict preemption, the defendant argued that the FDA had established a regulation defining use of the term "Plus," and if the state law claim were allowed to proceed, it might result in a conflicting definition.  The court strongly rejected this argument, reasoning:

Were the Court to permit the application of implied conflict preemption in this case, it would turn regulatory definitions such as 21 C.F.R. sec. 101.54(e) into suits of armor capable of immunizing parties who mislead the public from any potential civil liability, even before it is determined whether the party complied with the definition.  Congress could not have intended such a perverse result when it granted the FDA authority to regulate in this area.

Id. at *4.

But once the court moved to an analysis of plaintiffs' causes of action, it applied basic common sense to conclude that plaintiffs had failed to plead consumer fraud.  In analyzing the claim under the New Jersey Consumer Fraud Act, the court noted that plaintiffs must plead:  (1) unlawful conduct, (2) an ascertainable loss, and (3) a causal relationship between the two.  The court began its analysis by observing that although plaintiffs say that the term "Plus" connoted more vitamins and minerals than were actually in the product, the actual amount of added vitamins and minerals were listed on the product itself.  Indeed, a warning letter sent by the FDA to defendant, which was attached to the complaint, indicated that:

the ingredient list includes the following added vitamins and minerals:  magnesium sulfate (declared at 10% of the Daily Value (DV) for magnesium in the Nutrition Facts panel), zinc gluconate (declared at 10% of the DV for zinc), niacinamide (declared at 15% of the DV for niacin), pyridoxine hydrochloride (declared at 15% of the DV for vitamin B6), and cyanocobalamine (declared at 15% of the DV for vitamin B12).

Id. at *6.  In light of these disclosures right on the product, the court held that plaintiffs had failed to allege with particularity what further expectations they had for the product or how it fell short of such expectations.  Thus, they had failed to plead the first element of an NJCFA claim. 

The court held that they also failed to plead the ascertainable loss element of such a claim because they do not plead how what they received was of a lesser value than what they were promised.  They bought a tasty beverage, they drank a tasty beverage.  They don't allege that they paid more for it than other beverages.  And they don't allege that they would not have bought the Diet Coke Plus but for the allegedly fraudulent misrepresentations.  Thus, they failed to plead an ascertainable loss under the NJCFA.  Id. at *6-*7. 

The court held that, for the same reasons, plaintiffs failed to state a claim for negligent or intentional misrepresentation.  Id. at *7.  And it dismissed plaintiffs' unjust enrichment claim because New Jersey does not recognize unjust enrichment as a separate tort cause of action, and where the underlying tort claims fail, the unjust enrichment claim should be dismissed as well.  Id.

Unlike the court in Werberl, the court in Mason gave plaintiffs an opportunity to re-plead their claims.  But given the fact that the added vitamins and minerals were fully disclosed on the Nutrition Facts section of the product label, plaintiffs will have a very difficult time pleading anything that could give rise to a fraud or misrepresentation claim.

Taken together, Werberl and Mason provide strong encouragement for courts to throw out consumer fraud claims where the contents of the food or beverage product are apparent from the product's packaging and labeling.

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In order to help you meet your recommended daily allowance of defense-related information, today I'm serving up three heaping helpings of cases where consumer fraud claims involving food were dismissed on the pleadings.

In Ciszewski v. Denny's Corp., Case No. 09 C 5355, Slip op. (N.D. Ill. Apr. 7, 2010) (subscription to Law360 required), plaintiff had brought a class action against Denny's, claiming that the restaurant's classic dishes like "Moons over My Hammy" (a personal favorite of mine), "SuperBird Sandwich," and the "Meat Lover's Scramble" contain from double to almost five times the CDC's recommended daily sodium intake of 1,500 milligrams per day.  Plaintiff has high blood pressure, for which he must take medication and limit his salt intake.  He alleged that Denny's knew the amounts of sodium in its dishes were excessive and that it concealed the sodium levels because consumers would not eat the dishes otherwise.

