In our ongoing discussion of and commentary on class actions alleging consumer fraud in food labeling, we’ve assessed numerous cases where use of “natural” or “all natural” allegedly rendered the labeling false or misleading (our latest here and here). These crusading lawyers have rushed into the void left by the Food and Drug Administration (FDA), which has refused to issue a formal definition of “natural” for use on food labels.
Defendants in such cases have routinely argued that FDA policy statements on the meaning of natural should preempt state law-based consumer protection claims, or that courts should defer to the federal agency under the prudential “primary jurisdiction” doctrine. The preemption arguments have been unsuccessful, but some judges have put class action suits on hold and urged FDA action. Such action has not been forthcoming.
Judge Hamilton of the Northern District of California addressed these issues on May 10 in Janney v. General Mills. The suit involves General Mills’s Nature Valley® line of products and claims that certain sweeteners in those products are not “natural.” The defendants sought dismissal based on the primary jurisdiction doctrine. They pointed to a November 2012 Northern District ruling, Astiana v. Hain Celestial, that dismissed claims against the use of “natural” on cosmetics packaging based on FDA’s primary jurisdiction.
Though Judge Hamilton called the question “a close one,” she said General Mills’s motion must be denied “at least at this stage of the litigation.” She acknowledged the cosmetics case precedent, but reasoned that because FDA has “signaled its relative lack of interest” in defining natural, the Janney case was different from the Astiana case because FDA had “issued no guidance.” Because “any referral to the FDA would likely prove futile,” Judge Hamilton declined to stay or dismiss Janney’s suit.
Cross-posted at WLF’s contributor page at Forbes.com
The federal Affordable Care Act, better known as “ObamaCare,” may provide activists and government a little-known wedge to advance their obesity agendas through regulated health-care providers — specifically America’s nearly 3,000 non-profit hospitals. One organization, The STOP Obesity Alliance, recently identified this wedge as a way to have such hospitals embrace its core convictions, including one principle which questions the role of personal responsibility as a cause and a solution to obesity.
Community Health Needs Assessments. Section 9007 of the Act requires non-profit hospitals, as a condition of maintaining their tax-exempt status, to conduct Community Health Needs Assessments (CHNAs). These documents, which must be filed with the IRS, will demonstrate the health needs of the hospitals’ local communities and explain how hospitals are meeting those needs. One assessment of CHNAs likened them to banks’ responsibilities under the Community Reinvestment Act, in the sense that the documents might be used as tools by activists to prompt agreements or actions. It’s likely the STOP alliance understood this when it made its “recommendations.”
STOP’s Recommendations. The STOP Obesity Alliance “strongly encourages nonprofit hospitals to overcome and prevent obesity on the following core principles.” On balance, the coalition’s principles are laudable (encourage physical activity, encourage best practices, address and reduce stigma). One recommendation — that CHNAs use a “sustained loss of five to ten percent of current weight” as a barometer to successful weight reduction — may be troublesome for hospitals. If hospitals incorporate such a specific goal into their CHNAs, and their patients don’t achieve such consistent weight loss, that could provide STOP and other advocates with the clear data they need to oppose continued non-profit status at the IRS or with a potent stick to prod hospitals to certain actions. Continue reading
Last summer in the Legal Pulse post The Ninth Circuit Rains on Plaintiffs’ Attorneys’ Class Action Pay Day, Washington Legal Foundation K.K.Legett Fellow Lauren Murphree described the U.S. Court of Appeals for the Ninth Circuit’s rejection of a class action settlement in Dennis v. Kellogg Co.
Mr. Dennis and countless other fans of Frosted Mini-Wheats claimed Kellogg’s labeling statements had unlawfully misled them. The parties ended up settling, and the district court approved the settlement. The Ninth Circuit sent the parties back to the drawing board and back to the Southern District of California. On May 3, the presiding trial judge gave preliminary approval to the new settlement.
