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Class Actions & Derivative Suits

Class Actions 101: A Primer on Elevated Health Claims

By Kathryn Honecker and Eric Zard – April 30, 2012

In this edition of Class Actions 101, we answer some common questions young lawyers may have when asserting or defending claims that a product’s marketing, advertising, packaging, or labeling contains exaggerated or untrue health statements.

What Are the Most Common Practices Subject to Class Actions?
As with all niche practice areas, product labeling is continually evolving, and what is common today will likely not be common in the future. With that said, the recent trend seems to focus on products claiming to be “natural” when they are made from genetically modified organisms, are made with high fructose corn syrup, or contain preservatives or other food additives; products claiming to be capable of providing a specific health benefit (for example, “promotes brain development,” “helps fight cancer,” or “reduces risk of heart disease”) when they cannot; and products claiming to be supported by clinical studies or scientific evidence when they are not.

With regard to scientific studies and specific health-benefit claims, many manufacturers do, in fact, conduct well-planned studies with sufficient sample sizes to determine the effectiveness or efficacy of their products or base their claims on independent, peer-reviewed research. Those manufacturers are generally not being targeted. Instead, the targets are manufacturers that misconstrue scientific evidence or make claims based on unpublished research that has not been subject to peer review and/or studies that used sample sizes incapable of yielding statistically significant results.

What Causes of Action Are Alleged in Product Labeling Class Actions?
While the U.S. Food and Drug Administration (FDA) regulates how a product can convey nutritional information, those regulations do not provide a private right of action. As such, product-labeling class actions most commonly allege that the defendant’s conduct violated state consumer-protection statutes and constituted a breach of express and/or implied warranty. Some class actions also allege causes of action based on state labeling laws, negligence, fraud, other common laws, or equitable theories such as unjust enrichment. One should consider issues of proving reliance on a class-wide basis when alleging consumer-protection statutes based on fraud, breach of express warranty claims, and common-law fraud. Beyond these general considerations, it is important to determine whether you are required to serve the state’s attorney general and the type of relief (injunctive and/or declaratory relief, compensatory, punitive, and/or treble damages, etc.) available for the class under the proposed cause of action.

Do I Need to Be Concerned with Federal Preemption Issues?
Yes, in some circumstances, federal preemption can be an issue. Because it would be nearly impossible for a manufacturer to comply with different labeling requirements for all 50 states, FDA regulations preempt any state requirements that affirmatively differ from the federal requirements. 21 C.F.R. § 343-1(a). Accordingly, if a state’s requirements are identical to the federal requirement, there is no preemption. For example, an FDA regulation, 21 C.F.R. § 101.9(g)(5), allows food manufactures a 20 percent window of accuracy for a label’s nutrient contents. If a state has the same requirement and allows a private right of action, consumers may bring an action based on state law if the actual nutrient content differs by more than 20 percent from the declared nutrient label.

Can a Company Be Liable for Falsely Labeling Food as “Healthy”?
Yes, a company can be liable for falsely labeling a food product as “healthy.” The use of the term is not simply puffery in advertising. Last year, for example, a mother filed a class action against the manufacturer of Nutella under New Jersey common law and its consumer-fraud statute based on the manufacturer’s advertising campaign portraying the product as healthy and an “example of a tasty yet balanced breakfast.” A settlement in that case was announced this past February.

The FDA has clearly defined the term “healthy” and similar terms used in labeling. As FDA regulations do not provide a private right of action, however, plaintiffs must turn to state law for relief. In addition to the other causes of action listed above, consumers may be able to seek relief under state statutes, if available, that mirror 21 C.F.R. § 101.65(d)(2), which sets forth the minimum amounts of fat, saturated fat, cholesterol, sodium, and other nutrients various products must satisfy to be labeled “healthy.” If a product goes beyond simply claiming that it is healthy and expressly or implicitly characterizes itself as containing a certain level of a particular nutrient or calorie level (for example, “high in fiber” or “100 calorie snack”), it must comply with additional labeling guidelines. For more information concerning the FDA’s regulations on food labeling, refer to Subchapter B and Section 343 of Title 21 of the Code of Federal Regulations.

Does the Format of the Health Claims Matter?
Yes. Health claims are often conveyed on the product’s label and in advertisements on television, in print media, on the Internet, and on the radio. However, they can also be made in a one-on-one setting with a salesperson and consumer, such as at a product demonstration at a store. The former type of misrepresentations, where the manufacturer made uniform representations to the class, are preferred, as the false or elevated health claim at issue must satisfy Rule 23’s requirements that common questions of fact and law must be at issue. Fed. R. Civ. P. 23(a)(2). The same is true if seeking certification of a class under Rule 23(b)(2), where the plaintiff must show that the defendant “acted or refused to act on grounds that apply generally to the class, so that final injunctive relief or corresponding declaratory relief is appropriate respecting the class as a whole.” Fed. R. Civ. P. 23(b)(2).

Is Reliance on the Advertising Required?
Depending on the state where you file your class action and the causes of action selected, reliance on the advertisement may not be required, may be required by the named plaintiffs only, or may be required by each of the putative class members. This is definitely an area to research before filing your case. Even where reliance is required, some courts will presume reliance on behalf of the plaintiff and absent class members when the misrepresentation is found to be material (in other words, where a reasonable person would attach importance to the existence or nonexistence of the misrepresentation in determining his or her choice of action) or part of an extensive and long-running advertising campaign. See, e.g., In re Tobacco II Cases, 46 Cal. 4th 298, 328 (2009). However, as discussed more fully in "Mazza's Impact on False-Advertising Class Actions", if a portion of your proposed class would not have been exposed to the misrepresentation, such a presumption will be difficult to obtain.

What Type of Relief Does the Class Usually Seek?
Product-labeling cases most commonly seek compensatory damages based on reimbursement of the product’s purchase price, the difference in value of the product as represented and its value as received, or, in “premium pricing” theory cases, the difference between the price of the product and the price of comparable products that did not contain the false claims or misbranding. Some state consumer-protection statues permit plaintiffs to recover punitive or treble damages, although putative damages are typically only awarded if the plaintiff can prove that the defendant’s conduct was reckless, wanton, or intentional. Similarly, because product-labeling class-action class members are often difficult to identify, it is common for settlements to contain cy pres provisions, which distribute unclaimed funds to the next-best class of beneficiaries—typically a charitable organization that promotes the interest of the class. Finally, equitable relief may also be appropriate, depending on the circumstances of the case. A plaintiff may seek injunctive and declaratory relief if a defendant’s conduct is ongoing and applicable law permits. Such relief generally involves negotiations between the parties, including mediation, to determine changes that can be made to the product’s labeling or advertising so as to not mislead consumers in the future.

Keywords: litigation, class actions, derivative suits, health, food labeling, class certification, Food and Drug Administration, young lawyers

Kathryn Honecker is a shareholder and Eric Zard is an associate with Bonnett, Fairbourn, Friedman & Balint, PC, in Phoenix, Arizona.

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