California Court Requires Actual Reliance On Alleged Label Misrepresentations

Contributed by Keith Gibson

Last Fall we wrote about two decisions by Judge William Orrick in the Northern District of California that allowed consumers to potentially avoid application of the “reasonable consumer” test in a putative class action alleging that defendants engaged in false and misleading advertising by listing “evaporated cane juice” as an ingredient in their yogurt products rather than “sugar.”  In Gitson v Trader Joe’s Co. and Morgan v. Wallaby Yogurt Co., Judge Orrick held that the plaintiffs had not established that the use of the term “evaporated cane sugar” in place of “sugar” would lead a reasonable consumer to believe sugar was not included in the product.  Nevertheless, he allowed the cases to proceed on the theory that use of the term “evaporated cane sugar” may violate California’s Sherman Law because they are inconsistent with the guidelines of the Federal Drug and Cosmetics Act, which requires products to refer to ingredients by their “common and usual names.”  These decisions threaten to hamper food and beverage companies’ ability to defend against the current deluge of labeling related claims by removing the requirement that the plaintiffs establish they relied – as a reasonable consumer – on the information contained on a product’s label to their detriment.  Last week, however, Judge Lucy Koh, also from the Northern District of California, issued a decision reaffirming the requirement that consumers must actually rely upon the alleged misrepresentations on labels in making their purchases.

In Kane v. Chobani, Inc., the plaintiffs allege that Chobani’s yogurt product labels were false and misleading on two fronts.  First, as in the Gitson and Morgan cases, they allege that the use of the term “evaporated cane juice” as an ingredient is false and misleading because it conceals the fact that the sweetening ingredient in the yogurt is actually “sugar” or “dried cane syrup.”  Second, plaintiffs allege that Chobani’s statements that its products contain “only natural ingredients” and are “all natural” are false and misleading due to the presence of “fruit and vegetable juice” and “turmeric” which are added to the yogurt for coloring purposes.  Plaintiffs allege that they read and relied upon the labels on Chobani’s products in making their purchasing decisions, and therefore, have met the reliance prong of California’s “reasonable consumer” test.  After previously dismissing the plaintiffs’ claims with leave to replead, last week Judge Koh granted Chobani’s motion to dismiss the plaintiffs’ third amended complaint with prejudice, finding that the plaintiffs did not have standing to pursue their claims.

To have standing under the various California laws at issue, the plaintiffs were required to establish that they actually relied on the defendant’s alleged misrepresentation and suffered economic injury as a result.  In arguing that actual reliance was not required, plaintiffs cited to several cases that have suggested alternative avenues to liability, including the Gitson and Morgan decisions from Judge Orrick.  Judge Koh rejected the application of Gitson and Morgan because they did not discuss the application of Kwikset Corp. v. Superior Court, a California Supreme Court case suggesting that the actual reliance requirement applies where the underlying misconduct is fraudulent conduct.  As a result, Judge Koh confirmed that false and misleading representation claims require the plaintiffs to establish actual reliance on the alleged misrepresentations.

With respect to the plaintiffs’ first theory – that the use of “evaporated cane juice” rather than “sugar” was false and misleading – Judge Koh held that the plaintiffs had not established how they could understand that “dried cane syrup” was essentially the same as sugar yet believe that “evaporated cane juice” was something different.  The Court did not find the plaintiffs’ claims that they believed that “evaporated cane sugar” was something “healthier than sugar” to have any basis in fact, and therefore, could not act as the basis for their alleged reliance on its presence as a misrepresentation.  This argument was supported only by the conclusory allegation that the use of the term “juice” made it sound healthier, an argument that was contradicted by the plaintiffs’ acknowledgement that “fruit juice concentrate” is a “well-known added sugar.”  With respect to the plaintiffs’ second theory – that the use of “fruit and vegetable juice” and “turmeric” makes the label “all natural” misleading – Judge Koh held that the plaintiffs did not explain how the defendants processing of the juice renders the yogurt unnatural or made the products un-natural.  As a result, Judge Koh held that the plaintiffs did not have standing to sue under California’s false and misleading labeling laws.

The Kane case provides food and beverage companies with additional support for the argument that plaintiffs must establish actual reliance on any alleged misrepresentations on a product’s label.  Given the nature of these transactions, this is often a difficult hurdle for plaintiffs to establish.  Moreover, this case gives defendants a well reasoned decision to cite in opposition to the Gitson and Morgan decisions, which created a vehicle for plaintiffs in misleading labeling cases.  We will continue to monitor this fluid area of law and provide updates on further decisions or trends in this area.