The Ninth Circuit was understandably troubled by several aspects of the original settlement, including a $5.5 million cy pres award aimed at feeding the indigent (which was “laudable” but had “little to do with the purposes of the underlying lawsuit”) and an attorneys’ fee that came out to $2,100 an hour.
The recipients of the new settlement agreement’s smaller cy pres distribution of $4 million are three “consumer” groups: Center for Science in the Public Interest, Consumer Watchdog, and Consumers Union (Nice of the court to hand over a slush fund of cash which could fund more food labeling lawsuits, and create jobs for lawyers and court staff, likely in California). The amount of money available for allegedly harmed plaintiffs went down from $2.75 million to “$2-2.5 million.” The amount of attorneys’ fees remarkably stayed the same.
District Judge Gonzalez had some questions about these new terms. She wondered:
- How did mere identification of proper cy pres recipients result in such a severe drop in the value of the class’s claims?
- How is it that the value to the class dropped approximately 75%, while requested attorneys’ fees appear nearly constant?
Excellent questions both, but they did not forestall Judge Gonzalez from giving preliminary approval to the settlement. She did, though, order the parties to “fully address these concerns in their final approval briefing and at the final approval hearing.”
Cross-posted at WLF’s contributor page at Forbes.com
Perusing yet another class action complaint filed in the Northern District of California, Gitson v. Clover-Stornetta Farms, we were positively amused to find that on page 19, the plaintiffs’ lawyers cite a letter from the Food and Drug Administration (FDA) to WLF for the proposition that under federal law, a company’s website is definitively considered “labeling.” FDA’s letter was in response to WLF’s April 2001 petition urging the agency to establish a formal policy on the nature of information on websites like that of Clover-Stornetta Farms.
While it’s flattering that WLF’s public interest work has such enduring relevance and utility, we can’t let the plaintiffs’ invocation of FDA’s letter pass without refutation.
Clover-Stornetta Farms’s alleged transgression was to misleadingly refer to the sweetener used in some of its yogurt products as “evaporated cane juice.” Misleading or false labeling under federal law, incorporated into the California laws under which Gitson is suing, renders the product “misbranded.” And according to the complaint, because the yogurt label referred to the company’s website (which did little more than helpfully reprint the ingredient label), the website constituted labeling which equally misbranded the product. Continue reading
Cross-posted at WLF’s Forbes.com contributor page
With class action lawyers still buzzing around food makers like angry gnats in summer, targets of these labeling and marketing suits welcome any instance where a federal judge gets the fly-swatter out and slaps down a case or two. Or three, as we’re about to describe.
Evidence, Why do We Need Evidence?: Ries v. AriZona Beverages. We’ve been a bit hard on the U.S. District Court for the Northern District of California (aka “The Food Court”). We’ve even been critical of Judge Seeborg’s ruling in Ries late last year. His latest ruling in this “high fructose corn syrup (HFCS) and citric acid are not ’100% natural’” class action, however, hits the spot just like cold ice tea. The defendants moved for summary judgment based on the fact that Ries had not provided evidence that HFCS and citric acid are artificial. Judge Seeborg had granted Ries discovery last September and urged her to find such evidence.
As the judge wrote in his March 28 ruling, “Plaintiffs have not introduced any evidence showing that HFCS or citric acid are artificial.” The plaintiffs urged Judge Seeborg to “take judicial notice” of the fact that federal patents have been issued for the process of producing HFCS, which they claimed proved it was not natural. The judge saw this as “an extension of their rhetoric,” and that “In the face of a motion for summary judgment, rhetoric is no substitute for evidence.” Separately the judge also found that there was not a “scintilla of evidence” to support damages in the case, and that due to the attorneys’ failure “to prosecute this action adequately,” the class action should be decertified due to inadequate representation. Continue reading
Cross-posted at WLF’s Forbes.com contributor site
Federal Rule of Civil Procedure 11, which in part authorizes the imposition of sanctions on attorneys who sign frivolous pleadings in federal court, is not used nearly as much as it should be. But that may be changing a little, at least in the U.S. Court of Appeals for the Seventh Circuit.
