Stay ADvised: What's New This Week, August 2
In This Issue:
- Lawsuit Claims Chobani Milks Customers With "Fair Trade" Designation
- NAD Dives Right Into Safe Catch Tuna Claims, Finds the Water's Fine
- Trader Joe's Manuka Honey False Ad Suit Won't Stick
- Out of State NY False Ad Claims v. Peloton Face End of Road
Lawsuit Claims Chobani Milks Customers With "Fair Trade" Designation
A recently filed class action lawsuit in the Southern District of New York alleges that popular yogurt maker Chobani misled consumers with the "Fair Trade Certified Dairy" seal that the company affixes to some of its yogurt products and promotes widely in print and digital advertisements.
According to the complaint, Chobani "touts its commitment to 'Fair Trade'" with a lengthy paragraph on the inside lid of yogurt packages that claims "Chobani is the first Fair Trade USA dairy company," and that "eating this yogurt empowers dairy farmers." The complaint also alleges that Chobani claims to be the first in the U.S. dairy industry to be certified with the Fair Trade USA seal of approval in May 2021. Fair Trade USA is a nonprofit that grants and sets standards for the fair trade label.
In apparent contrast to these claims, the complaint alleges that, as outlined in a report by the Worker Justice Center of New York entitled "Milked," the upstate New York dairy farms where Chobani sources its milk do not meet fair trade standards and instead subject workers to dangerous conditions for low pay. Plaintiffs allege the report was "the basis for an extended campaign calling on Chobani to address conditions in their supply chains." Instead of doing so, Chobani allegedly sought to align itself with Fair Trade USA, which the lawsuit characterizes as a "corporate social responsibility partnership" that fails to protect workers to the extent consumers would reasonably expect, given Chobani's claims.
Chobani stated that the lawsuit is meritless and makes "unfounded attacks on Fair Trade USA, one of the most highly-regarded third-party verification programs for environmental, social and economic standards."
Social responsibility by corporations have proliferated and substantiation standards, or even whether some of them need substantiation, is an evolving issue. Many companies rely on and use third-party certifications to substantiate certain types of claims, so this case may be one to watch. Also notable for anyone who has been following Stay ADvised or the food fraud space, plaintiffs are represented by the "Vanilla Guy."
NAD Dives Right Into Safe Catch Tuna Claims, Finds the Water's Fine
As the National Advertising Division (NAD) has recognized, "[c]onsumers benefit when manufacturers innovate and improve their products, and when an advertiser develops a beneficial innovation it should be free—and, in fact, encouraged—to tout it to consumers through truthful and accurate advertising."
NAD recently affirmed this principle in Case #6911, which concerned the advertiser's right to make claims, including comparative health and safety claims, based on a proprietary mercury testing methodology for tuna and other fish.
The National Fisheries Institute (NFI), which represents the largest tuna manufacturers in America, brought this challenge to claims for skipjack, yellowfin, and to a lesser extent albacore tuna, made by start-up Safe Catch, Inc. related to the mercury content, health, safety, sustainability, and flavor of its canned and pouched tuna. Among the challenged claims were the assertions that Safe Catch tuna has the "lowest mercury of any brand," that the company tests every tuna it uses for mercury levels, that the product is made with "100% Sustainably Caught Wild Tuna," and that Safe Catch tuna is healthier than other available tuna brands and a great choice for vulnerable populations, including pregnant women and children.
In the face of NFI's vigorous arguments to the contrary, NAD found the vast majority of the challenged claims supported.
First, NAD found that Safe Catch supported that it does indeed test every tuna fish it packs for mercury content, based on evidence showing the company's detailed mercury-testing protocol for implementing its proprietary mercury testing method, as well as evidence of multiple quality assurance checks, conducted both internally and externally. NAD recognized that this comprehensive testing program permitted Safe Catch to maintain a known and consistently low mercury level across all units of product—something no other manufacturer can boast.
NAD rejected NFI's argument that Safe Catch's claims are not consumer relevant because all tuna that is offered for sale in the United States is considered "safe" at specified consumption levels. Here NAD relied on testimony from Safe Catch's experts and statements made by the Food and Drug Administration (FDA), Environmental Protection Agency (EPA), and the U.S. Department of Agriculture (USDA), all of which recommend that consumers make choices to consume fish that are lower in methylmercury. Safe Catch allows consumers to know exactly what they are getting and to avoid the variability inherent in other packaged tuna.
