On Wednesday, the United States Supreme Court issued its decision in Campbell-Ewald Company v. Gomez, No. 14–857 (Jan. 20, 2016), holding that a defendant cannot moot a plaintiff’s claim under Article III of the U.S. Constitution by making a settlement offer that would provide the plaintiff complete relief, which the plaintiff refuses. Although the decision rejects one cost-effective way to resolve a plaintiff’s claim without protracted litigation, it explicitly leaves open the possibility that the result would be different for a defendant that actually delivers payment to the plaintiff rather than merely offering to do so. The Court also left open the possibility that such a scenario would moot the plaintiff’s ability to bring claims on behalf of a putative class of plaintiffs in addition to the plaintiff’s individual claims, thus limiting a defendant’s exposure to classwide liability.
Read our client alert.
In November we reported that the federal Food and Drug Administration (FDA) announced that it was seeking public comments on the use of the term “natural” on food labeling, including foods that are genetically engineered or that contain ingredients produced through genetic engineering. On December 28, FDA announced that it is extending the comment period by 90 days, until May 10, 2016. Use of the Term “Natural” in the Labeling of Human Food Products; Request for Information and Comments; Extension of Comment Period, 80 Fed. Reg. 80718 (proposed Dec. 28, 2015) (to be codified at 21 C.F.R. pt. 101). FDA made this decision after receiving requests for an extension in order to provide people sufficient time to “develop meaningful or thoughtful comments.”
On January 5, 2016, in Torrent v. Yakult U.S.A., Inc., U.S. District Court Judge Cormac J. Carney denied the plaintiff’s motion to certify a class of Yakult yogurt consumers who were allegedly misled by Yakult’s packaging and advertising claims. The Court found that the sole named plaintiff lacked Article III standing to seek injunctive relief on behalf of the putative class because he failed to allege or offer evidence of a sufficient likelihood of future harm. This decision is notable for its refusal to carve out an exception to Article III requirements in favor of state consumer protection laws.
The named plaintiff, Nate Torrent, alleged that Yakult violated California’s Unfair Competition Law (UCL) by deceptively claiming that its probiotic beverages containing the Lactobacillus casei Shirota microorganism help balance the digestive system and maintain overall health. The plaintiff sought to certify a class of all persons or entities who purchased Yakult while in the state of California since January 2011, and sought only declaratory and injunctive relief on behalf of himself and the putative class. The plaintiff claimed that he purchased Yakult products multiple times, and “but for” Yakult’s misrepresentations about the health benefits of its products, he would not have done so. He did not allege that he intended to buy Yakult in the future, and he did not seek restitution or money damages.
The Court first considered the threshold question of whether the plaintiff had standing to bring a UCL claim for injunctive relief under Article III of the Constitution. Judge Carney noted that Article III requires that a plaintiff seeking injunctive relief present evidence that there is a “sufficient likelihood” that he or she “will be wronged in a similar way in the future.” Past exposure to illegal conduct does not, by itself, show a present case or controversy if there are no continuing, present adverse effects.
The Court acknowledged the split within the Ninth Circuit regarding whether the Article III standing requirement for injunctive relief applies in the consumer protection context, noting that some courts have held that a plaintiff in an UCL false advertising case retains standing to pursue injunctive relief so long as the defendant continues to deceptively market and sell the products at issue. However, the Court rejected this approach, finding “more persuasive the courts that have insisted that it is improper to carve out an exception to Article III’s standing requirements to further the purpose of California consumer protection laws.” The Court agreed with those cases, concluding that “Article III’s standing requirements take precedence over enforcement of state consumer protection laws,” and “[b]ecause Torrent has not even alleged that he intends to buy Yakult in the future, let alone submitted evidence to that effect,” he had no standing to pursue injunctive relief.
Plaintiff’s lack of standing to pursue injunctive relief doomed his class certification motion:
“Owing to his lack of standing to pursue injunctive relief,” the plaintiff “failed to provide sound rationale for class certification under either [Rule 23] (b)(1)(A) or (b)(2).”
A recent decision from the Southern District of California highlights two challenges with obtaining preliminary approval of nationwide food misbranding class action settlements. On December 16, 2015, in Peterson v. CJ America, Inc. d.b.a. CJ Foods Inc., Case No. 3:14-cv-02570, U.S. District Judge Dana M. Sabraw denied preliminary approval of the proposed class action settlement because of two defects: (1) Plaintiff failed to show that California law should apply to the non-California class members, as required to satisfy the predominance requirement; and (2) the cy pres recipients did not satisfy the Ninth Circuit’s standards.
Peterson is a false advertising case about the “NO MSG ADDED” label on certain Annie Chun soup products, which Plaintiff claims contain ingredients that have MSG. Plaintiff brought claims under California’s Consumers Legal Remedies Act (CLRA), False Advertising Law (FAL), and Unfair Competition Law (UCL), as well as a breach of express warranty claim. After Plaintiff survived a motion to dismiss, the parties filed a notice of settlement for a nationwide class that included: a $1.5 million settlement fund that covered attorneys’ fees and expenses, an incentive award to Plaintiff, settlement administration expenses, and cash awards to class members; a provision that remaining funds would be converted to a cy pres award and distributed evenly to the National Farm to School Network, the Mayo Clinic, and Action for Healthy Kids; and an agreement that CJ Foods would not include the phrase “NO MSG ADDED” on its labels, or market or advertise its products as having “NO MSG ADDED” for a period of three years.
Plaintiff then filed an unopposed motion for preliminary approval. The court determined that Plaintiff had satisfied Rule 23(a) but not Rule 23(b)’s predominance requirement, because he had not demonstrated that California had significant contacts that created state interests such that applying California law to non-California class members was neither arbitrary nor fundamentally unfair. Although CJ Foods’ products were sold in California and it had a California office, the company was headquartered in South Korea and the record did not show where the marketing or labeling decisions for the products at issue were made.
In making its preliminary fairness determination, the court took issue only with the settlement’s cy pres beneficiaries, concluding that they did not meet the Ninth Circuit’s requirement of having a driving nexus with the class because the underlying statutes in this case focused on fair business competition and protecting consumers from unfair and deceptive business practices. The court noted that Plaintiff had not provided specific evidence to support his assertion that the selected beneficiaries helped consumers understand food labels. Accordingly, the proper cy pres recipients in this case would be organizations protecting consumers from false advertising, not charities devoted to helping needy, underserved populations.
Last week, the California Supreme Court issued a long awaited ruling on organic labeling in Quesada v. Herb Thyme Farms, Inc., No. S216305, 2015 WL 7770635 (Cal. Dec. 3, 2015). At issue in Quesada was whether consumers may bring state law fraud and misrepresentation claims to challenge herb products allegedly mislabeled as “certified organic.” The defendant, Herb Thyme Farms Inc., argued that plaintiff’s claims were preempted by the federal Organic Foods Production Act of 1990 (OFPA).
Read our client alert.