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Has your Company Been the Victim of a Consumer Class Action?

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Consumer Class Action Consumer Class Action

I was extremely happy to attend my first SupplySide West, an event I normally never miss, in three years, due to COVID-19. The show presents a wonderful opportunity to speak with leaders in the natural products industry and gauge what is going on in the trade. As an attorney, it seemed that many people I spoke with wanted to discuss demand letters and draft complaints that their companies had received from consumer class action attorneys. This was also a hot topic during a roundtable discussion by some of the leading attorneys in the natural products sector at one of the show’s education sessions. It seems that there are very few companies that have managed to avoid such letters and many companies that have received several.

Don’t Ignore Form Letters

Consumer class action attorneys are sending out such large volumes of demand letters, there were stories of companies receiving letters that had not been properly edited or “spell checked.” These letters sometimes included references to other companies and their products that clearly had not been “adjusted” from prior versions. One purpose of the letter is to encourage a quick resolution without the class action lawyer having to file anything in court. If ignored, and the lawyer files a complaint in court, the action becomes public knowledge, and the company must settle with the plaintiff or mount what could be a costly defense, even if ultimately victorious, in court. Unfortunately, simply ignoring a class action letter hoping that the demanding lawyer never follows up can be extremely risky.

Not all the companies that receive such letters are necessarily “bad actors” or noncompliant; many have long histories of exemplary compliance with U.S. Food and Drug Administration (FDA) laws and regulations. When lawyers for the industry discuss strategies for dealing with the onslaught of consumer class actions, most agree that there may not be a significant decrease in the number of letters directed at the dietary supplement and conventional food industries until there is a change in the underlying laws that support the bringing of class actions.

Currently, there is little to no downside to the class action lawyer sending demand letters or even commencing actions in court. Once an action is filed, even if it is totally without merit, the defending company must spend the time and effort to put together a defense and pay counsel to file a motion to dismiss. And, even if the proposed class action has no merit, there is never any guarantee that a judge will grant a company’s preliminary motion to dismiss. Any judge could, for example, allow a case to proceed to discovery (document production, oral depositions under oath, expert testimony) if the class action attorney can argue that there are any disputed questions of fact.

Class action attorneys might take greater care in filing class actions if there was a risk that they could be sanctioned or required to pay the targeted company’s costs and legal fees if they lose. In practice, however, this rarely occurs. Having the natural products industry collaborate with other consumer products groups to lobby state and federal governments to change the laws relating to consumer class actions seems to make sense.

The Appropriate Response

So, what happens when your company receives a demand letter, which may or may not be accompanied by a draft state or federal court complaint?

Investigate the named plaintiff. For example, if your company only sells products by mail order, is it possible to determine whether the named plaintiff purchased the product or products at issue?

Do the allegations made by the plaintiff have any merit and is it possible to win on a motion to dismiss? As previously noted, even what may be perceived as a totally meritless claim has the potential to survive an initial motion to dismiss and once that occurs, the cost of litigation, including discovery, will increase dramatically. One must consider that even if the product in question is in full compliance with all applicable FDA and other federal and state requirements, it can still be possible that a consumer class action attorney will succeed on a claim that the product makes false or misleading claims in labeling or advertising.

What are your company revenues for the product or products involved in the claim? If the revenues are low, merit or meritless, it may make little sense to litigate for either party and the claimant may agree to a small settlement to end the matter. If there is truly a potential issue raised by the proposed claimant’s allegations and there does not appear to be a viable defense, it may also be in the company’s best interest to negotiate a quick settlement.

Finally, there are instances where companies have viable strong defenses to whatever is being claimed and the company’s revenues are large enough that the best course is to litigate. It may also be wise to litigate if the challenged claims are critical to the company’s products or marketing. Some companies even choose to litigate to discourage other plaintiff’s lawyers from targeting them in the future.

These are obviously discussions where companies should include counsel familiar with their products who can help determine the merit of the underlying claims as well as, counsel that regularly handle consumer class action litigations to help fully evaluate the potentials for settlement versus litigation and the potential for dismissal or victory.