As NAD recognized, "Safe Catch's testing of tuna to a mercury limit yields a lower mean mercury concentration in its products. This type of compositional information, which is disclosed on every package, can help consumers make informed choices about the mercury content in the fish they purchase." It does not, as NFI claimed, inherently denigrate the competition or imply non Safe Catch tuna is dangerous or unhealthy.
Based on comparative mercury test data, NAD further determined that Safe Catch had a reasonable basis for the claims "lowest mercury of any brand," that Safe Catch Elite and Yellowfin "averag[e] 22x lower than the FDA mercury action limit," that "Elite is the lowest mercury tuna of any brand – 8x lower on average than Albacore (per FDA) and tests as pure as wild salmon," that Safe Catch is "healthier" as that claim appeared on product packaging, and that Safe Catch's comprehensive testing program makes it a "better option" for "kids, pregnant women, & everyone."
Importantly, NAD also found Safe Catch's claim that it sells "100% Sustainably Caught Wild Tuna" were justified, even though by NAD's own admission "such claims can be difficult to substantiate." That's because Safe Catch provided evidence that its fishing practices were sustainable based on factors considered important by organizations including Greenpeace, the Monterey Bay Aquarium, and the Marine Stewardship Counsel.
Although NAD recommended that the advertiser modify or discontinue certain comparative health and taste claims made in digital advertising and on product packaging, the advertiser expressed its gratification that NAD found its core messaging to be substantiated, and the implied messages alleged by NFI largely unreasonable. DWT represented Safe Catch in this matter.
This case took a broad and deep dive into many difficult claim and substantiation issues. There is no single take-away here, other than that NAD showed its willingness to consider the science, the marketplace, the importance of the claims to consumers, and the reasonable (not each and every imaginable) consumer takeaway when considering implied claims.
Trader Joe's Manuka Honey False Ad Suit Won't Stick
In another case of courts declining to loosely define the "reasonable" consumer standard, the 9th Circuit affirmed the dismissal of a putative class action lawsuit accusing Trader Joe's of misleadingly labeling its "100% New Zealand Manuka Honey," finding the reasonable consumer would understand that the product could not logically contain only honey derived from the manuka flower.
Plaintiffs' class action lawsuit alleged that Trader Joe's deceptively marketed its Trader Joe's Manuka Honey—a type of honey sold at a premium thanks to its apparent antibacterial properties—after independent testing revealed that the honey contained approximately 60 percent manuka flower nectar. Plaintiffs alleged that Trader Joe's created the false impression that the product contained 100 percent manuka honey, both through the product's name and by listing "manuka honey" as the only ingredient on the label. Plaintiffs thus contended that Trader Joe's had both mislabeled its product and committed fraud and breach of warranty.
The lower court dismissed the lawsuit, finding that the reasonable consumer would not expect the honey to come from a single flower source, as bees are known to travel to different flowers in search of pollen. Regarding the mislabeling issue, the lower court concluded plaintiffs' allegations against the supermarket chain were preempted by the Federal Food, Drug and Cosmetic Act (FDCA).
On appeal, plaintiffs alleged that even though the product met the FDA's standard for labeling honey based on its "chief floral source," the reasonable consumer would still be misled into thinking the honey was made entirely from the manuka nectar.
The 9th Circuit disagreed, unanimously. First, the panel determined that a consumer "of any level of sophistication," even one who is hardly an expert on bees, would know that the buzzy insects forage from flower to flower, and thus "a reasonable honey consumer would know that it is impossible to produce honey that is exclusively derived from a single floral source."
Second, the panel concluded the low price of the honey compared to other manuka honey, which is generally perceived as expensive, would tip off the reasonable consumer who is "in the market for Manuka" to the product's "lower concentration" of honey derived from the flower.
Finally, the court noted that Trader Joe's Manuka honey jars generally display a rating denoting the quality of the honey from 5+ to 26+, which labeling is readily apparent to the purchaser. The 9th Circuit held that Trader Joe's inclusion of the number 10+ on its honey to denote the rating of its Manuka honey would alert "even a consumer with cursory knowledge" of this rating scale to the fact that Trader Joe's honey was "decidedly on the lower end of the 'purity' scale."
The panel also agreed that Trader Joe's was not misleading anyone by listing manuka honey as the sole ingredient. Plaintiffs had argued this would create a false impression that the honey had more manuka than it actually does. But the panel found that the labeling was, first, only following FDA requirements and, second, that reasonable consumers would understand that the inclusion of this sole ingredient means that the product does not contain any other additives (such as corn syrup). Rather, "the ingredients list simply confirms … that the product in fact does '100%' consist of honey whose chief floral source is manuka."
