Complex Litigation

Food Industry Besieged; Cheerios Class Action Crunched

By Michael Hoenig - New York Law Journal - October 9, 2012

Lawsuits are besieging the food industry. There are traditional claims by individuals who have been injured or made ill after ingesting food products. So, for example, on Sept. 5 an elderly woman sued Splendid Products, a distributor of Daniella-brand mangoes, in a Western District of Washington federal court alleging she became ill with salmonella after eating a mango produced in Mexico. Lab tests confirmed her salmonella serotype was the same as the serotype of a multistate salmonella outbreak traced to mangoes. Plaintiff asserts claims in strict liability, negligence and breach of express and implied warranties.1

Somewhat less traditional but still within the to-be-expected universe of food-related litigation is the so-called "popcorn lung" trial in which a Colorado federal jury, on Sept. 19, awarded a consumer of microwavable popcorn a $7.2 million verdict of which $5 million was for punitive damages.2 The plaintiff, Wayne Watson, developed a rare lung disease called bronchiolitis obliterans after eating two to three bags of microwaved popcorn daily for a period of seven years. A flavoring ingredient, diacetyl, allegedly was the culprit causing the consumer's "popcorn lung" disease, an illness mostly found in workers at popcorn plants where the flavoring liquid is added to the popcorn. The jury found defendants liable for negligence, failure to warn and violations of a deceptive trade practice law. An appeal is likely.

The foregoing individual type of claims for personal injuries can be litigated on their merits in light of the specific factual circumstances in each case. The plaintiff is identified, the injury is defined and the facts are capable of objective investigation or of being established with some degree of certainty. In short, such litigation has a context to it that allows the truth to be gleaned. The main tort objectives—deterrence of misconduct, "spreading the risk" and compensation for injuries caused by defective products—arguably work normally in such settings. Manufacturers are motivated to make nondefective products and to insure against losses due to tort liability. If insurance is not purchased by the manufacturer, losses due to individual case liability can be reflected in the price of products made in the future.

A more pernicious form of litigation against the food industry, however, is the class action. This type of mass tort lawsuit, now being filed in abundance, likely has the food industry reeling from the onslaught. But beyond the effects on the immediate players in such litigation, there are serious public policy questions and potentially grave societal consequences from allowing a prolonged "open hunting season" in which small groups of class action lawyers conjure up tenuous fraud claims attacking the marketing of popular food items in the name of a class of consumers the lawyers don't know, with whom they never spoke, or by whom they were never retained.

Indeed, it is likely that hundreds of thousands or millions of consumers, in whose name class actions are filed with great fanfare, have absolutely no interest in joining or maintaining such a lawsuit. They love their Cheerios or granola bars and will continue to buy them. More likely, they would bridle at the prospect that such behemoth lawsuits and the attendant mega-million dollar settlements and litigation costs could drive up product prices, deprive funds for research and development to make improved, more nutritious products, and hurt the company's shareholders who, likely, are ordinary folks investing in successful enterprises for a variety of desirable societal objectives.

Why a small cadre of lawyer-inspired "food police" should be able to dictate, via aggressive class actions, an agenda driven by the lure of a pot of gold at the end of the class action rainbow is a worthy question. We have federal and state agencies regulating many aspects of the food industry. The public pays huge tax dollars to fund these designated, formally appointed food police. The class lawyers and their select named plaintiffs, however, have been appointed by no one. Yet, they purport to represent countless others who never authorized them to speak or act on their behalf.

Class Actions

The class action device, a mere procedural mechanism, has strayed much too far from its original intent. It is now viewed, even by some judges, as a kind of substantive law bludgeon with which to achieve mass settlements. All that is needed is for the pleader to allege some breach of warranty or some consumer fraud, commence a lawsuit for a small filing fee and then blitz the target defendants with massive electronic discovery demands. Were this phenomenon a one-case event, the legal system might blink and look away towards other problems. But the class action syndrome now has reached epidemic proportions. These suits can clog our courts and burden our judges, all at a time when court systems' budgets struggle to accommodate litigants having solid, traditional disputes.

