Jury Still Out on the `Food Court': An Examination of Food Law Class Actions and the Popularity of the Northern District of California

The Northern District of California has gotten a bad rap lately. The American Tort Reform Foundation recently named California the #1 “Judicial Hellhole” in the United States, citing prominently to what it perceives as a plaintiff-friendly venue for the recent wave of food-labeling litigation in the Northern District of California—i.e., the “Food Court.” ¹See, e.g., Blum, Vanessa, Welcome to Food Court, The Recorder (March 1, 2013).

However, the recent spate of cases filed in that district probably has less to do with the court’s recent decisions in those cases, and more to do with California’s population, its state Legislature and the Ninth Circuit.

In this article, we examine the uptick in food law class action filings and the reasons behind the sudden popularity of the Northern District of California as a venue for claims against the food and beverage industry.

In class action litigation, plaintiffs are always on the lookout for potential advantages in their venue selection, just as they are forever looking for new legal theories. Right now, the Northern District is a hot jurisdiction. What is it about these cases, and the venue, that makes plaintiffs think they have a recipe for success? Have rulings from judges in the Northern District shown the venue to be hospitable to these kinds of claims, or does the uptick turn on other factors?

Ground Zero for Class Action Litigation
Against the Food and Beverage Industry

In assessing trends in the Northern District, we used searches through Courthouse News Service to compare the California federal dockets. In the Northern District, we counted approximately 85 false advertising class action complaints filed between April 2012 and April 2013, of which 68 involved claims against food or beverage companies. For sake of comparison, California’s three other districts combined had about 85 false advertising class action filings in the same period, and of these only about 12 to 15 involved food or beverage products, although another 40 involved dietary supplements.

There are also some significant differences in the substance of the claims filed in the Northern District of California as compared to those in the rest of the state. Whereas many if not most of the claims in the other California districts focus on allegations that food products failed to deliver promised health benefits, claims in the Northern District have predominantly focused on alleged violations of California’s Sherman Food Drug & Cosmetics Law (the “Sherman Law”), California Health & Safety Code §109875, et seq., which has expressly adopted the requirements of the federal Food, Drug, and Cosmetic Act and the Nutrition Labeling and Education Act. The Sherman Law, unlike its federal counterparts, provides plaintiffs with a private right of action, via the California Unfair Competition Law (“UCL”), ²Bus. & Prof. Code §§17200, et seq. and tangentially, the False Advertising Law (“FAL”), ³Bus. & Prof. Code §§17500, et seq. and Consumer Legal Remedies Act (“CLRA”). ⁴ Civil Code §§1750, et seq. See, generally, Pom Wonderful LLC v. Coca-Cola Co., 679 F.3d 1170 (9th Cir. 2012); and In re Farm Raised Salmon Cases, 425 Cal. 4th 1077 (2008).

Capitalizing on this private right of action, plaintiffs in the Northern District have undertaken an intensive examination of product labeling, to look for technical violations of FDA regulations relating to such popular advertising terms as “organic,” “sugar free,” “sugarless,” “low-calorie,” “good source of,” and “suitable for weight control.” Where they can allege that the products do not meet the federal requirements for making such claims, plaintiffs’ counsel use the California Sherman Act, through the UCL, FAL and CLRA, as the alleged basis for liability.

One example of a case alleging technical violations of FDA/California regulations is Ivie v. Kraft Foods Global Inc., et al. ⁵Case. No. 5:12-CV-02544-RMW (N.D. Cal.) (filed May 17, 2012). In Ivie, plaintiffs alleged that Defendants’ gum, mint and hard candy products, advertised as “sugar free,” “sugarless” and “low calorie,” violated federal (and therefore California) regulations. They allege that a manufacturer may not describe its product as “sugar free” unless: (i) the food contains less than 0.5 grams of sugars per serving; (ii) the ingredient label indicates that the product “adds a trivial amount of sugar” or similar language; and (iii) the “sugar free” claims are accompanied, each time they are used, by a disclosure that the product is “not a reduced calorie food” or similar language. ⁶21 C.F.R. §101.60.

