A Class-Action Paradise: Legal Environment in California Encourages Frivolous Claims

food-courtA Food Court Follies Analysis

California: the land of beaches, Hollywood, and lawsuits.  A land where dreams can come true and where plaintiff-friendly statutes and forgiving federal judges allow consumer class actions to reign supreme.  Here on the WLF Legal Pulse, we have previously blogged on series of cases filed in California in which consumers allege that wording or images on a packaged food product misled them into making a purchase.  One notable subset of these cases involves supposed geographical-location deception—brewers make purchasers believe their beer was brewed in a (usually exotic or foreign) location when it was actually made someplace else.

These suits are made possible by permissive California laws which allow plaintiffs to file class actions against any manufacturer for just about any reason.  Federal district court judges in the state compound the plaintiff-friendly atmosphere by being especially tolerant of poorly plead (or frivolous) claims, routinely handing plaintiffs’ attorneys two or three bites at the apple while also spelling out how to best amend their complaints.  

Can of Beans: Beckman

From cases that allege food-labeling is misleading because it claims the product is “natural” to those that quibble over whether products are properly labeled as “organic,” plaintiffs lawyers have increasingly asked California courts to become food-labeling regulators (and earn a quick buck in the process).  Often, those complaints entirely deficient, but filed with the hope that they will eek past the motion to dismiss phase of litigation, or at least that the presiding judge will explain how they can be fixed.  We can add one more case to that list.

In Beckman v. Arizona Canning Company, the plaintiffs filed a lawsuit claiming that the defendant defrauded them because the picture of beans on the can they purchased did not look like the beans fresh out of the can.

The district court quickly and succinctly dismissed the plaintiffs’ complaint.  Because each of the plaintiffs’ claims sounded in fraud, they were subject to heightened pleading standards.  The court held:

Plaintiffs do not plead with particularity why the picture of the ready-to-serve bowl of beans mislead them to believe the unprepared product would appear the same. … Plaintiffs do not provide explanations of [the label’s] deceptiveness, explain why this is misleading in light of the product’s compliance with the FDA standard of labeling the ingredients in order of predominance, or explain how it is uncommon based on industry standards.

Without any showing of how or why the labels were misleading, the plaintiffs’ lawsuit could not go forward—after all, who doesn’t understand that canned beans are packaged with water.  But the plaintiffs still get their chance to amend; the district court dismissed the complaint without prejudice.

Can of Beer: Peacock

Over the last few years, beer manufacturers have come under siege for alleged misrepresentations on their beer’s labels and packaging.  On the WLF Legal Pulse, we have used the case against Kona Brewing Company as an exemplar for the trend as a whole.  In short, plaintiffs have filed a series of putative class actions alleging that they had assumed based on its labeling and packaging that the beer they purchased was manufactured in one location (usually international) while it was in fact brewed in another (typically domestically).

In the case of Kona Brewing Company, the plaintiff said he paid a premium for Kona’s beer because the packaging and label made him believe that it was brewed on a Hawaiian island when it was in fact brewed in the continental United States.  Chief among his complaints, the plaintiff said he was led to belief the beer was “imported” from Hawaii because its package showed a map of the islands with a large star over Kona’s headquarters and original brewery.  This map was enough, according to the Food Court’s district judge to defeat Kona’s motion to dismiss.

In Peacock v. The 21st Amendment Brewery Café, LLC, the plaintiff made nearly identical allegations, with a similar result.  There, the plaintiff alleged that he paid a premium price for beer from the Bay Area and that 21st Amendment’s labeling, which had a map of northern California with an “X” where the brewery was located, led him to believe that it was brewed in California.  In fact, 21st Amendment, while headquartered in the Bay Area, produces some of its beer, including the products at issue in Peacock, in Minnesota.

In addition, the plaintiff alleged that 21st Amendment had violated the California Unfair Competition Law (UCL) which creates a private right of action if a business practice is unfair because, among other things, it violates a law or regulation.  Here, the plaintiff alleged that 21st Amendment’s labels violated FDA regulations.

The district court allowed the plaintiff’s misrepresentation claim to go forward, citing the Kona case for support.  The judge found that the map of California with an “X” marking its headquarters could likely deceive reasonable consumers into thinking that 21st Amendment’s beer was actually produced in the Bay Area.  While the judge was careful to note that he did not feel as though it was a particularly strong claim, he held that the plaintiff had alleged sufficient facts to defeat a motion to dismiss.

However, the court dismissed the plaintiff’s UCL claim because he cited no specific regulation that 21st Amendment’s labels had violated and because FDA doesn’t regulate alcoholic beverages.

Conclusion

Consumer class actions continue to be a drain on the marketplace; forcing defendants to spent vast sums of money fighting often frivolous cases and raising the price of consumer goods for all Americans.  Thus it is incumbent on trial judges to hold plaintiffs to their pleading burdens in these misrepresentation cases.  Have the plaintiffs really plead the necessary particularity of fraud?  If the plaintiff, or an entire class, really believe that beer was brewed on a map or cans of beans don’t contain water?  Did they really pay a premium price for these products?

Judges have the power to dismiss these cases early on and should do so.  Anything else will just cause more customers to pay higher prices for the same products, while plaintiffs’ attorneys laugh all the way to the bank.

Also published by Forbes.com on WLF’s contributor page.

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