By now one is asking, if even a fully compliant product can be targeted by a class action plaintiff, is there anything that can be done to avoid becoming the “victim” of a consumer class action? Certainly, companies can take steps by watching the trends and adapting to stay as far ahead of them as possible. The following are a few examples of the many potential items that have been targeted.

Slack-Fill

FDA regulation, 21 CFR 100.100 (and Cal. Bus. & Prof. Code 12602.2), generally provide that a container may be “misleading” if it has nonvisible, nonfunctional slack-fill, which is empty space in a package that serves no function. Valid reasons for “empty space” include:

(1) Protection of the contents of the package;

(2) The requirements of the machines used for enclosing the contents in such package;

(3) Unavoidable product settling during shipping and handling;

(4) The need for the package to perform a specific function (e.g., where packaging plays a role in the preparation or consumption of a food), where such function is inherent to the nature of the food and is clearly communicated to consumers;

An example of empty space performing a specific function would be air in bags of potato chips to keep the bags puffy and the chips from crushing. Or perhaps, a reasonable amount of space in a container of powder that occurs from product settling. It is helpful that the claimant has the burden of establishing that an exception does not apply. So, mere conclusory allegations of slack-fill by claimants are much less likely to be successful.

For the natural products industry, slack-fill claims against packages of tablets and capsules are rare, as there is generally a clear net count, which makes it more difficult to argue that a package is misleading, and a package must be large enough to have space for all FDA required labeling. When brought, slack-fill clams tend to focus on containers of supplements in powder form.

If you are selling these products, the following suggestions will help to lower, but not necessarily eliminate, the chance of a claim:

• Include an accurate notice on the label, such as – Note: this product is sold by weight. Not volume, settling of contents may occur after packaging.

• Include a fill line on the outside of the container showing the level of the powder after settling has occurred, or

• Package the product in a see-through container or include a “window” in the package showing the fill level at the time of purchase.

“Natural” Claims

Neither the FDA, nor the Federal Trade Commission (FTC), which regulates product advertising, has promulgated a definition of “natural” despite FDA starting rulemaking and accepting public comments (the comment period closed in May 2016 with FDA posting 7,687 comments). FDA’s most public statement on the matter was in 1991:

FDA has not attempted to restrict use of the term “natural” except for added color, synthetic substances, and flavors under §101.22. In its informal policy . . ., the agency has considered “natural” to mean that nothing artificial or synthetic including colors regardless of source) is included in, or has been added to, the product that would not normally be expected to be there. For example, the addition of beet juice to lemonade to make it pink would preclude the product being called “natural.”

“Food Labeling: Nutrient Content Claims, General Principles, Petitions, Definition of Terms,” 56 Federal Register, 6042 (November 27, 1991).

The U.S. Department of Agriculture has a definition of “natural” meat and poultry that is like FDA, but also includes a requirement of “minimal processing,” meaning processed in a manner that does not fundamentally alter the product.

With such vague definitions of “natural,” choosing to make a natural claim takes very careful consideration and risk analysis. As one example, claims have been raised against companies alleging that “all natural” claims are false because of incidental additives and processing aids, which are not required to be declared on the label and can be included ingredients that are declared on the label as “natural flavor.” At least one company is defending a claim alleging that its products are making misleading natural claims, simply because the brand name of the company displayed on labels includes the word “Naturals.”

No Artificial Flavor

There are so many variations of class action claims being brought against companies involving flavor claims, it is impossible to summarize them in a limited space. Many class actions have focused on claims on products that are compliant with the Food and Drug Act.

A commonly made allegation is that a product’s label is misleading because it “falsely claimed” that the product had “no artificial flavors” and was “naturally flavored,” when the product contained malic acid or citric acid. These ingredients are not considered flavors by FDA but can affect flavor and are considered “flavor enhancers,” which are “substances added to supplement, enhance, or modify the original taste and/or aroma of a food, without imparting a characteristic taste or aroma of its own.” 21 CFR 170.3(o)(11). These ingredients may also be included in a product for other purposes, having nothing to do with flavor, such as a pH control agent.

Unfortunately, few of these cases are dismissed in the early stages of litigation as judges often find the allegations fact specific to the individual product at issue.