To claim “low calorie,” the food must contain no more than 40 calories per 50g. ⁷21 C.F.R. §101.60(b)(2). The Ivie plaintiffs contend that the products in question contained more than 40 calories per 50g and that their claims of being “sugarless” and a “low-calorie snack,” without the required disclosure, violated the above-provisions. They further alleged that defendants misled consumers into believing that the products were actually “low calorie” by deviating from federally regulated serving sizes. For example, they allege that defendants calculated their calorie and sugar content based on a 0.5g mint, while federal regulations require that the serving size for a breath mint is 2g. ⁸21 C.F.R. §101.12(b). See also, Pardini, et al., v. Unilever United States, Inc., Case No. 3:13-CV-1675 (N.D. Cal., filed April 12, 2013) (alleging violations of federal and California labeling requirements relating to “I Can’t Believe It’s Not Butter” Spray, where its advertising claims to contain “0 fat” and “0 calories,” but where bottle allegedly contains 82g of fat and 771 calories.)

Another group of cases has attacked food-labels that advertise products on the basis that they contain “antioxidants” or “boost immunity.” For example, in Lanovaz v. Twinings North America, Inc., ⁹5:12-CV-02646-RMW (N.D. Cal.) (filed May 23, 2012), Plaintiffs alleged that the tea makers’ claim that its products were a “natural source of antioxidants” amounted to a “nutrient content claim” that violated 21 C.F.R. §101.54(g), because the label failed to specify which nutrient(s) the antioxidants provide (i.e., Vitamin C), or the level of nutrients contained in the products.

One very common claim involves the use of the term “evaporated cane juice” instead of sugar. For example, in Gitson, et al., v. Trader Joe’s Company, ¹⁰Case No. 3:13-CV-01333 (N.D. Cal., filed March 25, 2013). plaintiffs alleged that Trader Joe’s was concealing the sugar in certain of its varieties of yogurt by using the term “evaporated cane juice” in its ingredient list, instead of the terms sugar or dried cane syrup. Plaintiffs allege that the use of the term “evaporated cane juice” instead of sugar is false and misleading, and violates the FDA’s (and California’s) regulation requiring food manufacturers to use the common or usual name of ingredients. ¹¹See also Reese v. Odwalla, Inc., et al., Case. No. 4:13-CV00947 (N.D. Cal., filed March 1, 2013) (alleging energy bars and fruit and vegetable beverages that list “evaporated cane juice” as an ingredient are misbranded and conceal that the product contains sugar).

Not all of the new cases rest on technical violations of labeling laws. Some false advertising claims turn on undefined advertising terms, such as “all natural.” ¹²See, e.g., Parker v. J.M. Smucker Co., 3:13-CV-00690-SC (N.D. Cal.) (filed Feb. 15, 2013) (alleging that certain Crisco products’ “all natural” claims are false and misleading because the products allegedly contain unnatural ingredients, including genetically modified organisms (“GMOs”), such as byproducts from plants whose genes have been genetically altered to enhance or reduce certain traits); Patrick v. Frito-Lay North America, Inc., 3:12-CV-05921-MEJ (N.D. Cal.) (filed Nov. 19, 2012) (alleging bean dip product’s claim of all natural was false and misleading because the product allegedly contained GMOs.).

A few others have focused on whether manufacturers have adequate substantiation for the health benefits their products allegedly promise. For example, in Koehler v. Litehouse, Inc., ¹³3:12-CV04055-SI (N.D. Cal.) (filed Dec. 28, 2012). plaintiffs contend that defendant’s claim that its Blue Cheese Yogurt Dressing with Probiotics “may boost immunity” and “may enhance the body’s immune system” were unfair, deceptive and misleading, where defendant allegedly knew that the product does not provide the qualities it purports to offer.

What Is Behind This Onslaught of Filings?

There are probably several factors behind the groundswell of filings in the Northern District of California. One mundane but significant factor is simple geography. Most of the lawyers filing these claims live in the Bay Area, and thus do not meet the definition of “litigation tourists.” Of course, those local lawyers do not intend to work for free, so what reasons might they have for pursuing these claims so vigorously in their home territory?

First and foremost, the Northern District of California is …. drum roll… in CALIFORNIA. There are many reasons why class action lawyers love the Golden State.

