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Private Surgeon General Class Action Defender

“Food” Courts Confirm That Price Premium Is the Proper Measure of Damages in Misbranding Cases

Posted in Class Certification, False Advertising Claims, Misbranding

The flurry of food mislabeling class actions filed in California federal courts has recently come to a halt under the U.S. Supreme Court’s holding in Comcast v. Beherend. Comcast requires that putative class action plaintiffs present a damages model tied to their theory of liability. District courts in food mislabeling cases have limited plaintiffs’ recovery to price premium: the difference between the product as labeled and the product as received. But plaintiffs have yet to present a damages model that controls for factors other than misbranding that impact price. As a result, courts have denied certification of a damages class.

Mislabeling plaintiffs are now searching for a new theory that would allow them to bypass price premium. Nonrestitutionary disgorgement based on a claim of unjust enrichment has become the theory de jure. These plaintiffs allege that proof of price premium is unnecessary for this claim, and courts can award whatever remedy they deem is warranted.

Courts aren’t buying it. For example, in a series of three mislabeling actions against Nestlé decided in early July, Trazo v. Nestlé USA, Inc., Coffey v. Nestlé USA, Inc., Belli v. Nestlé USA, Inc., Magistrate Judge Paul S. Grewal permitted plaintiffs to pursue unjust enrichment, but precluded them from seeking nonrestitutionary disgorgement under that theory, holding that “nonrestitutionary disgorgement is not the appropriate remedy for an unjust enrichment/quasi-contract claim based on alleged mislabeling of a consumer product.” As the court explained:

The nonrestitutionary disgorgement remedy which Trazo seeks would require Nestlé “to surrender . . . all profits earned as a result of [the alleged] unfair business practice regardless of whether those profits represent money taken directly from persons who were victims of the unfair practice.” Yet, Trazo’s amended complaint specifically sought restitution, “a remedy whose purpose is ‘to restore the status quo by returning to the plaintiff funds in which he or she has an ownership interest.’” “The proper measure of restitution in a mislabeling case is the amount necessary to compensate the purchaser for the difference between a product as labeled and the product as received,” not the full purchase price or all profits. “There is no reason to go beyond the price premium, and doing so would result in a windfall to plaintiff.”

Trazo, No. 5:12-CV-02272-PSG (citations omitted).

Judge Orrick reached the same conclusion in Khasin v. R.C. Bigelow, Case No. 12-cv-02204-WHO. In Khasin, Judge Orrick rejected the plaintiff’s demand for discovery on the defendant’s profits and costs to support a claim for unjust enrichment. Unjust enrichment, Judge Orrick held, does not entitle the plaintiff to a nonrestitutionary disgorgement remedy. As the court explained, “[t]he law is clear in this District that ‘[t]he proper measure of restitution in a mislabeling case is the amount necessary to compensate the purchaser for the difference between a product as labeled and the product as received, not the full purchase price or all profits.’”

Relying on Judge Grewal’s orders in the Nestlé mislabeling cases, Judge Orrick held that, because the plaintiff was not entitled to nonrestitutionary disgorgement of profits, he was not entitled to discovery on this issue.

Judges Grewal and Orrick’s decisions confirm what many mislabeling courts have already held: the proper measure of damages in a mislabeling class action is limited to price premium. This is true regardless of the claim or theory of recovery. Plaintiffs’ attempt to bypass the careful calculations required to prove price premium under Comcast have thus far failed to gain traction.

A Handmade Dismissal for Maker’s Mark

Posted in False Advertising Claims

A recent decision from the Southern District of California demonstrates the uphill battle consumer lawsuits face when challenging “handmade” or “handcrafted” labels on alcoholic beverages.  On July 27, 2015, in Nowrouzi et al. v. Maker’s Mark Distillery Inc., Case No. 3:14-cv-02885, U.S. District Judge John A. Houston granted Maker’s Mark’s motion to dismiss plaintiffs’ four causes of action challenging the “handmade” label on its whisky:  (1) false advertising; (2) unfair competition; (3) negligent misrepresentation; and (4) intentional misrepresentation.

Plaintiffs’ claims were premised on the argument that Maker’s Mark’s “handmade” label was deceptive because the company’s whisky-making process “involves little to no human supervision, assistance, or involvement” and because its website demonstrates that the company uses a “mechanized and/or automated production process.”  In dismissing plaintiffs’ claims, the court relied on two recent decisions addressing similar claims:  the “handmade” label on Maker’s Mark’s bourbon (Salters v. Beam Suntory, Inc., No. 14-cv-659, 2015 WL 2124939 (N.D. Fla. May 1, 2015); and the “handmade” label on Tito’s Vodka (Hofman v. Fifth Generation, Inc., Case No. 14-cv-2569 JM (JLB), Dkt. No. 15 (S.D. Cal. March 18, 2015).

