Stay ADvised: What's New This Week, April 19
In This Issue:
- California Federal Judge Uses Article III to Dilute Plaintiff's' Standing to Sue for "Substantially Similar" Products
- New Players, Same Old Problems in "Apples to Oranges" Comparative Advertising
- Nonprofits Lay an Egg in Sanderson Farms False Ad Suit
- Annie's "Bunny of Approval" Approves Harmful Phthalates in Mac and Cheese: Plaintiff
California Federal Judge Uses Article III to Dilute Plaintiff's' Standing to Sue for "Substantially Similar" Products
In a setback for litigants attempting to bring consumer class actions for entire lines of products, a recent California federal court held that plaintiffs only have Article III standing to bring a class action for the particular product(s) they actually purchased.
In the case of Lorentzen v. The Kroger Co., the plaintiff brought a putative class action against The Kroger Co. alleging that the grocery chain's private-labelled coffee products are misleading. Plaintiff alleges that the private-labelled coffee products do not produce the number of servings advertised on the front label when following the brewing instructions on the back label.
While plaintiff only purchased one type of Kroger's private-labelled coffee products, she brought a putative class action with regard to eight types of Kroger's private-labelled coffee products. Plaintiff alleges that all eight types of the private-labelled coffee products made the same representations and are similarly deficient.
In seeking to dismiss plaintiff's claims, Kroger (represented by Davis Wright Tremaine) argued, among other things, that plaintiff lacked Article III standing to bring claims for the seven other private-labelled coffee products she did not purchase.
Under Article III of the U.S. Constitution, federal courts have limited jurisdiction and can only hear '[c]ases' and '[c]ontroversies.' Under established case law, to constitute a case or controversy, a plaintiff must have standing and is required to prove they have suffered an 'injury in fact.'
While the 9th Circuit has yet to speak on the issue, most district courts in the circuit that have considered the issue have held that a plaintiff has Article III standing to sue for products they did not purchase as long as those other products or the alleged misrepresentations at issue are 'substantially similar.'
Kroger argued that these cases ran afoul of binding U.S. Supreme Court precedent, including Blum v. Yaretsky which held that '[n]or does a plaintiff who has been subject to injurious conduct of one kind possess by virtue of that injury the necessary stake in litigating conduct of another kind, although similar, to which he has not been subject.'1 U.S. District Court Judge Stanley Blumenfeld Jr. agreed with Kroger.
Referring to the U.S. Supreme Court case law cited by Kroger, Judge Blumenfeld held that the 'substantial similarity' analysis adopted by many district courts 'appears to be inconsistent with the basic concept of standing.' Consequently, Judge Blumenfeld held that because '[p]laintiff bought only one of the eight Products,' '[s]he therefore did not suffer any injury—economic or otherwise—related to the other seven Products.' Accordingly, Judge Blumenfeld held the plaintiff did not have standing with respect to the seven products she did not purchase and, therefore, dismissed plaintiff's claims with respect to those products.
The case of Lorentzen v. The Kroger Co. provides a blueprint for defendants seeking to significantly trim back overbroad putative class actions. In short, the decision makes clear a plaintiff can only bring a class action for products they purchased. Until the 9th Circuit speaks definitively on the issue, Judge Blumenfeld's decision provides a well-reasoned precedent pushing back against the fast-and-loose approach to Article III standing that the plaintiffs' class action bar has advanced.
New Players, Same Old Problems in "Apples to Oranges" Comparative Advertising
For those not familiar with the market for 'security deposit alternatives,' NAD's recent decision in Jetty Insurance Agency, Case #6919, provides an in-depth discussion of this growing industry.
Both Jetty and challenger LeaseLock offer security deposit alternatives, which allow renters to reduce initial security deposit costs while ensuring that landlords and rental companies still have recourse in the event of default or damage to the premises. The two companies' products differ in that Jetty offers what is known as an 'admitted' surety bond-backed product, while LeaseLock offers lease insurance.
