Proskauer on Advertising Law
Proskauer on Advertising Law

Food for Thought: Outcomes of Food Labeling Cases Prove Difficult to Predict

As we wrote recently, the past year has seen a proliferation of lawsuits alleging that food product labels mislead consumers about the product’s ingredients. The trend continued last month, with decisions from the Court of Appeals for the First Circuit and one of its district courts reaching different results on motions to dismiss complaints alleging deceptive food labels.

Last month, the First Circuit reinstated a class action lawsuit against New England Coffee for violation of Massachusetts’ consumer protection laws related to the coffee brand’s label for “Hazelnut Crème” coffee. Dumont v. Reily Foods, 18-2055 (1st Cir. Aug. 8, 2019). Plaintiff alleged that the product name was deceptive because the product did not contain hazelnuts. A Massachusetts federal district court judge dismissed the suit because the complaint lacked sufficient particularized facts to satisfy the heightened pleading standard for fraud allegations.

The First Circuit reversed in a 2-1 decision. The majority noted that although the ingredient list on the product package’s back label read “100% Arabica Coffee Naturally and Artificially Flavored,” reasonable consumers might take different approaches in determining whether the coffee actually contained real hazelnuts. One might check the list of ingredients to ensure the coffee contained hazelnut while others may not, instead relying on the name of the product, without searching the ingredient list, “much like one might easily buy a hazelnut cake without studying the ingredients list to confirm that the cake actually contains some hazelnut.” The majority accordingly concluded that whether the product name implied that the product contained hazelnuts was better suited for resolution “from six jurors, rather than three judges.” In dissent, Circuit Judge Lynch argued that “a reasonable consumer plainly could not view the phrase ‘Hazelnut Crème’ as announcing the presence of actual hazelnut in a bag of coffee which also proclaims it is “100% Arabica Coffee.”

Neither opinion is especially persuasive. As for the dissent, hazelnuts are not coffee, and the fact that a coffee product called “Hazelnut Crème” is said to contain 100% Arabica Coffee does not reasonably rule out the possibility that the product contains hazelnuts. By the same token, however, other courts have concluded that reasonable consumers do not ignore a product’s prominently displayed ingredient list when information on the front label may be viewed as ambiguous concerning whether an ingredient is or is not contained in the product. See, e.g., Jessani et al. v. Monini North America, which one of the authors litigated and which this blog covered. To the extent the Dumont majority suggests otherwise, the opinion would be misguided. That said, whereas the olive oil product in Monini was labeled as “truffle flavored,” here, there was no modifier to suggest that the coffee in question simply tasted, or smelled, like hazelnuts. In such cases, perhaps, one could conclude that the front label lacked ambiguity, and thus would not compel prospective purchasers to search the label further.

Less than a week after the First Circuit’s Dumont decision, Judge Alison Burroughs of the District of Massachusetts tossed a putative class action suit alleging that the advertising and packaging of the cereal “Honey Bunches of Oats” falsely suggested it was sweetened only or primarily with honey, when in fact the main sweeteners are sugar, brown sugar, and corn syrup. Lima v. Post Consumer Brands, 18-12100 (D. Mass. Aug. 13, 2019).The plaintiffs pointed to images of a sun, bee, and honey dipper as representing that honey was the principal sweetener in the cereal. They also cited surveys showing that most consumers believe honey is “better for you than sugar” and that approximately half of consumers are willing to pay more for foods that are primarily sweetened with honey.

In concluding that the consumers failed to state a claim, Judge Burroughs found that plaintiffs had offered no reasonable basis for their alleged belief that the honey references on the packaging implied that honey was the primary sweetener in the cereal rather than simply one of its primary flavors. In addition, even assuming the packaging could be viewed as portraying honey to be an ingredient instead of or as well as a flavor, Judge Burroughs found that plaintiffs still failed to state a claim. She noted that, unlike the “Hazelnut Crème” product in Dumont that did not contain any hazelnut, Honey Bunches of Oats did, in fact, contain honey. She also distinguished the case from Mantikas v. Kellogg, in which the Second Circuit found that a “made with whole grain” claim could imply that the product contained more whole wheat flour than white flour. Here, according to Judge Burroughs, the mere references to honey on the package carried no implication that honey was the primary sweetener, and a reasonable consumer concerned about how the cereal was sweetened would have consulted the cereal’s list of ingredients.