For starters, California is the jurisdiction where the largest concentration of consumers lives. Food and beverage class actions usually involve very small individual claims for relief, but the per plaintiff multipliers can be huge. Thus, even when a California federal court denies certification of a nationwide class, a California-only class will still contain over 38 million consumers—roughly 12 percent of the U.S. population. That is a pretty good reason to file class action lawsuits there. ¹⁴See, e.g., Koehler v. Litehouse, Inc., No. CV 12-04055 SI, 2012 BL 338307, at *7 (N.D. Cal. Dec. 13, 2012) (dismissing nationwide class allegations, holding that “a California court’s adjudication of non-residents’ claims that lack a nexus with California raises significant due process issues.”)

The Ninth Circuit and California law have also played an instrumental role in the popularity of the Northern District. The California Supreme Court’s decisions in In re Tobacco II
Cases, ¹⁵46 Cal. 4th 298 (2009). and Kwikset v. Superior Court, ¹⁶51 Cal. 4th 310 (2011). clarified that the UCL and FAL have only the barest of standing requirements, and need only be satisfied as to the class representative.

The Ninth Circuit, meanwhile, has shown itself receptive to certifying classes and to permitting claims involving food and beverage products to go forward. In the certification arena, cases such as Wolin v. Jaguar Land Rover North America,
¹⁷617 F. 3d 1168 (9th Cir. 2010). Yokoyama v. Midland National Life Insurance Co.,
¹⁸594 F. 3d 1087 (9th Cir. 2010). and Stearns v. Ticketmaster
¹⁹655 F. 3d 1013 (9th Cir. 2011). have exhibited a willingness to certify classes in the presence of substantial evidence that consumers did not uniformly rely on defendant’s statements, did not uniformly sustain any injury and are not uniformly entitled to restitution.

Mazza v. American Honda Motor Company, Inc.
²⁰666 F. 3d 581 (9th Cir. 2012). set some limits to the 9^th Circuit’s certification friendly approach, holding that the advertising at issue in that case was not pervasive enough to support a presumption of reliance. Plaintiffs in cases alleging false labeling, however, will likely distinguish Mazza on the basis that product labels are seen by all persons at the point of purchase.

The Ninth Circuit has also acted repeatedly to allow class action claims against food and beverage companies to go forward. For example, in Williams v. Gerber Products, ²¹552 F. 3d 934, 938-39 (9th. Cir. 2008). the court held that whether a business practice is deceptive is usually a question of fact not appropriate for decision at the pleading stage. This decision is enormously significant in food and beverage litigation, where alleged violations of the law often involve technical defects that many consumers will neither notice nor care about.

In Chavez v. Blue Sky Natural Beverage Company, ²²340 Fed. Appx. 359 (9th Cir. 2009). the court reinstated a claim based on plaintiff’s purchase of a beverage in the mistaken belief that it was made in New Mexico. Over the defendant’s argument that the plaintiff had no economic loss, the court held that plaintiff adequately alleged injury in fact, where he claimed that he would not have purchased the product but for the defendant’s misleading conduct.

More recently, in Chavez v. Nestle, ²³2013 BL 62932 (9th Cir., March 8, 2013). the court reinstated a claim based on an allegation that defendant had engaged in conduct likely to deceive a reasonable consumer, where it advertised its product as “an additional source” of DHA. Plaintiff contended that consumers would have to drink an unlikely amount of the product in order to reach beneficial levels. A dissenting opinion analogized the court’s rationale to finding a mother “deceptive” when she tells her child that eating broccoli is good for him.

The Ninth Circuit’s decision in Pom Wonderful, supra, may have created a barrier to some claims which rest on alleged violations of Federal product labeling laws, but Pom Wonderful has not slowed the tide of new filings.

