Monday, June 18, 2007

Blue-sky law: court rejects false advertising claim

Chavez v. Blue Sky Natural Beverage Co., 2007 WL 1691249 (N.D. Cal.)

Defendants make beverages under a variety of brand names. In late 2000, they acquired the Blue Sky natural soda business from the Blue Sky Natural Beverage Co., a Santa Fe, NM-based company in business since 1980. From 2000 until at least May 2006, the Blue Sky containers contained prominent indications of Santa Fe origin, including “SANTA FE, NM” and similar statements. The packaging of Blue Sky beverages also has a “particularly Southwestern look and feel” including “stylized Southwestern Indian tribal bands” across the top and bottom and “pictures of what appear to be the Sangre de Cristo mountains that border Santa Fe, New Mexico on the eastern side of the city.” (Plaintiff’s complaint.) Until May 2006, Defendants’ website stated “Santa Fe, New Mexico, U.S.A.” and the phone number used a Santa Fe area code.

Blue Sky beverages are not manufactured or bottled anywhere in New Mexico. Moreover, one month after the acquisition, the Blue Sky Natural Beverage company was dissolved in New Mexico and re-registered with the California Corporation Commission as a Delaware corporation with its principal place of business in Corona, California.

The named plaintiff is a native of New Mexico and has bought Blue Sky beverages since he was a child. He continued purchasing Blue Sky beverages after he moved to California in 1999 because he believed that they were made in New Mexico, or at least made by a New Mexico company, and he desired to support a New Mexico company and associate himself with a New Mexico product. He alleged that he would not have bought the beverages if he had known the truth about their manufacture and/or the company that owned the brand. He sued for statutory false advertising, unfair trade practices, violation of the Consumers Legal Remedies Act, and common-law fraud. The defendants removed to federal court under CAFA.

The court dismissed plaintiffs’ claims for failure to allege injury in fact. Plaintiffs argued that their damages equal the amount paid for the Blue Sky beverages because they would not have purchased the drinks had they known the truth. The court found, however, that defendants’ alleged promise of Santa Fe origin had no value – plaintiffs had not alleged damages “resulting from” the misrepresentation of location of bottling and/or corporate headquarters. In other cases finding injury in fact, the market value of what the plaintiffs received differed from the market value of what they thought they were getting. There was no premium for Blue Sky beverages because of their purported Santa Fe origin.

Comment: This analysis is deeply troubling to me. It suggests that in any market with standardized prices – most consumer goods, especially the cheap ones where redressing any fraud is going to require a class action – there can be no consumer fraud claim. For example, Diet Coke Plus, which just showed up at my supermarket, advertises that it has added vitamins and minerals, but it sells for the standard price of a bottle of soda. Under the court’s reasoning, the Coca-Cola Co. could simply lie about the contents, get consumers’ business as a result, and escape liability. And in a competitive market, it would be hard for any one competitor to show Lanham Act standing either. But consumers would still be harmed by being deceived into a choice they wouldn’t otherwise make.

What is going on here is pretty clearly the court’s disbelief that the geographic origin claim is material, or material enough to support a class action. But if that’s the case, that’s how the analysis should proceed. (We could start with the complaint’s equivocation on whether the company location or the bottling plant location is key; the very need to use “and/or” repeatedly indicates doubt about what the claim is.) But the court should deal with the reality that geographic origin makes a difference, at least to some consumers for some products. Maybe there’s no way this plaintiff can show that there are enough people like him to support a class action – but this was the wrong way, and procedural posture, to decide that question. (And on his side, one could ask why the bottles so clearly touted their supposed geographic origin/connection – usually claims like that are made because the advertiser believes them to be material. Maybe it’s just branding, like CALIFORNIA INNOVATIONS bags, but that should be examined rather than declared irrelevant.)


James Grimmelmann said...

As a former Blue Sky consumer, I can vouch that claims of New Mexico origin were material to my drinking decisions.

Todd Bradley said...

Same here. In fact, I was a current Blue Sky consumer right up until about 10 minutes ago, when I read that the products aren't made in Santa Fe and haven't been for 9 years! Talk about false advertising.