Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—N.D. Cal.: Purchasers denied preliminary injunction against further sale of Chobani yogurts with disputed labels, (Jul 17, 2013)

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

The federal district court in San Jose has refused to issue a preliminary injunction sought by purchasers of Chobani, Inc. yogurt against Chobani’s continued sale of yogurts labeled as containing “evaporated cane juice” (Kane v. Chobani, Inc., July 15, 2013, Koh, L.).

The purchasers alleged that Chobani mislabeled and misbranded sugar ingredients in its yogurts as “evaporated cane juice” (ECJ), and that Chobani misrepresented that it did not add sugar to the yogurts and that they contain only natural ingredients. The purchasers asserted claims under the UCL, FAL, and CLRA, among other claims. Since the court dismissed all other claims in a previous decision, the purchasers sought a preliminary injunction only with respect to the claims predicated on Chobani’s use of the term “evaporated cane juice.”

The court explained that “a plaintiff seeking a preliminary injunction must establish: (1) that he is likely to succeed on the merits, (2) that he is likely to suffer irreparable harm in the absence of preliminary relief, (3) that the balance of the equities tips in his favor, and (4) that an injunction is in the public interest.”

Legal standard. The purchasers filed a motion for preliminary injunction, seeking to “(1) enjoin [Chobani] from selling, advertising or distributing Chobani Greek Yogurt Products as currently labeled and formulated, and (2) require [Chobani] to remove and recall all Chobani Greek Yogurt products, as currently labeled and formulated, from its distributors and retailers.”

The court first determined that it should apply federal law, rather than California law, to the purchasers’ motion. The court was “not persuaded” that the result would be different under California law, because, although California law provided certain exception to the balancing of harms required under both laws, the purchasers did not identify any exception that would be applicable to the present case.

Moreover, under the Supreme Court’s test in Hanna v. Plumer, 380 U.S. 460 (1965), federal law should be applied to the extent that California law conflicted with Federal Rule of Civil Procedure 65, governing the procedure for issuing a preliminary injunction. The principles of Erie R. Co. v. Tompkins, 304 U.S. 64 (1938), also “support[ed] application of federal law,” because both the federal and California standards considered irreparable harm, and therefore applying federal law would not alter the outcome of the litigation. Further, the purchasers would still be able to seek a permanent injunction after a trial on the merits, even if they were unable to obtain a preliminary injunction.

Likelihood of success. The court “accept[ed] arguendo” that the purchasers were likely to succeed on their claims. Both the Sherman Law and the Food, Drug and Cosmetic Act required ingredients to be referred to by their “common and usual name.” The FDA had stated in draft guidance and warning letters that it did not consider ECJ to be the common and usual name of the sweetening ingredient, and that the common and usual name was sugar. Since the court was “generally bound to consider the FDA’s informal interpretations of its regulations as controlling,” these statements “support[ed] the conclusion that [Chobani] ha[d] violated the FDA’s common and usual name regulations.”

Irreparable harm. The court found that the purchasers were required to demonstrate irreparable harm. The court observed that the Ninth Circuit required plaintiffs to demonstrate irreparable harm even when they sought injunctions for the benefit of the public.

Moreover, although the California Civil Code permitted private individuals to obtain an injunction against a legislatively declared public nuisance without proof of irreparable injury, the purchasers had not identified any statute or other legislative enactments declaring the failure to use the common and usual name of an ingredient, or the misbranding of food in general, to be a public nuisance. Further, the purchasers did not include a cause of action for public nuisance in their complaint, and the purchasers did not demonstrate “that they would suffer any special injury to themselves of a character different in kind than those suffered by other consumers.”

The court rejected the purchasers’ argument that they did not have to demonstrate irreparable harm because the statutes on which they relied expressly authorized injunctive relief. The court observed that the cases on which the purchasers relied only authorized injunctive relief upon a showing of a violation of a “federal statute,” and the purchasers’ claims arose under California law. Moreover, more recent Supreme Court and Ninth Circuit precedent indicated “that presumptions and categorical rules regarding irreparable harm are strongly disfavored, and that a preliminary injunction should generally only issue upon a finding of a likelihood of irreparable harm.” Since the purchasers’ claims were based on state law, Congress had not “authorized the court to make a ‘major departure’ from traditional equity practice.

Finally, the court observed that the purchasers had not shown that the California legislature had intended to provide for preliminary injunctive relief without a showing of irreparable harm. The UCL, FAL, and CLRA provided for injunctive relief, but did not mention that irreparable harm may be presumed. In addition, California law generally required a balancing of “the relative harm to the parties from the issuance or nonissuance of the injunction.” Since the purchasers would be “unlikely to experience any significant, much less irreparable, harm,” while Chobani would have to throw out recalled yogurt, resulting in millions of dollars in losses, the balance of harms would favor Chobani, in the court’s view.

Although California courts continued to dispense with the irreparable harm requirement where an injunction is authorized by statute, they limited that exception to government entities. Although the Sherman Law permitted the California attorney general or any district attorney to seek an injunction without a showing of irreparable harm, the purchasers were not the attorney general or district attorneys. Moreover, the purchasers were suing under the UCL, rather than the Sherman Law, and therefore the UCL governed the availability of remedies.

The court concluded that Chobani’s continued use of the term “evaporated cane juice” would not be “likely to cause irreparable harms to health.” The court found it was unlikely that consumers would be confused as to whether evaporated cane juice was a form of sugar. Moreover, the yogurt labels disclosed the total amount of sugar in the yogurts, and the purchasers did not demonstrate that consumers would suffer negative health effects from not knowing what part of that total came from ECJ.

Nor would a denial of a preliminary injunction lead to irreparable economic harms from consumers purchasing yogurts they otherwise would not have purchased, and from negative effects on market competition, in the court’s view. Both harms were monetary and could be compensated by a monetary judgment. Moreover, the alleged harm to competition was “vague, entirely speculative, and not warranting an injunction.”

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

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

Companies: Chobani, Inc.

Cases: StateUnfairTradePractices CaliforniaNews