Plaintiff sued under Illinois's Consumer Fraud Act ("ICFA").  Denny's first argued that plaintiffs' claims were precluded by ICFA's provision that "full compliance with applicable disclosure requirements is a defense . . . to a claim of fraud based on failure to make additional disclosures."  The court rejected this argument, because the defendant was arguing that it did not have to make any disclosures under the federal Nutritional Labeling and Education Act because its food was served in restaurants.  The court reasoned:  "Denny's argument amounts to a contention that because federal disclosure requirements do not apply, the ICFA cannot impose a disclosure requirement.  Nothing in the ICFA or the law under it supports this contention."  Slip op. at 4.  The court also rejected Denny's argument that plaintiff failed to allege intent with sufficient particularity.

But the court accepted Denny's argument that plaintiff failed to meet the Rule 9(b) requirements applying to allegations of deception.  The court explained that plaintiff's complaint relied solely upon deceptive omissions, and yet it failed to allege with any particularity any communication from Denny's that omitted the allegedly crucial information.  Citing a case previously noted in this blog, the court recognized that "[a] consumer cannot maintain an action under the Illinois Consumer Fraud Act when the plaintiff does not receive, directly or indirectly, communication or advertising from the defendant.'"  Slip op. at 6 (quoting DeBouse v. Bayer AG, 235 Ill. 2d 544, 550 (2009)).  The court explained:

In short, a deceptive communication is a critical element of an ICFA deception claim.  Because [plaintiff] identifies no communication that he received that was generated by Denny's, he has failed to plead the circumstances constituting the fraud with the particularity required by Rule 9(b).

Slip op. at 6-7.

The court also dismissed the unjust enrichment claim, holding that it could not be maintained absent fraud.  It also dismissed plaintiff's implied contract claim, which was premised on an implied duty to provide meals that are safe for human consumption.  The court explained that "[Plaintiff] does not allege, however, that any given Denny's meal is unsafe in and of itself.  To put it another way, he does not allege that exceeding the CDC-recommended maximum for a day, or several days, in a single meal is by itself unsafe."  The court also dismissed plaintiff's request for an accounting, as it must be grounded on fraud under Illinois law.

Our second special serving today is Shepard v. Applebee's Int'l, Inc. (D. Kan. Apr. 7, 2010) (subscription to Law360 required).  In Shepard, plaintiff had sued Applebee's and Weight Watchers, among others, because the calorie and nutritional information on the menus were allegedly false.  The trial court previously had dismissed the state-law claims brought under the Kansas Consumer Protection Act, civil conspiracy, and unjust enrichment, holding that they were preempted to the extent they failed to incorporate the federal standards of the Nutrition Labeling and Education Act -- namely, the requirement that the alleged fraudulent representations lacked a "reasonable basis."  The court had, however, allowed certain RICO claims to stand.  Defendants then brought a motion for judgment on the pleadings directed at the remaining RICO claims.

Defendants argued in support of their motion for judgment on the pleadings that plaintiffs could not establish a predicate act under RICO unless they could meet the NLEA standard, i.e., unless they could allege that the representations had no "reasonable basis" under NELA.  Plaintiffs responded that although the NLEA might preempt state law claims, it could not "preempt" federal claims like RICO.

In analyzing the issue, the court determined that in the Tenth Circuit, when looking to what constitutes a predicate act of wire or mail fraud, the courts look to underlying state law to determine what constitutes fraud.  Slip op. at 5.  The court previously had held that the NLEA preempts all state law claims that impose a nutrition labeling standard higher than the NLEA's "reasonable basis" standard.  Because that same standard must govern the determination of whether there has been a predicate RICO violation, the court concluded that judgment on the pleadings was appropriate because plaintiffs had not pled a violation of the NLEA's "reasonable basis" standard.

The third case in our trio of food decisions is:  O'Donnell v. Kraft Foods, Inc., Civ. A. No. 09-4448, Slip op. (D.N.J. Mar. 18, 2010).  In O'Donnell, plaintiffs brought suit under New Jersey's Consumer Fraud Act, alleging that hot dogs and other processed meats cause cancer and demanding that a special cancer warning be put on the product.

