Defending Product Labeling Claims

Transcription

1 Defending Product Labeling Claims Jaclyn Bryk Welch The J.M. Smucker Company 1 Strawberry Lane Orrville, OH jackie.welch@jmsmucker.com Shayon T. Smith The Hershey Company 100 Crystal A Drive Hershey, PA ssmith6@hersheys.com Bettina Yip Pet Food Express th Avenue Oakland, CA byip@petfoodexpress.com Richard Fama Cozen O Connor 45 Broadway, 16 th Floor New York, NY rfama@cozen.com

2 Jaclyn Bryk Welch is director and managing counsel, Litigation, at the J.M. Smucker Company based in Orrville, Ohio.. Her current practice entails managing the company s litigation portfolio and claims including, but not limited to, class action litigation, California s Proposition 65 litigation, and commercial disputes. She graduated from John Carroll University in 2001 followed by the Ohio State University College of Law in After law school, she joined Flaherty Sensabaugh Bonasso PLLC in Charleston, West Virginia, where her practice focused on complex commercial litigation, insurance coverage, and appellate law. In 2010, She joined Tucker Ellis LLP in Cleveland, Ohio, where her practice focused primarily on the defense of pharmaceutical companies in national product liability litigation and joined the J.M. Smucker as its in-house litigator in October Shayon T. Smith is director of Litigation at the Hershey Company, headquartered in Hershey, Pennsylvania. She is responsible for Hershey s global litigation strategies as well as dispute and litigation management. Ms. Smith joined Hershey in 2015 from the Baltimore office of Goodell DeVries where she was a partner. Her practice focused on the representation of pharmaceutical and medical device companies facing product liability litigation in both state and federal jurisdictions. She previously served as in-house counsel with Steelcase Inc., managing disputes, claims, and litigation matters both domestically and abroad. She holds an undergraduate degree from Notre Dame of Maryland University and a law degree from the University of Maryland. Bettina Yip is currently general counsel of Pet Food Express, based in California. Previously, she was VP, associate general counsel & assistant corporate secretary at the J.M. Smucker Company (f/k/a Big Heart Pet Brands, f/k/a Del Monte Corporation) in San Francisco, responsible for Labor & Employment, Litigation, Privacy, and Environmental Law issues. Before Del Monte, she was a general attorney at AT&T in Atlanta, where she served on the Legal Department Diversity Committee. In 2005 and 2007, she was named a Georgia Super Lawyers Rising Star in the area of Employment & Labor. In 2007, she was named one of the 25 Most Influential Asian Americans in Georgia by the Georgia Asian Times. And in 2012, she was a Finalist for the Best Labor & Employment Lawyer, Best Bay Area Corporate Counsel Awards Richard Fama is a shareholder of Cozen O Connor s New York office, vice chair of the firm s General Litigation Department, member of the firm s Food and Beverage Industry team, and editor of its blog, the Food Recall Monitor. He represents food and beverage and consumer product manufacturers in complex commercial and class action litigation across the country, including false labeling claims. Mr. Fama is regularly called upon to represent manufacturers, distributors, retailers, and ingredient suppliers in claims arising out of product contamination and recalls, and he advises clients on issues such as crisis management and regulatory compliance, including Made in the USA labeling and Proposition 65 issues.

3 Defending Product Labeling Claims Table of Contents I. Product Labeling Litigation Against the Food Industry...5 A. Made in the U.S.A. Litigation...5 B. Defending Class Action Litigation on Ascertainability Grounds...6 Defending Product Labeling Claims Welch et al. 3