The Northern District’s Track Record
in Food and Beverage Class Actions

Have the Northern District’s own rulings contributed to its class action case load? There have certainly been rulings to suggest that some judges in the Northern District will favor these kinds of claims. For example, the trial court’s certification of an “all purchasers” class in Chavez v. Blue Sky Natural Beverage
²⁴268 F.R.D. 365 (N.D. Cal. 2010). provides a road map for plaintiffs’ class certification motions. So do Ries v. Arizona Beverages USA LLC,
²⁵287 F.R.D. 523 (N.D. Cal. 2012) (granting certification of 23(b)(2) class of consumers of “natural” iced tea that contained high fructose corn syrup), decertified on other grounds, 2013 BL 87038 (N.D. Cal. March 28, 2013). and Zeisel v. Diamond Foods, Inc.
²⁶2011 BL 150001 (N.D. Cal. June 7, 2011) (Certifying class of purchasers of walnuts bearing labels with the statement, “The omega-3 in walnuts can help you get the proper balance of fatty acids your body needs for promoting and maintaining heart health.”) Relatively few of the motions to dismiss these claims based on lack of standing, preemption or primary jurisdiction have made much lasting headway. ²⁷See, e.g., Brazil v. Dole Foods
,
2013 BL 78466 (N.D. Cal. March 25, 2013) (denying motions based on preemption, primary jurisdiction and lack of standing, dismissing fraud claims without prejudice for lack of specific pleading, and trimming complaint of claims based on Magnuson Moss, Song Beverly and unjust enrichment.); Janney v. General Mills, 2013 BL 126677 (N.D. Cal., May 10, 2013) (denying motion to dismiss based on primary jurisdiction, and granting in part/denying in part motion pursuant to Fed. R. Civ. P. 12(b)(6).)

On the other hand, the role of a district judge is to apply the law to the case before her, and the decisions of the California Supreme Court and Ninth Circuit have set low thresholds for the viability and certification of these kinds of cases. In this context, defendants have had some important wins, such that plaintiffs cannot view a successful outcome as guaranteed.

For example, in Bronson v. Johnson & Johnson, Inc.,
²⁸2013 BL 103187 (N.D. Cal. April 16, 2013). plaintiffs alleged that the marketing for various Splenda sweetener products was false and misleading. The trial court found that plaintiffs did not adequately allege that they relied on defendant’s misleading statements, and therefore lacked statutory standing under the UCL, FAL and CLRA. The court also found a number of the claims preempted or otherwise unsustainable because they rested on allegation of lack of substantiation, not on falsity.

In Brod v. Sioux Honey Association, Cooperative,
²⁹2013 BL 53347 (N.D. Cal. Feb. 27, 2013). the court dismissed plaintiffs’ complaint, which alleged that defendant had violated a provision of the California Agriculture Code by selling honey without a disclaimer that its pollen had been removed. The court found that federal law preempted the claim to the extent that California law would forbid the product as being sold as anything other than “honey.” It moreover held that plaintiff had not alleged a plausible basis on which to conclude that a reasonable consumer would care that his honey did not contain pollen.

A particularly interesting case is Ries v. Arizona Beverages USA LLC, ³⁰2013 BL 87038 (N.D. Cal. March 28, 2013). in which plaintiffs argued that defendant’s iced tea was not “all natural” because it contained high fructose corn syrup and citric acid. As noted above, trial court certified a 23(b)(2) class in November 2012, but four months later granted summary judgment to defendants and decertified the class.

Why the about face? In the face of defendants’ renewed motion for summary judgment, plaintiffs failed to present evidence to support their allegation that reasonable consumers would be misled, or to demonstrate their entitlement to restitution. At the summary judgment stage, the court was no longer willing to allow plaintiffs to rely on the plausibility of the pleadings as to whether a reasonable consumer finds the terms “all natural” and “100% natural” misleading. It required evidence. It also faulted plaintiffs for having no proof that the products had an economic value different from what they paid.

What Does the Future Hold
for the Northern District?

Just as influences outside the Northern District have contributed to the District’s current popularity, so too external influences will likely have a major impact on the future of class action litigation within its borders. Critical linchpins for plaintiffs’ success in these claims are the ability to win certification of classes that contain persons with no injury, and the ability to invoke presumptions of reliance to overcome individualized proof of reliance and loss causation. These issues are the focal point of class litigation around the country.

Many hoped that the U.S. Supreme Court, this spring, would have addressed the propriety of classes that contain uninjured members, but the Court’s decision to vacate and remand in Whirlpool Corp. v. Glazer
³¹133 S. Ct. 1722 (2013). avoided a direct ruling on this issue. The propriety of presumptions of reliance is also a matter of controversy. In Amgen
v. Connecticut Ret. Plan & Trust Funds, ³²133 S. Ct. 1184 (2013). the U.S. Supreme Court narrowly upheld the use of presumptions in their most well accepted context, “fraud on the market” in the sale of securities, but circuit courts have divided over their use in other contexts.

