DEFENSE PERSPECTIVE: "ALL NATURAL" CLASS ACTIONS

By Rhonda R. Trotter¹ & Oscar Ramallo.²

Since 2011, the courts have been flooded with hundreds of complaints involving "natural" and "all natural" advertising claims, with the majority of filings in California.³ Most of the cases have involved food and beverages, but they have also been brought against defendants offering products as diverse as cosmetics⁴ and diapers.⁵ Many cases have led to seven-figure settlements, including a $5 million settlement by a Kellogg subsidiary for Pita Crisps and other products, a $3.4 million settlement by Trader Joe’s, and a $9 million settlement from PepsiCo for Naked Juice. How can a defendant avoid a multi-million dollar payout?

As discussed below, arguments that labeling claims are preempted by United States Food and Drug Administration ("FDA") regulations have been a first line of defense. But these arguments have been hampered by the FDA’s recent decision not to decide which "all natural" claims are proper. Defendants have accordingly turned to arguing in court that their "all natural" claims are not misleading and have achieved victories at the class certification, summary judgment, and the pleading stages. Additionally, defendants have challenged plaintiffs on the traditional prerequisites to class certification, with the greatest successes on ascertainability of the class and predominance of common issues with respect to damages.

I. PREEMPTION

A first line of defense in "all natural" cases has been federal preemption and the related doctrine of primary jurisdiction. In the food context, the Nutritional Labeling and Education Act ("NLEA") expressly preempts any state law regarding labeling of food products that is "not identical" to federal law.⁶ Courts have interpreted this statute as not preempting "a requirement imposed by state law [that] effectively parallels or mirrors the relevant sections of the NLEA."⁷

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California’s Sherman Food, Drug, and Cosmetic Law ("Sherman Law")⁸ incorporates federal food labeling law into California law with one major difference: unlike federal law, California law allows a private cause of action for enforcement. Defendants have argued that private causes of action are, accordingly, at least impliedly preempted by federal law, but, to date, the lower courts have not been receptive to that argument.⁹

While preemption is not a panacea for eliminating all claims, depending on the plaintiff’s theory of the case, it can still be raised successfully. For example, in Ang v. Whitewave Foods Company,¹⁰ the plaintiffs argued that products with names like natural "soy milk," "almond milk," and "coconut milk" were misleading because the FDA defines "milk" as a substance coming from lactating cows. In addition to finding the plaintiffs’ claim implausible, the court also found it was preempted by FDA regulations governing the common names of food.¹¹

II. PRIMARY JURISDICTION

The primary jurisdiction doctrine allows a court to stay proceedings pending the resolution of an issue by an administrative agency with special competence.¹² Because the FDA has only issued an informal policy rather than a formal definition of "natural" in food labeling, three courts stayed litigation involving bioengineered ingredients and asked the FDA to weigh in.¹³ On January 6, 2014, the FDA responded to the courts’ requests by more or less saying that it had better things to do than define "natural." The FDA refused to go through the process of defining "natural" because it "operates in a world of limited resources" and "necessarily must prioritize which issues to address."¹⁴ For the foreseeable future, the FDA’s response forecloses primary jurisdiction stays for the purpose of defining the term "natural."

III. DEFINING "NATURAL"

With the FDA stepping aside, the definition of "natural" is being fought in the courts, and defendants have had successes on this issue, even at the earliest stages of the proceedings. In Pelayo v. Nestle USA, Inc.,¹⁵ the court dismissed on the pleadings an "all natural" claim against Buitoni Pastas because "the reasonable consumer is aware that Buitoni Pastas are not ‘springing fully-formed from Ravioli trees and Tortellini bushes.’" The court also noted that immediately below the "all natural" claim on the pasta boxes, Buitoni listed its ingredients, thereby "removing any ambiguity regarding the definition of ‘All Natural.’"¹⁶ While Pelayo is a heartening defense victory, it has been criticized by other courts as misreading consumer perceptions and as being at odds with Ninth Circuit precedent on whether small print on a box can cure misleading representations on the front of packaging.¹⁷

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Moving beyond the pleading stage, the definition of "natural" can also provide opportunities for defense victories at the class certification and summary judgment stages. In Astiana v. Kashi Co.,¹⁸ the Court denied class certification on a number of products under the commonality and predominance requirements of Rule 23 because plaintiffs could not "show that either consumers or food producers have any kind of definition of ‘All Natural’ that affects purchasing decisions, such that the ‘All Natural’ representation was not materially false." The court, however, did certify a class for products containing ingredients defined as synthetic by regulation and under the defendant’s definition on its own website.¹⁹ Similarly, in Ries v. Arizona Beverages USA LLC,²⁰ the Court granted summary judgment to the defendant where the plaintiff failed to present any evidence that high fructose corn syrup was not natural other than that it was man-made, or that the "all natural" label was likely to deceive consumers.

IV. CLASS CERTIFICATION CHALLENGES

Apart from challenging the plaintiff’s definition of "natural," a defendant can also successfully raise traditional challenges to class certification. Among the more potent challenges in an "all natural" case are challenges to the measure of damages under statutes that provide for restitution and challenges to ascertainability.