Both are regulated, albeit differently, under state law. Both also offer coverage with a variety of limits or caps.
LeaseLock challenged numerous comparative claims regarding the regulation of, cost, and coverage offered by the parties' respective products. Although many were voluntarily discontinued prior to the challenge, NAD reviewed claims on the merits which stated or implied that Jetty is superior because it is an 'admitted' product and that it offers more generous coverage at a lower cost. In both cases, NAD recommended that the challenged claims be discontinued or modified to identify the material differences between the products and to avoid conveying unsubstantiated messages about those differences.
On the 'admitted' issue, NAD found that the potentially misleading but reasonable takeaway from the challenged claims was that Jetty's 'admitted' product is superior because the company is subject to regulation and therefore is a safer choice. Jetty argued that this distinction between admitted and non-admitted was accurate because an 'admitted' insurer provided consumers more transparency and protection in the event of bankruptcy.
LeaseLock (represented by Davis Wright Tremaine) countered that its product was also highly regulated and protected by 'far greater funds' than those protecting Jetty. Although the products are regulated differently, LeaseLock contended that this did not support the messages conveyed by Jetty's claims. NAD agreed with LeaseLock, recommending that the claims be modified or discontinued.
With respect to the coverage offered by the parties, NAD recommended that the advertising be modified to avoid conveying the unsubstantiated message that its product offers unlimited damage coverage while LeaseLock's coverage is limited to a $500 cap. Although Jetty 'is free to highlight the differences between [damage coverages] offered by competitors as long as it is done in a way that is truthful and not misleading,' NAD ultimately determined that 'both parties have 'caps' or upper limits on the damage coverage offered.'
The difference was in what was capped—the total amount of the policy (Jetty) versus the amount set by a specific coverage plan for 'damage,' as opposed to unpaid rent (LeaseLock). This made the message about the $500 cap misleading, and NAD recommended Jetty discontinue it.
NAD has long held that advertisers can make 'apples to oranges' comparative claims, but they must disclose any material differences between the products that alter the calculus of what is being compared. These rules are equally applicable to industries that are new to NAD.
Nonprofits Lay an Egg in Sanderson Farms False Ad Suit
The 9th Circuit has shut down an attempt by two nonprofits to sue Sanderson Farms Inc. for false advertising related to Sanderson's labeling of its chicken as '100% natural,' affirming the lower court's finding that the groups lack standing to sue the chicken manufacturer.
In reaching its decision, the 9th Circuit rejected the plaintiffs' argument that the district court erred in its assessment of the sufficiency of plaintiffs' evidence, finding that the lone piece of evidence plaintiffs put forth showing they diverted resources was 'contradictory' and ultimately insufficient to prove standing.
Back in 2017, plaintiffs Friends of the Earth and Center for Food Safety together sued Sanderson Farms Inc., alleging false advertising in violation of California's Unfair Competition Law (UCL). The groups argued that Sanderson's advertisements touting its '100% Natural' chicken products with 'no antibiotics to worry about' were false because, in fact, testing by the U.S. Department of Agriculture has revealed that Sanderson's chicken contains synthetic drug residues, which plaintiffs allege is indicative that Sanderson gives its chickens antibiotics.
After a failed motion to dismiss and 'significant' discovery, the district court dismissed the case for lack of standing, finding that the nonprofits' activities to fight the ads were just extensions of their usual work. On appeal, the court's analysis hinged on the question of whether the groups' activities from the time it became aware of the alleged false advertising to the time it filed the suit 'were 'business as usual' and a continuation of existing advocacy,' as the lower court had found, 'or whether they were an affirmative diversion of resources to combat Sanderson's representations.'
As the district court had done, the appeals court found that the plaintiffs 'failed to produce evidence demonstrating they expended additional resources to address Sanderson's advertisements.' Prior to when the false advertising came to their attention, the nonprofits' work already involved advocacy against the antibiotic practices of various companies, including Sanderson. 'Once Sanderson's misleading advertisements were brought to the attention of the Advocacy Groups, they simply continued doing what they were already doing,' said the appeals court.