In reaching its decision, the panel distinguished the 7th Circuit's recent decision in Bell v. Publix Super Markets Inc., 982 F.3d 468 (7th Cir. 2020), which had reached the opposite conclusion about a product labeled "100% Parmesan Cheese." The panel explained that the 7th Circuit in Bell was justifiably concerned about possible confusion created by some manufacturers who "claim (in an arguably ambiguous fashion) that the product is 100% cheese, despite their knowledge of the fact that they had added non-cheese ingredients to produce the product," then "try to retain some 'level of deniability' by clarifying the front-label claim with back-label disclosures."
In the suit against Trader Joes, by contrast, "[b]ees make the Manuka honey, without input from Trader Joe's or any other manufacturer," and "Trader Joe's does not insert any additional ingredients to produce the product or mix Manuka honey with other, non-Manuka honeys to dilute it."
The panel also noted that, unlike the cheese in Bell, Manuka Honey is a "niche, specialty product" and thus consumers are likely to exhibit a higher standard of knowledge and care than the typical "parent walking down the dairy aisle in a grocery store, possibly with a child or two in tow."
The 9th Circuit's decision is a recognition that courts will look kindlier on advertising of a product's attributes, especially concerning claims that the product contains 100 percent of something, where the product is what it is naturally, without the advertisers themselves adding to or otherwise diluting the ingredients included. Further, the court's application of a reasonable consumer standard to dismiss the claims here is a recognition that, at least in the 9th Circuit, there is an understanding that "specialty" products attract "specialty" reasonable consumers.
Out of State NY False Ad Claims v. Peloton Face End of Road
A putative New York-based class action lawsuit claiming that Peloton violated state unfair competition laws in touting its "ever-growing" list of workout classes is down one plaintiff. That, after a New York federal court found a Michigan plaintiff's amended complaint failed to allege facts sufficient to support standing to sue under New York law.
When plaintiff Alicia Pearlman initially signed up for Peloton's fitness classes and bought her Peloton bike, the company allegedly offered and advertised an "ever-growing" roster of at-home exercise classes. As alleged in the complaint, however, that soon changed. Following a March 2019 lawsuit brought by music publishers alleging copyright infringement, Pearlman alleges that Peloton cut the number of classes it offered by over 50 percent.
In December 2019, Pearlman, New York plaintiff Eric Fishon, and a California plaintiff (who voluntarily dismissed his claims in July 2020) sued Peloton under Sections 349 and 350 of the New York General Business Law (NYGBL). Their claim alleged that Peloton misrepresented the breadth of its content library and that they would not have purchased the Peloton membership and hardware if they had known the "digital library would shrink" as it did.
In November 2020, the court denied Peloton's motion to dismiss the entire lawsuit, allowing Fishon's claims to continue while at the same time tossing Pearlman's due to serious deficiencies in her pleadings. In January 2021, Pearlman filed an amended complaint hoping to rejoin Fishon before the Southern District of New York.
In its ruling on the motion to dismiss the amended complaint, the court found that Pearlman failed to cure the deficiencies that had doomed the complaint in the first place—namely, what products she had purchased, and facts sufficient to show a sufficient nexus between her purchase and subscription to the Peloton service and New York, as required to give rise to an NYGBL claim.
For example, Pearlman did not state "where she saw the allegedly deceptive advertisements, where her purchase and transaction were processed, or where the servers hosting Peloton's class library were located." Instead, the court found that Pearlman merely expanded on previously discarded arguments, including that Peloton's Financing Department was located in New York, and its terms of service require the application of New York law. As the court reiterated, "residency is not the issue—the issue is the location of the underlying transaction."
Judge Liman also rejected plaintiff's argument that she had standing to sue in New York because her payments were ultimately routed to Peloton's New York bank accounts, stating that:
[T]hat fact alone cannot support statutory standing. If it could, then any corporation holding a bank account in New York into which payments were received would be subject to liability under the NYGBL for activity anywhere in the world, which would expand the scope of the NYGBL far beyond the New York legislature's intent.
However, the court granted Pearlman's request for leave to amend the complaint to plead claims under the Michigan Consumer Protection Act, noting that the permissive standard of Rule 15 means that leave should be "freely give[n] . . . when justice so requires." The case also continues for putative New York class plaintiff Eric Fishon.
Judge Liman repeatedly highlighted that to accept plaintiff's theories, which were based on Peloton's accounting department and bank accounts in New York and choice of New York law, would open up companies in the state to liability from everyone and anyone around the world. Rather, as the court stated numerous times, a plaintiff seeking to assert a claim under the NYGBL must "allege that some part of her specific transaction took place in New York."