Thursday, May 20, 2010

naturally misleading

Von Koenig v. Snapple Beverage Corp., 2010 WL 1980208 (E.D. Cal.)

This is a putative class action under the usual California laws based on Snapple’s marketing of certain drinks as “All Natural” when they actually contain high fructose corn syrup. This allegedly increases sales by implying that Snapple’s products are better than competing products, and the ingredients statement disclosing the actual content is inconspicuous and hard to read. Plaintiffs alleged that HFCS does not occur naturally, but requires processing and addition of enzymes.

Snapple argued that the claims were barred by California’s safe harbor exception to its consumer protection laws, which allows any conduct specifically blessed by a relevant state or federal law. The safe harbor rule doesn’t bar claims just because some other statute doesn’t provide relief—the law must make the activity lawful, not just fail to make it unlawful. In appropriate circumstances, federal agency action—even action short of formal notice and comment rulemaking—may have the force of law for preemption purposes, and thus for safe harbor purposes.

The FDA has made policy statements on the use of the word “natural” and has also issued warning letters to various manufacturers telling them to remove “natural” from their labels. But this wasn’t sufficient to create a law that would override California consumer protection law. The FDA characterized its policy (which states that “natural” means “nothing artificial or synthetic (including colors regardless of source) is included in, or has been added to, the product that would not normally be expected to be there”) as “informal.” Though the FDA acknowledged that the ambiguity in the term could be abated if it were adequately defined, “[b]ecause of resource limitations and other agency priorities,” the FDA declined to undertake rulemaking and stated that it would maintain its current policy. The FDA’s failure to adopt a formal definition of the term, the court held, meant that the FDA policy wouldn’t be accorded the weight of federal law, even though the FDA has taken some isolated actions to enforce this informal policy.

The court also found that plaintiffs had pled fraud with particularity with respect to claims regarding the label; they submitted examples of the labels at issue and alleged a timeframe that the labeled bottles were available. They further alleged that the labels were deceptive and that they wouldn’t have bought the products without the deception. However, to the extent that they sought to bring claims based on other ads and marketing or other labels not submitted to the court, the claims were dismissed with leave to amend.

The court also ruled that plaintiffs had alleged sufficient injury and damages. Being induced to purchase a product one would not otherwise have purchased is not “loss of money or property” as required by the statute as long as the purchaser receives the benefit of the bargain. However, plaintiffs can sufficiently allege injury where they don’t receive the benefit of the bargain because a product cost more than similar, nonmisleadingly marketed products. Here, plaintiffs alleged that they paid more for Snapple’s drinks than they would have without the misleading labeling, and thus properly alleged that they didn’t receive the benefit of the bargain. Their damages, however, will not include the entire price, because the court found it reasonable to infer that they received at least some benefit from their purchases.

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