Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—N.D. Ill.: Water purchaser failed to state misrepresentation claims against Nestle, (Feb 12, 2014)

By Jody Coultas, J.D.

The Chicago Faucet Shoppe, Inc. failed to state an Illinois Consumer and Deceptive Business Practices Act (ICFA) claim against Nestle Waters North America Inc. for misrepresenting the source of its water products, the federal district court in Chicago has held (Chicago Faucet Shoppe, Inc. v. Nestle Waters North America Inc., February 11, 2014, Tharp, J.).

Chicago Faucet alleged that Nestle violated the ICFA by intentionally failing to disclose that Nestle’s Ice Mountain 5-gallon bottled water was resold municipal tap water and not natural spring water. After learning about the source of the water, Chicago Faucet immediately stopped purchasing from Nestle, and argued it would not have purchased the water at all had it known that the water was not 100% natural spring water.

To state an ICFA claim, Chicago Faucet was required to establish that: “(1) a deceptive act or unfair practice occurred, (2) the defendant intended for plaintiff to rely on the deception, (3) the deception occurred in the course of conduct involving trade or commerce, (4) the plaintiff sustained actual damages, and (5) such damages were proximately caused by the defendant’s deception.”

Standing. The court held that Chicago Faucet had standing to bring the ICFA claim. Chicago Faucet’s injury was purchasing water it would not have had it known that the product was not natural spring water, and paying more than it would have otherwise. The allegations sufficiently alleged an injury and causation between the injury and Nestle’s conduct.

Timeliness. The statute of limitations issue could not be resolved on a motion to dismiss according to the court. Nestle argued that the three-year statute of limitation began to run when Chicago Faucet received its first order of the Ice Mountain water because Chicago Faucet should have viewed the cap labels on the bottles as well as the invoices, which identified the water as “drinking water” and not natural spring water. Chicago Faucet countered that it did not learn of source of the water until an employee that had ordered the same product for home delivery was told by Nestle. The statute of limitations defense depended on extrinsic evidence that had not been properly authenticated and that was disputed by Chicago Faucet. The complaint did not unambiguously establish dates that demonstrated untimeliness.

Preemption. Federal law expressly preempted Chicago Faucet’s ICFA claim based on failure to disclose the source of its water, according to the court. The Food, Drug and Cosmetics Act (FDCA) preempts states from imposing any requirement “for a food which is the subject of a standard of identity” that is not identical to the federal standard. Chicago Faucet alleged that it was deceived by Nestle’s failure to disclose the source of the bottled water. If Chicago Faucet succeeded, it would require Nestle to disclose the source of the water. However, the FDCA does not require the disclosure of source information, and any state law claim seeking to impose liability for a failure to do so would be expressly preempted. The court noted that a claim based upon the misuse of the term “spring water” to describe purified water was consistent with the terms of the FDCA’s prohibition on misbranding and might not be preempted.

Rule 9(b). Chicago Faucet failed to allege the ICFA claim with sufficient particularity, according to the court. Nestle argued that Chicago Faucet failed to allege that Nestle made any misleading statements, that the websites that contained the misleading statements actually existed at the time of purchaser, or that it was actually deceived by any websites that it allegedly viewed before the purchase. Chicago Faucet failed to set forth fact from which the court could reasonably infer that Chicago Faucet was deceived by misstatements as opposed to the omission of source information. Chicago Faucet could not show that its purchase was based on reading the websites that contain the alleged misrepresentations, or that it was deceived by any misbranding before purchasing the water.

The case is No. 12 C 08119.

Attorneys: Irwin B. Levin (Cohen & Malad) and Michael J. Newman (Michael J. Newman & Associates, Ltd.) for Chicago Faucet Shoppe, Inc. David Zev Smith (Reed Smith LLP) and Jeffrey Mead Garrod (Orloff, Lowenbach, Stifelman & Siegel, P.A.) for Nestle Waters North America, Inc.

Companies: Chicago Faucet Shoppe, Inc.; Nestle Waters North America Inc.

Cases: StateUnfairTradePractices IllinoisNews