Trio of Soda Cases Test the Limits of Attorney-Driven Class Action Lawsuits

marguliesGuest Commentary

By Jeffrey B. Margulies, Partner-in-Charge of the Los Angeles, CA office of Norton Rose Fulbright US LLP.

The approach of many plaintiff consumer class-action lawyers is not difficult to discern: Concoct a factual theory to support a claim under California’s consumer-friendly laws that survives a motion to dismiss and a motion for class certification. Even if the liability case is highly improbable, the economics of the exposure to a certified class of consumers will compel all but the bravest of defendants to settle, handsomely rewarding the plaintiffs’ lawyers with fees. District courts in the Northern District of California, home to a surfeit of cases over alleged mislabeling of foods and beverages, have allowed many dubious factual claims to proceed.

Yet, even as (or perhaps because) the Ninth Circuit has removed obstacles to consumer class actions such as ascertainability (Briseno v. ConAgra Foods, Inc.) and standing to pursue injunctive relief (Davidson v. Kimberly-Clark Corporation), a trio of recent district court decisions over sodas appears to signal either that the Food Court is growing less tolerant of factually implausible claims, or that the plaintiff’s bar has gone a bridge too far.

The first two cases involved “diet” sodas. Plaintiff Shana Becerra filed complaints against Dr. Pepper/Seven Up, Inc. (Becerra v. Dr. Pepper/Seven Up, Inc., N.D. Cal. case no. 17-cv-05921-WHO) and The Coca-Cola Company (Becerra v. The Coca-Cola Co., N.D. Cal. case no. 3:17-cv-05916-WHA), alleging that the companies misled her and other purchasers to believe that their respective products, Diet Dr. Pepper and Diet Coke, would contribute to weight loss or healthy weight management. Becerra alleged that scientific research had shown that the artificial sweetener, aspartame, is likely to cause weight gain, and that had she been apprised of that fact, she would not have purchased the “diet” sodas, or would not have paid the price she did for them.

Becerra did not allege that either company made any affirmative representation that their products would help consumers lose weight, merely that by labeling them as “diet,” such a representation was implicit. She asserted that this misrepresentation violated the California Consumer Legal Remedies Act and Unfair Competition Law, and constituted a breach of express and implied warranties.

On February 27, 2018, Judge William Alsup issued an order granting Coca-Cola’s motion to dismiss Becerra’s complaint. After rejecting arguments that the complaint was barred by federal preemption or the California “safe harbor” doctrine, due to FDA regulation over the use of the term “diet,” the court turned to the intersection of Fed. R. Civ. Proc. 9(b), which requires that claims that sound in fraud be pled with particularity, and the California consumer protection statutes, which require that “members of the public are likely to be deceived” by an alleged misrepresentation of fact. The court’s rejection of Becerra’s claims under those standards was succinct:

Contrary to Becerra, a reasonable consumer would simply not look at the brand name Diet Coke and assume that consuming it, absent any lifestyle change, would lead to weight loss. In supermarkets, Diet Coke is displayed next to regular soft drinks and is not sold in the health-food section. Reasonable consumers would understand that Diet Coke merely deletes the calories usually present in regular Coke, and that the caloric reduction will lead to weight loss only as part of an overall sensible diet and exercise regimen dependent on individual metabolism.

Order Granting Motion to Dismiss at 5-6. The court also summarily dismissed the warranty claims, holding, ”[t]he complaint fails to sufficiently allege Coca-Cola misrepresented to consumers that Diet Coke would aid in weight loss or healthy weight management without regard to exercise and nutrition.”

On March 30, Judge William Orrick entered an order dismissing the claims over Diet Dr. Pepper. As with the Coca-Cola case, the Judge Orrick rejected the defendant’s preemption and safe harbor arguments, but found the allegations implausible to support the California consumer-protection and breach-of-warranty claims:

Plaintiff alleges only that defendant “tout[s] Diet Dr Pepper as ‘diet,’ and containing zero calories.” But Diet Dr Pepper is a “diet” product relative to regular Dr Pepper, because Diet Dr Pepper contains zero calories. A reasonable consumer knows that this is and always has been true of soft drinks generally––“diet” soft drinks are simply lower calorie or calorie-free versions of their sugar-laden counterparts. A reasonable consumer would have no basis to infer anything more from Diet Dr Pepper’s label or advertising than that it is a calorie-free soft drink. Nor does plaintiff provide any evidence that a reasonable consumer understands “diet” in the context of soft drinks to mean otherwise. As in the Starbucks [Forouzesh v. Starbucks Corp.] and Coca-Cola cases, that a small number of persons might unreasonably misunderstand the label does not render the product’s label deceptive within the meaning of California’s unfair competition laws.