To illustrate, a Florida class plaintiff on Sept. 13 sued Frito-Lay North America Inc. under Florida's deceptive and unfair trade practices act, alleging that bean dip products marketed as "All Natural" actually contain genetically modified organisms (GMOs). She claims that GMOs have been altered through biotechnology so they are not "all natural." Her complaint says inclusion of GMOs is "an affront to the health conscious consumer and the public at large." She claims that recent studies "suggest" that GMOs may in fact be harmful to a consumer's health.3

Similarly, a consumer class suit filed in an Arkansas state court, removed to federal court and then remanded back to state court, challenges the "all natural" labeling on Tostitos and SunChips made by Frito-Lay. Named plaintiff Stacye Deaton sued Frito-Lay and its parent company Pepsico Inc. claiming the "all natural" labeling is deceptive under the Arkansas statute because the products contain genetically modified corn and hexane-extracted soybean oil. Hexane is a product of gasoline refining. She advances an "unjust-enrichment" damages theory.4

On Sept. 4, the U.S. Court of Appeals for the Ninth Circuit issued a decision rejecting a portion of a class action settlement valued at over $10 million that had part of the settlement fund awarded to a cy pres charity that feeds the indigent. The court held that this award bore no nexus to litigation which involved claims alleging that Kellogg's Frosted Mini-Wheats do not improve attentiveness. The court also found the attorney fees excessive.5

Additionally, a California resident filed a putative class complaint against the makers of Chobani yogurts alleging that the labeling, "All Natural" or containing "Only Natural Ingredients," is deceptive because the products contain a highly refined sugar. Plaintiff Arianna Rosales alleges that the popular six-ounce servings of yogurts contain one to three teaspoons of dried cane syrup which Chobani refers to as "evaporated cane juice" (ECJ). She claims the Food and Drug Administration (FDA) has declared ECJ a "false and misleading" term because it fails to reveal that ECJ is a sugar or syrup and not a juice. She also claims that the term "evaporated" misleadingly suggests that the cane juice has been evaporated leaving the sugar crystals with their nutrients intact (e.g., vitamins, minerals, enzymes, fibers and phytonutrients). Rosales alleges, however, that the refinement process destroys most of the nutrients so that ECJ is "not healthy or nourishing."6

A California resident also sued General Mills as a class representative complaining that Nature Valley granola bars and other products touted as "Natural" violate California's deceptive trade acts because they contain the sweetener high maltose corn syrup (HMCS) and the texturizer maltodextrim. The latter ingredients, the complaint alleges, are factory produced and do not occur in nature. Thus, a purchaser expecting to receive all natural snacks is "deprived of the benefit of his bargain."7

And two other California plaintiffs have sued Johnson & Johnson Inc. alleging that the vitamin, antioxidant and fiber-fortified, no-calorie sweeteners known as Splenda Essentials are marketed with misrepresentations and fall short of Federal Trade Commission requirements that a company substantiate health claims.8 Similarly, a Jamba Juice Co. "smoothie" kit purchaser was held to have standing to pursue class claims of labeling fraud on behalf of products that are similar, but not identical to, the product he purchased. The allegation is that Jamba Juice's "All Natural" labeling is misleading since the smoothie kits contain processed, synthetic or non-natural ingredients such as ascorbic acid, steviol glycosides, xanthan gum and citric acid.9

Cheerios Challenged

The foregoing spate of big-time class actions is only a recent smidgen of a churning miasma of food claims filed in the past several years. Such lawsuits may tax our legal system unduly. If select persons don't like Chobani yogurt's ingredients, they don't have to purchase the products. They can file a complaint with the federal agencies charged with policing label accuracy or a company's health claims. Or they can file their own individual lawsuits in their own names. They can take their case to the public via articles, blogs, the Internet and via public debate. But should one or two individuals have carte blanche, for a mere court filing fee, to represent hundreds of thousands, even millions, satisfied customers who do not want to join such a crusade?

Consider the travails experienced in a New Jersey federal court class action dismissed on Sept. 10 by Judge Peter Sheridan. The decision is not for publication but, nevertheless, teaches valuable lessons. The case is called In re: Cheerios Marketing and Sales Practices Litigation.10 This was a consolidated class action complaint by consumers of Cheerios who reside in California, New Jersey and New York. The dispute revolved around claimed misrepresentations by General Mills of health benefits of Cheerios, including its ability to reduce cholesterol and reduce the risk of heart disease and certain forms of cancer. The most prevailing theme of the amended complaint was the misrepresentation about cholesterol-lowering benefits, an example being the advertised claim that Cheerios could lower a person's cholesterol by 4 percent in six weeks.

The lawsuit was filed after a May 5, 2009, warning letter from the FDA to General Mills. The FDA reasoned that the Cheerios health benefit claims put the product into the category of one intended for use in preventing, mitigating and treating the disease hyper-cholesterolemia, requiring Cheerios to comply with drug regulations. The FDA said that telling consumers that cholesterol levels could be lowered by a certain percentage made Cheerios a pharmaceutical formulation that would subject Cheerios to regulatory approval as a drug. As a result of this letter, six class actions were filed, consolidated by the U.S. Judicial Panel on Multidistrict Litigation (MDL) Committee and sent to Sheridan for MDL handling.