The court failed to reach the defendant's primary jurisdiction and federal preemption arguments.  For the court, it was enough that this was a product liability action masquerading in consumer fraud attire.  The New Jersey Supreme Court has been clear that where the subject of the case is really product liability, the state's Product Liability Act -- rather than its Consumer Fraud Act -- applies.  Slip op. at 4-6.  Plaintiff's case -- although expertly pled as a claim for economic harm -- was clearly one based on physical harm that allegedly could result from hot dogs.  Accordingly, the case was really a product liability case and, as such, was properly dismissed.

These three cases today demonstrate the range of creativity that plaintiffs are using to attempt to impose liability on the food industry, as well as the clear-eyed view that courts from around the country are taking of such tactics.

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When I teach Product Safety and Liability, I often find that one of the most difficult questions to answer is who -- or really, what branch of government -- should be making a decision on a particular issue.  Institutionally, courts have inherent limitations.  They work within the confines of actual disputes between individuals; they are not legislators and have no broad factfinding powers.  They often have limited capabilities when it comes to questions of science and require expert testimony.  And when the causes of action at issue allow for a jury trial, a group of individuals who are "scientifically challenged" may be the ones actually charged with finding the facts. 

Regulatory agencies, too, have their limitations.  But often when the question is one of pure science, I often find myself advocating that the question is better left to regulators to decide.  You can make that argument in a number of ways.  For example, you may in certain circumstances be able to argue that Congress itself made that determination by preempting state law claims.  But where preemption is not an option, one can appeal to the judge's inherent discretion under doctrines such as equitable abstention or primary jurisdiction. 

Usually, my colleagues give such arguments about a snowball's chance in Hell of prevailing.  But a decision reported by Law360 today demonstrates that climate change occasionally affects Hades as well.

In Gordon v. Church & Dwight Co., No. C 09-5585 PJH, Slip op. (N.D. Cal. Apr. 2, 2010) (Law360 subscription required), plaintiffs sued the makers of Trojan-Enz condoms, alleging that the spermicidal lubricant Nonoxynol-9 (which is used in some condoms) can increase the risk of HIV infection.  Plaintiffs sued to impose warnings on the products under California's False Advertising Law, its Unfair Competition Law, and its Consumer Legal Remedies Act. 

As U.S. District Judge Phyllis J. Hamilton explained, the Food and Drug Administration has been considering the issue of whether to alter the FDA-required warnings on N-9 lubricated condoms to account address this issue.  Slip op. at 3.  Indeed, FDA already has required that labeling for over-the-counter vaginal contraceptives containing N-9 include the following warnings:

Studies have raised safety concerns that products containing the spermicide nonoxynol 9 can irritate the vagina and rectum.  Sometimes this irritation has no symptoms.  This irritation may increase the risk of getting HIV/AIDS from an infected partner.

. . .

Use a latex condom without nonoxynol 9 if you or your sex partner has HIV/AIDS, multiple sex partners, or other HIV risk factors.

73 Fed. Reg. 66522 at n.1.

Judge Hamilton ultimately concluded that it was the FDA -- rather than a court -- that should be making the determination at issue in plaintiffs' suit, and thus she granted the defendant's motion for dismissal without prejudice under the "primary jurisdiction" doctrine.  As Judge Hamilton explained, primary jurisdiction is a prudential doctrine in which a court may defer initial decisionmaking where a regulatory agency is considering the question.  Courts apply 4 factors in determining whether to apply the doctrine:  "'(1) the need to resolve an issue that (2) has been placed by Congress within the jurisdiction of an administrative body having regulatory authority (3) pursuant to a statute that subjects an industry or activity to a comprehensive regulatory authority that (4) requires expertise or uniformity in administration.'"  Slip op. at 2 (citation omitted).

The court noted that FDA has exerted regulatory authority over condoms as medical devices, including regulating the substance of the warnings, instructions, and statements of use.  Judge Hamilton concluded that the primary jurisdiction doctrine was appropriate here:

The issue of medical device labeling requires expertise as well as uniformity in administration.  The plaintiffs' claims involve a technical area over which the FDA has more expertise than the courts; and, while the claims are based on state law, their effect is to challenge the wording in the warnings that are required to be included in the latex condom packaging pursuant to federal law.

The court notes in particular that the FDA has stated that it is still considering public comments and other data in connection with warnings similar to those that plaintiffs seek to have the court impose on C&D.  Thus, this issue remains under review.  It would be inappropriate for this court to assume the FDA's regulatory role, and to interpret scientific studies or other evidence to determine whether the labeling of the N9 latex condoms should be changed to include an additional warning . . .