Order Denying Motion to Transfer and Granting Motion to Dismiss (Mar. 29, 2018) at 10-11.

One day later, Judge Edward Davila entered an order granting a motion to dismiss in Maxwell v. Unilever United States, Inc., N.D. Cal. case no. 5:12-cv-01736-EJD (filed Mar. 30, 2018). In Maxwell, the plaintiff claimed that PepsiCo, Inc. made labeling misrepresentations on a variety of Pepsi sodas by listing phosphoric acid and citric acid as ingredients, but failing to disclose that those compounds are chemical preservatives and/or artificial flavorings. As with the previous cases, Judge Davila reviewed the allegations of the complaint through the lens of Rule 9(b)’s particularity requirement, and found that they did not establish that the failure to affirmatively disclose the presence of chemical preservatives or artificial flavorings would deceive a reasonable consumer.

Central to the court’s reasoning was that there was “no affirmative representation that the contents are free from artificial ingredients.” Order Granting Defendant Pepsico, Inc.’s Motion to Dismiss Plaintiff’s Third Amended Complaint at 10-11.   Accordingly, “it would not be reasonable for a consumer to assume, just based on the absence of some kind of affirmative indicator of artificiality on a back-side ingredient list, that a product was not artificial.” Id. at 11.

These rulings were consistent among each other, although seem to be outliers for those who litigate class actions in California. Absent were the usual judicial responses to motions to dismiss: “questions of fact,” “accept the allegations of the complaint even if unlikely,” need for surveys or expert testimony. These courts did what few courts have done before: simply declare that the basis for the alleged liability was beyond the pale.

Do these decisions appear to portend a shift in how courts are approaching the flood of consumer class actions seeking relief under California’s consumer protection statutes? At a minimum they appear to show the line between unlikely claims (which will pass muster under Rule 12(b)(6)) and “implausible” claims (which will not).

And perhaps they are taking a cue from a similar shift in the Ninth Circuit’s approach to addressing factually flimsy claims in a complaint. In Williams v. Gerber Prods. Co., 552 F.3d 934, 938-39 (9th Cir. 2008), the Ninth Circuit cautioned district courts against finding on the pleadings that labeling claims were not likely to deceive: “California courts[] have recognized that whether a business practice is deceptive will usually be a question of fact not appropriate for decision on demurrer,” although “[d]ecisions granting motions to dismiss claims under the Unfair Competition Law have occasionally been upheld.” There, the panel chided the district court for “concluding, without considering any evidence beyond the packaging itself, that Appellants’ complaint failed to state a viable claim.” 552 F.3d at 940.

More recently, however, a different panel affirmed a district court’s grant of a motion to dismiss, where the plaintiff alleged that the defendant misrepresented the amount of lip balm in its tube, where the tube only allowed 75% of the product to be accessible. Ebner v. Fresh, Inc., 838 F.3d 958 (9th Cir. 2016). In Ebner, the court found “the reasonable consumer understands the general mechanics of these dispenser tubes and further understands that some product may be left in the tube to anchor the bullet in place. … A rational consumer would not simply assume that the tube contains no further product when he or she can plainly see the surface of the bullet.” Id. at 966.

Ultimately relying on Lavie v. Procter & Gamble Co., 105 Cal.App.4th 496, 506-07 (2003), Ebner held that the “tube is not false and deceptive merely because the remaining product quantity may be unreasonably misunderstood by an insignificant and unrepresentative segment of the class of persons that may purchase the product.” Id. (internal quotation marks omitted).

The two Becerra cases and the Maxwell case cited both Williams and Ebner in their analyses of the sufficiency of the complaints. All three decisions came to the conclusion that it was enough to look at a product’s labeling through the lens of Rule 9(b) to determine whether a plaintiff’s misrepresentation and warranty claims passed the plausible pleading test. They appear to signal a long-overdue shift in early judicial scrutiny of lawyer-generated claims that are brought simply to extract settlements by companies eager to avoid the cost, burden, and potentially crippling exposure of consumer class-action litigation, but that have no chance of prevailing at trial. We will be eagerly monitoring how these cases fare on appeal, and whether this trend continues in California’s district courts and the Ninth Circuit.

One thought on “Trio of Soda Cases Test the Limits of Attorney-Driven Class Action Lawsuits

  1. Pingback: Liability roundup - Overlawyered

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