Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—N.D. Cal.: Safeway may be liable for negligently failing to disclose danger of recalled foods, (Apr 8, 2014)

By Jody Coultas, J.D.

Safeway, Inc. was not entitled to summary judgment on claims filed by its loyalty club members that it misrepresented the safety of its food products by failing to disclose the recall of the products, the federal district court in San Francisco has held (Hensley-MacLean v. Safeway, Inc., April 7, 2014, Seeborg, R.).

As part of Safeway’s “Club Card” loyalty program, it solicits contact information, including phone numbers and email addresses, from Club Card members. The club members alleged that they purchased tainted food products at Safeway stores, which the Food and Drug Administration and U.S. Department of Agriculture subsequently recalled. They argued that Safeway had a duty to notify its Club Card members of the recalls.

California negligence law provides a general duty of ordinary care, and Safeway failed to show a statutory or public policy exception justifying a post-sale, no-duty rule. Therefore, the court denied Safeway summary judgment of the claim.

Safeway’s misrepresentations regarding the recalled products did not constitute a California Consumers Legal Remedies Act (CLRA) violation, according to the court. The club members argued that Safeway’s failure to warn its customers after learning of the recalls violated the CLRA because Safeway represented its food was safe to eat when purchased. The subsequent failure to inform its customers and its exclusive knowledge of the facts, therefore, constituted a fraudulent omission. However, Safeway’s representations at the time of sale that the recalled products were safe to eat did not become unfair or deceptive simply because they later proved false.

To violate the CLRA, a defendant must know or have reason to know that the representations at issue were false at the time they were made. Post-sale behavior is irrelevant to the question of whether a defendant made false statements to plaintiffs before or during their respective transactions which induced them to purchase the products. Safeway’s representations or omissions may constitute a CLRA violation only if Safeway was aware at the time of sale of facts that would render those representations misleading. Because the court held that the club members’ action may proceed under a negligence theory, their Federal Rules of Civil Procedure 56(d) motion to continue or deny Safeway’s summary judgment motion pending completion of limited discovery was moot.

The club members’ California Unfair Competition Law (UCL) claim could proceed to the extent it was based on Safeway’s established negligence, according to the court. Safeway argued that the UCL claims under the fraudulent and unlawful prongs should be dismissed because the club members did not establish a CLRA violation and none of their other theories were viable. Because the court found the negligence claim viable, the UCL claims based on established negligence also survived.

There was sufficient support for the club members’ UCL unfair prong claim, according to the court. Unfairness under the UCL is established by showing that the injury suffered as a result of the UCL violation was substantial, the injury was not outweighed by any countervailing benefits to consumers or competition, and the injury could not have been reasonably avoided. Safeway failed to provide evidence that the injuries were insubstantial or outweighed by countervailing benefits to consumers or competition. The injuries could not have been reasonably avoided. Safeway’s argument that the club members could have discovered the recalls through other means was rejected as Safeway could not show these alternatives reasonably informed the club members of the potential dangers.

The case is No. CV 11-01230 RS.

Attorneys: Daniel Timothy LeBel (Consumer Law Practice of Daniel T. LeBel) for Dee Hensley-Maclean. Jesse F. Ruiz (Robinson & Wood, Inc.) for Safeway, Inc.

Companies: Safeway, Inc.

Cases: StateUnfairTradePractices CaliforniaNews