Plaintiffs alleged that Frito-Lay and its parent PepsiCo
falsely marketed various Tostitos, SunChips, and Fritos Bean Dip products as
“All Natural” when, in fact, the products contained unnatural,
genetically-modified organisms, to wit, GMO corn.
The Tostitos and SunChips products bore an “All Natural”
label:
The Fritos Bean Dip products bore an “All Natural” label:
Plaintiffs brought warranty, intentional misrepresentation,
and consumer protection claims under the laws of multiple states.
The court first dismissed PepsiCo. Plaintiffs argued that PepsiCo was “directly involved in the decisions to label
and market” the chip and dip products as “All Natural.” They alleged that PepsiCo
“markets, advertises and distributes” the products, and “actively coordinates
its marketing and advertising activities with Defendant Frito-Lay to promote
the products as ‘all natural.’” It
launched a marketing strategy to integrate its food/beverage businesses “to
leverage the combined scale of the company’s complementary snack and beverage
businesses,” and PepsiCo’s CEO discussed Frito-Lay’s decision to market “all
natural” products at an industry conference.
This wasn’t enough for direct liability since PepsiCo didn’t
make, sell, or label the products, and plaintiffs didn’t allege that PepsiCo
had any role in the decision to label the products at issue “All Natural.” The CEO’s statement that “we will take that
all-natural look to every piece of ... the stores, and all of our temporary
displays will showcase and romance the all-natural look” didn’t give rise to
direct liability the context made clear that “we” meant Frito-Lay, and “such
representations may result from public relations motives or an attempt at
simplification.” Failure to distinguish between parent and subsidiary wasn’t
sufficient to show control over the subsidiary’s marketing and operational
policies. Plaintiffs also didn’t
successfully plead alter ego liability.
Frito-Lay’s separate existence wasn’t a sham.
Frito-Lay argued that the complaint should be dismissed or
stayed on primary jurisdiction grounds.
But the FDA doesn’t have any formal rule or policy on “natural,” just a
statement that it informally regarded the term as “meaning that nothing
artificial or synthetic (including all color additives regardless of source)
has been included in, or been added to, a food that would not normally be
expected to be in the food.” It also has a statement of policy on GMO foods,
which was that GMOs don’t generally present any different or greater safety
concerns than traditionally bred foods, so don’t generally require labeling.
But the primary jurisdiction doctrine does not apply when
“the issue at stake is legal in nature and lies within the traditional realm of
judicial competence.” “This case is far less about science than it is about
whether a label is misleading,” and “the reasonable-consumer inquiry upon which
some of the claims in this case depends is one to which courts are eminently
well suited, even well versed.” Even a
formal definition from the FDA wouldn’t necessarily dispose of plaintiffs’
state-law claims; there was no telling “how the FDA would define the term, and
whether its definition would shed any further light on whether a reasonable
consumer is deceived by the ‘All Natural’ food label when it contains
bioengineered ingredients.”
Lots of courts have held similarly, though two district
courts recently stayed cases about GMO corn and “natural” for six months. The court here wasn’t persuaded by them. Deciding misleadingness was a conventional
judicial function and wouldn’t undermine the FDA. Anyway, the FDA wasn’t likely to respond in a
timely manner to any referral. A 2010
referral in a similar case led to the response: “in the absence of a
pre-existing regulatory definition, the agency would expect to act in a
transparent manner by engaging in a public proceeding to establish the meaning
of this term…. FDA’s experience with such proceedings suggests that it would
take two to three years to complete.” The FDA recognized that this wouldn’t be
useful to the court. Indeed, the FDA
took nine years to define “gluten-free,” in the face of a congressional mandate
to do so. “[T]here is no reason to
believe that the FDA would abandon its deliberative process in order to respond
to the Court’s referral through a hurried, ad hoc, and closed manner.” But if the FDA did act during the litigation,
the court would take that into account.
Frito-Lay then argued that the claims were preempted. The court also disagreed, declining to give
preemptive effect to the FDA’s nonbinding guidance on “natural.” That guidance, even if binding, contained “no
actual federal requirements regarding the term ‘natural’ for the Court to endow
with preemptive effect.”
And now we get the inevitable standing argument for products
none of the named plaintiffs purchased.
The question, the court concluded, was one of class standing rather than
Article III standing. Plaintiffs had alleged Article III standing for
themselves. The question was whether
they could represent putative class members who suffered a similar injury based
on purchases of products that plaintiffs didn’t purchase. (When put this way, I’m always confused why
this is even a question. No one disputes
that they all bought different bags. Their injuries, by definition, were not the same, though they were similar.
