A Mixed Regulatory Scheme
When it comes to labeling, the FDA regulates most foods and nonalcoholic beverages. But the USDA, through its Food Safety and Inspection Service (FSIS), regulates labeling of meat, poultry, and liquid egg products. That jurisdiction extends to nearly all products containing meat or poultry, except those containing 3 percent or less raw or 2 percent or less cooked meat or poultry. In practice, this means that labeling of a frozen cheese pizza is subject to FDA jurisdiction,but if pepperoni or sausage is added to the pizza, labeling jurisdiction transfers to the USDA.
FDA derives its jurisdiction over food labeling primarily from the Federal Food, Drug, and Cosmetic Act (FDCA) and the Nutrition Labeling and Education Act of 1990 (NLEA). The USDA derives its labeling jurisdiction from the Federal Meat Inspection Act (FMIA) and the Poultry Products Inspection Act (PPIA). The NLEA requires certain nutritional and ingredient information to be disclosed on the labels of nearly all FDA-regulated food items. The USDA has adopted regulations that essentially mirror the FDA's, resulting in substantial uniformity between USDA and FDA nutritional and ingredient labeling requirements. One important difference between the two, however, is that the USDA-FSIS uses a label preapproval process while FDA food labels are not preapproved.
Food advertising, on the other hand, is subject to FTC jurisdiction. The FTC's authority extends to all advertising, including that on labels, whether the food is regulated by the FDA or USDA. Information on a manufacturer's website may be subject to both FDA/USDA and FTC jurisdiction because "under certain circumstances, information about FDA-regulated products that is disseminated over the Internet by, or on behalf of, a regulated company can meet the definition of labeling." FDA Letter to Washington Legal Foundation, Nov. 1, 2001.
The FTC is empowered to prohibit (1) unfair or deceptive acts or practices, and (2) in the case of food products, "any false advertisement" that is "misleading in a material respect." See 15 U.S.C. §§ 45, 52, 55. Generally, the FTC requires manufacturers to have a reasonable basis for all objective claims (express and implied) that reasonable consumers understand from advertisements. The FTC has generally attempted to harmonize its standards with respect to nutritional and health claims with the FDA; therefore, it usually will not take action regarding nutrient content and health claims that comply with the NLEA.
Effect of Warning Letters and Enforcement Actions
The last few years have seen a significant increase in the number of FDA warning letters and FTC enforcement actions related to food labeling and advertising. Often, consumer class action complaints follow. For example, after the FDA sent a warning letter to Coca-Cola regarding the vitamin and mineral content in its soft drink labeled Diet Coke Plus, plaintiffs filed a putative class action lawsuit against Coca-Cola, alleging consumer fraud and misrepresentation arising from the same labeling and marketing issues raised in the FDA's letter. Kellogg's also faced a piggyback consumer class action lawsuit after it settled FTC charges over labeling of its Frosted Mini-Wheats cereal as "clinically shown to improve kids' attentiveness by nearly 20%."
Beyond FDA and FTC actions, plaintiffs also file suits following investigations and media campaigns by consumer groups. The most active such group, the Center for Science in the Public Interest (CSPI), spurred a consumer fraud class action lawsuit in California when it sent a letter to Ben & Jerry's challenging the labeling of its ice cream as "natural." CSPI alleged Ben & Jerry's labeling was false and misleading because many flavors labeled as "All Natural" contained alkalized cocoa, corn syrup, and partially hydrogenated soybean oil. In response, Ben & Jerry's removed the contested language from its products.
Consumer Class Actions
Courts have long held there is no private cause of action under the FDCA or similar statutes. In other words, plaintiffs cannot file suit alleging a food company's products are misbranded or fail to comply with specific FDCA statutes or regulations. See Murphy v. Cuomo, 913 F. Supp. 671, 679 (N.D.N.Y 1996). But plaintiffs have other formidable mechanisms to hold companies accountable for perceived mislabeling.
The most common challenges to food labeling and advertising fall under the "consumer fraud" umbrella. These claims arise from states' widely varying consumer fraud, unfair trade practices, or unfair competition laws, which typically prohibit deceptive or misleading trade practices in connection with the sale or advertisement of consumer goods. These statutes are attractive to plaintiffs for several reasons. First, they often have only minimal standing requirements. Second, individual causation or reliance is often not required. Third, unlike personal injury claims, they are often amenable to class action certification, which makes it economically realistic for consumers—and their attorneys—to pursue claims involving minimal individual damages. Finally, the most liberal statutes authorize attorney fees and treble damages.