The plaintiffs argued that the lower court erred in its treatment of affidavit testimony from two of its representatives who claimed that Sanderson's advertising had caused one employee to spend 'at least 25 percent more time' on related work, though one of those same representatives had in an earlier deposition 'told a different story,' namely that Sanderson's advertising did not 'require [them] to do anything at all.' Plaintiffs argued on appeal that the lower court should have considered this conflicting evidence and applied a strict affidavit rule or held an evidentiary hearing.
The appeals panel plainly disagreed. Crucially, 'after nearly two years and mountains of discovery, the Advocacy Groups could meaningfully offer only a single conclusory, contradictory, and uncorroborated statement as evidence of diverted resources.' That was not enough.
A further argument by plaintiffs that the UCL claim should proceed because they had challenged Sanderson's husbandry practices as well as its advertising also failed. The 9th Circuit rejected this argument, finding that Sanderson's husbandry practices have no relevance to the suit other than to support the claims of false advertising and so that challenge could not stand on its own.
This case is a reminder that standing in false advertising litigation is far from a given. For Friends of the Earth, Center for Food Safety, and other nonprofits in similar roles, the lesson is that they must show 'an affirmative diversion of resources' undertaken to combat misrepresentations 'that they would not have otherwise expended.'
Annie's "Bunny of Approval" Approves Harmful Phthalates in Mac and Cheese: Plaintiff
What's creamy, cheesy, and chemical-free? Not Annie's macaroni and cheese, according to a recent lawsuit that claims that 23 variants of the kid-friendly pasta—including the brand's organic varieties—contain chemical phthalates, in contrast to what plaintiff characterizes as natural and chemical-free branding.
General Mills, which owns and manufactures the popular mac and cheese, has been hit with a class action lawsuit in a New York federal court claiming false advertising and deceptive and misleading business practices. The lawsuit centers around claims that the cheesy pasta contains trace amounts of 'dangerous' phthalates, which make their way into food via the packaging and machinery used to make the mac and cheese. According to the complaint, these chemicals have been linked to health problems and developmental disorders.
Putative class action plaintiff Shelby Franklin alleges that General Mills markets Annie's Mac and Cheese to purposely appeal to health-conscious consumers, promoting it as a natural and healthy product devoid of artificial flavors or preservatives. Significantly, the company's product packaging contains "ample space to brag to consumers that its Products are 'Made with Goodness''' and are certified organic or made with organic ingredients, alleges plaintiff.
Plaintiff avers, however, that the packaging (and other marketing) does not contain any notice or reference to the fact that Annie's Mac and Cheese contains phthalates. Notably, the company does not disclose the presence of phthalates on 'the one place that every consumer looks when purchasing a product—the packaging and labels themselves,' according to plaintiff. Because the products, in fact, do contain chemical phthalates, the complaint contends that these representations are 'false, deceptive and willfully malicious.'
Plaintiff asserts that General Mills doubles down in other aspects of its advertising, asserting that Annie's Mac and Cheese is heavily marketed to and for children through use of its 'cute' bunny mascot that appears on product packaging, alongside the 'Bunny of Approval' and phrases including 'Made with Goodness.' Meanwhile, say plaintiffs, phthalates are especially harmful to children and pregnant women. Plaintiff further contends that consumers purchase premium Annie's Mac and Cheese because they care about the foods they put into their bodies, allegedly in reliance on the representations that the food is natural and chemical-free.
On the subject of phthalates, the company maintains that the chemical is found only in trace amounts that fall below the standards of the European Food Safety Authority (EFSA). As the company also points out, the Food and Drug Administration (FDA) has not adopted a standard for acceptable levels of the chemical yet, a fact that may play into this litigation as it proceeds. It will be interesting to see if this remains yet another hot button in food litigation.
1 457 U.S. 991, 999 (1982).