If nothing else, these cases underscore the fact-specific nature of the inquiry as to what product labels imply about their ingredients. Watch this space as decisions continue to clarify the contours of this body of law.

***

Want to talk advertising? We welcome your questions, ideas, and thoughts on our posts. Email or call us at lweinstein@proskauer.com /212-969-3240 or akaplan@proskauer.com /212-969-3671.  We are editors of Proskauer on Advertising Law and partners in Proskauer’s False Advertising & Trademark practice.

Plaintiff Fails to Butter Up Court with Mashed Potato Suit

We have previously written about decisions addressing food product labels, and the messages that these labels convey about the products’ ingredients. In Jessani v. Monini, the Second Circuit found that a product label for “white truffle flavored” olive oil did not imply that the product contained actual white truffles. Not long afterwards, the Second Circuit ruled in Mantikas v. Kellogg that the claim “made with whole grain” could be misleading with respect to crackers containing more white flour than whole wheat flour.

Last month, Judge Nicholas G. Garaufis of the Eastern District of New York added to this growing body of case law in an opinion dismissing a putative class action lawsuit against the maker of refrigerated mashed potatoes. Reyes v. Crystal Farms Refrigerated Distribution Co., 19-cv-2250 (E.D.N.Y. 2019). The plaintiff alleged labels claiming that the products are “made with real butter” and “made with fresh whole potatoes” are deceptive because, in addition to containing those ingredients, the products also contain margarine and preservatives. The complaint asserted claims of deceptive business practices and false advertising under New York General Business Law (“GBL”) §§ 349 and 350, as well as claims of fraud, negligent misrepresentation, breach of express and implied warranty of merchantability, and unjust enrichment.

Judge Garaufis first addressed the alleged violations of GBL §§ 349 and 350, which require the defendant to have engaged in conduct that would be materially misleading to a reasonable consumer. Neither of the defendant’s contested statements, according to Judge Garaufis, rose to this level. To begin with, the complaint did not allege that the statements “made with real butter” and “made with fresh whole potatoes” were literally untrue. As the complaint did not dispute, the products do contain butter and whole potatoes.

Judge Garaufis next found that no reasonable consumer would be misled by the product labels. Any reasonable consumer who wondered whether the products that were “made with real butter” also contained margarine could simply look at the ingredient list, which discloses margarine as an ingredient. And it is common knowledge that potatoes must be cooked before being mashed, so no reasonable consumer would assume that the statement “made with fresh whole potatoes” means that the mashed potatoes themselves (rather than the potatoes from which they were made) are “fresh,” as opposed to being preserved.

Judge Garaufis noted that his decision was consistent with, and distinguishable from, the Second Circuit’s decision in Mantikas. Unlike Mantikas, in which crackers “made with whole grain” contained less whole wheat flour than white flour, the plaintiff here did not allege that mashed potatoes “made with real butter” contained less butter than margarine. In addition, while the opinion did not rely on Monini, it is consistent with that ruling too. Like the court in Monini, Judge Garaufis noted that the ingredient list here clarified any possible ambiguity created by the label claims. Moreover, just as the Second Circuit found in Monini that consumers’ awareness of white truffles’ price would prevent them from mistakenly believing truffles were present in a modestly-priced olive oil, Judge Garaufis found that consumers’ knowledge of the mashed potato manufacturing would prevent them from mistakenly concluding such products are “fresh.”

Because the statements were neither false nor misleading, plaintiff’s fraud, negligent misrepresentation, breach of warranty, and unjust enrichment claims were also dismissed.

***

Want to talk advertising? We welcome your questions, ideas, and thoughts on our posts. Email or call us at lweinstein@proskauer.com /212-969-3240 or akaplan@proskauer.com /212-969-3671.  We are editors of Proskauer on Advertising Law and partners in Proskauer’s False Advertising & Trademark practice.