Two states in particular have been home to an explosion in these types of putative class actions: California and New Jersey. California's Unlawful Competition Law (UCL), Cal. Bus. & Prof. Code § 17200, prohibits unlawful, unfair, and fraudulent practices. See In Re Tobacco II Cases, 46 Cal. 4th 298, 311 (2009). The law also prohibits violations of California's false advertising statute, Cal. Bus. & Prof. Code § 17500. The statute has been broadly construed to "borrow" violations of other laws as unlawful practices, which are then treated as independently actionable. See Farmers Ins. Exch. v. Superior Court, 2 Cal. 4th 377, 383 (1992). While the UCL authorizes only injunctive relief and restitution, and not damages, recovery of attorney fees may occur under California's private attorney general statutes. See Cal. Civ. Proc. Code § 1021.5.
The New Jersey Consumer Fraud Act (NJCFA) is also particularly attractive to plaintiffs because the New Jersey Supreme Court has held that courts should construe the state's class action rules liberally with respect to consumer fraud class actions. See Strawn v. Canuso, 140 N.J. 43, 68 (1995). In addition, the NJCFA does not require plaintiffs to prove reliance, but only an unlawful act and an ascertainable loss, and further mandates both treble damages and reasonable attorney fees and costs in most cases. See N.J. Stat. Ann. § 56:8-19; Carroll v. Cellco P'ship, 713 A.2d 509, 516 (N.J. Super. Ct. App. Div. 1998).
Along with consumer fraud, plaintiffs often allege breach of express or implied warranty. That is, the label or advertising promised the consumer that the product was something it was not. In the consumer fraud class action context, warranty claims often turn on the issue of whether state law requires a showing of actual reliance. Another common inquiry is whether plaintiffs are required to provide notice of breach prior to filing suit and, if so, the form of that notice. State-to-state differences such as these may derail plaintiffs' attempts to certify a nationwide class.
Common Labeling Challenges
With new cases being filed every day, potentially any type of express or implied labeling claims may be subject to challenge. For example, the maker of Nutella was recently served with an action challenging claims that Nutella was "nutritious" and a "healthy breakfast" as false and misleading. See Hohenberg v. Ferraro U.S.A., Inc., 11-CV-205H (CAB), 2011 U.S. Dist. LEXIS 38471 (S.D. Cal., Mar. 22, 2011).
To date, the most prevalent consumer fraud class actions have focused on the use of the term "natural" to describe certain foods or beverages containing high-fructose corn syrup or citric acid, both common ingredients. For instance, plaintiffs have filed numerous suits against beverage makers arguing it is false and misleading to label beverages containing high-fructose corn syrup as "all natural." See Holk v. Snapple Beverage Corp., 575 F.3d 329 (3d Cir. 2009); Coyle v. Hornell Brewing Co., Civ. No. 08-02797, 2010 U.S. Dist. LEXIS 59467 (D.N.J. June 15, 2010).
These suits have proliferated, in part, because the FDA has defined "natural" only in the limited context of natural flavors. See 21 C.F.R. § 101.22. Although the FDA recognizes that "natural" claims may be confusing, it has repeatedly declined to engage in formal rulemaking to define the term due to "resource limitations and other agency priorities." Hitt v. Ariz. Beverage Co., LLC, Case No. 08cv809, 2009 WL 449190, at *4 (S.D. Cal. Feb. 4, 2009) (citing 56 Fed. Reg. 60421, 60466 and 58 Fed. Reg. 2407). Manufacturers, consumers, and courts are left with the FDA's informal policy statement that "natural" means that "nothing artificial or synthetic (including all color additives regardless of source) has been included in, or has been added to, a food that would not normally be expected to be in the food." See 58 Fed. Reg. 2302, 2407.
Health-related claims on labels or in advertising are also subject to frequent challenge. These claims typically allege that a product is "clinically proven" to prevent or cure a disease or otherwise provide some health benefit. But the FDA strictly limits such statements, approving only 16 health claims (those meeting the "substantial scientific agreement" requirement) and about 18 qualified health claims (established through a petition process but not meeting the substantial scientific agreement requirement). To avoid preemption, consumer class action suits challenge statements that fall outside of these FDA-approved claims.