Sheridan denied an early motion to dismiss and allowed "limited discovery" because plaintiffs' counsel orally represented that plaintiffs could not show any injury since plaintiffs did not know the cost of Cheerios upon which damages would be calculated. Further, other plaintiffs ate all of the Cheerios purchased for reasons unrelated to the claims brought in this case. That "limited" discovery resulted in defendant's production of some 600,000 pages of documents, among other disclosure. The named plaintiffs were deposed.

Following a year of litigation, General Mills filed a motion for summary judgment. Sheridan held that plaintiffs could not recover full purchase price refunds since the alleged misrepresentations did not render the product "essentially worthless." Some of the plaintiffs purchased Cheerios for crunchiness, taste, convenience and to keep one's "belly full," as well as to lower their cholesterol. Two of them "still eat Cheerios today." Another plaintiff bought the cereal for the ingredients; hence, she did not rely on the cholesterol-lowering benefit.

Plaintiffs also could not receive "benefit of the bargain" damages (the difference between what they paid for Cheerios and the price they would have paid for the product had no misrepresentation been made). Plaintiffs received boxes with the ingredients listed and which actually contained those ingredients. Further, some of the plaintiffs consumed all of the Cheerios for reasons such as crunchiness and convenience. Plaintiffs did not quantify their alleged loss and, so, could not meet the burden of proof of a "benefit of the bargain" claim.

Nor could plaintiffs recover "disgorgement of profits" or "unjust enrichment" damages. They purchased specific goods and received those same specific goods. Plaintiffs failed to show that they purchased Cheerios for which they did not receive any value. Healthy ingredients, crunchiness, convenience and taste are value components. As such, no viable disgorgement of profits or unjust enrichment remedy was justified. Two other named plaintiffs' claims were also dismissed since they could not show that their cases would be "typical" of the class membership. Accordingly, following elaborate litigation efforts and what was called "limited discovery," the allegations were dismissed.

Conclusion

The mounting class action warfare against the food industry's marketing practices essentially puts a few self-appointed "champions" into the role of spokespersons for millions of other consumers they do not know and who ostensibly like the products they buy and don't care for such suits. Crusading class plaintiffs have numerous other outlets to channel their public interest campaigns, including pursuit of individual lawsuits on their own behalf, and government agency proceedings. At a time when budget-strapped courts are struggling to render justice to litigants with real disputes who have no other outlets for their grievances, the courts should be very careful about contributing to the growth of lawyer-driven mega-cases, no matter how creative.

Michael Hoenig is a member of Herzfeld & Rubin.

Endnotes:

1. Pearce v. Splendid Products LLC, No. 12-1508 (W.D. Wash., complaint filed Sept. 5, 2012), reported in 40 BNA, Product Safety & Liab. Rptr. (PSLR), No. 37, pp. 1042-1043 (Sept. 17, 2012).

2. Watson v. Dillon Cos., No. 1:08-cv-00091 (D. Colo., verdict rendered Sept . 19, 2012), reported in 40 BNA, PSLR, No. 38, p. 1066 (Sept. 24, 2012)

3. Altman v. Frito-Lay North America, Inc., No. 12-61803 (S.D. Fla., complaint filed Sept. 13, 2012), reported in 40 BNA, PSLR, No. 38, at p. 1073 (Sept. 24, 2012).

4. Deaton v. Frito-Lay North America, Inc., No. 12-01029 (W.D. Ark, federal order of remand dated Sept. 11, 2012), reported in 40 BNA, PSLR, No. 38, at p. 1074 (Sept. 24, 2012).

5. Dennis v. Kellogg, No. 11-55674 (9th Cir. Sept. 4, 2012), reported in 40 BNA, PSLR, No. 36, at pp. 1002-1003 (Sept. 10, 2012).

6. Rosales v. Chobani, Inc., No. 12-0271 (S.D. Cal., complaint filed Aug. 22, 2012), reported in 40 BNA, PSLR, No. 36, at pp. 1003-1004 (Sept. 10, 2012).

7. Janney v. General Mills, No. 12-3919 (N.D. Cal., complaint filed Aug. 21, 2012), reported in 40 BNA, PSLR, No. 36, at p. 1004 (Sept. 10, 2012).

8. Bronson v. Johnson & Johnson, Inc., No. 12-4184 (N.D. Cal., complaint filed Aug. 9, 2012), reported in 40 BNA, PSLR, No. 36, at p. 1004 (Sept. 10, 2012).

9. Anderson v. Jamba Juice Co., No. 12-CV-01213YGR (N.D. Cal., complaint filed Aug. 24, 2012), reported in 40 BNA, PSLR, No. 36, at p. 1005 (Sept. 10, 2012).

10. 2012 U.S. Dist. LEXIS 128325, 2012 WL 3952069 (D.N.J. Sept. 10, 2012).

125 Broad Street, New York, New York, 10004 - Phone: 212-471-8500 - Fax: 212-344-3333
©2004 -2014 Herzfeld & Rubin, P.C.