Court Lets Trader Joe’s Out of Sticky Situation Over Honey Advertising

A magistrate judge in the Northern District of California recently dismissed a putative class action alleging that Trader Joe’s misled its consumers about the purity of its manuka honey.  Moore v. Trader Joe’s Co., No. 4:18-CV-04418-KAW, 2019 WL 2579219 (N.D. Cal. June 24, 2019).

Plaintiffs commenced a putative class action lawsuit alleging that Trader Joe’s engaged in “false, misleading, and deceptive marketing” by representing that its Trader Joe’s Manuka Honey product was “entirely” manuka honey when, purportedly, the product’s manuka honey content had been “adulterated by the inclusion of cheaper honey.” Manuka honey is produced from the nectar of New Zealand’s manuka tree and is said to have numerous medicinal benefits.

Plaintiffs specifically challenged the product’s “100% New Zealand Manuka Honey” label and the ingredient statement that lists “manuka honey” as the sole ingredient because Plaintiffs’ laboratory tests demonstrated that only between 57.3% and 62.6% of the pollen found in the product was from the manuka flower, with the remainder deriving from “other floral sources.” Plaintiffs claimed Trader Joe’s mixed manuka honey with non-manuka honey, and in doing so violated “consumer protection and similar laws in all fifty states” – which allegedly incorporate the adulteration and misbranding provisions of the Federal Food, Drug, and Cosmetic Act (the “FDCA”) – and committed common-law fraud and breach of warranty.

In her opinion, Magistrate Judge Kandis A. Westmore cut straight to the point and rejected Plaintiffs’ argument that the honey was adulterated. Citing hearing testimony, she noted that Plaintiffs’ adulteration allegation was premised on “bees visiting different floral sources and returning to the hive resulting in a lower manuka pollen count, rather than the manufacturer purposefully mixing Manuka honey with non-manuka honey.” Under Section 342(b) of the FDCA, a product is adulterated only:

(1) If any valuable constituent has been in whole or in part omitted or abstracted therefrom; or (2) if any substance has been substituted wholly or in part therefor; or (3) if damage or inferiority has been concealed in any manner; or (4) if any substance has been added thereto or mixed or packed therewith so as to increase its bulk or weight, or reduce its quality or strength, or make it appear better or of greater value than it is.

None of those definitions was met in this case, Judge Westmore held, because any impurities in the honey were introduced by the bees that made it, and not by Trader Joe’s. She therefore granted Trader Joe’s motion to dismiss without leave to amend as plaintiffs “could not plead sufficient facts to support their adulteration theory.” Judge Westmore also ruled that to the extent the applicable state laws imposed different standards than the FDCA, they were preempted.

Along similar lines, Judge Westmore found that the product’s label was not misleading. According to FDA guidance, honey is a “single ingredient food” that may be labeled with the plant or blossom name so long as that plant or blossom is the “chief floral source.” Trader Joe’s argued that “100%” in the phrase “New Zealand Manuka Honey” could refer to either manuka honey or the fact that the honey comes entirely from New Zealand. Because Plaintiffs’ adulteration theory failed and the “chief floral source [was] undisputedly Manuka,” Judge Westmore held that the label was accurate and that a reasonable person would not be misled. She dismissed Plaintiffs’ common law fraud and breach of express warranty causes of action on similar grounds.

***

Want to talk advertising? We welcome your questions, ideas, and thoughts on our posts. Email or call us at lweinstein@proskauer.com /212-969-3240 or akaplan@proskauer.com /212-969-3671.  We are editors of Proskauer on Advertising Law and partners in Proskauer’s False Advertising & Trademark practice.

En Banc Ninth Circuit Reinstates and Clarifies Standard for Nationwide Class Action Settlement

Last month, the Ninth Circuit sitting en banc affirmed, by an 8–3 vote, a nationwide class settlement of a multidistrict litigation against automakers Kia and Hyundai over alleged misrepresentations regarding certain vehicles’ fuel efficiency. In re Hyundai and Kia Fuel Economy Litigation, 15-56014 (9th Cir. 2019). The en banc decision overturned the controversial decision last year by a split Ninth Circuit panel invalidating the settlement based on potential variations in state consumer protection laws. The panel decision cast serious doubt on the viability of nationwide settlements of class action suits filed within the Ninth Circuit.