Nutrient Content Claims

Nutrient content claims are claims about a food or dietary supplement that directly or by implication characterize the level of a nutrient (e.g., “low fat,” “high in oat bran,” “no sugar” or “high in antioxidant vitamins C and E”). FDA has very specific requirements concerning some nutrient content claims, such as when sugar related nutrient content claims must be linked to a calorie claim (e.g., “low calorie” or “not a low calorie food” depending on calorie count) and when the linkage is prohibited (certain dietary supplements that are inherently low calorie).

Not fully understanding and complying with applicable FDA requirements could result in more than an FDA enforcement action; it could result in a consumer class action alleging that the product is making misleading claims.

Calories and Protein

Misunderstanding very specific FDA regulations concerning the calculation of calorie counts and calculation of the Daily Value for protein, and when it is required to be declared on product labels, has recently generated many putative class actions.

Geographical Location Claims

By now companies hopefully understand the requirements for “made in USA” claims, as regulated by FTC and the state of California. Such understanding requires knowledge that, unless “qualified,” “USA claims” are not limited to place of final manufacture, but also must consider where all the ingredients originate and where labor occurred. It remains advisable for companies not to include “USA” claims unless fully apprised of all the requirements). As FTC has begun actively enforcing the “Made in USA” requirements, with newly added penalty provisions, class actions seem to have diminished.

So, of course, class action attorneys have turned to a new type of geographical claim, arguing that they are misleading to consumers. Examples of this type of claim, include:

• In October 2022, a California Federal Court refused to dismiss a proposed class action against Barilla America, Inc. over a purported misleading label claim: ‘Italy’s #1 Brand of Pasta®.’ Plaintiff argues that such claim, among other things, makes consumers believe that the product is made in Italy. The packages do note, by the company address, that the products are “Made in USA with USA and Imported Ingredients.”

• A complaint was filed in November 2022 in Indiana Federal Court alleging that Eagle Family Foods Group LLC, which markets “Popcorn Indiana” implied that the product was “made in Indiana, from start to finish and contain the unique characteristics of popcorn made there.” [Complaint para. 16]. It is also alleged that earlier labels included reference to a real town located in Indiana – “Welcome to Popcorn Indiana. Population 42.” Plaintiff further contends that only the corn is sourced from Indiana, but that it is revealed on the company website that it is popped in Waukegan, IL.

• A complaint was filed in California Federal Court in October 2022 alleging that the yogurt made by La Fermiere, Inc. and called “La Fermiere,” marketed with the claims “Naturally French” on the front label is misleading because the products are manufactured in New York.

Of course, some of these claims are litigated and ultimately dismissed. For example, in June 2021, a California Federal Court granted a motion to dismiss with prejudice in Culver v. Unilever United States, which concerned allegations that some types of Maille mustard products misled consumers as to their origin with French words and claims, such as: “Depuis 1747—Since 1747,” “Que Maille,” “Paris 1747,” and “Maille.” The Court found that the origins of the products was not misleading because all were clearly labeled “Made in Canada” on the back panels.

On the other hand, after lengthy litigation, a case against Godiva Chocolatier, Inc., was settled for several million dollars. The plaintiff alleged that Godiva Chocolate Products were misleading consumers to believe that the products were made exclusively in Belgium based on claims such as “Belgium 1926” (a statement of the company’s origin), when products sold in the United States were manufactured domestically.

Clearly, the food and supplement trade are going to continue to face consumer class action allegations for the foreseeable future. The best strategy for now going forward is for companies to review labels and advertising, including websites, as carefully as possible and determine what claims could be arguably misleading under any circumstances and then determine whether it is worth keeping them or dropping claims and making revisions. NIE

“The author would like to thank Rivkin Radler LLP, Partner Gregory Miller, for his thoughtful insight and kind assistance in the preparation of this article. Greg regularly defends companies that have received class action demand letters and complaints.”

Steven Shapiro is of counsel to Rivkin Radler LLP (rivkin.com) and a partner of Ullman, Shapiro & Ullman, LLP (usulaw.com). His practice focuses on the dietary supplement/natural products industries with a particular emphasis on FDA and FTC compliance issues including labels, labeling and advertising claims.

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