Thursday, June 11, 2015

violation of labeling law is presumptively material and deceptive

Brown v. Hain Celestial Group, Inc., 2015 WL 3398415, No. 11-cv-03082 (N.D. Cal. May 26, 2015) (magistrate judge)
Plaintiffs sued Hain for selling cosmetics whose front labels used the word “organic,” but that did not contain at least 70% organic ingredients as required by the California Organic Products Act (COPA), resulting in CLRA and UCL claims; the court certified two classes corresponding to two Hain product lines. Here, the plaintiffs sought and received summary judgment on five issues of California law. 
It was undisputed that, before reformulation/relabeling, at least some Hain cosmetics were labeled and sold as “organic” without meeting COPA’s organic-content requirement.  The parties didn’t agree on which products were “cosmetics” under COPA, or which specific products fell short of COPA’s 70% minimum. Here, though, the plaintiffs weren’t seeking to establish that any specific product violated COPA, but rather to establish the relevant law in the abstract.  The court found this to be an acceptable use of Rule 56, which is designed to streamline cases for trial, although it has obvious implications for Hain’s tactical position.
COPA provides that “[c]osmetic products sold, labeled, or represented as organic or made with organic ingredients shall contain[] at least 70 percent organically produced ingredients.”  Plaintiffs asked the court to hold that selling any product that used a variant of the word “organic” on the label but had less than 70% organically produced ingredients violated COPA. Hain responded that the court should defer to a February 2013 “notice of resolution” from the California Department of Public Health (CDPH). This notice came at the end of an agency inquiry, which included several hundred pages of documents from Hain, including a chart showing that Hain would be discontinuing all but two of its Jason products (one of the relevant product lines).  Hain also described or sent the CDPH samples of revised Avalon Organics and Jason labels, now conforming to the organic content standards and not at issue in this case. The new Jason labels no longer carried their old “Pure, Natural, and Organic” tagline. The CDPH’s letter acknowledged the changes, suggested that these products did not use the word “organic” so as to trigger COPA, and stated that the CDPH “consider[ed] the matter resolved.”
This letter didn’t bar the plaintiffs’ claims. The CDPH inquiry was ex parte and too informal to have a preclusive effect, “amounting only to the agency’s decision not to further investigate.” The agency had no comparative interpretive advantage over the courts, since “[t]his case presents a question of straightforward statutory interpretation in plain English.” To the contrary, “[g]iven that the court’s workaday job consists largely of reading and applying statutes, it probably has the interpretive advantage over the CDPH.” Plus, there was no reason to think that the CDPH was probably correct (which would help justify deference).  “Reading COPA’s very comprehensible language, it would seem that the CDPH baldly erred if it held that a product labeled ‘organic’ but having less than 70% organic ingredients does not trigger COPA.”
Then, the court held that COPA violations were “unlawful” for purposes of triggering the unlawfulness prong of the UCL.
Next, the court turned to presumptions of materiality, deception, and reliance, framing the question as whether the plaintiffs could prove most of their case through presumptions and inferences.  Answer: yes. The basic theory:
The California legislature in passing COPA determined that mislabeled organic products are “material” to the ordinary consumer….This legislative determination of materiality compels the further conclusion that, as a matter of law, the label was “likely to deceive” the ordinary (read: reasonable) consumer. Finally, California law holds that, if a CLRA plaintiff proves that a misrepresentation was “material,” then absent class members need not prove that they actually relied on the misrepresentation. The law will infer that they did.
If you put together the UCL standing cases, primarily Hinojos v. Kohl’s Corp., 718 F.3d 1098 (9th Cir. 2013), and Kwikset Corp. v. Superior Court, 51 Cal.4th 310 (2011), and class certification cases discussing the UCL and CLRA, Stearns v. Ticketmaster Corp., 655 F.3d 1013 (9th Cir. 2011), and In re Tobacco II Cases, 46 Cal.4th 298 (2009), that is indeed the result you get.  “[B]y enacting COPA, the California legislature has determined that organic-content representations are material,” which then indicates that, as a matter of law, violations of COPA are “likely to deceive reasonable consumers.” 
As a matter of law, “using the word ‘organic’ on a product label will likely lead reasonable consumers to believe that the product in fact is organic (which, in California, is legislatively defined to mean containing at least 70% organic ingredients). That would seem to be exactly the point of labeling something ‘organic.’” If the product is mislabeled, the consumer has been misled, which is to say deceived.  As Stearns reasoned, “One might even say that, in effect, California has created what amounts to a conclusive presumption that when a defendant puts out tainted bait and a person sees it and bites, the defendant has caused an injury; restitution is the remedy.”  Named class representatives in UCL cases must still show “additional factors as to [themselves], such as injury in fact and causation.” But absent members need not.
These classwide presumptions of materiality and likely deception would be more troubling if the remedies allowed individually defined recoveries and denied Hain the ability to show that a specific transaction wasn’t influenced by “organic.” But the UCL isn’t based on individual recovery; its focus is the defendant’s conduct and its limited remedies are injunctive relief and restitution. “Given this orientation, it is less troubling to say that the California legislature has deemed certain conduct material and that the courts must presume — even, as Stearns suggests, conclusively presume — that that conduct is ‘likely to deceive’ ordinary consumers.”

The court rejected Hain’s arguments that other district court cases had refused to follow this line of reasoning.  These cases all differed from the one before the court, mainly though not entirely because here there was a specific legislative definition of “organic.”
Finally, the court ruled, material misrepresentations create a “classwide” presumption of reliance under the CLRA. However, this inference is not conclusive, so Hain could show lack of reliance in individual transactions.  But otherwise, materiality was no different as between the UCL and the CLRA. “The root materiality determination comes not from the UCL but from the underlying substantive statute: COPA.”
Hain argued that the court’s holding turned a basic COPA violation into a series of runaway inferences, carrying the plaintiffs too far towards proving their case, at least in the abstract. Kwikset, Hinojos, Stearns, and Tobacco II, Hain argued, weren’t summary judgment cases, and didn’t deal with the merits of UCL claims.  Although the result here was “striking,” it was supported by the case law, given the “specific legislative determination” of COPA that “organic” claims are materially false if a product does not meet the 70% mark and the “defendant-focused orientation” of the UCL.  “[T]he strength and clarity of what these cases say about the substance of UCL claims make it practically impossible to wall these off as mere ‘pleadings cases.’” Plus, plaintiffs’ motions here were abstract and thus not distinct from the pleadings cases.  Plaintiffs will eventually have to prove the COPA violation as well as named plaintiffs’ reliance.  But despite how striking the result was, this court wasn’t going to put itself at loggerheads with the Ninth Circuit (Stearns) or the California legislature. 
Anyway, food labeling cases vary a lot, so this holding was more limited than it might first appear.  “The details of, and differences between, mislabeling cases can impede easy translation of all but the most basic legal rules from one case to the next.”  Here, the court addressed only the situation before it: the legislature barred a specific word unless products met a specific definition. Analogous cases “should not be too numerous.”
Finally, the chain of presumptions was not so troubling as all that:
It embodies something like strict liability. If you mislabel a product and violate COPA, then the law will deem the offending representation material, and will assume that it deceived (UCL) and was relied upon by (CLRA) those who bought the product. Statutory remedies will follow. That remains striking but is not unprecedented.
Maybe this result was deliberate, or maybe it was “the inadvertent confluence of different strands of somewhat related law.” Either way, the court wasn’t free to ignore precedent.

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