Beginning Next Week: InsideCounsel will become part of Corporate Counsel. Bringing these two industry-leading websites together will now give you comprehensive coverage of the full spectrum of issues affecting today's General Counsel at companies of all sizes. You will continue to receive expert analysis on key issues including corporate litigation, labor developments, tech initiatives and intellectual property, as well as Women, Influence & Power in Law (WIPL) professional development content. Plus we'll be serving all ALM legal publications from one interconnected platform, powered by Law.com, giving you easy access to additional relevant content from other InsideCounsel sister publications.

To prevent a disruption in service, you will be automatically redirected to the new site next week. Thank you for being a valued InsideCounsel reader!

X

The continuing conundrum of the California food fight

Non-GMO, “all natural,” gluten-free, trans-fat, organic, evaporated cane juice. These are food labeling terms that were likely foreign to many consumers only a short time ago. But today—due to increased demand for specialized foods and drinks, and the accompanying demand for more detailed labeling—products bearing these representations make up a significant segment of the food industry. Indeed, an endless amount of information is a click away, and, as a result, today’s consumer is more informed (and more demanding) than yesterday’s.

 While most food companies take great care to listen to their consumers, the reality is that food labeling discourse also occurs in a courtroom after a class action is filed. And since the recent rise of these labeling actions that courtroom has typically been in California. Among other things, California has consumer-friendly unfair competition statutes, and many courts have interpreted these statutes favorably to consumers and the maintenance of their representative actions. But will California continue to be the preferred venue for these cases? The answer to this could depend on how the Ninth Circuit comes out on two critical class certification issues: damages and ascertainability. Key cases on both issues are currently before the Ninth Circuit. If these impending opinions on damages or ascertainability are favorable to consumers, it could entrench California as the go-to jurisdiction for plaintiffs in this ongoing “food fight,” and here is why.   

 Proving Class Damages Through “Premium Price” Theory

 Class damages are tied to the volume of product sales—either nationwide or within a particular state. Nationwide sales, however, typically only matter if the plaintiff intends to certify a nationwide class, which is very difficult to do based on the variance among state consumer protection laws. Therefore, if the case gets to the class certification stage, the plaintiff may feel compelled to seek certification of only a state-wide class. California, as the most populous state in the country, is likely to have the largest volume of product sales, and therefore the largest measure of potential class damages—bolstering the state as a desired location for these cases.

One of the most debated issues at class certification is damages and how the court treats the volume of state-wide sales in relation to the proposed damages model. In general, the plaintiff will attempt to show that the class paid a “premium price” for the product above what it would have paid for a comparable product without any misrepresentation. In Comcast v. Behrend, the U.S. Supreme Court held that the plaintiff’s class damages model “must be consistent with its liability case”—meaning the plaintiff must somehow isolate the percentage of the sales price that is attributable to the representation at issue. Put another way, an “all natural” vegetable oil still has value even if the “all natural” claim is proven false, and the burden falls on the plaintiff to prove how much, if at all, the class overpaid based only on the label representation.

In the past, plaintiffs have used historical pricing and point-of-sale figures, coupled with expert testimony, in attempting to make this showing. They have been met with mixed results, as many courts have found these damages models speculative or incapable of isolating any actual “premium” paid by the class. However, this could change in light of a recent opinion out of the Northern District of California, which accepted a novel and complicated method by which to estimate a class-wide “premium price.” In In re ConAgra Foods, Inc., 2015 WL 1062756, the plaintiffs used two different experts to create a hybrid damages model combining a hedonic regression analysis with a conjoint analysis. Regression analysis is a statistical tool used to understand the relationship between two or more variables. In this case, regression was used to explain the pricing impact for various attributes of the “100% natural” vegetable oil at issue—including the brand of oil, label claims, bottle size, and promotional pricing—and reach an opinion on class wide “premium price” for the product. A conjoint analysis is a different statistical technique, used to assess how consumers value different product attributes in the marketplace. In ConAgra, the conjoint analysis was used to assess the percentage price value of 100% natural claim that was attributable to the absence of GMOs—as the non-GMO representation was the challenged labeling statement, and the one for which the plaintiffs had to isolate a price premium.

Together, the two methods were offered as a way to first assess the price premium for the product, and then isolate the amount of that premium that could be ascribed to the label representation. Notwithstanding its complexity and inherent uncertainty, which was attempted to be explained by not one but two experts, the court accepted the hybrid damage model, and its order is presently on appeal. ConAgra presents an issue of first impression: does this new hybrid damages model (one which no court in a food labeling class action has ever accepted) comply with the requirements of the U.S. Supreme Court's ruling in Comcast? Depending on how the Ninth Circuit comes out on this, it could provide plaintiffs with a roadmap for proving “premium price” theory damages, thus furthering the desirability of filing class cases in California.

Ascertainability: Can True Class Members Be Found?

Another highly contentious issue in labeling class actions is the ascertainability requirement read into Rule 23 of the Federal Rules of Civil Procedure, which compels the plaintiff to demonstrate the ability to identify class members through objective means. In the seminal case Carrera v. Bayer Corp., the Third Circuit reversed a class certification order, finding no reliable way to ascertain a class of Bayer multivitamin purchasers because Bayer did not (and could not) maintain a list of consumers who purchased its products. According to the Third Circuit, courts cannot simply rely on the potential class members’ assurances or “say-so” about a product purchases—as this would effectively jettison the defendant’s fundamental due process right to challenge class membership. The Third Circuit’s directive was that if class members cannot be found through objective means, which are reliable and administratively feasible, then courts should refuse to let class actions proceed.

This is a huge problem for plaintiffs in food labeling litigation as consumers typically do not keep receipts or packaging from low-cost food products that they likely consumed many years earlier. And the defendant food companies, just like Bayer, will have sold their products to retailers (not directly to consumers) and will not have any records to identify purchasers. If Carrera is applied, the likely result is that the plaintiffs in labeling cases will have a difficult (if not impossible) time showing objective means to locate true purchasers of the products—this, absent mini-trials as to each putative members’ claim, which would not be administratively feasible.

There is presently a circuit split on Carrera’s heightened ascertainabilty standard. The First, Second and Eleventh Circuits have all adopted Carrera’s reasoning, while the Sixth and Seventh Circuits have rejected it—noting the potential for a prohibitive effect on consumer class actions. District courts in California have come down on both sides, and the Ninth Circuit is currently considering the issue. Should the Ninth Circuit side with the Sixth and Seventh Circuits, and decline to follow Carrera, this would obviously mean that defendants in California actions would be precluded from advancing the heightened ascertainability requirement in opposition to certification. And when the Ninth Circuit does weigh in, it will only fortify the circuit split on Carrera, which could prompt the U.S. Supreme Court to intervene. But until there is some uniformity on class member ascertainability, one can expect plaintiffs and their attorneys to steer cases away from circuits endorsing the more stringent standard, and to the jurisdictions that have condemned Carrera—which, within the year, could include this circuit. 

Contributing Author

Angela C. Agrusa

Angela C. Agrusa is a partner in Liner’s Litigation department, with a practice focus in consumer marketing and branding litigation and class...

Bio and more articles

Contributing Author

Allen P. Lohse

Allen P. Lohse is senior counsel in Liner’s Litigation department. Allen’s practice focuses on commercial litigation in both federal and state court....

Bio and more articles

Join the Conversation

Advertisement. Closing in 15 seconds.