Simply stated: labels matter.” (Kwikset Corp. v. Superior Court (2011) 51 Cal.4th 310, 328.) With those four words, the California Supreme Court underscored the potential for liability for companies (and the marketing industry that serves them) in advertising and labeling foods for sale. Civil litigation—and class action litigation, in particular—is a significant threat to food companies. To avoid this pitfall, food companies must take the California Supreme Court’s words to heart—labels do matter.
Not surprisingly, class action litigation over food claims runs a broad spectrum. This is due, in part, to California’s broad statutory framework applicable to marketing claims: the Consumers Legal Remedies Act (UCL) (Cal. Civ. Code § 1750 et seq.), and the False Advertising Law (Bus. and Prof. Code § 17500) are both potent tools for an increasingly aggressive plaintiffs’ bar. One area of particular concern, however, is the use of the description “natural” on product labeling. The pace of filing of food marketing and labeling claims has increased significantly in 2012, notably those that attack products labeled as “natural.”
Unfair competiion & misbranding
The UCL prohibits unfair competition, which is defined as “any unlawful, unfair or fraudulent business act or practice.” To prohibit such unfair competition, the California Legislature adopted “broad, sweeping language” to flesh out the goal of the UCL to “protect both consumers and competitors by promoting fair competition in commercial markets for goods and services.” (Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co. (1999) 20 Cal.4th 163, 181; Kasky v. Nike, Inc. (2002) 27 Cal.4th 939, 949.)
The False Advertising Law is similar in nature, although it applies to the narrower field of false and misleading advertising. To state a claim for false advertising, the plaintiff must show that (1) the statements in the advertising are untrue or misleading and (2) the defendants knew, or by the exercise of reasonable care should have known, that the statements were untrue or misleading. (People v. Lynam (1967) 253 Cal.App.2d 959, 965.)
Yet, a defendant’s knowledge of the falsity of the statements is not an element of a claim for false advertising. Section 17500 prohibits both intentional and negligent dissemination of misleading statements. (Feather River Trailer Sales, Inc. v. Sillas (1979) 96 Cal.App.3d 234, 247; People v. Forest E. Olson, Inc. (1983) 137 Cal.App.3d 137, 139.)
California’s consumer protection laws are relied upon by plaintiffs in conjunction with the Federal Food, Drug and Cosmetic Act (21 U.S.C. § 301) (the Act). The requirements of the Act were adopted by the California Legislature in the Sherman Food Drug & Cosmetic Law (California Health & Safety Code § 109875, et seq.).
Section 403 of the Act, as well as Health and Safety Code section 110660, lists various instances where a food will be considered “misbranded.” Under either statute, a food product will be deemed “misbranded” if its labeling includes any false or misleading claims about the food and/or its ingredients. (21 U.S.C. § 343(a)(1).)
Unfortunately, though, the U.S. Food & Drug Administration (FDA), which oversees packaged food labeling, has not decided on a clear definition of the often-used term “natural.” Instead, the FDA has indicated that it will not object to the use of the term if the food does not contain added color, artificial flavors, or synthetic substances.
In October 2009, the FDA issued a call to food manufacturers and distributors to consider (or, reconsider, as the case may be) their labeling. In Guidance for Industry: Letter Regarding Point of Purchase Food Labeling, the FDA noted that accurate food labeling “can assist consumers in making healthy nutritional choices.” As such, the FDA promised more monitoring and evaluation of front-of-package labels and their impact on the perceptions and choices of consumers regarding their food. Accordingly, the FDA invited manufacturers and distributors to review their labeling to “ensure that the label statements are consistent with FDA laws and regulations.” The FDA also promised to bring enforcement action against those whose label statements ran afoul of the Act.
FDA stalls, plaintiffs pounce
It would seem that this “invitation” for consideration by the FDA was lost in the mail for some manufacturers and distributors. Armed with California’s broad consumer protection laws and federal and state food regulations—as well as the lack of more particular guidance by the FDA—plaintiffs’ attorneys have gone on the offensive. Some examples of recently filed actions include:
• Kosta v. Del Monte Corp., No. 12-cv-1722 (N.D. Cal.)—challenging food products marketed as “natural” that contain preservatives.