UCL and FAL Claims

Maker’s Mark made two main arguments for dismissal of the UCL and FAL claims.  First, it argued that the Tobacco Tax and Trade Bureau’s (TTB) review and pre-approval process for distilled spirit labels ensures compliance with applicable laws and regulations, thus bringing the company’s label within the safe harbor doctrine.  Judge Houston, however, disagreed, and followed a recent decision in a similar case, Hofman v. Fifth Generation, Inc., Case No. 14-cv-2569 JM (JLB), Dkt. No. 15 (S.D. Cal. March 18, 2015).  In Hofman, the court ruled that the safe harbor decision did not cover TTB’s decision in investigating and approving the defendant’s “handmade” label because it was an informal agency decision that was not as stringent as the USDA or FDA processes.

Second, Maker’s Mark argued that plaintiffs failed to plausibly allege the requisite likelihood of deception.  Specifically, Maker’s Mark argued that the “handmade” claim could not mislead a reasonable consumer because it was not a specific or measurable claim and that plaintiffs’ proffered interpretation of “handmade” failed the Ninth Circuit’s common sense approach.  Maker’s Mark noted that its label describes the actual production process and invites consumers to visit the website for more information, where consumers can view a video about the production process.  The court agreed, finding that: “‘handmade’ cannot reasonably be interpreted as meaning literally by hand nor that a reasonable consumer would understand the term to mean no equipment or automated process was used to manufacture the whisky.”

Negligent and Intentional Misrepresentation Claims

Plaintiffs abandoned their negligent misrepresentation claim.  As for the intentional misrepresentation claim, Maker’s Mark moved to dismiss this claim on the grounds that a reasonable consumer would not find the challenged statements misleading and that plaintiffs failed to allege facts supporting a finding that the company had the requisite intent to deceive.

In dismissing these claims, the court was persuaded by the reasoning in Salters, where the court concluded that no reasonable person could understand the term “handmade” to mean “literally by hand” and that “substantial equipment was not used.”  The Salters court also noted that if the statement was “some ill-defined effort to glom onto a trend toward products like craft beer,” it merely constituted puffery that could not support an intentional misrepresentation claim.

Judge Houston agreed with Maker’s Mark that it was not premature to decide whether a reasonable consumer would have been deceived, and concluded that the intent issue was not dependent on consumers visiting the website because “plaintiffs cannot plausibly contend defendant intends to deceive consumers about the nature of its processes when its label clearly describes the process and points consumers to its website.”  Finding that this claim could not possibly be cured by pleading additional facts, Judge Houston dismissed the claim with prejudice.

Rescue Remedy Decision Confirms that CLRA Notice Requirement Has Real Teeth

Posted in False Advertising Claims, Misbranding

A recent decision from the Southern District of California demonstrates the potential narrowing effect of a failure to strictly comply with the notice requirement for claims for damages under California’s Consumers Legal Remedies Act (CLRA), Cal. Civ. Code § 1750 et seq. In Ruszecki v. Nelson Bach USA Ltd., No. 12-cv-495 (S.D. Cal. June 25, 2015), the plaintiff alleged violations of the CLRA (along with other claims) based on Nelson Bach’s marketing and sale of various “Rescue Remedy” homeopathic products. According to the plaintiff, Nelson Bach falsely represented these products as “natural” even though they contain certain artificial or synthetic ingredients and also falsely represented the products as having health benefits and having been proven effective.

Nelson Bach moved to dismiss the CLRA claims on the basis of plaintiff’s failure to comply with the CLRA’s notice requirement, among other things. That requirement obligates claimants to provide notice of the particular CLRA violation at issue prior to suing for damages so that the alleged violator has the opportunity to cure the problem. See Cal. Civ. Code § 1782(a). Nelson Bach argued that because the plaintiff was required to provide notice of the “particular alleged violations” of the CLRA, the CLRA claims should be dismissed to the extent they were based on any products or alleged misrepresentations that were not explicitly mentioned in the plaintiff’s pre-suit demand letter. That letter did not reference the allegedly false “natural” representations and stated only that “all of YOUR products, not only Original Rescue Drops, have no efficacy beyond a placebo.”

