Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—N.D. Cal.: Alleged unlawful misbranding of Frito-Lay snack food not actionable without reliance, (Oct 28, 2013)

By Edward L. Puzzo, J.D.

Consumers alleging unlawfully misbranded product labels on Frito-Lay snack food products could not maintain an action under the California Unfair Competition Law without evidence of reliance, but could maintain actions alleging unfair or fraudulent acts under the Act with evidence of injury, the federal district court in San Francisco has ruled (Wilson v. Frito-Lay, October 24, 2013, Conti, S.).

Plaintiffs Marcus Wilson and Doug Campen, on behalf of a class, alleged that Frito-Lay used misleading marketing on its various snack food products, including potato chips, corn chips and cheese puffs, in violation of the California Unfair Competition Law (UCL), the California Consumer Legal Remedies Act (CLRA), and the California False Advertising Law (FAL).

Misbranding and reliance. Plaintiffs brought a misbranding claim under the California Unfair Competition Law (UCL), based on labeling requirements in California’s Sherman Food, Drug, and Cosmetic Act, which in turn incorporated the federal Food, Drug and Cosmetic Act (FDCA) food labeling requirements. Plaintiffs alleged that Frito-Lay’s unlawfully misbranded product labels were actionable under the UCL, even absent evidence of reliance.

The court disagreed. The misbranding behavior that plaintiffs alleged violated FDA regulations and the Sherman Law, is misrepresentation or deception, because they are asserting that Frito-Lay used deceptive labeling practices to hide the truth of the products’ ingredients, the court observed. This claim is not divorced from their other theories brought under the UCL, which require economic injury as a result of the unfair competition they allege. In order to establish standing for UCL unlawfulness claims, the court explained, plaintiffs must show that defendant’s misrepresentation or nondisclosure was the immediate cause of their lost money or property. Frito-Lay’s alleged violation of labeling laws alone, without showing reliance, is insufficient. Therefore, plaintiffs’ UCL claims based on the Sherman Act were dismissed with prejudice. Plaintiffs’ claims brought under the California Consumer Legal Remedies Act (CLRA) and the California False Advertising Law (FAL), however, survived Frito-Lay’s motion to dismiss.

“All Natural” and “0 Grams Trans Fat” claims. Two of the bases for plaintiff’s allegations of misleading marketing were that some products were labeled “All Natural” despite containing artificial or unnatural ingredients, flavoring, coloring, or preservatives, and others were labeled as containing “0 Grams Trans Fat” despite having total fat levels that rendered such a claim misleading. Frito-Lay sought to dismiss these claims for insufficient allegations of injury, deception, or reliance, but the court ruled that the allegations were sufficient to meet the Twombly and FRCP Rule 9(b) requirements of particularity, and did not dismiss the claims.

“No MSG” claim. Another basis for Plaintiff’s allegations of misleading marketing was that some products contained MSG but were labeled as having “No MSG.” Plaintiffs alleged that during the class period of March 2008 to March 2012, under FDA policy, any product labeled “No MSG” would be actionably mislabeled if it contained an ingredient, such as hydrolyzed protein, that was a source of MSG. Frito-Lay argued that under FDA policy at that time, ingredients containing MSG were to be labeled separately from MSG, but nothing more. The court agreed with Frito-Lay. During the class period, the FDA regulations were sufficiently ambiguous regarding MSG that clarification had to be issued by the agency in November 2012. Plaintiffs claims based on Frito-Lay’s use of “No MSG” labels during the class period were therefore dismissed, ruled the court.

Website as label. Another of the bases for Plaintiff’s allegations of misleading marketing was that Frito-Lay’s website was a “label” subject to FDA regulations, and it made misleading and unlawful product claims. FDA regulations, the court explained, consider a website part of labeling when a product refers a consumer to a website for additional information about a claim for a product. But here, the Frito-Lay website listed on the packaging appeared below their physical address, not near the ingredients list or nutritional facts, and did not direct consumers to the website for more facts about the product. Therefore, the court ruled, the website was not labeling.

The case is Civil Action No. 12-1586 SC.

Attorneys: Ben F. Pierce Gore (Pratt & Associates) for Markus Wilson. Christopher Chorba (Gibson, Dunn & Crutcher LLP) for Frito-Lay North America, Inc.

Companies: Frito-Lay North America, Inc.

Cases: StateUnfairTradePractices Advertising CaliforniaNews