This lawsuit was first filed in 2012 in the Central District of California, and subsequently was consolidated with a number of similar complaints into a single multidistrict litigation. In 2013, the parties reached a class-wide settlement agreement, and the district court certified for settlement purposes a nationwide class of all current owners and lessees who bought or leased the vehicles in question before the defendants announced downward adjustments of fuel efficiency estimates. The district court then granted final approval of the class settlement, which included an award of attorneys’ fees to class counsel. A number of objectors appealed the settlement class certification decision to the Ninth Circuit and, in 2018, a divided three-judge panel vacated the certification of a nationwide class and remanded to the district court.

The three-judge panel’s 2018 opinion held that in certifying a nationwide settlement class, the district court was required to analyze all applicable state laws to determine whether variations in the 50 state laws defeated predominance. In short, the panel required that the parties establish the predominance element in the same way as a plaintiff would need to do to certify a nationwide litigation class in a contested class certification motion. Because the district court did not conduct such an inquiry for the settlement class here, the panel concluded that the certification decision was in error. The Ninth Circuit’s 2018 opinion caused widespread consternation among counsel for both class action plaintiffs and defendants, because it raised the prospect that any certification of a nationwide settlement class in a case pending within the Ninth Circuit would have to be preceded by a burdensome and expensive analysis of variations in state law, threatening the viability of nationwide class action settlements in the Ninth Circuit.

In reversing the panel decision, the en banc court noted that no objectors had met their burden of establishing that the law of any state other than California applied. Moreover, and more importantly, the en banc court held that a district court need not conduct the same rigorous analysis of trial manageability when certifying a settlement class, noting that “a class that is certifiable for settlement may not be certifiable for litigation if the settlement obviates the need to litigate individualized issues that would make a trial unmanageable.” As a result, differences in available rights and remedies under the various laws of the 50 states no longer warrant denial of certification for settlement purposes in federal courts in California (where more class actions are brought than in any other state) or in the other states of the Ninth Circuit.

The In re Hyundai and Kia en banc decision provides an important clarification of the standards for certification of settlement classes as compared to litigation classes, and revives the viability of nationwide class settlements in the Ninth Circuit. The en banc court’s decision also brings the Ninth Circuit in line with the Third and Seventh Circuits, which both have held that variations in the laws of different states do not defeat predominance in the context of a settlement class. Watch this space for further developments.

***

Want to talk advertising? We welcome your questions, ideas, and thoughts on our posts. Email or call us at lweinstein@proskauer.com /212-969-3240 or akaplan@proskauer.com /212-969-3671.  We are editors of Proskauer on Advertising Law and partners in Proskauer’s False Advertising & Trademark practice.

SCOTUS to Decide Whether the Lanham Act Requires Proof of Willfulness for Disgorgement of Profits

On Friday, June 28, 2019, the Supreme Court granted certiorari in Romag Fasteners, Inc. v. Fossil, Inc. to decide whether a showing of willfulness is necessary to obtain a defendant’s profits under the Lanham Act.

In Romag, the plaintiff, a manufacturer of magnetic snap fasteners, sued Fossil and various retailers for, among other things, infringement of an unregistered trademark in violation of section 1125(a) of the Lanham Act based on their sale of merchandise that featured snaps bearing the Romag mark. A jury found Fossil liable for infringing Romag’s trademark and determined that Fossil should disgorge close to $90,000 in profits to prevent its unjust enrichment. However, the district court held that Romag was not entitled to disgorge Fossil’s profits because it failed to prove Fossil’s trademark infringement was willful. The Federal Circuit affirmed the district court’s decision not to permit disgorgement.