In a recently issued 18-page ruling, Judge Richard Posner authored a unanimous panel opinion reversing an Illinois district judge’s failure to impose Rule 11 sanctions on attorneys with the firm Robbins Geller Rudman & Dowd. The factual background reads like a scenario plucked directly from a law school ethics exam.
Seeking hundreds of millions of dollars in damages, plaintiffs filed a putative class action alleging that Boeing Company, along with its CEO and the head of its commercial aircraft division, committed securities fraud in violation of federal law. The district judge dismissed the complaint for failing to allege sufficient facts to properly plead the requisite scienter for fraud. Not to be deterred, plaintiffs promptly filed an amended complaint, but this time with detailed bombshell revelations from a confidential source. Ultimately, however, the allegations in the amended complaint could not withstand even the slightest scrutiny.
As Posner describes it:
The plaintiffs’ lawyers had made confident assurances in their complaint about a confidential source—their only barrier to dismissal of their suit—even though none of the lawyers had spoken to the source and their investigator acknowledged that she couldn’t verify what (according to her) he had told her.
Their failure to inquire further puts one in mind of ostrich tactics—of failing to inquire for fear that the inquiry might reveal stronger evidence of their scienter regarding the authenticity of the confidential source than the flimsy evidence of scienter they were able to marshal against Boeing.
Noting that the same law firm had been accused of “similar conduct” in three other reported cases, Posner remanded the matter back to the district judge, who would be in a better position to calculate a dollar amount for Rule 11 sanctions.
The case is City of Livonia Employees’ Retirement System v. The Boeing Co.
Featured Expert Column
Frank Cruz-Alvarez, Shook, Hardy & Bacon, L.L.P. (co-authored with Talia Zucker, Shook, Hardy & Bacon, L.L.P.)
On March 19, 2013, the Supreme Court of the United States issued a unanimous opinion in Standard Fire Insurance Company v. Knowles, No. 11-1450, 2013 WL 1104735 (2013), derailing a plaintiff’s efforts to sidestep the provisions of the Class Action Fairness Act (“CAFA”) by way of a precertification stipulation for damages of less than $5 million. With clever plaintiffs’ lawyers constantly dreaming up ways to prevent removal and avoid the rigorous proceedings in federal court, this opinion will assist defendants in future jurisdictional battles by eliminating this particular avenue for defeating jurisdiction.
Knowles had filed a putative class action lawsuit in Arkansas state court against Standard Fire Insurance Company. Knowles, 2013 WL 1104735, at *2. In describing the relief sought, the complaint provided that plaintiff and the class (which had yet to be certified) would seek to recover total aggregate damages of less than $5 million. Id. The insurance company removed the case to federal court pursuant to CAFA. Id. Although the district court found that in the absence of the stipulation the amount in controversy would have fallen just above the $5 million threshold, it remanded the case to state court in light of the stipulation. Id. The insurance company appealed the remand order, but the Eighth Circuit declined to hear the appeal. Id. The Supreme Court, however, granted the insurance company’s writ of certiorari in light of conflicting lower court viewpoints. Id.
CAFA provides federal courts with original jurisdiction over class actions in which, among other things, the matter in controversy exceeds $5 million. 28 U.S.C. § 1332(d)(2). To determine whether that sum is exceeded, the claims of the individual class members are aggregated. § 1332(d)(6). The issue presented to the Supreme Court – whether a precertification stipulation can defeat federal jurisdiction under CAFA – was answered in the negative. Knowles, 2013 WL 1104735, at *3. Continue reading
Cross-posted at WLF’s Forbes.com contributor page
Over the past year, we’ve applauded several positive developments from courts in the Ninth Circuit (here and here) where judges closely scrutinized and rejected the use of the cy pres device in class action settlements. Just last week we read at the Point of Law blog and elsewhere about a Third Circuit ruling which rejected an absurd cy pres distribution in an antitrust class action settlement.
