Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—N.D. Cal.: Deceptive labeling claims proceed against Chobani over use of the term “evaporated cane juice” on yogurt labels, (Jul 15, 2013)

By Tobias J. Gillett, J.D., LL.M.

Purchasers of Chobani yogurt may proceed with California Unfair Competition Law, False Advertising Law, and Consumers Legal Remedies Act claims regarding Chobani’s use of the term “evaporated cane juice” to describe the sweetener employed in the yogurts, the federal district court in San Jose has ruled (Kane v. Chobani, Inc., July 13, 2013, Koh, L.). However, the court dismissed without prejudice the purchasers’ claims regarding products they did not purchase, claims regarding Chobani’s alleged statements that its products had no added sugar and were “all natural,” claims based on Chobani’s alleged violation of the FDA’s Standard of Identity for Yogurt, and dismissed with prejudice the purchasers’ unjust enrichment and warranty claims.

The purchasers alleged that they bought six flavors of Chobani’s “Chobani Greek Yogurt.” They claimed that Chobani mislabeled those and other yogurt products in violation of the UCL, FAL, CLRA, Song-Beverly Consumer Warranty Act, and Magnuson-Moss Warranty Act, and that Chobani obtained unjust enrichment.

Specifically, the purchasers asserted that Chobani employed the term “evaporated cane juice” (ECJ) to refer to the sweetener in the yogurts when the sweetener was merely “sugar” or “dried cane syrup.” They alleged that the use of the term violated Food and Drug Administration regulations requiring manufacturers to refer to ingredients by their “common and usual names,” and establishing a Standard of Identity for Yogurt which did not list ECJ as an approved sweetener.” The purchasers also challenged claims on Chobani’s website that its products did not contain “extra sugar,” and that it did not “add sugar to our yogurt,” as false, misleading, and in violation of FDA labeling requirements. Finally, the purchasers alleged that Chobani falsely stated that is yogurts contained “only natural ingredients” and were “all natural,” when they contained artificial ingredients, flavorings, and colorings, as well as chemical preservatives. However, the only specific ingredient the purchasers identified was the use of “fruit or vegetable juice” as a coloring agent.

Standing

The court began its discussion of Chobani’s motion to dismiss by addressing Chobani’s argument that the purchasers lacked standing under Article III, the UCL, the FAL, and the CLRA because they did not plausibly rely on Chobani’s representations and did not suffer any injury from their reliance even if they did rely on them.

Reliance. The court concluded that the purchasers’ claims regarding ECJ did not have to be dismissed for lack of reliance. Since the purchasers were aware that the yogurts contained ECJ, and did not allege what they “believed ECJ to be if not a form of sugar or a juice containing some form of sugar,” the court found their assertion that they believed the yogurts contained “only natural sugars from milk and fruit and did not contain added sugars or syrups” to be “simply not plausible.” However, the purchasers also alleged that Chobani “may have concealed the fact that [ECJ] was equivalent to white sugar or dried cane syrup,” rather than an allegedly more nutritious ingredient more akin to “natural sugar cane,” and that they would not have purchased the yogurts if they had known they merely contained “dried cane syrup.”

However, the court concluded that the purchasers did not sufficiently allege reliance with respect to the “no sugar added” claims because they failed to allege that they had viewed Chobani’s website. Although the California Supreme Court had held in In re Tobacco II Cases, 46 Cal. 4th 298 (2009), that a plaintiff that alleged “exposure to a long-term advertising campaign” did not have “to plead with an unrealistic degree of specificity that plaintiff relied on particular advertisements or statements,” the court found that In re Tobacco II would not “permit a plaintiff who has never been exposed to a defendant’s marketing campaign or to the disputed misrepresentations to bring a claim for violation of the UCL, the FAL, or the CLRA.” The purchasers did not allege that they were exposed to Chobani’s alleged advertising campaign, that they were exposed to any advertisements containing statements similar to the “no sugar added” claims, or that Chonbai conducted “anything approaching a ‘decades-long campaign of deceptive advertising.’”

Moreover, the court rejected the purchasers’ claims that they would not have purchased Chobani’s products if they had known they violated FDA labeling requirements. The court observed that finding that the purchasers had standing when they never vied the relevant advertisements would conflict with the California Supreme Court’s decision in Kwikset Corp. v. Superior Court, 51 Cal. 4th 310 (2011), in which the court interpreted California’s Proposition 64 to find that plaintiffs must “demonstrate actual reliance on the allegedly deceptive or misleading statements.”

The purchasers also failed to demonstrate reliance on the “all natural” representations, according to the court. The purchasers had claimed to have read the yogurts’ labels, which “clearly disclosed the presence of fruit or vegetable juice concentrate,” and therefore the purchasers could not plausibly claim that they believed “that the yogurts did not contain added fruit juice.” Therefore, the court dismissed the purchasers’ claims with respect to the “no sugar added” and “all natural” claims, but with leave to amend.

Injury. The court rejected Chobani’s argument that the ECJ claims should be dismissed because the yogurt’s labels disclosed the presence of a coloring agent and ECJ, and therefore the purchasers did not suffer an injury because they received the product that was advertised. The court noted that a plaintiff generally only has to allege that “he or she would not have bought the product but for the misrepresentation,” and the purchasers had alleged that they would not have purchased the yogurts if they had known they contained a refined sugar.

Products the purchasers did not buy. However, the court dismissed the purchasers’ claims as to the Chobani yogurt products that the purchasers did not buy. Although the purchasers that the labeling for those products also contained the term “evaporated cane juice,” the purchasers did not allege sufficient facts to demonstrate that the yogurts they did not buy were “substantially similar” to the yogurts they did buy such that they could proceed with claims based on the products they did not buy.