As both the district court and the Federal Circuit acknowledged, there is a stark circuit split as to whether proof of willfulness is required to recover a defendant’s profits for a violation of section 1125(a). The split centers over how to interpret section 1117(a) of the Lanham Act, which reads as follows:

When a violation … under section 1125(a) or (d) of this title, or a willful violation under section 1125(c) of this title, shall have been established in any civil action arising under this chapter, the plaintiff shall be entitled … subject to the principles of equity to recover defendant’s profits. (Emphasis added)

The circuit conflict revolves around whether the above italicized language reflects Congress’s intent that a showing of willfulness is required only for disgorgement awards in trademark dilution cases brought under section 1125(c), or instead that willfulness is also required in cases brought under section 1125(a) for infringement of an unregistered trademark, false designation of origin, or false advertising. The Third, Fourth, Fifth, Sixth, Seventh, and Eleventh Circuits do not require plaintiffs to show willfulness for disgorgement in section 1125(a) cases, while the remaining circuits do.

Of particular relevance to this blog, the Supreme Court’s ultimate decision in Romag should apply to false advertising cases as well as trademarks, as Lanham Act section 1125(a) covers both. The availability of a disgorgement remedy is particularly vital in many false advertising cases, because it is often difficult for the plaintiff to prove that its own profits were diminished by the defendant’s false advertising, as opposed to other factors in what often is a noisy marketplace. Thus, a requirement that Lanham Act false advertising plaintiffs must prove willfulness to obtain disgorgement may be the difference between a significant damages award and no recovery at all. Accordingly, this is an important case for false advertising litigants, and one we will be monitoring closely.

Watch this space for further developments in Romag. We will report back once the Supreme Court issues its decision.

***

Want to talk advertising? We welcome your questions, ideas, and thoughts on our posts. Email or call us at lweinstein@proskauer.com /212-969-3240 or akaplan@proskauer.com /212-969-3671.  We are editors of Proskauer on Advertising Law and partners in Proskauer’s False Advertising & Trademark practice.

NAD Not Influenced by Verification Platform’s Claims

In a recent decision, the advertising industry self-regulatory body NAD recommended that influencer marketing firm Ahalogy tone down some of its claims about the capabilities of its new product, the Tri-Verified influencer marketing platform.

The decision comes at a time when influencer marketing is becoming an increasingly popular— and challenging—field. Influencer marketing is what the NAD describes as “a form of marketing where a seller leverages the popularity and credibility of specific individuals to market a product in a testimonial manner.” For example, a Snapchat “celebrity” might get paid to endorse a product in hopes that some of his or her followers might be “influenced” to buy such product. However, advertisers often have difficulty measuring influencers’ effectiveness in engaging audiences. Companies have developed ways to inflate subscriber numbers, distorting the accuracy of the data advertisers rely on to determine how many people view the posts placed by the influencer on the platform (“organic posts”).

Ahalogy purchases sponsored posts on social media platforms and uses these “promoted posts” to display influencer-created content. Through its Tri-Verified platform, Ahalogy is then able to track and measure the impact of these promoted posts. Ahalogy claimed that its new platform was the “first-ever solution for verifying that influencer marketing impressions, traffic and other key engagement measures are valid.” Ahalogy also said it was the first company to verify such data by using third-party software, “making Ahalogy the first influence platform that is 100% verified.”

Competitor Collective Bias, Inc. challenged these claims at NAD, arguing, among other things, that Ahalogy’s statements misleadingly implied that the platform could verify all social media engagements. In fact, the platform could only verify the influence of promoted posts, not organic posts.

Though NAD found Ahalogy did reasonably support certain claims about its ability to detect fraud , it recommended that Ahalogy discontinue its “100% verified” claim, given that it could not verify data with respect to organic posts. The NAD also suggested Ahalogy remove references to the platform being the first and only platform using third party verification, since there was no evidence to support this claim.

Ahalogy’s products seek to address the new challenges that social media presents to advertisers. However, NAD’s decision shows that in doing so, companies like Ahalogy must themselves ensure that they can adequately support the claims they make in differentiating their services from other companies seeking to help marketers address these challenges. Watch this space for developments in this fast-moving field.

***

Want to talk advertising? We welcome your questions, ideas, and thoughts on our posts. Email or call us at lweinstein@proskauer.com /212-969-3240 or akaplan@proskauer.com /212-969-3671.  We are editors of Proskauer on Advertising Law and partners in Proskauer’s False Advertising & Trademark practice.

