Antitrust Law Daily Wrap Up, ADVERTISING—N.D. Cal.: Potato chip maker unable to dodge “reduced fat” misrepresentation claims, (Oct 22, 2014)

By Greg Hammond, J.D.

Diamond Foods, Inc., maker of Kettle Brand Potato Chips, was unable to evade a consumer’s claims that the company engaged in false advertising over its Reduced Fat Sea Salt Chips. The federal district court in San Francisco denied the company’s motion to dismiss, finding that the consumer stated sufficient claims under California’s Consumers Legal Remedies Act (CLRA), Unfair Competition Law (UCL), and False Advertising Law (FAL) (Hall v. Diamond Foods, Inc., October 21, 2014, Chesney, M.).

Diamond moved to dismiss consumer Richard Hall’s false advertising claims, arguing that he lacked standing; he failed to allege fraud with requisite particularity; and he failed to demonstrate that reasonable consumers would be deceived by the statements.

Standing. According to the court, Hall had Article III standing, as well as standing under the California statutes because he sufficiently alleged that: (1) he purchased Diamond’s Reduced Fat Sea Salt Chips on multiple occasions; (2) he made the purchases in reliance on a statement that was imprinted on the front of the products’ packaging: “40% reduced fat potato chips”; (3) he understood the statement to mean that the chips were reduced in fat by the stated percentage compared to Diamond’s regular Sea Salt Chips or other regular kettle chips; (4) he would not have purchased the product but for the identified representation; and (5) the chips were actually only reduced in fat by 33 percent. Although he did not allege that he actually read the “40% reduced fat potato chips” statement prior to purchasing the product, the court inferred from his express allegation of reliance that he did so.

Specificity. Diamond next argued that Hall failed to sufficiently allege with specificity whether the label he read and purchased had some or all of the disputed statements, or the particular date when he purchased the product. The court disagreed with both arguments, finding that Hall identified the exact statement on which he relied, and further provided a photograph of the portion of packaging containing the statement. In addition, allegations that Hall made purchases during the class period were sufficient to satisfy the “when” requirement under Rule 9(b).

Reasonable consumer test. Lastly, Diamond argued that Hall failed to sufficiently allege facts demonstrating that members of the public are likely to be deceived by the challenged statement, and that even if they would be deceived, the statements are not misleading. In furtherance of its argument, Diamond requested that the court take judicial notice of the entirety of the packaging, by providing the court with a copy. The court found Diamond’s argument premature, noting that the provided copy of the packaging was not authenticated, was not presented in a manner in which a consumer would view it, and the language Diamond specifically relies on appears in smaller print than the challenged statement. In addition, the court declined to make a finding that the “40%” challenged statement does not differ materially from a statement that the product is actually “33%” less fat than the referenced food.

The case number is C-14-2148 MMC.

Attorneys: Anthony Joshua Orshansky (CounselOne, PC) for Richard Hall. Amanda L. Groves (Winston & Strawn LLP) for Diamond Foods, Inc.

Companies: Diamond Foods, Inc.

Cases: Advertising StateUnfairTradePractices CaliforniaNews