Why isn’t the issue always and obviously whether the injuries were
similar enough? Even defendants rarely
have the gall to claim that a plaintiff who bought a 4-ounce bag lacks standing
to represent the purchaser of an 8-ounce bag.)
The court here held that once there was a plaintiff with standing to
assert a claim against a defendant because the plaintiff suffered some actual
injury as a result of the defendant’s conduct, the analysis shifted to class
action doctrine, following NECA-IBEW Health & Welfare Fund v. Goldman Sachs
& Co., 693 F.3d 145 (2nd Cir. 2012) (allowing plaintiff to assert class
claims with respect to securities that the plaintiff itself didn’t buy). Thus, the court left the determination of
class representation, and sufficient similarity between the products, for
another day.
The court turned to Frito-Lay’s main argument, that no
reasonable consumer would view the “All Natural” label and understand it to
contain an “implicit representation that its products contain only corn grown
without bioengineering technology.” The
court took judicial notice of various federal agency publications and reports
by industry and consumer organizations, all of which, Frito-Lay argued, agreed
that “natural” didn’t mean GMO-free.
Frito-Lay argued that, based on them, “it would be objectively
unreasonable for any consumer to view the inclusion of the word ‘natural’ on a
product label as an implicit representation that the corn from which the
product is made was grown without bioengineering technology.” Rather, “organic” addresses how food was
grown and produced (GMO-free).
The court concluded this raised a factual question
inappropriate for a motion to dismiss.
In the judicially noticed materials, the FDA acknowledged that “‘natural’
claims are confusing and misleading to consumers and frequently breach the
public’s legitimate expectations about their meaning.” There is, in the FDA’s view, a “general lack
of consumer understanding and scientific agreement about the meaning of the
term.” The FTC thought similarly (though
it terminated its notice of proposed rulemaking in 1983). The USDA’s website directs viewers to a Food
Marketing Institute publication that says that “natural” labeling isn’t
regulated except for meat and poultry, and that “most foods labeled natural are
not subject to government controls.” But, the FMI continues, the term “natural”
does apply “broadly to foods that are minimally processed and free of synthetic
preservatives; artificial sweeteners, colors, flavors and other artificial additives.”
By contrast, “organic” crops have to be grown without bioengineered genes. In addition, California voters recently rejected
a ballot initiative that would’ve banned the use of the term “natural” on foods
containing genetically modified ingredients. The Center for Science in the Public Interest
published a document telling its readers that the best way to avoid GMO food is
to buy organic.
The court found that these materials demonstrated that what
a reasonable consumer would believe about “natural” was a factual issue:
That “organic” means GMO-free says
nothing about whether a reasonable consumer would understand the term “natural”
to mean the same. Nor can the Court conclude that a reasonable consumer, or any
consumer, is aware of and understands the various federal agencies’ views on
the term “natural.” None of them, by the way, state explicitly that foods
containing GMO ingredients may be labeled “natural.” The inferences Frito–Lay
asks the Court to draw are too many and doing so—in its favor—is inappropriate
on a motion to dismiss.
This case was distinguishable from cases in which no
reasonable consumer would think that there was a real fruit known as a
“crunchberry,” especially given the labeling, and in which no reasonable
consumer would think that “Froot Loops” contained real fruit. In those cases, the claims “border[ed] on
fantasy.” No reasonable consumer could
view the cereals at issue and conclude that they contained fruit, then check
the ingredients list to confirm that belief.
By contrast, a reasonable consumer viewing Frito-Lay’s “All Natural”
labels “could reach a variety of conclusions about their potential for
containing genetically modified ingredients.” The labels listed corn and corn
derivatives among their ingredients, but didn’t specify whether they were
genetically modified. Thus, this was a
“heartland” case in which the issue of reasonability was a factual one.
Frito-Lay argued that the court should consider the entire
context of the label. The labels
included an explanatory ring surrounding the “Made with ALL NATURAL
ingredients” center, stating “No MSG—No Preservatives—No Artificial Flavors.” Those statements did provide context, but the
court wouldn’t hold that as a matter of law they would stop any reasonable
consumer from being deceived about GMO ingredients.
The court turned to arguments directed at specific
claims. The Magnuson-Moss Warranty Act claim
was dismissed because “All Natural” didn’t warrant a product free from defect
or promise that the product “will meet a specified level of performance over a
specified period of time.” At most, it
was a product description and not covered.
Also, plaintiffs couldn’t bring New York claims on behalf of
non-New York citizens. New York’s
limitation of the GBL to New York citizens is substantive, not procedural, and
choice of law also meant that the New York breach of warranty and intentional
misrepresentation claims had to be limited to New York citizens.
