YOUR SOURCE ON FOOD LITIGATION AND REGULATION

Sonic Drive-In reached a $4.3 million settlement on October 10 with its customers over the chain’s data security breach in 2017 that exposed customer credit and debit card information at 325 Sonic Drive-In locations.[1] The attack followed a pattern familiar in the retail and restaurant context, where hackers infect the point-of-sale system with malware that copied and transmitted the information from consumers payments cards when used to make a purchase. Plaintiffs filed several class action lawsuits for violations of state consumer protection laws and data breach notification statutes, along with various common law causes of action. The lawsuits were consolidated into a multidistrict litigation proceeding in the Northern District of Ohio in early 2018.

In the last few years, food and beverage companies have been defending against a new trend of claims related not to the products they manufacture, but the packages in which the products are sold. Recently filed class action complaints allege that food and beverage manufacturers are reducing the amount of product inside opaque containers but not reducing the size of the containers, or that the manufacturers do not adequately fill the containers. Classic examples include bags of chips or boxes of rice with extra container space that is only visible once the package is open.

This extra space is known as “slack-fill.” The US Food and Drug Administration (FDA) defines slack-fill as the difference between the actual capacity of a container and the volume of the product contained therein. 21 C.F.R. § 100.100. Under the FDA’s regulations, a “container that does not allow the consumer to fully view its contents shall be considered to be filled as to be misleading if it contains nonfunctional slack-fill.” Id. The FDA recognizes that some slack-fill does have a purpose. Thus, functional slack-fill, such as the extra space that is intended to help protect the contents of the package or that is the result of unavoidable product settling, is exempt from the FDA’s regulations. See id. The State of California also prohibits nonfunctional slack-fill in food packaging, but defines “nonfunctional slack-fill” as the empty space in a package that is filled to “substantially” less than its capacity. Cal. Bus. & Prof. Code §§ 12606, 12606.2.

In a decision that will impact numerous lawsuits in the lower courts, in Kane v. Chobani (No. 14-15670 (9th Cir. Mar. 24, 2016)) the US Court of Appeals for the Ninth Circuit stayed proceedings in a class action regarding the alleged misuse of the term “natural” on food labels until the US Food and Drug Administration (FDA) has completed its review of the term.

Background

The case arises from Chobani’s use of the terms “only natural ingredients” and “all natural” on the labels of its yogurt products. Plaintiffs originally brought suit in the Northern District of California (see Kane, et al v. Chobani, LLC, No. 5:12-cv-02425-LHK (N.D. Cal.)) claiming, among other things, that characterizing the yogurt as “natural” was misleading because the product included color additives that were not natural, and the fruit and vegetable juices in the product “were highly processed unnatural substances.” To establish standing, a plaintiff must prove actual reliance on the defendant’s misrepresentations—here, that the plaintiff purchased the Chobani yogurt that he or she otherwise would not have purchased (or would not have spent as much money on) in reliance on the fact that the yogurt was “natural.” The lower court dismissed the case on the ground that plaintiffs failed to plead sufficient reliance on the term.

On November 17, the Department of Justice (DOJ) issued a press release announcing that it and other federal agencies have slapped more than 100 makers and marketers of dietary supplements with civil and criminal cases over the last year. The press release highlighted a criminal indictment that was recently unsealed in which the DOJ accused a supplement manufacturer and many of its officers of violating the Food, Drug, and Cosmetic Act (FDCA) as well as committing federal wire fraud, obstruction, and conspiracy. According to the indictment, the defendants allegedly made false statements to the public and the FDA about certain imported ingredients, used falsified certificates of analysis for phony “plant-based” ingredients manufactured by Chinese chemical suppliers, and surreptitiously continued distributing a dietary supplement, even after learning that it could lead to serious liver damage.

Although the criminal indictment represents an extreme set of alleged facts, the DOJ’s press release sends a strong message that the agency intends to sweep far and wide. In addition to featuring a criminal prosecution, the press release also highlights civil actions brought by the DOJ and Federal Trade Commission (FTC) involving the FDA, the Department of Defense, the Internal Revenue Service, the US Postal Inspection Service, and the US Anti-Doping Agency. Many civil cases filed by the DOJ and FTC (some of which date back to November 2014) target less extreme conduct, including alleged misbranding due to claims about products’ intended uses and alleged Current Good Manufacturing Practice issues. The DOJ’s press release signals proactive and coordinated enforcement in the area of dietary supplements and an intent to investigate and prosecute manufacturers and retailers alike.

Read the full press release.

The food industry has become a fertile ground for class-action lawsuits over the last few years and shows no signs of slowing down. New cases are decided daily. There are several factors that drive this trend and that are likely to propel forward new cases in the coming years. As a detailed review of some of the cases in this area reveals, these factors make it probable that litigation in this area is likely to continue, even if not at the same rate that it has over the last couple of years.

In the white paper titled “Appetite for Litigation: Why Plaintiffs’ Lawyers Hunger for Food-Labeling Lawsuits,” partner Tom Sullivan provides an overview of federal statutes and regulations, outlines the different types of cases, summarizes the recent court trends and defenses to food-labeling litigation, and forecasts the emerging trends in the industry.

Read the white paper in full.

A new trend in California employment litigation may result in food industry employers being subject to minimum wage claims. We have seen that many food industry employers have employees in California working in truck-driving or sales positions who are paid, in whole or in part, on a commission or a piece-rate basis. These employers should be aware that there is a growing number of lawsuits filed in California claiming that employees were not paid minimum wage for all hours worked under California law when they were paid under such an incentive compensation plan and not separately paid hourly minimum wage for each hour worked.

POM Wonderful is no longer just spilling over into new product areas; it is now also spilling over into other legal claims. In a recent post, we examined how the U.S. Supreme Court’s POM Wonderful decision about food and beverage labeling has already leaked into other product areas, including textile labeling. In that landmark case, the Court ruled that the Federal Food, Drug, and Cosmetics Act (FDCA) does not preclude claims brought under similar provisions of the Lanham Act. According to the Court, even though both acts “touch on” food and beverage labeling, they complement—rather than supplant—each other. The Lanham Act protects commercial interests, while the FDCA protects public health and safety (the Court apparently disregarded the economic adulteration components of the FDCA, despite the fact that labels and labeling are core components to how the FDCA regulates foods). A recent decision in the U.S. District Court for the Northern District of Illinois has broadened POM Wonderful’s reach even further, beyond the Lanham Act and into state consumer protection laws.

The U.S. District Court for the Southern District of Ohio granted preliminary approval for another class action settlement related to beverage label claims on September 25—this time involving the Coca-Cola Company. The settlement involves label claims related to Coca-Cola’s Vitaminwater and arises from four putative class actions filed in Ohio, Florida, Illinois, and the Virgin Islands. The cases alleged that Vitaminwater's product name, description, slogans, and flavor names misled consumers by causing them to believe that the product would provide various health benefits whose validity was brought into question by the plaintiffs.

The U.S. District Court for the Southern District of California has joined its sister court in the Northern District and delayed yet another case about “evaporated cane juice” (ECJ). Falling in line with a string of recent decisions, on August 11, the court stayed proceedings in Saubers v. Kashi Co., a case involving whether a food company’s use of the term “evaporated cane juice” to describe certain sweeteners violated food labeling laws. In its holding, the court cited the “primary jurisdiction” doctrine, which allows courts to stay proceedings pending the resolution of an issue within the special competence of an administrative agency. Since 2013, numerous courts have faced this issue—with widely different results—leaving litigants facing “evaporated cane juice” claims under a fog of uncertainty. The Saubers decision and its line may be a sign that the fog is finally lifting.