Antitrust Law Daily Wrap Up, ADVERTISING—N.D. Cal.: Evaporated cane juice labeling claims continue, (Aug 18, 2016)

By Jody Coultas, J.D.

Soda purchasers stated California consumer protection law claims against Santa Cruz Natural, Inc. for allegedly misrepresenting that its sodas did not contain added sugar, according to the federal district court in Sacramento. The court found that the claims were not preempted by federal labeling laws (Swearingen v. Santa Cruz Natural, Inc., August 17, 2016, Illston, S.).

Santa Cruz manufactures sodas that use the term "organic evaporated cane juice" (ECJ) on the labels. Soda purchasers alleged that they did not know that ECJ was actually sugar, and would not have purchased the sodas had they known. The purchasers alleged that Santa Cruz used the term "ECJ" instead of "sugar" to make its products appear healthier to consumers, and that the failure to use the common or usual name for sugar violated the California Sherman Food, Drug, and Cosmetics Act and California consumer protection laws. Santa Cruz moved to dismiss the claims.

Standing. The purchasers had standing to assert the California law claims, according to the court. Santa Cruz argued that the purchasers lacked standing to bring the consumer protection claims because they failed to plead reliance and an actual injury. Standing under California’s False Advertising Law (FAL) and the Consumers Legal Remedies Act (CLRA) requires a plaintiff to allege that he relied on the defendant's purported misrepresentation and suffered economic injury as a result. The reliance requirement also applies to claims under the unlawful prong of the Unfair Competition Law (UCL) that are based on allegations of misrepresentation and deception. The allegations that the purchasers read and relied upon the allegedly misleading and deceptive language when making their decision to purchase the soda were sufficient to show reliance. Allegations that the purchasers would not have purchased the sodas had they known were sufficient to establish economic injury. Therefore, the purchasers had standing.

The non-purchased products were sufficiently similar to the purchased products to confer standing on the purchasers, according to the court. However, claims based on sodas that did not list ECJ or organic ECJ as an ingredient were dismissed.

Preemption. Santa Cruz was denied dismissal on the basis of express preemption by the court. The federal Food, Drug, and Cosmetics Act (FDCA) preempts state law requirements for the labeling of food that are not identical to the FDCA requirements. The FDCA and California law contain identical prohibitions on false or misleading labeling. The purchasers clarified that they did not seek to impose any additional affirmative duties to disclose that are not present in federal law, and were not alleging a violation of the FDA’s "no sugar added" regulation.

The state law claims regarding mislabeled food were not impliedly preempted by the FDCA, according to the court. Santa Cruz argued that the claims were impliedly preempted because the purchasers were trying to enforce FDA regulations under the guise of consumer protection claims. Numerous courts in the district have found that allegations of food mislabeling are not impliedly preempted.

Reasonable consumer test. The claims met the reasonable consumer test, according to the court. Claims under the UCL, FAL, and CLRA are governed by the "reasonable consumer" test, and require that plaintiffs show that a reasonable consumer was likely to be deceived by the advertising at issue. A reasonable consumer might think that the ingredients listed for the Orange Mango Soda and Raspberry Lemonade Soda created naturally occurring sugars that comprised the sugar content of the beverages. Whether a business practice is deceptive is generally a question of fact not appropriate for decision on a motion to dismiss.

Fraud claims. The court found that the purchasers stated the fraud claims with the required particularity, giving Santa Cruz sufficient notice of the particular misconduct at issue. The purchasers set forth sufficient facts explaining why the labeling was misleading, and the nature of the violations was clear.

Remaining claims. The court dismissed the negligence and negligent misrepresentation claims with leave to amend, in the event that the purchasers were able to allege damages of "physical injury to person or property, and not for pure economic losses."

For failure to provide reasonable notice of the breach, the court dismissed the express and implied warranty claims with prejudice.

The unjust enrichment claim did not properly state an independent cause of action and was dismissed with prejudice.

The purchasers lacked standing to seek declaratory and injunctive relief because they have stated that they will not purchase the sodas again. However, the court granted leave to amend.

The case is No. 13-cv-04291-SI.

Attorneys: Ben F. Pierce Gore (Pratt & Associates, LLC) for Mary Swearingen. Robert B. Hawk (Hogan Lovells US LLP) for Santa Cruz Natural, Inc.

Companies: Santa Cruz Natural, Inc.

Cases: Advertising CaliforniaNews