The Southern District ruled in favor of Nelson Bach, holding that a CLRA claimant “must provide notice for each particular product the plaintiff is seeking damages for, even when the products are substantially similar [and] must notify the defendant of each alleged violation of the CLRA.” Accordingly, the court dismissed the CLRA claims with prejudice to the extent they were based on products other than Nelson Bach’s Original Rescue Drops or on alleged misrepresentations other than those related to efficacy.

Ninth Circuit Reverses Class Certification In Joint Supplement Case Because Not All Class Members Saw Misrepresentation

Posted in Class Certification, False Advertising Claims

The Ninth Circuit has held that a district court abused its discretion in certifying a class based on allegedly false health claims because not all class members saw the advertising. The Ninth Circuit said that the trial court thus erred in ruling that the predominance requirement was satisfied: “[I]n order for the issue to predominate, it must at least be common and there must be cohesion among the class members. It is upon those rocks that the district court’s certification founders.” Cabral v. Supple LLC, No. 13-55943 (9th Cir. June 23, 2015) (citations omitted).

The district court held that the common issue that predominated was whether the defendant, Supple LLC, had misrepresented to the class members that its dietary supplement, which contained glucosamine hydrochloride and chondroitin sulfate, was “‘clinically proven effective in treating joint pain.’” But that claim was not made in all the advertising for the product. The Ninth Circuit noted that while “some deviations from precise wording . . . might not be fatal to class certification, advertisements that did not declare [the supplement] to be ‘clinically proven effective in treating joint pain’ are a far cry from advertisements that did.”

Accordingly, the trial court erred in certifying the class: “In a case of this nature, one based upon alleged misrepresentations in advertising and the like, it is critical that the misrepresentation in question be made to all of the class members.” The Ninth Circuit cited both federal and California state court decisions in support of this holding. Cabral, citing Mazza v. Am. Honda Motor Co., 666 F.3d 581, 596 (9th Cir. 2012); Stearns v. Ticketmaster Corp., 655 F.3d 1013, 1020 (9th Cir. 2011); Davis-Miller v. Auto. Club of S. Cal., 201 Cal. App. 4th 106, 124-25 (2011) (CLRA and UCL); Fairbanks v. Farmers New World Life Ins. Co., 197 Cal. App. 4th 544, 562 (2011) (UCL); Pfizer Inc. v. Super. Ct., 182 Cal. App. 4th 622, 629-30 & n.4, 631-32 (2010) (UCL and FAL), and Cohen v. DirecTV, Inc., 178 Cal. App. 4th 966, 980-81 (2009) (UCL and CLRA).

Skinnygirl Margarita Class Rejected Again: Proof Fell Below Third Circuit’s High Bar for Ascertainability

Posted in Class Certification, False Advertising Claims, Misbranding

A New Jersey federal court ruled that plaintiffs once again failed to demonstrate the ascertainability of a class of purchasers seeking to challenge “all natural” claims by the makers of Skinnygirl Margarita. Stewart v. Beam Global Spirits & Wine, Inc., No. 11-5149 (D.N.J. June 8, 2015). The court held that the Third Circuit’s high bar for demonstrating ascertainability was not lowered by its most recent decision on the issue, Byrd v. Aaron’s Inc., 784 F.3d 154 (3d Cir. 2015). The Stewart decision is notable for its analysis and rejection of plaintiffs’ effort to rely on a class action administrator’s declaration to establish a “reliable and administratively feasible” methodology for ascertaining class membership.

Ascertainability Requirements

The court noted that there are two requirements for ascertainability: (1) the class must be defined with reference to objective criteria, and (2) there must be a reliable and feasible mechanism for determining whether putative class members fall within the class definition. The court concluded that, because putative class members were simply defined as purchasers of Skinnygirl Margaritas between specified dates, the first requirement was satisfied; the second, however, was not.

The court reiterated the Third Circuit’s guiding principle, first articulated in Carrera v. Bayer Corp., 727 F.3d 300, 306 (3d Cir. 2013), that ascertainability may not be based on the purported class members’ “say so;” a methodology that depends primarily on class members’ affidavits does not give defendants a “suitable and fair” basis for challenging class membership. In Stewart, the defendants did not sell directly to consumers and did not have records that would permit identification of class members. Plaintiffs attempted to satisfy the requirement of a reliable and feasible methodology for identifying class members by submitting the declaration of Steven Weisbrot, the executive vice president of Angeion Group, LLC, a class action administration firm, detailing the methodology proposed to be applied. The court addressed the proposed methodology in detail, finding it lacking in numerous respects. Read More