Slip op. at 3.

The Gordon decision is an excellent example of a court taking stock of its inherent capabilities and limitations and deferring to a regulatory agency to make a decision in the first instance where the agency is better able than the court to do so.  It remains to be seen how influential Judge Hamilton's decision will be in other courts.

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As consumer fraud claims go, the high fructose corn syrup ("HFCS") claims really are scraping the bottom of the barrel.  Some activists and class action lawyers attempt to blame HFCS for the so-called "obesity epidemic," but even the activist group the Center for Science in the Public Interest has counseled that this is an "urban myth" and that "[t]here isn't a shred of evidence that HFCS is any more harmful (or healthier) than sugar."

That is why it was so satisfying to see a federal court recently use the recent U.S. Supreme Court decision in Ashcroft v. Iqbal, 129 S. Ct. 1937 (2009) to dismiss (without prejudice) an HFCS class action brought under California's Unfair Competition Law, False Advertising Act, and Consumer Legal Remedies Act.  See Wright v. General Mills, Inc., Civ. A. No. 08cv1532 L(NLS), Slip op. (S.D. Cal. Sept. 30, 2009).

In Wright, plaintiffs alleged that the defendant had defrauded the public by using the term "100% Natural" on its Nature Valley crunchy granola bars and chewy trail mix bars at a time in the past when they had contained HFCS.  Applying Iqbal, the court held that the following allegation from the complaint was too conclusory and speculative to meet the Rule 8 pleading standard:

As a direct result of its misleading, deceptive, untrue advertising and its unlawful, unfair and fraudulent business practices related to the "100% Natural" products listed above, Defendant caused Plaintiff and other members of the class to purchase, purchase more of, or pay more for, these Nature Valley products.

Slip op. at 8.  The plaintiff failed to plead facts supporting the elements of her statutory claims and, to the extent that she alleged fraud, failed to meet the requirements of Federal Rule of Civil Procedure 9(b) that she aver "'the who, what, when, where, and how' of the misconduct charged."  Slip op. at 9.  The court, however, gave plaintiff leave to replead.

The court also held that plaintiff's claim for injunctive relief failed because the defendant already had stopped using HFCS in its Nature Valley products and there were no facts pled indicating that a recurrence of the use of HFCS was likely.  Slip op. at 8.  Again, plaintiff was given leave to replead.

Interestingly, the defendant's use of the term "natural" was perfectly consistent with federal law.  As the court noted, "[t]he FDA follows a policy of not taking enforcement action charging that a product labeled as 'natural' is misbranded, as long as the product has no 'added color, synthetic substances, and flavors.'"  Slip op at 5 (citation omitted).  HFCS is not synthetic, of course.  Rather, it is made from corn.

Nevertheless, the court denied the defendant's motion to dismiss based on federal preemption.  In doing so, the court relied, in large part, on the savings clause in the Nutrition Labeling and Education Act of 1990:  "Congress stated that '[t]he [NLEA] shall not be construed to preempt any provision of State law, unless such provision is expressly preempted under section 403A of the Federal Food, Drug, and Cosmetic Act.'"  Slip op. at 3 (citation omitted).  The court reasoned that the inclusion of this clause negated any intention to occupy the field of food labeling.  Id. at 4.  The court also rejected the defendant's conflict preemption argument, finding no conflict where the FDA has deferred taking action to specifically define the term "natural."  Id.  The defendant also had asserted the defense of primary jurisdiction, asking the court to stay proceedings pending action by the FDA.  But the court concluded that the issue did not meet the criteria for invoking this prudential doctrine.

Although the court in Wright gave plaintiffs another bite at the apple, it remains to be seen whether they can truthfully plead their statutory and fraud claims with the specificity required by Iqbal.

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In the recent decision in Lyons v. Coxcom, Inc., 2009 WL 347285 (S.D. Cal. Feb. 6, 2009), the court granted a motion to dismiss, highlighting the need to plead damages resulting from wrongful conduct in actions brought under California's consumer protection statutes.