However, the statutory safe harbors in the various states’
laws didn’t protect Frito-Lay. Florida law provides that the FDUTPA does not
apply to “an act or practice required or specifically permitted by federal or
state law.” Frito-Lay’s conduct was not required by federal law, nor was it
“specifically permitted” by the FDA’s voluntary “natural” labeling guidelines,
since it wasn’t clear that the guidelines constituted a specific law
affirmatively authorizing such conduct.
“The fact that FDA’s guidance on ‘natural’ labeling is so open to interpretation
suggests that it could hardly be viewed as a federal law that ‘specifically
permits’ Frito–Lay to label its products ‘All Natural.’” Florida courts have
required defendants to show a high degree of specificity; a statement that the
FDA wouldn’t object to a label, for instance, wasn’t specific
authorization. Similar reasoning applied
to the New York and California safe harbors.
California exempts “natural” from its regulations of “organic,” but the
products here weren’t labeled organic.
The court then concluded that plaintiffs’ claims met the
heightened standard of Rule 9(b). The
“what” was that the products were labeled “All Natural” but in fact weren’t—and
plaintiffs provided additional detail by alleging that the products contained
GMOs, which aren’t natural because they are modified “by the insertion of DNA
material from outside the organism into the plant’s DNA sequence, allowing the
plant to express novel traits that normally would not appear in nature.” And the “where” was the prominent placement
on the products’ packaging. Plaintiffs
weren’t required to plead precisely in which store they bought the products, or
at what price—the court found no reason to require those things (it’s hard to
imagine how that affects Frito-Lay’s fair notice of the claim). However, to the extent that the claims were
predicated on materials beyond the labeling, the complaint didn’t survive
9(b). They didn’t specify enough detail
about alleged print ads, TV commercials, and websites: “one cannot glean from
the First Amended Complaint whether the marketing and advertising to which
plaintiffs were exposed, and whether that material is identical to, or in what
ways is different from, the ‘All Natural’ stamp that appeared on the products’
packaging.”
The intentional misrepresentation claims were also dismissed
because there weren’t sufficient allegations to give rise to a strong inference
of fraudulent intent. This requires
either alleging facts to show that defendants had both motive and opportunity to
commit fraud, or alleging facts that constitute strong circumstantial evidence
of conscious misbehavior or recklessness.
Allegations that Frito-Lay knew that the products weren’t all natural
because they contained GMOs were conclusory and insufficient. Frito-Lay’s desire to increase sales and
revenue didn’t in itself support a strong inference of fraudulent intent. And plaintiffs didn’t directly allege that
Frito-Lay knew about the GMO content; rather they alleged that tests confirmed
the presence of GMOs and that Frito-Lay could easily have done this testing if
it wanted to know the truth. Without
knowledge, Frito-Lay couldn’t have intended to defraud; at most this would show
negligence.
Turning to the warranty claims, which were the same for each
state at issue, “any affirmation of fact or promise made by the seller to the
buyer which relates to the goods and becomes part of the basis of the bargain
creates an express warranty.” Moreover, “[a]ny description of the goods which
is made part of the basis of the bargain creates an express warranty that the
goods shall conform to the description.” Thus, plaintiffs adequately stated warranty
claims; they alleged that they relied on the “All Natural” statement when they
bought the products.
Frito-Lay fared better with other arguments. Presuit notice is required under Florida and
New York law. Plaintiffs argued that
notice provided by a California plaintiff was sufficient; the court was
inclined to agree with Frito-Lay, but ruled on different grounds. Plaintiffs simply alleged that the conditions
precedent to Frito-Lay’s liability were performed by the plaintiffs when they
bought the products for their ordinary purposes. This seems to allege that the plaintiffs gave
notice of their warranty claims by virtue of their purchases, but that couldn’t
be the case.
Whether the California plaintiff’s notice was sufficient to
alert defendants to the same claims by plaintiffs from other states was a
“thornier” question, though the court was inclined to consider such notice
insufficient. The purpose of the notice
requirement is to inform the seller that the buyer considers it to be in
breach. Awareness of a defect isn’t
enough; the seller should be made aware “that this particular transaction is
troublesome and must be watched.” The California plaintiff purported to provide
notice on behalf of “other consumers,” but that was “quite ambiguous and
open-ended and does not readily signal that claims are brought on behalf of the
other named plaintiffs in this case.” One court addressing a class
certification motion held that each putative class member would have to
demonstrate that she gave the required notice to the defendant of her breach of
warranty claim; blanket notice on behalf of the entire class was not enough. But
the court didn’t definitively reach the issue, given its holding on the
pleadings.
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