A Ninth Circuit decision yesterday, McCall v. Facebook, Inc., blows up that recent trend. It was actually an indecision — a denial of a request for rehearing en banc by objectors to a class action settlement approved by a three-judge panel of the Ninth Circuit last year in Lane v. Facebook, Inc. In Lane, the panel approved a class action settlement with zero dollars going to the purportedly harmed class members, $3.2 million to the lawyers, and around $6.3 million in cy pres to an organization called “Digital Trust Fund” (DTF) which did even not exist prior to the settlement. Type “Digital Trust Fund” into your search engine; you’ll find a for-profit company with that name, but no charity.
Thankfully, we aren’t the only ones who thought that was quite curious. Six judges dissented from the Ninth Circuit’s denial of rehearing en banc. They forcefully note that the cy pres award violates both of the two requirements for such awards: 1) reasonably certain to benefit the class and 2) advance the objectives of the statutes utilized in the suit. Continue reading
Alabama Supreme Court
In mid-January, we discussed a troubling decision from the Alabama Supreme Court, Weeks v. Wyeth. In Weeks, 8 of the Court’s 9 justices agreed that a plaintiff allegedly harmed by a generic drug can sue the manufacturer of the branded drug on which the generic is based. The opinion noted a dissent by Justice Murdock would be forthcoming.
That dissent came out on February 4. In 45 well-reasoned pages, Justice Murdock illuminates how far the Weeks majority strayed from, as he put it, “bedrock principles of tort law,” and how dramatically out of line the decision is with an overwhelming majority of analogous state and federal court decisions.
The opinion begins by expressing an overarching principle that courts must consider when assessing legal controversies that affect commerce and industry. It’s a statement that WLF should etch into the front of our headquarters:
The law must protect the fruits of enterprise and create a climate in which trade and business innovation can flourish. Concomitantly, the law must justly allocate risks that are a function of that free trade and innovation.”
One fundamental principle of tort law which advances this allocation of risks is that businesses should only be responsible for injuries caused by their own products. There must be some relationship between plaintiff and defendant which gives rise to a duty of care to which businesses must conform. Continue reading
Alabama Supreme Court
Anyone who watches ESPN or virtually any other cable show has likely seen advertisements from law firms recruiting clients who believe they suffer from tardive dyskinesia. Lawsuits against the makers of Reglan and its generic equivalent, the long-term use of which is alleged to cause this condition, have been a growth area for Litigation Inc. In fact, if one types “tardive dyskinesia” into a search engine, the first result is http://www.tardivedyskinesia.com/, a site which according to the small print at the bottom of the home page is sponsored by The Peterson Firm.
Lawyers representing alleged dyskinesia patients have argued for years that even if their clients were prescribed the generic version of Reglan, the brand name producer of the drug should be liable under either a product liability or misrepresentation theory for failing to warn of the drug’s long-term effects. Although a few federal and state courts have accepted the theory, they have heretofore been considered outliers.
On Friday in Wyeth v. Weeks, the Alabama Supreme Court, answering a question certified to it by the U.S. District Court for the Middle District of Alabama, ruled that under Alabama law, plaintiffs can sue a brand drug maker for its alleged failure to warn patients’ physicians of harmful side effects of the drug’s generic equivalent.
Six justices concurred with Justice Bolin’s opinion, with Justice Murdock’s dissent, according to the published majority opinion “to follow.”
While you await the dissent, we encourage you to read the “majority opinion” from Washington Legal Foundation’s court opinion-style On the Merits paper from last January, where Ropes & Gray partner Douglas Hallwell-Driemeier explained why the brand drug company’s arguments should prevail.