Monday, June 28, 2010

Not gray anymore: Blue Sky class certified

Chavez v. Blue Sky Natural Beverage Co., 2010 WL 2528525 (N.D. Cal.)

Prior court of appeals ruling. Plaintiff Chris Chavez now sought and received class certification for claims arising from allegedly false/deceptive labeling of Blue Sky’s beverages as being from Santa Fe, New Mexico. This deceptiveness allegedly included statements on the can, the Southwestern look and feel of the cans including images of the Sangre de Cristo mountains bordering Santa Fe, and statements on the official website indicating that the company was based in Santa Fe. However, since 2000 there hasn’t been any company named “Blue Sky Natural Beverage Co.” in Santa Fe, and Blue Sky beverages aren’t made or bottled in Santa Fe or anywhere in New Mexico. Chavez alleged that he bought Blue Sky beverages from 1999 to 2003 because he relied on defendants’ misrepresentations about their geographic origin. His claims were for false advertising, unfair trade practices, violations of the CLRA, and common law fraud, deceit, and/or misrepresentation.

Chavez moved for summary judgment on defendants’ preemption defense, and received it. The NLEA preempts labeling requirements that are not identical to federal law. FDA regulations provide that food is misbranded if its label expresses or implies a geographical origin of the food or any ingredient unless the representation is (1) a truthful representation of geographic origin, (2) a trademark/trade name that is not deceptively misdescriptive as applied to the article in question (which can occur either because of secondary meaning or because the term is arbitrary or fanciful and thus not generally understood by consumers to suggest geographic origin), (3) a part of the name required by federal law or regulation, or (4) a name whose market significance is generally understood by the consumer to connote a particular class, kind, type, or style of food rather than to indicate geographical origin. Federal regulations also detail how the manufacturer’s name and place of business are to be disclosed. The label can use the principal place of business in lieu of the actual place where the food was manufactured or packed or is to be distributed, unless that would be misleading.

Chavez argued that he was not pleading violations of the FDCA, nor would he need to prove such violations to establish his claim. He also argued that the state laws he was trying to enforce did not impose any requirements different from federal law. The court concluded that there was no clear evidence that FDA regulations prohibited defendants from changing the Blue Sky labels to comport with state law. Under recent Supreme Court precedent, courts should recognize that state rights of action provide useful additional relief for injured consumers, even though there’s no private right of action under the FDCA. Congress didn’t intend for FDA oversight to be the exclusive way to regulate statements of geographic origin.

Likewise, the court rejected defendant’s primary jurisdiction argument. Chavez’s state law claims don’t require an FDA ruling on whether the FDCA has been violated, nor would ajudication require the FDA’s particular expertise or uniformity in administering labeling requirements.

Then Chavez won class certification. Certification requires: (1) a class so numerous that joinder of all members is impracticable; (2) questions of law or fact common to the class; (3) claims or defenses of the representative parties that are typical of the claims or defenses of the class; and (4) fair and adequate protection for the interests of the class. In addition to meeting these requirements, parties seeking certification must meet at least one requirement of FRCP 23(b).

Initially, defendants argued that Chavez hadn’t demonstrated that any purported class member other than himself suffered injury in fact. Though this isn’t binding as a matter of federal law, the California Supreme Court has held that unnamed class members in an action under the UCL aren’t required to establish standing. Defendants also challenged the proposed class as unascertainable and hopelessly broad. It must be administratively feasible to determine whether a particular person is a class member; defendants argued that membership could not be contingent on state of mind, and that here membership would require an in-depth analysis of each class member’s purchase motivation.

The court disagreed. Chavez’s claims didn’t require an individualized showing of reliance, because according to the California Supreme Court UCL relief is available without individualized proof of deception, reliance, and injury. On the CLRA claim, reliance on the alleged misrepresentations can be inferred for the entire class if the named plaintiff can show material misrepresentations. And the California Supreme Court also applied the same reasonableness standard for materiality and reliance for a fraud claim. A presumption or inference of reliance arises whenever there’s a showing that a misrepresentation was material—that a reasonable man [sic] would attach importance to its existence or nonexistence.

Chavez’s proposed class of all persons who (1) purchased any beverage bearing the Blue Sky mark or brand (2) in the United States (3) between May 16, 2002 and June 30, 2006 was sufficiently objective and practicable. It was easy to satisfy the numerosity requirement, given that Blue Sky sold over $20 million of product, or over 500,000 cases per year.

Defendants argued that individual issues of motivation and damages defeated commonality. This went more to whether common issues predominate under Rule 23(b)(3); the class members shared common issues of fact and law on deceptiveness/misleadingness. Defendants then contested typicality, given that Chavez didn’t buy each product in the Blue Sky line. But representative claims are typical if they’re reasonably co-extensive with those of absent class members. Because Chavez alleged that all the Blue Sky beverages bore substantially the same misrepresentation, he satisfied this standard.

In view of Chavez’s rigorous prosecution of the class claims in this court and on appeal and the absence of conflicts of interest with other class members, the adequacy requirement was satisfied.

That left Rule 23(b)(3), which allows class certification if “questions of law or fact common to class members predominate over any questions affecting only individual members, and that a class action is superior to other available methods for fairly and efficiently adjudicating the controversy.” The court considered (1) the class members’ interests in individually controlling the prosecution or defense of separate actions; (2) the extent and nature of any litigation concerning the controversy already begun by or against class members; (3) the desirability or undesirability of concentrating the litigation of the claims in the particular forum; and (4) the likely difficulties in managing a class action.

Chavez satisfied these requirements, mainly because state law means that individual class members wouldn’t have to prove reliance on the alleged misrepresentations. The focus of the law is on the defendant’s conduct. Damages may be individual, but that doesn’t defeat certification as long as there is a likely method for determining class damages. At this stage, that was satisfied by offering as an objective measure the price difference between Blue Sky beverages, which sold at a premium, and defendant’s lower-priced mainstream beverages.

Defendants also argued that the law applicable to the proposed nationwide class isn’t uniform because California’s laws don’t apply to nonresident plaintiffs. However, defendants are headquartered in California and their misconduct allegedly originated there. Thus, defendants can be subjected to California law in its entirety.

Chris Chavez was appointed as class representative and counsel, Gutride Safier LLP, was appointed as class counsel.

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