Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—N.D. Cal.: Mislabeled kombucha claims transferred pursuant to first-to-file rule, (May 31, 2016)

By Jody Coultas, J.D.

The federal district court in San Francisco has transferred consumers’ California Unfair Competition Law (UCL) and Consumers Legal Remedies Act (CLRA) claims against a kombucha manufacturer to the U.S. District Court for the Central District of California. The court denied the manufacturer’s motion to stay the case pending resolution of a similar action (Pedro v. Millennium Products, Inc., May 27, 2016, Chesney, M.).

Kombucha is “an effervescent fermented drink of sweetened black tea.” Millennium Products, Inc. manufactures two lines of kombucha: the “Enlightened” line that is marketed “as containing less than 0.5% alcohol,” and the “Classic” line, which is marketed “as containing in excess of 0.5% alcohol.” Consumers who purchased Millennium’s kombucha products filed California UCL and CLRA claims against Millennium, alleging that Millennium’s kombucha products were mislabeled with respect to its alcohol content.

The consumers alleged that warning labels on the kombucha failed to adequately and reasonably warn the consumers about the specific alcohol content contained in the beverages,” and that the packaging cannot withstand the internal pressure exerted by the high levels of carbon dioxide “byproduct[]” in the kombucha, causing it to “leak, and resulting [in] spoilage.”

Millennium sought a stay of the case pending resolution of Retta v. Millennium Products, Inc., filed March 11, 2015, in the Central District of California. Consumers in Retta claimed that Millennium’s kombucha was mislabeled with respect to both its alcohol and antioxidant content.

The first-to-file rule allows a court to transfer or stay an action when a similar complaint was previously filed in another federal court. To determine whether the first-to-file rule applies, the court considers the “chronology of the lawsuits, similarity of the parties, and similarity of the issues.” The majority of district courts in the Ninth Circuit that have applied the first-to-file rule in the context of a class action have compared the putative classes rather than the named plaintiffs.

The chronology of the lawsuits favored Millennium’s argument that the first-to-file rule applied, according to the court. Retta was filed more than eight months prior to the filing of the instant action. The consumers argued that it was “equally appropriate to transfer the Retta matter to this Court” because “both Retta and Pedro are first-in-time as to their respective issues (alcohol vs waste and safety).” The issue was what case was filed first, rather than the issues raised in the respective complaints.

The similarity of the classes weighed in favor of applying the first-to-file rule, according to the court. District courts have required only that the classes “represent at least some of the same individuals.” Both Retta and the current action assert claims on behalf of a nationwide class of consumers of Millennium’s kombucha. The Retta class was limited to purchasers of “Enlightened” beverages, whereas the class in this case covered purchasers of either “Enlightened” or “Classic” beverages. The differences were not dispositive, however.

Both cases implicate the alcohol mislabeling theory, raise the central question of defects in Millennium’s kombucha, and implicate the underlying facts of secondary fermentation, demonstrating that the issues presented in the two cases are similar. Where claims in two cases implicate common facts, courts have found those lawsuits present similar issues. Each case included one additional basis for liability that the other did not have. However, the “central question” in both cases was the same, and the court could not resolve the central question “without addressing the common factual issues implicated in both cases.” As the three prerequisites of the first-to-file rule were met, the court found the rule applied.

The court found that transfer of the case was appropriate. A transfer would better serve the first-to-file doctrine’s objectives of efficiency and avoiding inconsistent judgments. If transferred, the leakage claim would proceed on a regular schedule rather than “languish” in this district, awaiting litigation after Retta has concluded. Also, stays are disfavored where, as here, the plaintiff seeks an award of injunctive relief.

The case is No. 15-cv-05253-MMC.

Attorneys: Joshua Haakon Watson (Clayeo C. Arnold, A Professional Law Corp.) for Nina Pedro. Scott Michael Voelz (O'Melveny & Myers LLP) for Millennium Products, Inc. James Mitchell Lee (LTL Attorneys LLP) for Whole Foods Market California, Inc.

Companies: Millennium Products, Inc.; Whole Foods Market California, Inc.

Cases: StateUnfairTradePractices CaliforniaNews