Plaintiffs win partial summary judgment on falsity/materiality in "made in US" tea case

Banks v. R.C. Bigelow, Inc., No. 2:20-cv-06208-DDP-RAOx, 2024 WL 3330554 (C.D. Cal. Jul. 8, 2024)

The court here grants the consumer plaintiffs’ motion for partial summary judgment on their theory of falsity of Bigelow’s “manufactured in the USA” claim for its tea bags. All of the products at issue use tea leaves grown and processed abroad. Processing ves includes plucking, withering, rolling, oxidizing, drying, and sorting. “It is this processing which determines the type of tea — black, green, or oolong.” Bigelow then imports the tea leaves, blends and packages the tea into its tea bag products, and distributes them. The logo on back of the packaging stated “MANUFACTURED IN THE USA 100% AMERICAN FAMILY OWNED.” Plaintiffs received class action certification as to (1) CLRA, (2) common law fraud and intentional misrepresentation, and (4) breach of express warranty claims.

prominent Manufactured in the USA 100% claim on bottom right of back package

It was undisputed that all the tea leaves, and all the tea leaf processing, occurred abroad, and that foreign processing both determines type and renders the tea consumable. Still, Bigelow argued that “Manufactured in the USA 100%” was not literally false because the tea bags were made in the US. The court disagreed. California law makes unlawful the use of “Made in the U.S.A.,” “Made in America,” or “similar words when the merchandise or any article, unit, or part thereof, has been entirely or substantially made, manufactured, or produced outside of the United States.” The court found no substantive difference between the terms “made” and “manufactured” for the purposes of a CLRA claim involving alleged misrepresentations of United States origin; the words of the law suggested a legislative decision that the terms were “largely interchangeable.” In addition:

Judges should not engage in fashioning excessively nuanced exceptions to these consumer protection statutes, such as finding some artificial distinction between the words made and manufacture. Otherwise, the marketing industry will undoubtedly attempt to sidestep consumer protection statutes and mislead consumers through clever and ambiguous terminology, the very outcome these statues seek to prevent. Indeed, the Legislature has specifically instructed that the CLRA is to be “liberally construed and applied to promote its underlying purposes, which are to protect consumers against unfair and deceptive business practices and to provide efficient and economical procedures to secure such protection.”

Anyway, “manufacture” means “something made from raw materials by hand or machinery” and “describe[s] the physical process of transforming raw materials into goods.” A Made in the U.S.A. claim is false “if a substantial or significant portion of the component parts of the product are manufactured abroad.” The tea leaves, the “key component” of the tea bags, undergo a “physical process” that “transforms” them from “raw” unconsumable tea leaves into a consumable “good” of a distinct variety and flavor profile (black, green, or oolong tea) outside of the United States. “The distinctive aspects of tea, the flavor and quality, are made or destroyed during this process. Defendant’s own promotional video refers to the actions which happen abroad as ‘the steps of tea-making.’” The additional actions taken to create the tea bags didn’t change the fact that the tea leaves “have already been processed abroad and are no longer a raw material prior to import.” Even Bigelow’s Rule 30(b)(6) designee acknowledged that manufacture includes a broader set of activities than the blending and packaging that occurs in the United States. The tea leaves were “vital” and “the very essence” of the tea bags; they were why consumers buy the bags, which served as packaging for the product desired.

Indeed, the fact that the tea was consumable increased the need for consumer protection here. The court offered an example of a baby food seller who “sourced peach puree from the Chernobyl area, then pasteurized that puree in the United States and packaged it in a convenient pouch labeled ‘Made in the USA’ or ‘Manufactured in the USA.’” Thus, the statement was literally false.

Reliance: This can be presumed classwide from exposure plus materiality, as long as the named plaintiff actually relied on the representation. “[A] showing of class-wide exposure sufficient to establish predominance at the class certification stage creates a rebuttable presumption that there was in fact class-wide exposure.” That presumption was not rebutted. Bigelow argued that the statement was just on the back of the box, but it was prominent—set off to the side in bold type.

Materiality:  Bigelow pointed to market research data indicating that consumers purchase tea for a variety of reasons that are “overwhelmingly unrelated to the source of the constituent tea leaves.” But “[t]hat other factors are material to a consumer’s purchasing decision does not establish that the origin of the tea would be immaterial to a reasonable consumer,” and Bigelow’s market data didn’t test consumers’ reaction to origin or made in the USA statements. Bigelow also offered a consumer survey purporting to show no effect on consumer purchasing behavior, but plaintiffs’ expert calculated a price premium. That’s generally for a jury. And the named plaintiffs may have purchased Bigelow tea before the statements was added to the package, but whether it was material to them was also for a jury.

Further, false or misleading U.S. origin claims are material as a matter of law. “While materiality is generally a question of fact, when the legislature has seen fit to specifically outlaw certain statements in order to protect consumers, such statements are material as a matter of law.” This was not a rebuttable presumption, so survey evidence wasn’t relevant. “When the Legislature has deemed a particular statement material enough to warrant legislative action, a defendant cannot rebut such a determination through self-serving surveys and market research. Further, even if it were a rebuttable presumption, Defendant’s above referenced evidence would be insufficient to rebut the presumption.”

However, damages remained a jury question. Bigelow argued that plaintiffs failed to show a price premium. But their expert’s testimony was admissible, and punitive damages remained possible.

Bigelow’s knowledge and intent was also a jury question for fraud and negligent misrepresentation, as well as punitive damages. “Plaintiffs point to sufficient evidence from which a reasonable jury could conclude that Bigelow knew that ‘Manufactured in the USA 100%’ was false or, at the very least, had no reasonable grounds for believing it.” There was also evidence of intent to induce reliance, “as the very purpose of advertising a particular statement on a package is to induce reliance.”