A. Challenging Damages

Federal Rule of Civil Procedure 23(b)(3) requires a plaintiff to establish that "questions of law or fact common to class members predominate over any questions affecting only individual members."²¹ The Supreme Court’s 2013 decision in Comcast Corp. v. Behrend,²² confirmed that "a [damages] model purporting to serve as evidence of damages in [a] class action must measure only those damages attributable to that theory. If the model does not even attempt to do that, it cannot possibly establish that damages are susceptible of measurement across the entire class for purposes of Rule 23(b) (3)." Challenging the connection of the plaintiff’s damages model to the plaintiff’s legal theory has been fertile ground for class action defendants in the "all natural" space.

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To lighten their burden on this issue, plaintiffs often contend that, where the defendant’s deception caused the plaintiff to buy a product she otherwise would have never purchased, a full refund is an appropriate remedy. Plaintiffs rely on FTC v. Figgie Int’l²³ in which the Ninth Circuit held the FTC could recover refunds on heat detectors, advertised as an alternative to smoke detectors, but whose warnings "in most instances . . . would come too late to save lives." The Northern District of California in Jones v. ConAgra Foods, Inc.²⁴ recently rejected that argument in the "all natural" context (and in consumer-class actions generally). As the Court in Jones noted, Figgie was brought under the FTC Act, which contains a broad set of statutory remedies such as "the refund of money."²⁵ The Court found there "is no reason to import the remedies from the FTC Act into a California UCL or FAL case."²⁶

While in Astiana v. Kashi Co,²⁷ the Court certified a class of plaintiffs seeking "restitution in the form of a refund of all or part of the purchase price," the Court noted, consistent with the later Jones decision, that "Plaintiffs, should they prevail, are likely not entitled to a full refund of the purchase price, having obtained some benefit from the products purchased even if they were not as advertised, Plaintiffs may seek some amount representing the disparity between their expected and received value."

Thus, in the "all natural" context, courts should continue to follow a restitutionary measure of damages as follows: "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." Lanovaz v. Twinnings N. Am., Inc.²⁸ In Lanovaz, for example, the Court rejected the plaintiffs’ damages model, which compared the price of the accused product with those of comparable products without a misleading label, because the model had no way of controlling for reasons for the differences in price not attributable to the label. The Court indicated it would have accepted a model comparing the defendants’ increase in sales after adding the allegedly misleading label. The plaintiffs’ expert could not provide this model, however, because the allegedly misleading claim had been on the product’s label for the entire class period.²⁹ The Court accordingly refused to certify a damages class.³⁰

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B. Challenging Ascertainability

Rule 23 does not expressly mention ascertainability, but "courts have held that the class must be adequately defined and clearly ascertainable before a class action may proceed."³¹ "A class is sufficiently defined and ascertainable if it is administratively feasible for the court to determine whether a particular individual is a member."³²

The Third Circuit’s decision in Carrera v. Bayer Corp.³³ held that a class of purchasers of a diet supplement is not ascertainable if based solely on affidavits of putative class members without any documentary backup. Many California federal courts have refused to follow Carrera to the extent it categorically excludes all classes based on self-identification.³⁴ The ascertainability requirement nevertheless remains a significant barrier to class certification in California "all natural" cases.

For example, in Astiana v. Ben & Jerry’s Homemade, Inc.,³⁵ Ben & Jerry’s used alkalized cocoa, an allegedly unnatural ingredient, in some of its ice creams. Ben & Jerry’s sourced its ingredients from 15 different suppliers, only one of which provided alkalized cocoa. Ben & Jerry’s did not keep records of which ultimate customers received ice cream with alkalized cocoa from the one supplier of "unnatural" cocoa as opposed to "natural" cocoa from the other 14 suppliers. The Court, accordingly, concluded the plaintiff failed to meet the ascertainability requirement and denied class certification. Thus, defendants should continue to raise ascertainability challenges to class certifications, even in California.

V. AVOIDING "ALL NATURAL" CLAIMS

With the definition of "natural" remaining ambiguous in the consumer class action context, plaintiffs’ lawyers are increasingly interested in "natural" product litigation. In the most conservative view of the landscape, given the uncertainty of how courts will resolve "all natural" claims, businesses should consider simply dropping "all natural" claims. Indeed, many business, such as Pepsi³⁶ and Kellogg,³⁷ have announced they are doing exactly that.

Businesses wishing to continue making "all natural" claims can use Pelayo as a roadmap to lower the chances of liability by listing all ingredients immediately below "all natural" claims. But businesses taking this approach should do so with eyes wide open that many courts, especially in the Ninth Circuit, do not agree with Pelayo’s view of the matter.

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It is also important for businesses to review their marketing materials for consistency to avoid the mistake that led to partial class certification in Astiana where the defendant’s "all natural" claims were allegedly inconsistent with the definition of "natural" on the defendant’s own website. Counsel should ensure processes are in place both to review marketing materials when created and to monitor continued compliance once materials are let loose into the world.

