Wednesday, March 06, 2013

The sweet taste of defendant success

Brod v. Sioux Honey Ass'n, Co-op., 2013 WL 752479 (N.D. Cal.)

Prior ruling discussed here.  Brod tried again, alleging that Sioux Honey violated the CLRA and UCL and breached express and implied warranties by selling pollen-free honey in California not labeled as pollen-free despite state law. The court dismissed the complaint without leave to amend this time, because California law didn’t do what Brod said it did.  (Leaving me with the question: the court reads the relevant law as a ban on the sale of pollen-free honey labeled as “honey.” As a labeling requirement, that’s preempted, but what about as a flat-out ban of the sale of such a product in the state?  Suppose Brod made his claims under the “unlawful” prong of the California statutes. Would that be a valid claim?  My instinct is that a flat-out ban is not preempted, at least, but from there I’m uncertain (for example, what happens under general “safe harbor” principles when the state specifically bans selling a product for which the FDA has labeling rules?).)

The relevant California law says, in part, “no pollen or constituent particular to honey may be removed except where unavoidable in the removal of foreign inorganic or organic matter.” Brod’s basic argument was that, by failing to disclose that its honey was filtered and pollen-free, Sioux Honey induced him and other putative class members to pay more than they would have had they known that the honey violated state law.

The court first found, as it had earlier, that Brod had constitutional standing. He contended that California law made nonsalable any honey that had pollen removed unless it was sold with a disclosure that it was filtered or pollen-free, and that he and other class members wouldn’t have bought the product had they known that it didn’t comply with California law requiring pollen in honey.  These allegations were sufficient to plead economic injury and thus Article III standing. Whether or not a court might objectively view two products as functionally equivalent, if the consumer was deceived into buying a product that she otherwise wouldn’t have, she’s suffered economic harm.  Sioux Honey cited cases from other jurisdictions, which were neither binding nor on point, since they involved alleged failures to disclose the presence of a substance that made a product “indiscernibly dissimilar” from what consumers believed they were buying, whereas Brod alleged that the product here was different enough that he and others wouldn’t have bought it (or paid as much for it).  Rivera v. Wyeth-Ayerst Laboratories, 283 F.3d 315 (5th Cir. 2002), involved a product that delivered the medical benefits consumers expected, and there was no allegation that they paid more than they would have if the alleged risks had been properly disclosed.  Here, by contrast, Brod claimed not to have received the benefit of his bargain.

Sioux Honey then argued that the complaint should be dismissed because it labeled its honey properly, thus preventing Brod from suffering an injury in fact.  The court succinctly rejected this standing-as-garbage-can argument:  

Sioux Honey's argument misconstrues the scope of assessing constitutional standing, conflating it with the merits of the legal claims asserted.  For the purpose of evaluating Brod's standing to sue, it is enough that he alleges Sioux Honey had a duty to label Sue Bee Honey in a way that discloses the removal of pollen to potential consumers.… Whether or not Brod's complaint properly construes California's Food & Agricultural Code, and whether or not Sioux Honey's alleged conduct violated those provisions, are not part of an inquiry into Plaintiff's Article III standing.

Sioux Honey then renewed its preemption argument, which the court then rejected (though not to Sioux Honey’s ultimate detriment).  Sioux Honey read federal labeling requirements too broadly.  There’s no federally prescribed “standard of identity” for honey, which means that under federal law it will be misbranded “[u]nless its label bears (1) the common or usual name of the food, if any there be, and (2) in case it is fabricated from two or more ingredients, the common or usual name of each such ingredient ...”  The court previously held that the common name of the product was “honey” even if all pollen had been removed.  However, this didn’t bar a disclosure requirement.  Federal law expressly preempts any state law requiring a food to be labeled with something other than its common or usual name, so California couldn’t require filtered honey to be labeled something other than “honey.” But, given the presumption against preemption and states’ traditional role in health and safety issues, California could impose a separate disclosure requirement without running afoul of the federal common name rule.

However, Brod still lost because that’s not what California had actually done.  By its terms, state law required that any product labeled as honey had to contain pollen to be lawfully sold in California.  It didn’t require disclosure of pollen removal, and a ban is different from a disclosure rule.  Indeed, even if Sioux Honey had disclosed the removal, it would still have been in violation of the relevant state law.  Plus, the legislature knew how to write a disclosure rule about honey: several other provisions of the relevant law required disclosures about other things.

Given all this, Brod didn’t show that Sioux Honey failed to comply with California law insofar as he meant that Sioux Honey failed to disclose the absence of pollen. Could this nonetheless be an independent misrepresentation of the quality, characteristics, and/or ingredients of the products, which would also violate the CLRA, UCL, etc.?  Broad’s misrepresentation theory required a showing that a reasonable consumer would be likely to be deceived by an allegedly misleading statement.  The reasonable consumer is the ordinary consumer acting reasonably under the circumstances; she need not be “exceptionally acute and sophisticated.”  Brod didn’t plead sufficient facts to plausibly show that a reasonable consumer would be misled into believing that Sioux Honey’s product contained pollen. “It is certainly possible that a particularly sophisticated consumer might consider pollen to be a valuable component of honey, such that the non-disclosure of its removal from Sue Bee Honey would likely result in deception to him or her. This, however, does not establish that the reasonable consumer would expect honey to contain pollen.”  
Looking at many state statutes and dictionary definitions of honey, none identified pollen as necessary “or even notable.”  “California's own statutory definition of honey omits any reference to pollen, and has done so since at least 1967.”  California specifically requires disclosure of the addition of pollen, but not of its removal. Plus, the Department of Agriculture considered honey “Grade A” when it was free from pollen, air bubbles, and fine particles for much of the latter 20th century.  Thus, the situation strongly suggested that “pollen has not traditionally been considered a constituting element of honey such that its undisclosed removal would likely be considered deceptive by the reasonable consumer.”

Plaintiff’s counsel described the claim this way: “We are alleging that the reasonable consumer expects if there is a law governing their foodstuffs that they go to buy, that that law has been complied with. And if it's not complied with, it should be disclosed.”  But the honey labeling requirement was preempted by the FDCA and was without force “to the extent that it purports to ban Sue Bee from labeling its honey as ‘honey.’”  Plus, even if consumers had constructive notice of state law, they’d also have constructive notice of the meaning of “Grade A,” which includes being free from pollen, which means that the lack of pollen was constructively disclosed on the label.  This was the rare case in which deceptiveness could be resolved on a motion to dismiss.

In addition, Brod failed to plausibly plead materiality to a reasonable consumer, for the same reasons. There were no facts alleged in the complaint showing that the presence or absence of pollen plays a substantial part in a reasonable consumer’s decision to purchase honey, given the federal “Grade A” standards and the dictionary/state law definitions of honey.

For much the same reasons, the warranty claims failed.  California’s implied warranty of merchantability doesn’t impose a general requirement that goods precisely fulfill buyers’ expectations, but rather provide for a minimum level of quality.  Given Sioux Honey’s compliance with the FDCA’s common or usual name requirement, that was satisfied; Brod didn’t successfully plead facts showing that the honey wasn’t fit for the ordinary purposes for which it was used.

As a result, Sioux Honey’s Dormant Commerce Clause challenge to California law was rendered moot, and the complaint was dismissed with prejudice.

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