Much At Stake In Pending 'Natural' Class Action Appeals

A number of proposed class actions concerning "natural" food claims are pending in the Ninth Circuit, following lower court decisions dismissing the suits, denying class certification and/or granting summary judgment to defendants. Their outcomes could be significant in shaping the course of related litigation going forward in the supplement and personal care industries.

Class action defendants and other industry stakeholders are watching how appeals play out in the federal Ninth Circuit regarding alleged deception in "natural" food claims, which could have significant bearing on cases going forward across consumer-packaged-goods sectors.

In an interview, Dale Giali, a partner at Mayer Brown LLP in Los Angeles, identified a number of false advertising cases pending in the U.S. Court of Appeals for the Ninth Circuit that could be influential for similar disputes in lower courts, including class actions targeting personal care product firms' natural marketing.

Importantly, the appeals have implications for companies mounting arguments against class certification, which often is the name of the game for defendants in such cases.

"Conventional attorneying says that if a class action is not certified, it is effectively dead and terminated," Giali said. "All of the wind goes out of your sails. You're sitting there with a claim for one bottle of suntan lotion, and the defense attorney would be happy to pull out a $5 bill and hand it to the plaintiff. These cases only make economic sense for the consumer class action attorneys when they proceed as a class action."

"I don't see any slowdown whatsoever. The consumer class-action bar is relentless and shameless and they are going after labels. We are still in the Wild, Wild West in the sense that we don't have real definitive rules yet set out by the courts, so there is a lot of risk, a lot of uncertainty." – Mayer Brown partner Dale Giali

He noted that both Hain Celestial Group and consumer plaintiffs' counsel have agreed to stay a case concerning natural claims for JASON personal-care products until the Ninth Circuit provides guidance on relevant issues.

The circuit has appellate jurisdiction over district courts in the western states, including California, which has emerged as a hotbed for consumer litigation challenging natural product claims.

The lawsuit against Hain – plaintiffs allege they purchased JASON products at a premium based on "all natural" and related statements, when in fact the items at issue contain synthetic ingredients – was dismissed in US District Court for California's Northern District in 2012.

However, the decision was overturned in April by the Ninth Circuit, which agreed with the lower court's findings to an extent but asserted that staying the case was the more appropriate course than dismissing it outright (Also see "Hain Celestial ‘Natural’ Case Could Set Precedent Favorable To Industry" - HBW Insight, 16 Apr, 2015.).

Now natural false advertising suits against Dole Food Co. Inc. and ConAgra Foods Inc., among other manufacturers, are slated for Ninth Circuit review. Ensuing opinions could help clarify requirements for class certification in the Hain case and a growing number of others based on similar false-advertising claims.

"The current, new 'hot area' for both defendants and plaintiffs in these cases is: Can you get a class certified? Can you ever show that these [natural] labeling statements are material to the purchasing decision? Can you ever show that if they're material to the purchasing decision, there was really an injury – i.e., did someone pay more for the good than they otherwise would have?" Giali explained.

"All of those issues are up at the Ninth Circuit right now, and everybody – whether in cosmetics, food, pet food, pet supplies, you name it – everyone agrees that all of those issues are so overlapping that they want to wait to see what the Ninth Circuit says," he added.

Damage Models Contested

In the Dole and ConAgra cases, a Ninth Circuit judicial panel will consider California lower court decisions in favor of the firms due to the plaintiffs' failure to meet standards for class certification.

One standard for class action plaintiffs is a damages theory that applies equally to all proposed class members, Giali noted.

For example, he said, a plaintiff may aim to show that a personal care product was priced at a premium simply because it was marketed falsely as natural. "That is very difficult to do, if not impossible. It requires a lot of time, energy, effort and money, and it requires typically a PhD in economics to run some pretty fancy regressions to isolate the price premium of that challenged labeling statement."

Frequently, plaintiffs will request class certification based on a promise that such analysis will be delivered later – a tactic defendants should and typically do seek to block, Giali said. And if a judge grants a plaintiff the benefit of the doubt, the court typically reserves the right to decertify the class later.

That's what happened in the Dole case: the plaintiffs’ flawed regression model, once unveiled, did not pinpoint damages attributable to the alleged misconduct – the false natural claim for packaged fruit products – to the court's satisfaction.

According to Giali, the plaintiffs' expert failed to account for advertising expenses, labeling of competing products, packaging differences and other factors that may have contributed to Dole pricing the products in question at a premium, rather than simply the brand's "all natural fruit" label.

The finding resulted in class decertification, and roughly one month later the district court granted summary judgment to Dole due to lack of evidence that the company's "all natural fruit" label was misleading to reasonable consumers, or that reasonable consumers would expect citric acid and/or ascorbic acid – identified specifically in the suit as "unnatural substances" – to be absent from products labeled as such.