Examples of such health-related claims that have been challenged are representations relating to the antioxidant or immunity-boosting properties of foods, health properties of probiotics in yogurt, and claims that foods contain particular nutrients that may reduce cholesterol or prevent cancer, strokes, or heart attacks. Suits addressing these claims are particularly attractive to plaintiffs because they require food companies to prove the truth of these claims, a science-intensive and expensive proposition that may encourage companies to settle rather than litigate.
Similarly, following the failure of personal injury lawsuits alleging that foods containing substances such as trans fats caused their clients to become obese, plaintiffs' attorneys have shifted their focus to suits involving trans fat labeling. A number of these suits allege that claims of "0 trans fat" or "trans fat free" on product labels are misleading when the product contains some form of partially hydrogenated vegetable oil. But because FDA regulations require that a product containing less than 0.5 grams of trans fat per serving be labeled as "0" in the nutrient facts panel, see 21 C.F.R. § 101.9(c)(2)(ii), courts generally find such claims preempted. See Pevianni v. Hostess Brands, Inc., 750 F. Supp. 2d 1111, 1119–20 (C.D. Cal. 2010).
Beyond proving the factual truth of the allegedly misleading labeling claims, food companies have several significant defenses to consumer fraud class actions. At the pleading stage, the so-called Iqbal/Twombly defense provides one of the strongest and quickest defenses to consumer fraud class actions. One court recently noted:
A complaint must plead "enough facts to state a claim for relief that is plausible on its face." A claim is plausible on its face "when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged."
See Rosen v. Unilever, No. C 09-02563, 2010 U.S. Dist. LEXIS 43797, at *10–11 (N.D. Cal. May 3, 2010) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007), & Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009)).
Applying the plausibility standard, several courts have dismissed suits alleging cereal makers' labels were misleading because they did not contain fruit (Fruit Loops) or berries (Cap'n Crunch's Crunch Berries). These decisions suggest that where the complaint's allegations are objectively unreasonable—that is, where "no reasonable consumer would believe" that Cap'n Crunch actually contains berries—courts will dismiss the complaint on the pleadings. See Werbel v. Pepsico, Inc., Case No. C 09-04456, 2010 WL 2673860, at *3 (N.D. Cal. July 1, 2010); see also Videtto v. Kellogg USA, No. 2:08-cv-01324, 2009 WL 1439086, at *2 (E.D. Cal. May 20, 2009).
Food companies should also consider moving to dismiss for failure to plead claims alleging consumer fraud claims with the particularity required under Federal Rule of Civil Procedure 9(b). This argument defeated the Diet Coke Plus case. The court agreed with Coca-Cola that the label was literally true and plaintiffs failed to allege how the vitamins added to the product fell short of consumers' reasonable expectations. See Mason v. Coca-Cola Co., Civil No. 09-0220, 2011 U.S. Dist. LEXIS 35390, at *9 (D.N.J. Mar. 31, 2011).
Even when consumer fraud class actions survive motions to dismiss on the pleadings, significant defenses remain at the class certification stage. In addition to the standard defenses to class certification, consumer fraud cases present the opportunity to argue that significant differences in the various states' consumer fraud and warranty laws defeat certification of a nationwide class.
In some states, for example, companies can fight class action certification by arguing that the consumer fraud or breach of warranty statute requires a showing of individualized reliance by each plaintiff on the defendant's allegedly misleading statements. See, e.g., Benedict v. Altria Grp., Inc., 241 F.R.D. 668, 679 (D. Kan. 2007) (individualized reliance showing required). Other states require only that the named class representative(s) show actual reliance. See In Re Tobacco II Cases, 46 Cal. 4th 298, 328 (2009). Even then, the individualized reliance/causation argument may prove compelling when plaintiffs allege several different false or misleading claims on a single label, on multiple labels, or with respect to multiple products. In such cases, a court may not require individualized reliance or causation but may nonetheless conclude that individualized factual issues arising out of multiple claims or products—including who relied on which labels or which particular claims in those labels—preclude class certification.
