Inconsistent yogurt rulings, but no preliminary injunction for UCL case

Kane v. Chobani, Inc., 2013 WL 3703981 (N.D. Cal.)

This decision conflicts with one I blogged last week holding that the FDA didn’t have an enforceable position on evaporated cane juice.

Plaintiffs alleged that they bought multiple flavors of Chobani’s Greek Yogurt, and alleged that the labels were false and misleading in three ways: (1) The labels described their sweetener as evaporated cane juice (ECJ), which is just sugar, aka dried cane syrup; this term falsely concealed the nature of the sweetener and violated FDA regulations requiring ingredients to be identified by their “common and usual names,” as well as the standard of identity for yogurt, which doesn’t list ECJ as an authorized sweetener.

(2)  Chobani’s website said, “The 7g of sugar listed on the nutrition facts panels … comes from a naturally occurring type of sugar found in all dairy products called ‘lactose.’ This lactose often called ‘milk sugar,’ is the only sugar you'll find as we don't add sugar to our yogurt.”  It also said, “Does Chobani Champions contain extra sugar? No way! Just because Champions is made for kids doesn't mean that we need to add extra sugar. You won't find any high fructose corn syrup or artificial ingredients, flavors, or colors in our yogurt. Just low-fat milk … ; [and] real fruit, lightly sweetened with evaporated cane juice ….”

(3) Chobani allegedly falsely claimed that the yogurt contained “[o]nly natural ingredients” and were “all natural,” but actually included artificial ingredients, specifically the use of of “fruit or vegetable juice” “for color.”  

Plaintiffs alleged the usual California claims in the usual ways.  Chobani argued first that they failed to plead reliance.  Reliance can be shown if the defendant’s misrepresentation or nondisclosure was an immediate cause of the plaintiff’s injury-producing conduct.  The court found that plaintiffs showed reliance as to the ECJ claims: they alleged that use of the term concealed the fact that the ingredient was essentially white sugar or dried cane syrup; that, based on the labels, they believed that the yogurt contained “only natural sugars from milk and fruit and did not contain added sugars or syrups”; and that they wouldn’t have bought the products if they’d known the truth.

However, plaintiffs’ allegations suggested that they understood that dried cane syrup was a form of sugar, but “failed to allege what they believed evaporated cane juice to be if not a form of sugar.”  Thus, since ECJ was on the label, it was implausible on these allegations for them to conclude that only milk and fruit provided the sugars in the yogurt.  But the ECJ claims still survived, since plaintiffs sufficiently alleged that the term ECJ was deceptive, concealing that the ingredient is little different than ordinary white sugar and suggesting that it was akin to natural sugar cane.  Plaintiffs did allege that natural sugar cane is “healthy and nutritious, containing vitamins, minerals, enzymes, fibers, and phytonutrients,” unlike ECJ.  “Moreover, to the extent ECJ suggests that the product is derived from a juice, it may have plausibly suggested that the product is healthier than refined sugars and syrups.”

Also, the court found that plaintiffs didn’t sufficiently allege reliance on the “no sugar added” claims. They didn’t allege they ever saw Chobani’s website, on which the claims resided, and thus they couldn’t have relied on them.  In re Tobacco II didn’t change the result, since that case involved a long-term ad campaign; plaintiffs are still required to allege facts showing that the ads at issue were an immediate cause of the purchase decision.  Plaintiffs argued that the website statements violated FDA labeling requirements, rendering the yogurts misbranded and unlawful to sell; further, they alleged, they wouldn’t have bought the products if they’d known they weren’t lawfully on the market. But that wasn’t enough to show reliance; this theory would “eviscerate the enhanced standing requirements imposed by Proposition 64” and Kwikset, which requires actual reliance on the allegedly deceptive or misleading statements. Plus, there was no allegation of a duty to disclose the alleged noncompliance with labeling laws.

Likewise, plaintiffs failed to allege reliance on the “all natural” representations; allegations that they wouldn’t have bought the products if they’d known that some of the yogurts were colored “artificially” using “fruit or vegetable juice concentrate” were insufficient because the label explicitly disclosed that Chobani added “fruit or vegetable juice concentrate [for color].”  Thus, the reliance allegations were implausible.

With only the ECJ claims remaining, the court found that plaintiffs had adequately alleged injury, even though Chobani argued that the product contained exactly what was in the ingredient list.  That ignored the theory of harm accepted by Kwikset: plaintiffs wouldn’t have bought the product but for the alleged misrepresentation.

Plaintiffs didn’t allege they purchased all Chobani flavors, or any Chobani Champions products.  The allegedly deceptive use of ECJ was substantially similar across all the products, but plaintiffs didn’t allege facts sufficient to show that the products they didn’t purchase were substantially similar, and both kinds of similarity were required; claims based on unpurchased products were dismissed without prejudice.

The court then found that it was plausible that a reasonable consumer could be deceived by the misstatements: “it is plausible that Defendant's use of the term ECJ suggests that ECJ is a healthier alternative to refined sugar and may conceal the fact that ECJ is” basically white sugar (why do you think Chobani used the term, especially in the face of FDA guidance suggesting the contrary?).