According to Giali, the plaintiffs are appealing the decertification decision and the summary judgment, contesting the district court's ruling that limited their damages recovery to price premium and maintaining that their evidence sufficiently showed Dole's labeling to be misleading.

The U.S. Chamber of Commerce has entered an amicus curiae brief to the Ninth Circuit supporting the district court's rulings.

Circuits Split On Ascertainability Requirement

Another "hot area" in class action litigation currently concerns an "implicit" certification requirement that will be considered in appeals before the Ninth Circuit. Rule 23 of the Federal Rules of Civil Procedure spells out specific criteria for certification, but courts increasingly are imposing on plaintiffs a judicially created requirement – that class members be ascertainable.

"A court is not allowed to certify a class unless there is a really good way to identify who is in the class," Giali explained.

"The basic issue there is that most of the companies that make these [consumer packaged goods] don't actually sell them to the consumers – the consumers buy them from retail locations. So the defendant being sued, they don't have records of who purchased it. And the consumer class action lawyers, they don't have records of who they're even representing. So how do you figure out who's in the class or not?"

Plaintiffs in the ConAgra Foods litigation are appealing a US district court ruling, also in Northern California, denying certification of three separate consumer classes they claimed were misled by natural marketing for three distinct categories of ConAgra products. The district court said the proposed classes were not ascertainable and took issue with the plaintiffs' damages model, among other issues, according to Giali.

On appeal, the plaintiffs have a narrower focus, seeking consideration for a class of consumers potentially deceived by the firm's "natural" and "no preservatives" labeling claims on canned tomato products.

The U.S. Chamber, which also entered an amicus brief for ConAgra backing the district court's decision, says the plaintiffs are proposing that a clearly drawn, objective class definition is sufficient to meet the ascertainability obligation. The federation emphasizes, however, that ascertainability is a more complex requirement, pointing to recent trends in the federal appeals circuits.

In the majority of natural product cases to date, class members have self-identified via affidavits asserting that they purchased the product at issue within a certain timeframe.

However, Giali explained, "at least one court has come forward and said, 'In order for you to be in this consumer class, I need to see the receipt that you purchased the product.' Well, how many people keep their receipts from purchasing suntan lotion 18 months ago?"

That court is the U.S. Third Circuit, which hears appeals from district courts in New Jersey, Delaware and Pennsylvania.

In an article posted Aug. 25 to Boies, Schiller & Flexner LLP's website, Carl Goldfarb, a partner in the firm's Fort Lauderdale, Fla., office, offers perspective on recent Third Circuit decisions that state an ascertainability position at odds with other federal appeals courts.

"The Third Circuit tightened its requirements for ascertainability, which it held required both objective criteria and an 'administratively feasible' way to apply those criteria without 'individualized fact-finding or mini-trials.' The court 'cautioned against approving a method that would amount to no more than ascertaining by potential class members' say so,'" Goldfarb notes.

According to Giali, plaintiffs appealing the ConAgra Foods decision seek to have the Ninth Circuit reject the Third Circuit's thinking.

Should the Third Circuit's stance on ascertainability gain traction, personal care manufacturers will be better positioned to challenge class certification in suits targeting natural claims and other disputed benefits.

Class Certification A 'Bright Spot' For Defendants

Irrespective of how pending appeals play out, class certification represents an opportune entry point for defendants to contest plaintiffs' basis for action, Giali said.

"There's no question that the class certification area is a bright spot for defendants, in areas that are highlighted in these appeals. It's very difficult for the plaintiff to prove a damage theory, very difficult for the plaintiff to prove that the labeling statement being challenged was material to the purchasing decision and had the same impact across all consumers."

In recent presentations, other attorneys have urged industry members to look for holes in plaintiffs' class-certification arguments and to battle suits on those bases and beyond rather than submitting to pressure to settle (Also see "Class Action ‘Extortion’ Demands Defense From Get-Go – Attorneys" - HBW Insight, 2 Jul, 2015.).

Personal care firms marketing products along natural lines should take heed and have their legal resources at ready, as the litigation risk they face is "as high as it's ever been," according to Giali.

"I don't see any slowdown whatsoever," he said. "The consumer class-action bar is relentless and shameless and they are going after labels. We are still in the wild, wild west in the sense that we don't have real definitive rules yet set out by the courts, so there is a lot of risk, a lot of uncertainty."

Giali litigates cases in state and federal trial and appellate courts concerning false-advertising claims, alleged violations of consumer protection laws and other matters of relevance to consumer-product industry members, and contributes to Mayer Brown's Class Defense blog.

[Editor's note: “The Rose Sheet” also published this article. "The Tan Sheet" brings selected complementary coverage from our sister publications to our subscribers.]