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5 Defending Product Labeling Claims I. Product Labeling Litigation Against the Food Industry Over four years ago, the New York Times reported that hungry, well-funded plaintiffs lawyers who had so aggressively pursued the tobacco industry had begun to set their sights on the food industry. Stephanie Strom, Lawyers From Suits Against Big Tobacco Target Food Makers, N.Y. Times, Aug. 19, Since then, class action lawsuits challenging the veracity of product labels and advertising have continued to plague the food and beverage industry, often with mixed results. While many of these lawsuits are primarily driven by the plaintiffs bar, increased consumer demand for healthier food and more transparent food labeling and advertising has undoubtedly fueled the fire. Some of the earlier purported class action suits brought against food manufacturers, such as the suit accusing PepsiCo of false advertising because its Crunch Berries cereal does not contain real berries and the action against Kellogg claim it mislead consumers because its Froot Loops do not contain real fruit, were not terribly well-conceived, became fodder for late night comedians, and were dismissed at the pleading stage. More recent suits, such as those challenging manufacturers representations that their products are natural a term not yet defined by the Food and Drug Administration ( FDA ) when they allegedly contained ingredients that are synthetic or genetically modified, seem to have better resonated with consumers due to their desire for healthier foods and clearer food labeling. FDA, however, recently announced that it is considering providing greater guidance on the use of the term natural. More definitive guidance from FDA on the definition of natural may greatly affect litigation against those manufacturers that are involved in such cases and the few that have not already removed that term from their labels and advertising. Suits challenging the veracity of product labels, however, are sure to continue. A. Made in the U.S.A. Litigation FDA action regarding the term natural alone, of course, will not put an end to the onslaught of class action lawsuits confronting the food and beverage industry. Indeed, consumers have brought class action lawsuits over a myriad of product representations, including but not limited to, handmade, wholesome and, healthy. Food and beverage manufacturers have also faced class action lawsuits challenging country of origin representations, such as so-called Made in the U.S.A. claims. Such claims are generally governed by the Federal Trade Commission ( FTC ) Act and state law. Except for those products specifically subject to country-oforigin labeling by other laws, the FTC requires that a product advertised as Made in U.S.A. be all or virtually all made in the U.S.A., such that all significant parts, processing and labor that go into the product be of U.S. origin or the product should contain no or negligible foreign content. Complying with the Made in U.S.A. Standard, Federal Trade Commission, p. 4 (Dec. 1998). Although FTC s all or virtually all standard may be somewhat ambiguous, the Commission has issued an Enforcement Policy Statement on U.S. origin claims to provide guidance to marketers who choose to make unqualified Made in U.S.A. claims under the all or virtually all standard and also for those who want to make a qualified Made in the U.S.A. claim. Id. at 19. In stark contrast with FTC s all or virtually all standard, prior to 2016, a marketer of a product sold in California was prohibited from using the phrase Made in the U.S.A. on a product if any article, unit, or part thereof, regardless of size or quantity, has been made, manufactured, or produced outside of the United States. Benson v. Kwikset Corp., 152 Cal.App.4 th 1254 (2007). Thus, manufacturers that were in compliance with FTC s standard were not immune from traditional or class action litigation in California under its Made in the U.S.A. legislation. Fortunately, Senate Bill No. 633, an amendment to California s Made in U.S.A. stat- Defending Product Labeling Claims Welch et al. 5

