Food, Beverage and Labeling

The Ninth Circuit recently held that a declaration from the defendant’s comptroller stating that the defendant’s sales of the challenged product during the class period exceeded $5 million was sufficient to satisfy the amount-in-controversy requirement of the Class Action Fairness Act, 28 U.S.C. § 1332(d)(2) (“CAFA”).   Watkins v. Vital Pharmaceuticals, Inc., No. 13-55755 (9th Cir. July 2, 2013).  The Ninth Circuit reversed the federal trial court’s remand of the action to state court and directed the federal court to exercise jurisdiction over the case.  The decision adds clarity to what evidence may be adduced to establish federal court jurisdiction under CAFA and provides guidance to businesses seeking to remove state court putative class actions to federal court.

Background

Plaintiff Gabe Watkins (“Plaintiff”) filed a putative class action against Vital Pharmaceuticals, Inc. (“Vital”) in California state court alleging that Vital distributed ZERO IMPACT protein bars that were erroneously marketed and labeled as having little to no impact on blood sugar.  Plaintiff asserted California state law claims and alleged a nationwide class of consumers.

Vital removed the action to federal court under CAFA.  CAFA provides an alternative basis for federal court subject matter jurisdiction, but requires, among other things, that the combined claims of all class members exceed $5 million exclusive of interest and costs.  At issue on appeal, was whether the amount-in-controversy requirement was met.

Vital submitted two declarations in support of its assertion that more than $5 million was in controversy.  First, Vital submitted a declaration from its counsel.  Defense counsel’s declaration pointed out Plaintiff’s own allegations in his Complaint regarding the amount in controversy.  Specifically, Plaintiff alleged that “the aggregate damages sustained by the Class are likely in the millions of dollars.”  The declaration also referred to the fact that Plaintiff sought, in addition to damages, restitution, disgorgement of profits, and attorneys’ fees based on sales to thousands of consumers nationwide.  Second, Vital submitted a declaration from its comptroller.  In that declaration, the defendant’s comptroller stated that Vital’s nationwide sales of its ZERO IMPACT bars during the four-year class period exceeded $5 million.

Despite Vital’s showing, the district court remanded the case to state court.  The district court held that Vital did not meet its burden of proving CAFA’s amount in controversy requirement.  The district court found defense counsel’s declaration vague and conclusory and downplayed the sales data as mere averments without mentioning the comptroller’s declaration.

On appeal, the Ninth Circuit agreed with Vital that the undisputed declaration from its comptroller was sufficient to establish that CAFA’s $5 million amount in controversy requirement was met.

Implications

The Vital Pharmaceuticals decision provides guidance to businesses seeking removal of putative class actions from state to federal court under CAFA and to lower courts considering remand of removed cases.  It is unclear, however, whether federal district courts in the Ninth Circuit would reach the same result under different facts and with a more aggressive plaintiff’s attorney.  For example, the Ninth Circuit specifically noted that: (1) the comptroller’s declaration went uncontroverted by Plaintiff; and (2) Plaintiff filed a document stating that he took no position on Vital’s appeal and that he declined to file a brief.  That said, Plaintiff’s counsel here may have recognized and been swayed by the difficulty in challenging the sales data proffered by Vital Pharmaceuticals.

In one of the many food labeling cases flooding the dockets of California federal courts, U.S. District Court Judge Edward J. Davila denied certification of two proposed classes of consumers that included potential class members who had purchased products other than the ones purchased by the named plaintiff.  See Major v. Ocean Spray Cranberries, Inc., No. 5:12-cv-3067 (June 10, 2013).  Judge Davila held that the proposed classes were overbroad and that class definition was inappropriate for certification due to lack of typicality under Rule 23 of the Federal Rules of Civil Procedure. 

Plaintiffs challenging food and beverage labels have been aggressively asserting claims and alleging putative classes that include products the plaintiffs have not purchased.  In response, food and beverage manufacturers have challenged at the pleadings stage plaintiffs’ standing to assert claims on behalf of putative class members for products the named plaintiff had not purchased.  These challenges have been met with mixed results. 

This decision is significant in that it severely restricted the scope of potential classes to include only those products purchased by the named plaintiff or plaintiffs.  The decision, however, is not binding on other federal trial courts and the law in this area remains unsettled.          

Factual Background

Plaintiff Noelle Major claimed to have purchased five Ocean Spray products:  (1) Blueberry Juice Cocktail; (2) 100% Juice Cranberry & Pomegranate; (3) Diet Sparkling Pomegranate Blueberry; (4) Light Cranberry; and (5) Ruby Cherry.  Plaintiff alleged that these and other Ocean Spray products contained packaging and labeling that were unlawful, false or misleading.  Specifically, Plaintiff claimed that Ocean Spray made improper:  “no sugar  added” claims; no artificial colors, flavors, or preservatives claims; “healthy” claims; and antioxidant claims.

Plaintiff asserted claims typical of claims made in food labeling lawsuits in California:  (1) violation of California’s Unfair Competition Law (“UCL”), Cal. Bus. & Prof. Code § 17200 et seq.; (2) violation of the California False Advertising Law (“FAL”), Cal. Bus. & Prof. Code § 17500 et. seq.; (3) violation of the California Consumers Legal Remedies Act (“CLRA”), Cal. Civ. Code § 1750 et seq.; (4) restitution based on unjust enrichment or quasi-contract; (5) breach of warranty in violation of the California Song-Beverly Act, Cal. Civ. Code § 1790 et seq.; and (6) breach of warranty in violation of the Magnuson-Moss Act, 15 U.S.C. § 2301. 

The Court considered two different proposed classes – the class alleged in Plaintiff’s pleading and the class Plaintiff sought to be certified.  In Plaintiff’s pleading, she alleged a class of persons based on the purported misrepresentations.  For example, Plaintiff alleged a class that included all persons who purchased products during the class period that were represented to contain no artificial colors, flavors, or preservatives but which contained artificial flavors, colors, or preservatives.  Plaintiff, however, then sought certification of a class of persons who purchased products from four juice product lines from which Plaintiff purchased products not just the particular flavors within the product lines that were purchased by Plaintiff.  Thus, the class Plaintiff sought to certify included many different flavors of products than the ones purchased by Plaintiff. 

The Court held that both classes failed due to lack of typicality.  The principle reason cited for that finding was that both proposed classes included products not purchased by Plaintiff.  The Court stated:  “In the context of cases involving several products at issue…district courts have held that the typicality requirement has not been met where the ‘named plaintiff … purchased a different product than that purchased by unnamed plaintiffs.”  Accordingly, “[t]he primary reason behind the Court’s determination that the typicality requirement has not been met is that Plaintiff’s proposed classes are so broad and indefinite that they encompass products that she herself did not purchase.”  The Court noted that Plaintiff purchased just five products. 

The Court noted that Plaintiff failed to link any of the unpurchased flavors to any alleged misbranding issue in the case.  Plaintiff also apparently failed to show that the labels and nutrition claims on different flavors were not unique to differently-flavored products.  As an example, the Court noted that Plaintiff’s claim as to blueberry-flavored sparkling juice was specific to blueberry-related representations.  As a result, it was unclear how those representations could be linked to differently-flavored sparkling juice.   

Implications

While the Ocean Spray decision represents a favorable outcome for the food and beverage industry, businesses should operate with caution as these areas of law are constantly evolving and it is unclear the extent to which other trial and appellate courts will reach the same result.  It is important for food and beverage manufacturers, distributers and retailers to keep abreast of the steadily evolving law in these areas.