While nothing short of ceasing "natural" advertising claims can guarantee avoidance of litigation, businesses making "natural" claims should keep the above principles in mind when creating their product labeling and marketing strategies to avoid litigation and increase their chances of successfully defending class action lawsuits.

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Notes:

^1. Rhonda R. Trotter is a trial lawyer who represents businesses around the country in a variety of commercial disputes, including complex commercial, intellectual property, employment, business torts, breach of contract, and false advertising. She is Co-Head of the firm’s Trademark, Copyright and False Advertising Group and Office Managing Partner of the firm’s Los Angeles office. She can be reached at rhonda.trotter@kayescholer.com.

^2. Oscar Ramallo is an Associate in the Litigation Department of the firm’s Los Angeles office. His practice includes complex commercial and intellectual property litigation. He also routinely advises companies in numerous aspects of online marketing and advertising. He can be reached at oscar.ramallo@kayescholer.com.

^3. Elaine Watson, "Have ‘all natural’ lawsuits peaked? And what defense strategies are working?,"FoodNavigator-usa.com (Feb. 21, 2014), available at http://www.foodnavigator-usa.com/Regulation/Have-all-natural-lawsuits-peaked-And-what-defense-strategies-are-working.

^4. E.g., Morales v. Unilever United States, Inc., 2014 WL 1389613 (E.D. Cal. Apr. 9, 2014) (TRESemme Naturals).

^5. E.g., Jou v. Kimberly-Clark Corp., 2013 WL 6491158 (N.D. Cal. Dec. 10, 2013) ("pure and natural" diapers and "Natural Care" wipes).

^6. 21 U.S.C. § 343-1.

^7. Pratt v. Whole Foods Mkt. Cal., Inc., 2014 WL 1324288, at *7 (N.D. Cal. March 31, 2014) (internal quotation marks omitted).

^8. Cal. Health & Safety Code § 109875 et seq.

^9. E.g. Pratt, 2014 WL 1324288, at *4 (rejecting argument and collecting similar cases).

^10. 2013 WL 6492353, at *1 (N.D. Cal. Dec. 10, 2013).

^11. Id. at *4.

^12. Clark v. Time Warner Cable, 523 F.3d 1110, 1114 (9th Cir. 2008).

^13. Cox v. Gruma Corp., 2013 WL 3828800 (N.D. Cal. July 11, 2013); Barnes v. Campbell Soup Co., 2013 WL 5530017 (N.D. Cal. July 25, 2013); In re Gen. Mills, Inc. Kix Cereal Litig., 2013 WL 5943972 (D.N.J. Nov. 1, 2013) .

^14. Leslie Kux, Letter re Referrals to the United States Food and Drug Administration, at 2 (Jan. 7, 2014), available at http://www.hpm.com/pdf/blog/FDA%20Lrt%201-2014%20re%20Natural.pdf.

^15. 2013 WL 5764644, at *4 (C.D. Cal. Oct. 25, 2013).

^16. Id. at *5.

^17. E.g., Jou, 2013 WL 6491158, at *8 (discussing Williams v. Gerber Prods. Co., 552 F.3d 934, 938 (2008)).

^18. 291 F.R.D. 493, 507-08 (S.D. Cal. 2013).

^19. Id. at 509.

^20. 2013 WL 1287416, at *5 (N.D. Cal. Mar. 28, 2013).

^21. Fed. R. Civ. Proc. 23(b)(3).

^22. 133 S.Ct. 1426, 1433 (2013).

^23. 994 F.2d 595, 603, 606 (9th Cir 1993).

^24. 2014 WL 2702726, at *19 (N.D. Cal. June 13, 2014).

^25. Id. (citing 15 U.S.C. § 57(b)).

^26. Id.

^27. 291 F.R.D. 493, 506 (S.D. Cal. 2013) .

^28. 2014 WL 1652338, at *6 (N.D. Cal. Apr. 24, 2014).

^29. There is no discussion in Lanovaz as to whether pre-class period data was available.

^30. Id. at *7.

^31. Algarin v. Maybelline, LLC, ___ F.R.D. ___, 2014 WL 1883112, at *6 (S.D. Cal. May 12, 2014).

^32. Id. (internal quotation marks omitted).

^33. 727 F.3d 300 (3d Cir. 2013).

^34. E.g. McCrary v. The Elations Co. LLC, 2014 WL 1779243, at *7-8 (N.D. Cal. April 24, 2014).

^35. 2014 WL 60097, at *3 (N.D. Cal. Jan. 7, 2014).

^36. Eric Schroeder, "PepsiCo dropping ‘all natural’ claim from Naked Juices," Food Business News (July 30, 2013), available at http://www.foodbusinessnews.net/articles/news_home/Business_News/2013/07/PepsiCo_dropping_all_natural_c.aspx?ID={6C2132D9-23DA-462C-BE3F-8F66CD531951}&cck=1.

^37. William White, "Kashi Is Dropping The ‘All Natural’ Label From Its Food," Business Insider (May 8, 2014), available at http://www.businessinsider.com/kashi-is-dropping-all-natural-label-2014-5.