Henderson moved for fees and costs in this UCL/FAL/CLRA case
based on allegedly misleading health and wellness claims in Uncrustables and
Crisco shortening products, which used trans fat (and, for Uncrustables, high
fructose corn syrup). Henderson’s
individual claims were dismissed because she went into bankruptcy and her
interest was a pre-petition interest; the trustee settled her individual claims
for $22,500. She sought fees as a
successful/prevailing party under the catalyst theory, because Smucker removed “wholesome”
and “homemade goodness” marketing claims from Uncrustables; removed trans fat
from Uncrustables; and removed the bar chart comparing Crisco's saturated fat
content to butter. The court found that
she was entitled to fees under California law.
First, the court determined that her claim for attorneys’
fees was not property transferred into the bankruptcy estate when she filed for
bankruptcy; she herself was never entitled to collect the award and it could
not be used to satisfy creditors’ claims.
Smucker argued that, because Henderson had no right to bring
the action in the first place (since she filed suit after filing for
bankruptcy), she couldn’t get fees. But
other cases so holding involved plaintiffs who lacked statutory or Article III
standing in the first place, unlike Henderson, who simply had the bankruptcy
trustee step into her shoes as the real party in interest. There were several scenarios in which she
could have continued prosecuting the suit, for example if the trustee abandoned
the claims or agreed to let her proceed.
Under California law, the court may award fees to a
successful party “in any action that ‘has resulted in the enforcement of an
important right affecting the public interest if: (a) a significant benefit,
whether pecuniary or nonpecuniary, has been conferred on the general public or
a large class of persons, (b) the necessity and financial burden of private
enforcement are such as to make the award appropriate, and (c) such fees should
not in the interest of justice be paid out of the recovery, if any.’” A
plaintiff need not obtain a judgment in her favor to be a successful party, as
long as she obtains the relief sought, whether through voluntary change in the
defendant’s conduct, settlement, or otherwise.
A plaintiff is a successful party if “(1) the lawsuit was a catalyst
motivating the defendants to provide the primary relief sought; (2) that the
lawsuit had merit and achieved its catalytic effect by threat of victory, not
by dint of nuisance and threat of expense ... and, (3) that the plaintiffs
reasonably attempted to settle the litigation prior to filing the lawsuit.”
The parties disputed the catalyst theory and whether the
lawsuit had merit. To be a catalyst, the
lawsuit must have been “a substantial causal factor” contributing to the defendant's
conduct, though it need not be the only cause.
This can include getting the defendant to act sooner than it otherwise
would have done. The defendant is in the
best position to document why the plaintiff wasn’t a catalyst, if the chronology
is such that the lawsuit gives rise to the inference of a causal relation.
Smucker argued that it was already in the process of making
the three key changes before the lawsuit, so that there was no causal
connection between the litigation and the changes. The chronology, the court determined,
indicated otherwise; for example, before the lawsuit, there had never been
discussions about removing a key trans fat ingredient from Uncrustables. Soon after Smucker was served, however, “its
R & D staff began inquiring into the background on a potential
reformulation project, and about three to four months later, the project was more
officially initiated upon ‘upper management recommendation.’” Though Smucker had a preexisting general goal
of removing trans fat from all its products, that didn’t rebut Henderson’s
argument that the lawsuit prompted it to prioritize the reformulation of
Uncrustables in particular, and Smucker didn’t show that it had specific plans
for Uncrustables before the lawsuit.
There wasn’t enough evidence to show that potential FDA action and
negative publicity prompted the change, either: Smucker may have weakened its
case when its best evidence of negative publicity was an article from a paper
with a “relatively small” circulation of around 20,000 deeming Uncrustables “Not
Healthful.”
Thus, the lawsuit was at least a substantial causal factor
contributing to the reformulation.
With respect to the other changes, there was evidence that
the package redesign that removed the “wholesome” health claims was already underway
when the lawsuit was filed, and Smucker followed a reasonable timeline to
finalize and implement a new design, so the fact that the change wasn’t
actually made until after the lawsuit wasn’t dispositive. Likewise, Smucker showed that it had a
prelitigation plan to remove the bar chart from Crisco that was on track to be
implemented when the lawsuit was filed.
Redesign takes planning and time.