The court also rejected Chobani’s preemption arguments, including the fruitless argument that the FDCA lacks a private cause of action and thus must intend that states not grant a cause of action for violating the law.  But the FDCA specifically contemplates state law enforcement of “identical” rules.  Pom Wonderful didn’t change that; it was limited to the Lanham Act and didn’t deal with the presumption against federal preemption of state health/safety law.  Cases involving Class III medical devices and fraud on the FDA claims were also inapposite; there was no “comparably rigorous review” or premarket approval for foods here, and the extensive regulation of Class III medical devices gave preemption a different context than the FDA’s “substantial, but more limited oversight of food labeling requirements” that explicitly recognized a state role.  Plaintiffs weren’t suing because the conduct at issue violated the FDCA, but rather because it violated state law identical to the federal requirements.

Chobani argued that express preemption applied.  Plaintiffs alleged that the use of ECJ violated the FDA’s requirement that ingredients be referred to by their “common and usual name.”  Chobani noted that plaintiffs were relying on draft guidance about ECJ specifically stating that it was nonbinding.  But this specific document was consistent with the general regulation about common and usual names, and an agency’s interpretation of its own regulation, even if set forth in an informal document, is “controlling unless plainly erroneous or inconsistent with the regulation.” The FDA also expressed the same view about ECJ in several warning letters, which while informal and advisory, also communicated the agency’s position.  For purposes of a motion to dismiss, this was sufficient to show that plaintiffs’ claims were identical to FDA regulations.

Plaintiffs also alleged that using ECJ in the ingredients violated the standard of identity for yogurt, which sets forth a list of approved “[n]utritive carbohydrate sweeteners” that may be included in a product designated as a yogurt.   The list includes “[s]ugar (sucrose), beet or cane,” but it wasn’t entirely clear that ECJ was permitted.  However, the court declined to resolve the issue, dismissing the claims on primary jurisdiction grounds.

The core ECJ claim wasn’t dismissed on primary jurisdiction grounds, because the informal guidance on ECJ meant that the court wouldn’t have to resolve an issue of first impression without the FDA’s input. But the FDA had proposed a new standard of identity for yogurt allowing any “safe and suitable sweetening ingredients,” and plaintiffs didn’t allege that ECJ wasn’t safe or suitable.  The FDA had also suggested that it wouldn’t enforce violations of the current standard of identity for companies complying with the proposed one, making the primary jurisdiction doctrine appropriate.

Nearing the end of the analysis: plaintiffs argued that Rule 9(b) didn’t apply to their UCL unlawfulness claim, since it wasn’t based on fraud. The court disagreed because the underlying allegations were that the product labels were misleading and deceptive and that’s what made them unlawful.  But plaintiffs did plead with sufficient particularity; they didn’t have to identify the exact days on which they bought the products and they did plead the general timeframe of purchases.  Chobani didn’t show that it used a term other than ECJ during the alleged purchase period, so plaintiffs didn’t need further specificity.

Kane v. Chobani, Inc., 2013 WL 3776172 (N.D. Cal.)

Plaintiffs sought a preliminary injunction against the sale of allegedly mislabeled yogurts, and the court denied the motion.

The court first rejected plaintiffs’ argument that, under California law, they weren’t required to show irreparable harm.  The court disagreed about the substance of California law, which generally does require irreparable harm.  Anyway, choice of law principles supported the application of federal law to this question of civil procedure, where the determination wouldn’t alter the final outcome of the litigation, since a permanent injunction would still be available if plaintiffs ultimately prevailed.

Accepting that plaintiffs had shown likely success on the merits, they still hadn’t shown irreparable harm.  The court rejected their arguments that they didn’t need to show irreparable harm because they were acting as private attorneys general (that’s not enough); because they were seeking to enjoin a public nuisance (there was no specific California law declaring mislabeled food to be a public nuisance, nor did plaintiffs plead the existence of a public nuisance or a special injury to the plaintiffs of a character different in kind from that suffered by the general public, as required for public nuisance standing); and that they were seeking to enforce statutory provisions, allowing an inference of irreparable harm.  This last argument in favor of a presumption of irreparable harm, even assuming the precedent behind it transferred from federal statutes to state ones, was probably no longer good law after eBay and Winter.  Those cases at least require strong evidence of a legislative intent to abrogate the irreparable harm element, and there was no such evidence with respect to the consumer protection claims.  (Also, California cases following the pre-eBay rule that no irreparable harm must be shown when an injunction is authorized by statute only apply that rule to government agencies, which plaintiffs weren’t.)

Anyway, California law requires courts to balance the harm to the parties, including by considering irreparable harm to the plaintiffs.  The harm here to Chobani would be great—relabeling in accordance with any injunction wouldn’t be possible before the yogurt expired, so it would lose millions.

And plaintiffs and other consumers were not likely to suffer irreparable harm.  Plaintiffs argued that Chobani’s labels deceived people into over-consuming sugar, which has a negative impact on public health.  The court wasn’t persuaded that consumers were likely to be confused about the sugar connection: “The fact that the name of the ingredient discloses that it is derived from cane seriously undermines any contention that consumers are unlikely to be under the impression that the ingredient is or contains sugar.”  More significantly, the labels explicitly disclose the total amount of sugar; failing to disclose the portion of sugar from ECJ—the added sugar—wasn’t a problem without any evidence that a consumer who knows the total amount of sugar would suffer health effects from not knowing how much is from ECJ.

The other harms plaintiffs identified—buying yogurt they otherwise wouldn’t have bought, and having competitors lose market position as a result of the mislabeling—were monetary and compensable with damages, thus not irreparable; also alleged harms to competition were vague and speculative.  (I thought in trademark cases market position was always irreparable!)