Antitrust Law Daily Wrap Up, ADVERTISING—N.D. Cal.: Yogurt manufacturer’s motion to dismiss false labeling claims denied, (Jan 17, 2014)

By Jody Coultas, J.D.

Yogurt manufacturer Clover Stornetta Farms’ motion to dismiss California Unfair Competition Law (UCL), False Advertising Law (FAL), and Consumers Legal Remedies Act (CLRA) claims filed by yogurt purchasers was denied by the federal district court in San Francisco (Gitson v. Clover Stornetta Farms, January 14, 2014, Laporte, E.).

Clover markets 14 different flavors and varieties of products that list “Organic Evaporated Cane Juice” as an ingredient. The purchasers, who bought two of those products, alleged that using the term “Organic Evaporated Cane Juice” in marketing materials was deceitful and misleading because “Organic Evaporated Cane Juice” is actually sugar and/or “dried cane syrup.”

Standing. The purchasers had standing to assert the California consumer protection law claims, according to the court. Overpaying for goods or purchasing goods a person otherwise would not have purchased based upon misrepresentations satisfies the injury-in-fact and causation requirements for Article III standing, as well as the economic injury required for standing under the California statutes. The purchasers alleged that they would not have bought the products had they known that the products contained sugar or dried cane syrup. The court noted that a consumer that knew “dried cane syrup” is a form of sugar might not be deceived as to the true nature of “evaporated cane juice.” However, the purchasers did not include an allegation that they thought that the yogurt contained “only natural sugars from milk and fruit,” or an allegation that they thought that evaporated cane juice was healthier than refined sugar.

The purchasers lacked standing to pursue claims that Clover misrepresented that its products were “natural,” according to the court. The Food, Drug, and Cosmetics Act (FDCA) and the California Sherman Law prohibit food manufacturers from using “all natural” or “natural” when the products contain artificial ingredients, colors, or flavorings. The purchasers alleged that added ingredients for color and other ingredients violated the law and the regulations. However, the purchasers failed to show that they relied on the label’s “natural” claim in making their decision to purchase the yogurt.

There were sufficient similarities between the products the purchasers did not buy and the products they did buy to confer standing to assert claims based on the non-purchased products, according to the court. To determine whether a purchaser has standing to assert claims based on non-purchased products, court look at whether there is sufficient similarity between the products purchased and not purchased, including whether the products are of the same kind, composed of largely the same ingredients, and bear the same alleged mislabeling. The 14 accused products were all yogurt varieties that include organic evaporated cane juice as an ingredient. Although the flavors differed, they were sufficiently similar to those products purchased by the two purchasers to survive the pleading stage.

Preemption. The court denied the motion to dismiss as to express preemption of the state law claims. Clover argued that the FDCA expressly preempted the state law claims because the purchasers sought to impose additional requirements related to color additives. The purchasers countered that all of the state law claims were based on statutes that mirror the FDCA, and therefore were not preempted. Clover failed to present sufficient evidence of what additional requirements the purchasers sought to impose.

The state law claims also were not impliedly preempted, according to the court. Clover argued that the FDCA preempted the claims because there is no private right of action under the FDCA and allowing the claims would conflict with Congress’s intent to preclude private enforcement of the FDCA. Private litigants may not maintain a “claim that would require a court originally to interpret ambiguous FDA regulations, because rendering such an interpretation would usurp the FDA’s interpretive authority.” State food labeling laws that mirror the relevant Nutrition Labeling and Education Act and FDCA are not preempted. Courts start from a presumption against preemption and look at whether a conflict exists between the state and federal law. Here, there was no conflict between the state and federal laws and the claims were not preempted.

Primary jurisdiction doctrine. Clover’s motion to dismiss based on the primary jurisdiction doctrine was denied by the court. The primary jurisdiction doctrine allows courts to stay proceedings or to dismiss a complaint without prejudice pending the resolution of an issue within the special competence of an administrative agency where the complaint involves an issue of first impression or a particularly complicated issue Congress has committed to a regulatory agency. The FDA issued “Draft Guidance” regarding evaporated cane juice in October of 2009 and sent warning letters to companies using the term, advising that its use was unlawful. Clover argued that the issues in the case required expertise and uniformity of administration. The claims at issue did not involve an issue of first impression that needed to first be decided by the FDA.

However, the court dismissed claims based on the Standard of Identity for Yogurt under the primary jurisdiction doctrine. The FDA’s public statements regarding the Standard of Identity for Yogurt noted that it will treat potential violations of the Standard of Identity for Yogurt on a case-by-base basis and assess whether they comport with the proposed revised standard. The FDA has also proposed a new Standard of Identity for Yogurt that allows any “safe and suitable sweetening ingredients.” Pending the adoption of a new Standard, the FDA has suggested that it will not enforce violations of the current Standard of Identity if companies comply with the proposed standard. Given that the FDA may permit the use of evaporated cane juice and the indications that the FDA will not bring claims against manufacturers who comply with the proposed revised standard of identity, the claims based on the Standard of Identity for Yogurt were dismissed on primary jurisdiction grounds.

Motion to dismiss. The court denied Clover’s motion to dismiss as to the plausibility and particularity of the UCL, FAL, and CLRA claims. Clover argued that a reasonable consumer would not be deceived by the product labels and that the labels affirmatively disclosed all the information at issue. The question of whether a consumer was likely to be deceived typically raises issues of fact. It was plausible that a reasonable consumer would be influenced by nutritional content and would rely on labeling claims like “natural” when selecting food products. The claims also met the heightened pleading standard of Federal Rule of Civil Procedure 9(b).

The case is No. C-13-01517 EDL.

Attorneys: Ben F. Pierce Gore (Pratt & Associates) for Amy Gitson. Katherine Anne Higgins (Lewis Brisbois Bisgaard Smith LLP) for Clover-Stornetta Farms, Inc.

Companies: Clover Stornetta Farms

Cases: Advertising StateUnfairTradePractices CaliforniaNews