Thus, the lawsuit was only a catalyst in prompting Smucker to remove the
trans fat from Uncrustables.
The next question was whether the lawsuit had merit or was “frivolous,
unreasonable or groundless.” This is not
a final determination on the merits, but rather an inquiry into whether the questions
of law or fact were grave and difficult.
The court found that Henderson met that standard. The lawsuit specified
the misleading claims, why they were misleading (including alleging increased
risks of heart disease and other illnesses from trans fat consumption), and why
they were material to health-conscious consumers. Henderson also made an extensive argument
about why her claims weren’t preempted. Her
lawsuit was not “frivolous, unreasonable, or groundless.” Also, being dismissed
as an individual didn’t matter; again, she had Article III/statutory
standing. “Thus, the issue of
Plaintiff's bankruptcy does not go to the merit of this action; instead, it
goes to the wisdom of Plaintiff's counsel's decision to select Plaintiff as the
putative class representative.”
Then the court looked at whether she reasonably attempted to
settle the matter before filing suit.
Lengthy negotiations aren’t required, but a plaintiff must at least
notify the defendant of her grievances and proposed remedies. But an insufficient prelitigation attempt at
settlement may not preclude attorneys' fees if “undisputed evidence shows a
prelitigation demand would have been futile.” Smucker didn’t contest the argument that
Henderson’s prelitigation CLRA notice was adequate or that other demands would’ve
been futile.
Next, the court considered whether the lawsuit resulted in
the enforcement of an important right affecting the public interest. Enforcing California consumer protection laws
qualifies, though the court must look at the litigation practically. Here, the suit was at least a causal factor
in removing the trans fat. Smucker
argued that the fact that Henderson’s counsel filed another virtually identical
lawsuit was evidence that her suit didn’t enforce important rights, but the
fact that she didn’t obtain every form of relief sought affects the amount of,
not the entitlement to, fees.
The court considered “the significance of the benefit, and
the size of the class receiving the benefit, in light of all pertinent
circumstances.” A consumer class action may confer a significant benefit on a
large class of persons if it “caus[es] [the defendant] to change its labeling
and advertising practices and by enjoining it from making future misleading
representations.” Here, though the suit
wasn’t responsible for the change in ad claims, it did prompt Smucker remove a
component of Uncrustables that made
the claims allegedly false or misleading.
Henderson’s expert epidemiologist estimated that the reformulation
reduced the amount of trans fat in the stream of commerce by about 12.6 million
grams (actually more than that, based on the changes Smucker made). Someone who ate one Uncrustable a day
(ughhhh) would allegedly see an increase of coronary heart disease by 2.51%
over a 168-month period, of colorectal cancer by 3.55% over a 13-month period,
of Alzheimer's Disease by 16.8% over a 27-month period, and of stroke by 1.2%
over a 96-month period, with no known offsetting benefit from trans fats. Smucker’s conclusory attacks on the expert’s
qualifications were insufficient. “In
sum, Plaintiff has offered evidence that Uncrustables are a widely distributed
consumer product, that trans fat has been strongly linked to certain diseases
in various studies, and that Defendant removed [trans fat] from Uncrustables in
response to this suit.” That was enough
to show that the change conferred a significant benefit to a large class of
persons.
The court turned to whether the necessity and financial
burden of private enforcement made the award appropriate. Here, it was uncontested that the financial
burden placed on the plaintiff was out of proportion to her personal stake in
the lawsuit. “California courts have
specifically recognized the ‘significant role ... private consumer enforcement
plays for many categories of unfair business practices,’ including
misrepresentations in labels and advertising.” Henderson argued that private
enforcement was necessary because no government agency sought to enforce
California’s false advertising laws against Smucker. Smucker argued that agency enforcement was
unnecessary because its labeling complied with all FDA regulations. But the
lawsuit wasn’t an attempt to enforce FDA regulations. To the extent that
Smucker was arguing preemption, “such argument not only assumes Defendant's
nonliability but also ignores the relevant standard,” which focused on the
impact of the action, not the manner of its resolution. Henderson didn’t need to show that Smucker
was liable to get fees. Smucker hadn’t
shown that private enforcement was unnecessary because the public rights at
issue were adequately vindicated by government action.
Thus, Henderson was entitled to fees.
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