Preemption and Primary Jurisdiction
As the extensive regulation of food labeling by the FDA and USDA suggests, a preemption defense may be viable, though preemption arguments have met with varying degrees of success. For FDA-regulated foods, any labeling preemption analysis begins and ends with the NLEA's preemption clause prohibiting states from "directly or indirectly establish[ing]" requirements that are "not identical" to FDA requirements for labeling of such issues as standards of identity, ingredient listing, conspicuousness of label elements, nutrition content levels, and health-related claims. See 21 U.S.C. § 343-1(a)(1)–(5). Generally, if claims, however couched, challenge labeling statements that are specifically required or permitted under the FDA's regulations, such claims are expressly preempted. See Henderson v. Gruma Corp., CV 10-04173, 2011 WL 1362188, at *13 (C.D. Cal. Apr. 11, 2011) (trans-fat/cholesterol statements); Turek v. Gen. Mills, Inc., 754 F. Supp. 2d 956, 958 (N.D. Ill. 2010) (fiber statements). Where the FDA does not specifically define labeling terms or conditions under which they may be used, however, courts have rejected preemption arguments. See Holk, 575 F.3d 329, 341–42 (3d Cir. 2009) ("natural" claim); Vermont Pure Holdings, Ltd. v. Nestle Waters, Civil Action No. 03-11465, 2006 WL 839486, at *5 (D. Mass. Mar. 28, 2006) ("pure" claim).
Consumer fraud litigation involving labeling of USDA/FSIS regulated foods may be more vulnerable to a preemption defense due to (1) the requirement that labels be preapproved by USDA/FSIS; (2) the more expansive scope of express preemption provisions; and (3) the availability of implied preemption arguments. Express preemption may be found where the consumer alleges a label should include more or different information. E.g., Meaunrit v. Pinnacle Foods Grp., LLC, No. C 09-04555, 2010 WL 1838715 (N.D. Cal. May 5, 2010). Consumer challenges to labeling may also be subject to alternative implied preemption arguments: (1) that the applicable USDA/FSIS inspection act expresses Congress's intent to fully occupy the legislative field with respect to product labeling (field preemption); or (2) that compliance with both federal and state law is either a literal impossibility or that the state claim, if successful, would stand as an obstacle to the accomplishment of Congress's purposes and objectives (conflict preemption).
Related to preemption is the primary jurisdiction doctrine under which a court can either dismiss or stay an action (pending administrative agency action) where it "determine[s] that the initial decisionmaking responsibility should be performed by the relevant agency rather than the courts." See Syntek Semiconductor Co., Ltd. v. Microchip Tech., Inc., 307 F.3d 775, 780 (9th Cir. 2002). A primary jurisdiction defense may be feasible where the FDA, USDA, or FTC is actively considering an issue raised in the litigation. Last year, courts in New Jersey and California granted motions to stay in consumer fraud actions alleging the use of the term "natural" was misleading when used on labels of foods containing high-fructose corn syrup. See Coyle v. Hornell Brewing Co., Civ. No. 08-02797, 2010 U.S. Dist. LEXIS 59467 (D.N.J. June 15, 2010); Holk v. Snapple Beverage Co., Civil Action No. 07-3018, 2010 U.S. Dist. LEXIS 81596 (D.N.J. Aug. 10, 2010); Ries v. Hornell Brewing Co., Case No. 10-1139-JF, 2010 U.S. Dist. LEXIS 86384 (N.D. Cal. July 23, 2010). The court in each of these cases stayed the matters for a limited amount of time to give the FDA an opportunity to weigh in on the issue. However, in each case the stay was lifted after the FDA declined to take up the issue due to a lack of agency resources.
The regulatory environment is ripe for more FDA and FTC scrutiny of food labeling and advertising, including not only express or implied claims but also the intended audience. At the same time, activist consumer groups will continue attempts to influence public opinion on food-related labeling and marketing, with consumer fraud class actions almost certain to follow. Food companies must evaluate their advertising, website, and packaging with this climate in mind and recognize that certain claims—especially those involving "natural" or certain health benefits—and certain advertising campaigns—such as those directed at children—will likely face challenge in warning letters or enforcement actions as well as the media and the courtroom.
Keywords: litigation, products liability, food labeling, consumer fraud class actions, FDA, USDA, mislabeling