6 ute (Business and Professions Code section ), was signed into law on September 1, 2015 and became effective on January 1, The amendment allows manufacturers to label products as Made in the U.S.A. if all of the articles, units, or parts of the merchandise obtained from outside the United States constitute not more than 5 percent of the final wholesale value of the manufactured product. See Cal. Bus. & Prof. Code (b). Additionally, products can be labeled Made in the U.S.A. if the manufacturer makes a showing that it cannot produce or obtain a certain article, unit, or part within the United States for reasons other than cost and that the article, unit, or part does not constitute more than ten (10) percent of the final wholesale value of the manufactured product. Id. Glaringly omitted from the amendment, however, is a definition of the term wholesale value or a method by which manufacturers may calculate wholesale value. Id. Draft regulations for California s Made in California labeling requirements, however, define wholesale value as the summation of direct and indirect material and direct and indirect labor costs. Direct costs include the cost of raw materials and workers salaries, while indirect costs include costs not linked to a specific product or job, but which support the overall production process. California s amended and now more relaxed Made in the U.S.A. labeling law, however, has not prevented consumers from bringing class action lawsuits challenging manufacturers country of origin representations. Such suits have been recently brought in California against Kraft Heinz, Tyson Foods, Rock Star, Inc., Big Heart Pet Brands and other manufacturers. Lawyers and consumers prosecuting these suits often have little to no knowledge regarding the percentage of domestically-sourced ingredients in these products and, thus, are forced to argue that California s pre-amended labeling statute applies to the defendant s conduct. Several California courts have rejected this argument and have dismissed claims at the pleadings stage that have not specifically identified the foreign-sourced ingredients in the challenged products. See, e.g., Fitzpatrick v. Big Heart Pet Brands, Case No. 2:16-cv (E.D. Cal. Nov. 29, 2016); Fitzpatrick v. Tyson Foods, Inc., No. 2:16-cv-00058, 2016 WL (E.D. Cal. Sep. 27, 2016); and, Alaei v. Kraft Heinz Company, No. 15-cv MMA (S.D. Cal. April 22, 2016). In light of these decisions, practitioners should consider attacking the pleadings in cases involving Made in the U.S.A. claims early in the litigation. B. Defending Class Action Litigation on Ascertainability Grounds There are many things manufacturers can and should do to reduce their chances of becoming a defendant in alleged false labeling class action litigation including, but not limited to: staying abreast of trends in food and beverage-related litigation, routinely evaluating product labeling to ensure compliance with governmental regulations, and identifying the sources of ingredients. Given the present landscape, however, no manufacturer is immune from product labeling litigation. Regardless of the nature of the plaintiff s claim, however, success or failure in food labeling litigation depends largely on the forum and venue in which the action is litigated and whether a class is certifiable. To be sure, there are many ways to challenge class certification, each of which can be the subject of its own presentation. Over the past few years, however, a body of case law has developed relating to class certification that gives rise to cautious optimism that the tide may be turning in favor of food manufacturers. Many lawyers can easily recite the basic elements of class certification set forth in Rule 23 of the Federal Rules of Civil Procedure and most states statutes governing class certification: numerosity, commonality, typicality, adequate representation and, often, the additional requirements of predominance and superiority. See Fed. R. Civ. P. 23 (a). For years, these elements defined the battleground for determining whether a class should be certified. And although they remain in the spotlight, some courts have recently begun to focus on the implicit prerequisite to class certification: ascertainability. Although not specifically mentioned in Rule 23, ascertainability requires the proponent of class certification to prove that members of the putative class can be 6 Product Liability February 2017

7 easily identified through objective criteria. Attendant to this requirement is a defendant s undeniable due process right to challenge the elements of a plaintiff s claim and, more specifically, class membership. In a non-class action suit, it is undeniable that a plaintiff is required to prove all the elements of the claim asserted, and the defendant has the right to challenge the plaintiff s proof (i.e., cross-examine the plaintiff or challenge the authenticity of a document). The ascertainability requirement ensures that the parties respective rights and responsibilities are extended and applied equally to class action litigation. Courts nationwide have increasingly required proponents of class certification to answer the question of how they intend to prove that members of the purported class can be easily identified using objective criteria. Carrera v. Bayer Corp., 727 F.3d 300, 305 (3d Cir. 2013). This question is relatively simple to answer when the product involved is a major purchase such as a new car, where the manufacturer, auto dealership, finance company and relevant governmental agencies will have records to identify purchasers. This question is much harder to answer, however, in class action lawsuits against manufacturers of lower dollar value consumer goods, such as food items, because manufacturers often do not sell directly to consumers and possess little to no information to identify those individuals who actually purchased their goods. And because food products are generally of lower dollar value, consumers are unlikely to keep receipts or other forms of proof of purchase. This low dollar value, record-less type of transaction is at issue in virtually every mislabeling action, making ascertainability a key defense for manufacturers. In Carrera, supra, the plaintiff sought to bring a false advertising claim relating to Bayer s One-A-Day WeightSmart product on behalf of all persons who purchased the product in Florida. After the court acknowledged that Bayer had no list of consumers who purchased the product and it was unlikely that consumers would have any proof of purchase, the plaintiff argued that he could show an ascertainable class through: 1) retailer records, including those related to the use of shopper loyalty cards; and 2) affidavits from absent class members attesting that they purchased the product for a specified amount. Id. Responding to the plaintiff s arguments, the court stated that a plaintiff must produce evidentiary support that the method of ascertaining a class will be successful and administratively feasible, and that the method cannot result in individualized questions or mini-trials to prove class membership. Id. at 309. Based upon the proof offered by the plaintiff in support of class certification, the Third Circuit held that he failed to adequately demonstrate that retailer sales records were an objectively reliable and administratively feasible method of determining class membership. The court also rejected the argument that affidavits from absent class members could be used as a method to identify class membership because it does not address a core concern of ascertainability: that a defendant must be able to challenge class membership. Id. at 309. Highlighting the constitutional safeguards provided by the ascertainability requirement, the Carrera court further stated that ascertainability provides due process by requiring that a defendant be able to test the reliability of the evidence submitted to prove class membership and that a defendant has similar, if not the same, due process right to challenge the proof used to demonstrate class membership as it does to challenge the elements of a plaintiff s claim. Id. at 307. As a result of Carrera and cases that have followed it, practitioners defending class action litigation are advised to tailor their discovery and investigative activities to deeply probe into plaintiffs purchase records and histories in an attempt to exploit questions regarding their purchase of the products at issue in the litigation. For example, in one recent alleged mislabeling class action lawsuit against [Company A], it was discovered prior to plaintiff s deposition that she posted on her Facebook page, the following: Boycott [Company B], [Company B s] products are mislabeled and they harmed children. The discovery of this Facebook post, Defending Product Labeling Claims Welch et al. 7

