Pierce Gore, Pratt & Associates of counsel
Image: Jason Doiy/The Recorder
SAN FRANCISCO — Across the Bay Area, corporate attorneys with degrees from top law schools are considering the nutritional content of corn chips.
And in their chambers, federal judges are in deep contemplation over pints of Ben & Jerry's and packs of sugar-free gum.
If that sounds like a joke, then welcome to the Food Court.
That's what some practitioners have taken to calling the Northern District of California, reflecting its emergence as preferred venue for a new wave of class action litigation over food labels alleged to mislead consumers or violate federal regulations.
Though the merits of such cases have yet to be fully tested, judges here have rejected broad defenses to food labeling suits, spurring more litigation and setting the Northern District at the epicenter of a burgeoning legal fight over how food is labeled.
For defendants, early rulings mean that while food cases might seem technical and lawyer-driven, they won't be easy to get rid of — at least not in the early stages and before commencing expensive discovery.
"In the Northern District, the judges have shown they're going to allow cases," said Morrison & Foerster partner William Stern, an expert on California's consumer protection laws who represents Ben & Jerry's, Del Monte Foods, Unilever Inc., Campbell Soup Co. and other food companies in labeling suits. "It's like having a welcome mat on the front door."
Since March 2012 a network of plaintiffs lawyers, including many veterans of Big Tobacco litigation, have filed 28 food label class actions in Bay Area federal courts.
Their suits challenge labeling on a grocery list that includes apple juice, yogurt, granola bars, frozen waffles, cocoa mix, baby food, cooking spray, potato chips and ice cream. Many suits zero in on ostensible health foods, taking issue with claims that products are 100 percent natural, lack trans fat or contain no added sugar. The Northern District offers plaintiffs both a consumer-friendly legal climate and a health-conscious jury pool.
The onslaught means most every judge in the district is confronting the issue: U.S. District Judge Edward Davila in San Jose has at least nine food labeling cases on his docket. One floor down, Judge Lucy Koh has six.
The district's newest judge, Jon Tigar already has been assigned one action, while Judge Ronald Whyte issued two orders this past week in labeling cases against tea company Twining's Inc. and Kraft Foods Global.
Several Big Law partners who used to find steady work representing clients in other industries have shifted into the defense of food labeling cases.
That's true for Arnold & Porter partner Angel Garganta, a past president of the San Francisco Bank Attorneys Association. Today, food label cases represent about 80 percent of his practice, he said.
"It's where the class action process has gone," Garganta explained. "I call it greener pastures. The asbestos litigation has pretty much dried up. Tobacco — the global settlement is done. Securities class actions are not what they used to be. The plaintiffs bar has just been looking around for other targets."
LOW-HANGING FRUIT
Food labeling suits have been gaining momentum around the country for a few years, resulting in some substantial settlements, such as a $35 million deal in 2009 over the marketing of Dannon's Activia yogurt products. Last year, deceptive marketing suits against Ferrero USA Inc., the maker of Nutella hazelnut spread, settled for roughly $3 million.
Other suits have faltered, including a Northern District case challenging the labeling on Nestle's Drumstick ice cream bars. Federal judges elsewhere in California dismissed suits over Kellogg's Froot Loops and PepsiCo Inc.'s Cap'n Crunch cereal with "crunch berries," finding no reasonable consumer would believe the cereals contained real fruit.
Food makes an appealing target after the U.S. Supreme Court's 2011 decision in AT&T Mobility v. Concepcion, said Neil Popovic, a business litigation partner in the San Francisco office of Sheppard Mullin Richter & Hampton. The ruling upheld mandatory arbitration provisions in consumer contracts, making it harder to pursue class actions against financial services and telecom companies.
"You don't have that when you buy a food product," Popovic said. "There's no contract on the back of your salad dressing bottle."
And after a 2008 ruling from the U.S. Court of Appeals for the Ninth Circuit in Williams v. Gerber Products, 552 F.3d 934, companies cannot rely on a complete ingredient list as cover in deceptive marketing suits.
All-natural labeling has become a particularly active area of litigation, both because it is ubiquitous and because the term is not specifically defined by the U.S. Food and Drug Administration. Typical claims contend "natural" labeling is misleading when products contain citric acid, high fructose corn syrup or other compounds plaintiffs deem synthetic. Defendants often dispute the characterization of their ingredients.
Stephen Gardner, litigation director for the nutrition advocacy group Center for Science in the Public Interest, is adamant that high-fructose corn syrup is artificial and suggesting otherwise on labels is deceptive.
"It started out as corn, but that doesn't make it natural," he said, adding, "Plastic started out as dinosaur bones but that doesn't make it natural."
Arnold & Porter partner Trenton Norris gave a webinar last year telling GCs that their companies should tread cautiously when labeling products as natural. Plaintiffs lawyers need only walk down the aisle of their local supermarket and inspect products for "some plausible disconnect" between the labeling and the ingredient list, he warned.
"That claim may indeed survive a motion to dismiss, which puts you into expensive litigation and discovery," Norris said.
TASTY TARGET
The latest push in food cases are so-called misbranding claims based on allegations that food labels are not simply misleading to consumers but explicitly violate federal standards.
That has been the primary legal weapon of the consortium led by Don Barrett, a Mississippi lawyer who made millions suing Big Tobacco, and Robert Clifford, a Chicago lawyer whose practice previously focused on commercial airline accidents.
Advised by a former director of the FDA's Office of Food Labeling, the group spent two years poring over FDA regulations. Also on board as a consultant is UCSF professor Robert Lustig, author of a new book linking sugar and processed foods to obesity and disease.