For example, in McLaughlin v. American Tobacco, ³³522 F. 3d 215 (2nd Cir. 2008). the Second Circuit concluded that consumer decisions about smoking were far too complex for a presumption to apply. The Eighth Circuit, meanwhile, has noted that even where presumptions may apply, class certification should not preclude a defendant from presenting individualized proof to rebut the presumption. ³⁴See, In re St. Jude Silzone Heart Valve, 522 F. 3d 839 (8th Cir. 2008). Even the Ninth Circuit has had occasion to find presumptions inapplicable where consumer behavior is complex. ³⁵Poulos v. Caesar’s World, Inc., 379 F. 3d 654 (9th Cir. 2004).

These major legal issues aside, there is also much that has to happen in the Northern District before the staying power of this litigation can be assessed. Cases like Bronson, Brod and Ries highlight some of the most tenuous aspects of these cases: Do average consumers really care about the alleged misrepresentations, and have they really lost anything by purchasing a product that they consumed and probably enjoyed?

These questions are particularly acute in cases based on technical regulatory violations, as most consumers probably do not have the foggiest idea about the regulations or alleged violations. While courts, such as those in Khasin v. Hershey Company,
³⁶2012 BL 297552 (N.D. Cal., Nov. 9, 2012). and Brazil v. Dole, supra, may, at the pleading stage, willingly defer consideration of whether reasonable consumers care about such things, plaintiffs will ultimately need to prove that they do.

They will also need to present damage models in contexts where the alleged misrepresentation had little or no economic impact. These evidentiary hurdles, particularly in light of the Supreme Court’s endorsement in Comcast
Corp. v. Behrend, et al.,
³⁷133 S. Ct. 1426 (2013), of evidentiary challenges to expert proof, may spell the death of many of these claims.

And so far, the Northern District does not have a big track record of cases settling, or plaintiffs’ counsel reaping large fee awards. In mid 2012, after nearly six years of litigation, Chavez v. Blue Sky Beverages settled for cash refunds capped at $100 for class members with proof of purchase and $6 for class members without, and a fee award to class counsel that totaled about 30 percent of their claimed lodestar.

In Zeisel v. Diamond Foods, ³⁸2012 BL 271815 (N.D. Cal. Oct. 16, 2012). the court approved a settlement creating a $2.6 million restitution fund, and an additional $850,000 in fees and costs for class counsel—an amount reportedly well below their lodestar. Meanwhile, the Ninth Circuit, last summer, overturned a proposed settlement in a case arising in the Southern District of California, Dennis v. Kellogg
.
³⁹697 F.3d 858 (9th Cir. 2012).

The court faulted the cy pres fund distribution to the indigent as not adhering to the interests of the absent class members. It also bridled at class counsel’s fee petition, which sought compensation equivalent to $2100/hour. Going forward, settling defendants may have to consider making cy pres awards to consumer groups, even though their objectives can conflict with the defendants’ business interests.

These rulings highlight that much can happen to derail a case between the time that a district court denies most of the defendant’s motion to dismiss and the time that the case actually ends. Even settling cases has pitfalls for both sides.

Conclusion

At this point, it might be tempting to suggest that the Northern District’s tidal wave of food litigation actually reflects the Bay Area’s food culture, a culture which loves new restaurants, pans bad ones, and views food as a stepping stone to personal wellness. For companies served with a summons issued by the Northern District, however, this stereotype will probably not amuse.

These cases impose serious expense on defendants. Their sheer volume, regardless of outcome, urge great care by in-house and advertising counsel in their review of labels and ad copy. It is best to catch errors and overstatements before the company’s CEO receives a CLRA 30-day notice. Still, the trial record in the Northern District is a far cry from that in other litigation centers.

To date, the court has not shown itself to be an automated device, finely tuned for separating defendants from their money. Defendants have a number of tools to defend these cases, and plaintiffs’ counsel face a range of long term risks. As this wave of litigation matures, it will probably lose momentum as claims founder on lack of proof, lack of actual harm, and, inevitably, by shifting attention to other kinds of products.