8 which demonstrated plaintiff s own confusion over which company s products she purchased, was invaluable in eliciting deposition testimony that ultimately led to the dismissal of her class allegations. While ascertainability may be refuted by addressing putative class members inability to prove their actual purchase of the products at issue and, thereby, class membership, it can also be challenged by demonstrating variations in the products at issue in the litigation. For example, in Astiana v. Ben & Jerry s Homemade, Inc., Astiana v. Ben & Jerry s Homemade, Inc., 2014 WL (N.D. Cal. Jan. 7, 2014), the plaintiff claimed that Ben & Jerry s misled consumers by marketing various ice cream products as all-natural, although they allegedly contained cocoa that had been alkalized with a synthetic substance. Ben & Jerry s, however, argued that its fifteen cocoa suppliers used one of several alkalis during processing, only some of which were manufactured with synthetic substances. Because the labels of the products at issue did not specify which alkali was used, consumers would have no way of determining whether they purchased a product with or without synthetic cocoa. Thus, class certification was denied on ascertainability grounds because the plaintiff provided no evidence as to which ice cream contained the allegedly synthetic ingredient. Id. More importantly, plaintiff has not shown that a means exists for identifying the alkali in every class member s ice cream purchases. Id. at 5. In light of Astiana, supra, where possible, it is imperative that practitioners defending product labeling claims attempt to highlight the lack of uniformity of the products at issue in the litigation and demonstrate that the putative class members would have no way of identifying whether they actually purchased a product that would entitle them to membership in the class. By way of example, a company that markets a product as healthy may be subject to a mislabeling class action suit brought on behalf of all consumers in the United States who purchased that product in 2016, if it recalled all lot codes of that product sold in 2016 due to its potential contamination with Salmonella. After all, a plaintiff s lawyer will argue that a product cannot be healthy if it contains Salmonella. Relying on Astiana, however, the company may argue that the purported class is not ascertainable if it recalled all lots of the product even though only some lots tested positive for the presence of Salmonella and all lots are no longer available for testing. Although courts in other circuits have addressed the ascertainability argument and come to differing conclusions, (See Briseno v. ConAgra Foods, D.C. No. 2:11-cv (9 th Cir. Jan. 3, 2017); Sandusky v. Wellness Ctr., LLC. v. Medtox Sci., Inc., 821 F.3d 992 (8 th Cir. 2016); Rikos v. Proctor & Gamble Co., 799 F.3d 497 (6 th Cir. 2015); and, Mullins v. Direct Digital, LLC, 795 F.3d 654 (7 th Cir. 2015)), it is undeniable that the Carrera, Astiana and other decisions like them provide a powerful arrow in the quiver of the defense bar unless and until the U.S. Supreme Court holds otherwise. Moreover, the same arguments that were effective in refuting ascertainability in Astiana can be used to attack the merits of the plaintiffs claims and in challenging Article III standing. Of course, the concepts discussed above are by no means exhaustive and can be used to challenge class certification in actions involving many other consumer products. 8 Product Liability February 2017