A recent federal court decision rejected a preemption argument under the Food, Drug, and Cosmetic Act and the Nutrition Labeling and Education Act regarding Smart Balance “fat-free” milks.  Admittedly, those defendants advocated a novel preemption theory.  It also did not help that a competing product used labeling that the plaintiffs acknowledged complied with all federal laws and would not provide a basis for state law claims.

In Koenig v. Boulder Brands, Inc., No. 13-CV-1186 (ER) (S.D.N.Y. Jan. 31, 2014), the plaintiffs alleged that the defendants deceptively labeled milk products as “fat free” when they truly contained one gram of fat per serving.  The defendants added an Omega-3 oil blend to fat-free milk, so the product contained less than 0.5 gram of milk fat per serving, but contained one gram of fat per serving due to adding the oil blend.  As is common in these types of claims, the plaintiffs alleged that the “fat-free” labeling deceived them and that they paid a premium for the products because of that deceptive labeling.

While the product labeling touted the “fat-free” nature of the milk, the front label also disclosed that it contained “(1 g fat from Omega-3 oil blend),” albeit in smaller font.  Of course, the nutrition facts panel also disclosed that the milk contained one gram of fat per serving, and the oil blend was the third ingredient listed.  Unfortunately for the defendants, however, the nutrition facts panel did not contain an asterisk or disclaimer modifying that description.  As we will see below, that was an important omission from the court’s perspective.

It is well-recognized now that states cannot impose labeling requirements different from those imposed by the Food, Drug, and Cosmetics Act (“FDCA”) and the Nutrition Labeling and Education Act (“NLEA”).  Federal law, however, does not preempt state laws that only impose identical labeling requirements.  A state consumer law may provide a claim for a consumer even though the relevant federal laws do not provide any private remedies for consumers.  Thus, these plaintiffs had to establish that their state law claims only imposed the same obligations as federal law, while the defendants argued the opposite.

Not surprisingly, a specific regulation regarding labeling of “fat free” products exists.  Under that regulation, products labeled as “fat free” and that have an added ingredient consisting of fat must have an asterisk next to the ingredient and a statement along the lines of, “adds a trivial amount of fat,” “adds a negligible amount of fat,” or “adds a dietarily insignificant amount of fat.”  21 C.F.R. § 101.62(b)(ii).  That is why the lack of an asterisk came back to haunt these defendants.

The defendants argued, however, that FDA compliance policy guides allowed them to treat this milk product essentially as two combined products—one that is “fat-free milk” and the other that is not fat-free Omega-3 oil.  The defendants pointed to such policy guides regarding water with added minerals and peas and carrots.  No such guidance existed for a “fat-free” product with added fat, though.  The court rejected the argument that the policy guides for other products somehow pointed to preemption here.  After all, no policy guide exists for this type of milk product, and a competing milk product appropriately uses the asterisk to note added oil.  In fact, the court could not find any FDA policy guide involving combining an ingredient that is fat with a “fat-free” food.  Considering that a regulation specifically addresses such situations of adding fat to “fat-free” foods, there was no reason to try to analogize to other policy guides for different types of food.  Thus, the court concluded that the plaintiffs’ claims only sought to impose requirements that were identical to federal law.

The court then turned to the sufficiency of the state law claims.  First, the plaintiffs alleged consumer fraud under New York’s General Business Law (“GBL”) § 349.  That law relies on an objective test to assess whether practices are likely to mislead reasonable consumers acting reasonably under the circumstances.  The court noted that a reasonable consumer may conclude that the product contains a gram of fat per serving, but also noted that a reasonable consumer might focus on the more prominent wording on the label touting the product as “fat-free milk and Omega-3s.”  That was enough to defeat the motion to dismiss.  The court also concluded that the plaintiffs adequately alleged injury because they contended that they paid price premiums based on the defendants’ misrepresentations.

The court dismissed the plaintiffs’ breach of express warranty claims, however, due to the lack of privity.  It did so without prejudice, so the plaintiffs may attempt to replead that claim.  It seems difficult, however, to conceive of retail plaintiffs buying products directly from the manufacturers, rather than from a grocery store.  The court also dismissed the plaintiffs’ unjust enrichment claims as duplicative of other claims.

At this point in food and beverage labeling class actions, several courts have ruled on preemption issues and provide fairly consistent guidance on that doctrine.  That guidance, of course, cuts both ways for manufacturers—plaintiffs have fairly clear road maps for how to plead claims to avoid preemption.  More interesting questions, and perhaps more successful defenses, will arise in later proceedings such as summary judgment and class certification.  For example, nearly every state’s consumer fraud laws purport to rely on an objective standard.  That is, what would the reasonable consumer believe or would the labeling deceive the reasonable consumer?  It is not clear how class action plaintiffs intended to satisfy this burden in many respects.  Labels typically disclose the relevant information even when a plaintiff seizes on only one portion of the label (e.g., “fat free” or “all natural”).  It should not be sufficient for class action plaintiffs to rely only on the named plaintiff’s subjective interpretations.  There should be some requirement that they establish that a “reasonable” consumer would not have read other portions of the label, would not have understood them correctly, or would have disregarded them.  This seems particularly difficult to do and, at a minimum, should require statistically significant and valid survey data regarding consumer perceptions of the labels.  If a plaintiff does not offer that type of survey, a defendant should have grounds for summary judgment or to defeat class certification.

Another issue that these types of plaintiffs do not thoroughly address is injury due to alleged “premium” payments.  In sum, plaintiffs argue that they paid more for a mislabeled product than they otherwise would have.  That tends to be the entire measure of damages proffered by these types of class actions.  But this should be a difficult proposition to prove.  Grocery prices vary significantly depending on several factors.  Was the product on sale?  Did a customer belonging to a store’s “membership” program buy the product at a price lower than that for a non-offending product because of that membership?  Did a customer buy the product because her preferred alternative product was sold out?  Any number of differences may explain (1) whether a consumer actually paid a “premium” price and (2), if so, whether she paid that price because of the labeling or for unrelated reasons.  The United States Supreme Court’s recent decision in Comcast Corp. v. Behrend, 133 S. Ct. 1426 (2013), gives class action defendants considerable ammunition to attack plaintiffs’ proposed methodologies for establishing injuries and damages.  That ruling should play a significant role in defending any of these labeling class actions.

James Smith is a partner in the Phoenix office of Bryan Cave LLP and a member of the firm’s Class & Derivative Actions Client Service Group.