The U.S. District Court for the District of Massachusetts recently denied a motion to dismiss filed by defendants Colgate Palmolive Company (Colgate) and its subsidiary, Tom’s of Maine (Tom’s), in a class action lawsuit over Tom’s use of the word “natural” on its products. The court’s decisions to allow litigation alleging that the phrase “natural” is misleading to consumers and to pierce the corporate veil serve as a warning of potential corporate liability.
In Munsell v. Colgate-Palmolive Co., plaintiff Angela Munsell filed a class action against Tom’s and Colgate, alleging that they engaged in unfair and deceptive conduct in violation of Massachusetts and Rhode Island consumer protection laws. No. 19-12512-NMG, 2020 WL 2561012, at *4 (D. Mass. May 20, 2020). Plaintiff argued that she had been misled into regularly buying Tom’s “natural” toothpaste and deodorant since 2015 in an effort to use products that were environmentally friendly and “derived from nature.” Id. at *2. Plaintiff asserted that because of Tom’s use of the word “natural” on its products, she and likeminded consumers were deceived into purchasing Tom’s products at a higher premium, when, in fact, they contained several artificial and/or chemically processed ingredients. Id.
Defendants argued that dismissal was appropriate because Tom’s products did not meet the legal standard of deception, which provides that a statement is deceptive “when it has the capacity to mislead consumers, acting reasonably under the circumstances, to act differently from the way they otherwise would have acted[.]” Id. at *4. Defendants argued that no reasonable consumer would find Tom’s use of the word “natural” deceptive when considered in the context of the packaging and website disclosures. Id.
The court recognized that the word “natural” is displayed prominently on the front of Tom’s deodorant and toothpaste packaging. Id. at *1. On the boxes’ side panels, a blurb titled “what’s inside matters” describes the practices Tom’s considers to be natural and sustainable. Id. A link to the Tom’s website is also printed on the boxes, inviting consumers to go online to learn more about what makes Tom’s products “natural.” Id. The court also noted that per a 2015 settlement with a separate class of consumers, Tom’s was permitted to use the word “natural” to market certain products (including those at issue in this case), as long as it provided information on its packaging and website describing its definitions of “natural,” “sustainable,” and “responsible sourcing.” Id.
Nevertheless, the court held that plaintiff had met the plausibility standard required to survive a motion to dismiss, concluding that it is for the factfinder to determine whether a reasonable consumer “could be expected to take investigative steps to educate himself or herself rather than rely on the prominent display of the word ‘natural’ on the front of the package.” Id. at *5.
Defendants also averred that plaintiff’s claims against Colgate should be dismissed because plaintiff failed to allege any wrongs committed by Colgate or to explain the reason the corporate veil should be pierced to hold Colgate responsible for the actions of its subsidiary. Id. The court acknowledged that parent corporations are distinct from subsidiaries under Massachusetts law. However, the corporate veil may be pierced if the parent exercises “pervasive control” over the subsidiary’s activities and there is a “fraudulent or injurious consequence” of the relationship. Id. The court concluded that plaintiff alleged sufficient facts to state a claim for piercing the corporate veil by specifying that Colgate acquired Tom’s stock for the purpose of selling natural products, benefitting from Tom’s name in the natural product market, and working with Tom’s to market products as “natural,” despite synthetic ingredients. Id. at *9.
Munsell v. Colgate-Palmolive Co. serves as a warning of potential liability for companies in the use of the word “natural” on products. In a market where “natural” is commonly used to describe personal, cleaning, and food products, companies, including parent corporations, should consider the possibility of liability if the word is used inaccurately or without proper context.