• Sovocool v. The Coca-Cola Co., No. 12-cv-2064 (N.D. Cal.)—claiming Simply Orange juice is marketed as “not from concentrate,” “100% Pure Squeezed Orange Juice” and a “pure, natural orange juice” but is allegedly heavily processed.
• Trammell v. Barbara’s Bakery Inc., No. 12-cv-2664 (N.D. Cal.)—Puffins cereal is marketed as “all-natural” but is alleged to contain genetically-modified organisms.
• Schwartz v. Frito-Lay North America Inc., No. 12-cv-2740 (N.D. Cal.)—bean dip is marketed as “All Natural” but is alleged to contain genetically-modified soy ingredients.
While it is important to note that these actions are still in their preliminary stages, and no claim of misbranding or misleading marketing statements have been proved against the defendants at this time, the trend cannot be ignored. Private enforcement actions are being brought by determined plaintiffs’ class action attorneys. The expense and reputational risk that often accompanies such lawsuits is substantial, and settlements and judgments can be financially crippling to companies both large and small.
Know your ingredients
So, what can be done? Generally, food manufacturers should determine whether the food product is regulated by the FDA or the U.S. Department of Agriculture (USDA). While neither agency has promulgated regulations that provide crystal clear guidance, some rough boundaries of what constitutes a “natural” product can nevertheless be discerned.
If it is regulated by the FDA, keep in mind that the FDA generally prohibits a “natural” product from containing an added color, synthetic substance, artificial flavor, etc. that would not normally be expected in the food.
If the product is regulated by the USDA, the USDA prohibits a “natural” product from containing any artificial flavor, color, chemical preservative, or any other artificial or synthetic ingredient. In addition, the USDA also pays attention to the amount of processing that a product and its ingredients receive. A natural product for USDA purposes is one that is minimally processed.
The wise food manufacturer will also conduct an intensive review of all of the food product’s ingredients. It may be that the product is made with some natural ingredients, but not entirely. It would be more prudent, then, to focus on the natural ingredients within the product as opposed to labeling the entire product “natural.” Being able to substantiate a labeling claim is an essential requirement before any such claim can be made.
Additionally, early consultation with legal counsel well-versed in the regulatory and statutory framework applicable to food labeling is necessary. Manufacturers should work with knowledgeable counsel to ensure that they are in compliance with the various (and often confusing) FDA, USDA, and related federal and state laws. It would also be prudent to request that counsel analyze labeling claims to assess the potential risk that they may present for a consumer action.
Food companies would also be wise to monitor what types of “natural” claims are being contested. Patterns may become evident. Knowing the lay of the land can help expose the pitfalls and help you avoid them, and substantial care should be taken to avoid litigation.
Do not underestimate the potential exposure to both brand reputation risk and legal action that can arise from allegedly misleading labeling. A food manufacturer that is deemed (rightly or wrongly) to be stretching the truth about its product’s attributes could suffer a devastating drop in sales and costly litigation that could significantly impair the company’s ongoing operations.
Keep your paperwork
Lastly, if you are faced with a consumer action, know that it will be a fact-intensive process, and the ability to marshal supporting documentation is critical to successfully defending a food labeling claim. A prudent food manufacturer will already have in place a crisis management team, a comprehensive document retention policy that maintains records that can be used to substantiate labeling claims, and experienced legal counsel that can appropriately respond to the action. A carefully considered litigation strategy—one that weighs both the benefits and risks of aggressively defending challenges versus settling an action early—is essential to minimizing a company’s potential exposure to consumer actions arising from labeling claims.
Bill Acevedo is a partner in the litigation group at Wendel, Rosen, Black & Dean LLP in Oakland, Calif. He also leads the firm’s Green Business Practice Group. He can be reached at [email protected] or 510-834-6600.