In Lyons,  the plaintiff upgraded her internet service to the defendant's "premier" service with "PowerBoost" package in order to take advantage of "blazing fast" internet service and "up to 33% faster downloads."  Plaintiff alleged that despite these advertised advantages of upgraded service, the defendant slowed or severely limited her coverage and that of a nationwide class by transmitting certain unauthorized hidden codes to prevent customers' computers from executing certain peer-to-peer filesharing. 

The defendant moved to dismiss certain counts pursuant to Rule 12(b)(1) for lack of standing, and moved to dismiss the rest of the complaint under Rule 12(b)(6).  Basically, defendant argued that although plaintiff's complaint identified representations in advertising and declared that she had upgraded her service to take advantage of increased internet speed, it failed to plead reliance or causation:  "she fails to allege that she [bought] Cox's internet service as a result of any advertisement."  Id. at *2.

The court concluded that California's Unfair Competition Law, its False Advertising Law, and its Consumer Legal Remedies Act all require that a claimant suffer an injury in fact and incur damages as a result of the challenged conduct.  Because plaintiffs' complaint did not allege that reliance/causation element, the court dismissed these counts without prejudice, giving plaintiffs a chance to replead.  The court also dismissed a count based on the consumer protection statutes from 27 other states and the District of Columbia, holding that because plaintiff could not establish standing under her own state's statutes, she (as a non-resident) could not seek relief on behalf of a class of residents of other states.  Again, plaintiff was given leave to replead.

As for the defendant's Rule 12(b)(6) motion, the court took judicial notice of the defendant's Subscriber's Agreement ("SU"), Acceptable Use Policy ("AUP"), Terms and Conditions, and Limitations of Service.  Each of these documents was mentioned in the plaintiff's complaint.  The court dismissed the breach of contract count, giving effect to the terms of the SA, which required the application of Georgia law.  The court noted that the SA and the AUP reserve to defendant the right to manage its network and to take actions against subscribers whose use impedes the use of others.  Because plaintiff failed to plead a provision of the contract in which the defendant promised to provide unlimited access without interruption or to provide unlimited use of peer-to-peer applications, the court dismissed the breach of contract count, giving plaintiff leave to amend.  The court also dismissed the count alleging a breach of the covenant of good faith and fair dealing, because Georgia law does not allow such a cause of action independent of a breach of contract claim.

The court dismissed without prejudice the count alleging violation of the federal Computer Fraud and Abuse Act because plaintiff did not allege that she personally suffered damages in an amount in excess of $5,000.

Although the court had dismissed the California statutory counts for lack of standing, it proceeded to analyze the substantive challenges to them as well.  It noted that the CLRA claim was not pled with the particularity necessary for a fraud claim because it left out the "who, what, when, where, and how" of the claim.  But the court rejected the defendant's argument that the statements plaintiff identified were non-actionable puffery.  "Plaintiff does allege statements that may be demonstrated to be true or false, such as download speeds of up to 20 Mbps and whether upload speed is indeed doubled and downloads are indeed 33% faster. . . .  Plaintiff has sufficiently pled statements likely to deceive under the CLRA."  Id. at *11.

As for the UCL claim based on fraudulent acts and practices, the court rejected the defendant's argument that Rule 9(b) applied and held that plaintiff's claim as pled had sufficient specificity to establish a likelihood to deceive and was not mere puffery.  Nevertheless, the claim remained dismissed without prejudice for failure to sufficiently allege standing.  (The court also held that two UCL counts based on "unlawful acts" and "unfair acts," respectively, failed to state a claim.) 

As for the False Advertising Law count, the court rejected the defendant's argument that a Rule 9(b) pleading standard applied, but reiterated that the count was dismissed for failure to plead standing.

The defendant also had made the argument -- somewhat akin to a preemption argument -- that the court should delay its consideration of the case because the Federal Communications Commission (which has primary regulatory authority over internet services) was in the process of deciding the appeal of a dispute involving a different provider (Comcast), which might resolve the key questions in this case.  The court refused to defer to the FCC under the defendant's "primary jurisdiction" theory, noting that where the issues involved are primarily grounded in contract, false advertising and unfair competition, they fall squarely within the court's traditional functions.

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