Supreme Court Limits Removal of Class-Action Counterclaims

On May 28, the Supreme Court decided Home Depot U.S.A. v. Jackson, 17-1471 (2019), ruling 5–4 that third-party counterclaim defendants may not remove class actions from state to federal court. The decision, besides keeping in state court certain class actions that otherwise could be removed to federal court, is noteworthy for the highly unusual composition of the majority, in which the four justices comprising the so-called liberal wing of the Court, banded together with Justice Thomas, who authored the majority opinion.

The case began as a debt-collection action that Citibank brought against respondent Jackson for charges incurred on a Home Depot credit card. Jackson counterclaimed against Citibank, and also asserted a third-party class-action claim against Home Depot on behalf of an alleged class of those victimized by a purported Home Depot scheme to induce homeowners to buy water treatment systems at inflated prices. Citibank dismissed its claims against Jackson, after which Home Depot filed a notice of removal of the class action counterclaims to federal court under both the general removal statute and the removal provision of the Class Action Fairness Act (“CAFA”). The district court granted Jackson’s subsequent motion for remand and the Fourth Circuit affirmed.

Under the general removal statute, 28 U. S. C. §1441(a), “any civil action brought in a State court of which the district courts of the United States have original jurisdiction, may be removed by the defendant or the defendants” to federal court. Under the CAFA removal provision, 28 U. S. C. §1453(b), a class action may be removed to federal court by “any defendant without the consent of all defendants.”

The question the Supreme Court confronted in Home Depot seemed simple: does the category of “defendants” permitted to remove a class action under either the general removal statute or CAFA include third parties who have been brought into the lawsuit through a counterclaim filed by the original defendant? The majority opinion, written by Justice Thomas and joined by Justices Breyer, Ginsburg, Kagan, and Sotomayor, answered in the negative, affirming the judgment of the Fourth Circuit.

Applying the canon of statutory construction that words in a statute must be read in the context of the statute as a whole, the majority held that the right of removal under the general removal statute is based on the federal court having original jurisdiction over the civil action, which is determined by the plaintiff’s complaint. The “defendants” who can remove must therefore be defendants named in the complaint, not counterclaim defendants. The majority also rejected Home Depot’s reliance on CAFA’s removal provision on the basis of the same statutory canon. The majority reasoned that the CAFA removal provision was meant to clarify that certain barriers to removal (such as the consent of all named defendants) do not apply to class action suits. But the majority found no indication that Congress intended to alter the limitation on who can remove, namely the defendant or defendants named in the complaint. Moreover, the majority concluded that the CAFA removal provision’s reference to “defendants” being eligible to remove a class action suit contrasts with other statutes that permit removal by “parties,” further indicating that in enacting CAFA, Congress did not intend to expand the category of persons who could remove an action.

Interestingly, the dissent – written by Justice Alito and joined by Chief Justice Roberts and Justices Gorsuch and Kavanagh – also took a strict constructionist approach to reading CAFA, but reached a different result. The dissent argued that third-party counterclaim defendants fall within the plain meaning of “defendant,” and that CAFA’s specification that removal can be made by “any defendant” indicates that “defendants” should be read expansively. In addition, the dissent maintained that Congress intended the CAFA removal provision to provide an independent basis for removal, such that removal rights under CAFA did not need to track the general removal statute. Finally, the dissent argued that in any case, the consensus that the general removal provision could not be invoked by third party counterclaim defendants was based on a misunderstanding of Supreme Court precedent.

Home Depot did not cabin its holding to any particular type of class action, and thus could include false advertising suits. Whether plaintiffs’ litigation strategies change in light of the decision remains to be seen.

***

Want to talk advertising? We welcome your questions, ideas, and thoughts on our posts. Email or call us at lweinstein@proskauer.com /212-969-3240 or akaplan@proskauer.com /212-969-3671.  We are editors of Proskauer on Advertising Law and partners in Proskauer’s False Advertising & Trademark practice.

LexBlog