Reasonable consumer. The court rejected Chobani’s arguments that the ECJ claims should be dismissed because reasonable consumers would not have been deceived, because it found that it was plausible that Chobani’s “use of the term ECJ suggests that ECJ is a healthier alternative to refined sugar and may conceal the fact that ECJ is little different than ordinary white sugar or dried cane syrup.”

Preemption

Implied preemption. The court was “not persuaded” that the purchasers’ claims were impliedly preempted because the Food, Drug, and Cosmetic Act (FDCA) provided that only the United States could bring proceedings to enforce the FDCA. Nothing indicated that the Nutrition Labeling and Education Act was intended to preempt state law, and the NLEA’s express preemption provision “preserv[ed] state warning laws” by stating that it “shall not be construed to apply to any requirement respecting a statement in the labeling of food that provides for a warning concerning the safety of the food or component of the food.” Moreover, the Ninth Circuit’s decision in Pom Wonderful LLC v. Coca-Cola Co., 679 F.3d 1170, which found the FDCA barred claims under the Lanham Act, did not address whether state laws would be preempted.

Further, the Ninth Circuit’s 2013 decision in Perez v. Nidek Co., 711 F.3d 1109, which found a plaintiff’s fraud-by-omission claim regarding a medical device regulated under the FDCA to be impliedly preempted, did not require a different decision, in the court’s view. Although the preemption principles in the case were “relevant,” the court “decline[d] to rely too heavily” on them because the FDA applied more limited oversight of food labeling than medical device.

Moreover, the Perez line of precedent was distinguishable because the claims in the present case “were not being brought because the conduct violates the FDCA.” The purchasers’ claim under the UCL’s unlawful prong was based California’s Sherman Law, which “broadly prohibits the misbranding of food.” Although the Sherman Act incorporated FDCA regulations, it expressly stated that it incorporated them as “the food labeling regulations of this state.” Therefore, the claim was based on a violation of California’s labeling laws, not the FDCA, according to the court. Similarly, the purchasers’ other ECJ claims, concerning alleged violations of the FAL, CLRA, UCL fraud and unfair prongs, and UCL unlawful prong predicated on FAL and CLRA violations, were not based on violations of the FDCA, but rather on violations of California law.

Express preemption. The court also rejected Chobani’s argument that the FDCA’s express preemption clause barred the purchasers’ claims because it did not permit states to establish requirements for food products that were not identical to certain requirements set forth in sections of the FDCA. Since the purchasers’ claim that ECJ was not the “common and usual name” of the sweetener in the yogurts was based on a non-binding FDA guidance document, and thus did not establish any requirements, the purchasers were “seeking to establish a non-identical labeling requirement,” Chobani contended.

The court observed that the guidance document stated that it set forth the FDA’s view on whether the term “evaporated cane juice” was consistent with the “common and usual name” requirement, and that the FDA had expressed the same view in several warning letters. Therefore, the plaintiffs were not “seeking to establish a requirement which is not identical to the FDA’s requirements,” in the court’s view.

However, the court dismissed the purchasers’ claim that relied on the assertion that Chobani’s use of ECJ in its products violated the FDA’s Standard of Identity for Yogurt, because the claim was “duplicative of [their] other claims alleging that [Chobani] failed to comply with the common and usual name requirements of the Sherman Law and the FDCA.”

Primary jurisdiction. The court declined to grant Chobani’s motion to dismiss the purchasers’ ECJ claims on primary jurisdiction grounds. The court explained that “[p]rimary jurisdiction is properly invoked when a claim is cognizable in federal court but requires resolution of an issue of first impression, or of a particularly complicated issue that Congress has committed to a regulatory agency.” Here, the FDA had already issued guidance regarding whether the term “evaporated can juice” was consistent with the FDA’s requirements.

However, the court did grant the motion to dismiss on primary jurisdiction grounds as to the claim that the use of ECJ violated the Standard of Identity for Yogurt. The FDA had recently proposed a new Standard of Identity that would allow any “safe and suitable sweetening ingredients.” Since there was a possibility that the FDA would soon change the Standard of Identity to permit the use of ECJ and would not bring claims against manufacturers that complied with the revised standard, the court granted the motion to dismiss as to that claim.

Rule 9(b). The court concluded that Federal Rule of Civil Procedure 9(b)’s heightened pleading standard for fraud claims applied to the purchasers’ UCL unlawful prong claims based on the FAL and the CLRA because the FAL and CLRA claims alleged that Chobani’s labeling and advertising were “misleading and deceptive.” Moreover, the purchasers’ UCL unlawful prong claims predicated on the Sherman Law were also subject to Rule 9(b) because the claims were “premised on the same ‘unified course of conduct’ as [the purchasers’] other claims.” The purchasers did not dispute that Rule 9(b) applied to their other claims.

However, the court refused to find that the purchasers’ allegations did not satisfy Rule 9(b) because they did not specify when they purchased the products. The purchasers had alleged that they purchased the yogurts “starting approximately one year ago until shortly before this complaint was filed,” in the case of one purchaser, and “starting approximately two years ago until shortly before this complaint was filed,” in the case of two other purchasers. Chobani did not show that it used a term other than “evaporated cane juice” during those periods.

The court dismissed the plaintiffs’ claim for unjust enrichment because California law does not recognize such a cause of action. The court also dismissed the purchasers’ claims under the Song-Beverly Consumer Warranty Act and the Magnuson-Moss Warranty Act because the Song-Beverly Act does not cover warranties made with respect to consumables, and because the Magnuson-Moss Act only applies to products that cost more than five dollars.

The case is No. 12-CV-02425-LHK.

Attorneys: Ben F. Pierce Gore (Pratt & Associates) for Katie Kane.

Companies: Chobani, Inc.

Cases: StateUnfairTradePractices Advertising CaliforniaNews