Last year the group filed 24 suits in less than two months against companies like Procter & Gamble Co., Unilever and ConAgra Foods. More recent suits target smaller brands in the natural food market, like Wallaby Yogurt Co., WholeSoy & Co. and Green Valley Organics.
Filing in the Northern District was strategic, said San Jose attorney Pierce Gore of Pratt & Associates, the group's lead lawyer in the Bay Area.
"The law is more favorable here in than in any other jurisdictions that we've looked at," said Gore, a former partner at San Francisco's Lieff Cabraser Heimann & Bernstein.
The cases use California's Unfair Competition Law and the state's Sherman Food, Drug and Cosmetic Law to challenge nutritional claims on food packaging. Several recent suits take issue with manufacturers for listing "evaporated cane juice" as an ingredient, rather than sugar, a representation the FDA deems misleading.
The misbranding claims filed by Gore's group don't allege that individuals were physically harmed by their consumption of products, merely that they were duped into buying an item they otherwise would not have spent money on.
In that sense, these are not the suits envisioned by activists after victories against Big Tobacco in the 1990s, and lawyers are not seeking to hold food companies directly accountable for the obesity epidemic or for hooking consumers on products with unhealthy levels of sugar, salt and fat.
"They're really noninjury cases," said Angela Agrusa, a partner at Liner Grode Stein Yankelevitz Sunshine Regenstreif & Taylor in Los Angeles. Agrusa, who represented the maker of Pirate's Booty cheese puffs in a class action that was ultimately dismissed, contends that plaintiffs' financial claims may not stand up under scrutiny.
"Consumers buy a product because they like how it tastes or they like a crazy character on the box," Agrusa said. "Only in the very rare case do they buy it because of a single statement on the packaging."
MoFo's Stern, who represents clients in eight of the misbranding cases filed by Gore, calls the new wave of litigation hypertechnical. One case he is involved in takes issue with a label's failure to specify an ingredient was added for color, though the ingredient itself is listed. Stern refers to that as a "wrongful parentheses" lawsuit.
"There's no infraction too small to have avoided their attention," he said.
But Gore insists the breaches are neither minor, nor innocent.
"There is a public health underpinning for every one of these regulations," he said. "They don't exist purely to frustrate food companies."
As importantly, identifying violations of FDA regulations seems to provide plaintiffs with a way to overcome federal pre-emption, a central defense argument.
"We strongly believe the best way to plead a food label case is to dig into the label and find out if the companies are breaking the law," Gore said. "So far, the judges have agreed."
APPETITE FOR LITIGATION
At a December hearing, Hogan Lovells partner Robert Hawk, representing ConAgra, set out to persuade U.S. District Judge Charles Breyer in San Francisco to dismiss claims against Pam cooking spray, Hunt's tomato products and Swiss Miss cocoa.
Hawk told Breyer the plaintiffs' allegations encroached on areas subject to federal regulation and should be pre-empted.
"It makes a mockery of congressional intent to have this rival enforcement scheme," he said.
The argument has been on a losing streak in the Northern District, and Breyer was skeptical.
"Congress isn't sitting in a vacuum," he said. "They understand there's a plaintiffs bar out there."
Three days later, Breyer issued an order affirming that private parties can pursue labeling suits under state consumer protection laws if they do not seek to impose requirements beyond those set by federal agencies. California's food labeling laws adopt federal requirements and thus mirror but don't exceed federal standards.
The ConAgra ruling sticks to a line of case law developing in the Northern District that has been tough to swallow for food companies. Several recent orders adopt an analysis of natural claims set out by U.S. District Judge Phyllis Hamilton in a case over ice cream made with Dutch-processed or alkalized cocoa.
Hamilton, who is health conscious and serves as chair of the Ninth Circuit's wellness committee, held that "all natural" claims are not pre-empted because the FDA has declined to regulate the area.
The decision was a factor in Gore's consortium of plaintiffs lawyers choosing to file cases in the Northern District.
Pre-emption, concedes Arnold & Porter's Garganta, is "not an argument that wins a lot" in the Northern District.
Judges have been split on whether claims related to products not purchased by a representative plaintiff must be dismissed for lack of standing or whether the issue should be addressed at class certification.
While several suits have survived motions to dismiss, none of the recent misbranding cases has yet achieved class certification — a hurdle that could pose challenges under tougher commonality standards established in the 2011 Supreme Court decision in Wal-Mart v. Dukes.
Striking settlement deals could also prove tricky, under recent Ninth Circuit rulings dealing with cy pres payments. Hamilton rejected a $7.5 million settlement last year in an ice cream case, after just 5,000 consumers nationwide took action to claim a $6 refund. One dilemma in food labeling class actions is that individual losses are small and there is no way to identify class members.
But since losing a motion to dismiss can push defendants to settle, some food company lawyers would like to see judges demand more from plaintiffs earlier in the litigation.
"Judges tilt in favor of saying, I'm not going to decide that, certainly not at the front end of the case," said Sidley Austin partner Thomas Hanrahan in Los Angeles, who represented Taco Bell in the 2011 imbroglio over its beef products. "In some cases I think they leave common sense at the door."
Meanwhile, plaintiffs lawyers continue to troll the grocery aisles.
"Why shouldn't consumers be entitled to educate themselves and choose for themselves?" Gore said. "These companies are lying on their labels. They've been doing it for years. They're unhappy they got caught."
Correction: An earlier version of this article incorrectly stated that a class action against the maker of Pirate's Booty cheese puffs settled for $3.5 million in coupons. In fact, a settlement on those terms was overturned on appeal and plaintiffs ultimately dismissed actions against the company. We regret the error.
