Antitrust Law Daily Wrap Up, ADVERTISING—N.D. Cal.: Two consumer actions alleging “Misbranded Food Products” fail to plead fraud with required particularity, (Aug 19, 2013)

By Peter Reap, J.D., LL.M.

Two consumer actions alleging that manufacturers of food products committed fraud and deception in violation of California and federal regulations in the labeling of their food products failed to satisfy the particularity in pleading requirement for fraud based claims, the federal district court in San Jose has determined. In one case, Daryl De Keczer filed a putative class action against Tetley USA Inc. regarding the labeling of its tea products (De Keczer v. Tetley USA, Inc., August 16, 2013, Davila, E.). In the other, Suzanne Smedt brought a putative class action against The Hain Celestial Group because of alleged mislabeling of its coconut drink and vegetable chip products (Smedt v. Hain Celestial Group, Inc., August 16, 2013, Davila, E.).

In both cases, the plaintiffs utilized the term “Misbranded Food Products” to identify the products at issue but did so in a way that failed to unambiguously specify the particular products that violated particular labeling requirements. Thus, the claims of those cases that were subject to the particularity in pleading requirement of Rule 9 of the Federal Rules of Civil Procedure were dismissed.

In addition, both cases asserted claims for violation of the California Song-Beverly Consumer Warranty Act and the federal Magnuson-Moss Warranty Act. Those claims were dismissed because the product labels did not constitute express warranties, the court held.

Background. In her action, De Keczer stated that since 2008 she spent more than $25.00 purchasing Tetley’s “tea products.” She argued that Tetley makes unlawfully misleading “antioxidant, nutrient content, and health claims” both on the labeling of these products and its website. She alleges that she read and relied on these labels when deciding to purchase the products.

De Keczer brought claims alleging violations of California’s Unfair Competition Law (UCL), violations of the California False Advertising Law (FAL), violation of the California Consumers Legal Remedies Act (CLRA), restitution based on unjust enrichment or quasi-contract, and breach of warranty in violation of the Song-Beverly Act and the Magnuson-Moss Act.

Smedt alleged that since 2008 she purchased an indeterminate quantity of the following of Hain’s products: Coconut Dream Coconut Drink, Terra Stripes & Blues Sea Salt Potato Chips, Terra Exotic Vegetable Mediterranean Chips, and Sensible Portions Sea Salt Garden Veggie Straws. Smedt argued that several statements on the packages and websites of these and other products were false, misleading, or otherwise unlawful. She alleged that Hain did not comply with state and federal regulations when making the following types of representations about its products: (a) nutrient content claims, including “no trans fat” claims; (b) the amounts of (c) nutritional value claims; and others. The nine claims alleged in Smedt’s complaint asserted the identical statutory violations that were alleged in De Keczer’s complaint.

Fraud-based claims. Under California’s Sherman Food, Drug, and Cosmetic Laws, the federal labeling requirements are adopted as the food labeling requirements of the state of California. As such, both plaintiffs argued that violations of the federal laws and regulations—namely the Food, Drug, and Cosmetic Act (FDCA), as amended by the Nutrition Labeling and Education Act (NLEA)—would amount to violations of the identical California state requirements, the court noted.

The heightened Rule 9 pleading standard applies to claims for false or deceptive advertising brought under the UCL, FAL, and CLRA. Because the claims of both actions, apart from the warranty claims, involved allegations of fraudulent conduct, deception, or misrepresentation, the Rule 9 pleading standard applied, the court held.

Therefore, the plaintiffs were required to aver with particularity the specific circumstances surrounding the alleged mislabeling that gives rise to their claims. They must state with clarity the who, what, when, where, and how of the fraudulent conduct, and provide an unambiguous account of the time, place, and specific content of the false representations.

Throughout the De Keczer’s complaint, she used the term “Misbranded Food Products.” This term was the foundation of her several claims, appearing no less than 80 times, the court noted. Rather than consisting of finite and particular tea products, “Misbranded Food Products” purported to encapsulate an open-ended class of these products. While De Keczer did list specific and particular tea products produced by Tetley, her complaint stated that the term “Misbranded Food Products” was “not limited to” those products. Therefore, “Misbranded Food Products” did not solely and entirely refer to specific and particular products, the court decided.

Further obfuscating matters is De Keczer’s enumeration of exactly three products that she claimed to have purchased. The three enumerated products are “British Blend, Premium Black Tea and Green Tea.” This listing did not precisely mirror the description of the “Misbranded Food Products,” which included, but was not limited to “(1) Classic Blend Black Tea, (2) British Blend Black Tea, (3) Pure Green Tea, (4) Iced Tea Blend Tea, and/or (5) Iced Tea.” The placement of the ambiguous assertion that De Keczer purchased a non-definite group of products alongside the enumerated list added another layer of ambiguity and confusion as to precisely which products she purchased.

Applying the Rule 9 pleading standard, De Keczer did not provide a clear and unambiguous account of the allegedly fraudulent, deceptive, misrepresentative, or otherwise unlawful statements, the court reasoned. The complaint failed to unambiguously specify the particular products that have violated particular labeling requirements.

Smedt’s action suffered the same fate, the court held. Her Amended Complaint did not provide a clear and particular account of the allegedly fraudulent, deceptive, misrepresentative, or otherwise unlawful statements, and therefore could not sustain an action for these claims. The Amended Complaint failed to unambiguously specify the particular products that have violated particular labeling requirements, the allegedly unlawful representations that were on the products, and the particular statements Smedt allegedly relied on when making her purchases.

Thus, the fraud based claims of both actions, those alleging violations of the UCL, FAL, and CLRA, were dismissed without prejudice.

Warranty claims. The Song-Beverly Consumer Warranty Act (“SBCWA”) provides a private right of action for buyers of consumer goods for express or implied warranty violations. The SBCWA defines “consumer goods” as “any new product or part thereof that is used, bought, or leased for use primarily for personal, family, or household purposes, except for … consumables,” and defines “consumables” as “any product that is intended for consumption by individuals, or use by individuals for purposes of personal care or in the performance of services ordinarily rendered within the household, and that usually is consumed or expended in the course of consumption or use.” The products at issue in both actions—apparent food products—fall under this definition of “consumables,” the court explained.

Both De Keczer and Smedt argued that the product labels at issue constituted express warranties and that the products in question therefore fell under the provisions of sections 1793.35, which provides for the enforcement of express warranties on consumables. This argument was rejected because food labels, like the ones at issue, did not constitute express warranties against a product defect, according to the court. Labels on product packaging and websites were product descriptions rather than promises that a food product is defect-free, or guarantees of specific performance levels. Thus, the actions failed to state claims for violations of the SBCWA. For the same reason, the complaints also failed to state claims for violations of the MMWA, the court held. The warranty claims were dismissed without prejudice.

The cases are No. 5:12-CV-02409 EJD (De Keczer) and No. 5:12-CV-03029 EJD (Smedt).

Attorneys: Ben F. Pierce Gore (Pratt & Associates) for Daryl De Keczer and for Suzanne Smedt. Peter R Knight (Robinson & Cole LLP) for Tetley USA, Inc. William Lewis Stern (Morrison & Foerster LLP) for The Hain Celestial Group, Inc.

Companies: Tetley USA, Inc.; The Hain Celestial Group, Inc.

Cases: Advertising StateUnfairTradePractices CaliforniaNews