Keller and Heckman Article in Law360: "Plaintiffs Face Challenges In 'Cheese' Class Actions"

Law360, New York (March 2, 2016, 11:27 AM ET) --

Regular readers of Keller and Heckman's "Daily Intake" column will be all too familiar with the many consumer class actions filed in the “food court.” These cases are typically filed in the federal courts in Northern California, with similar cases in federal courts in Los Angeles and New York. The most prominent have involved “natural” food marketing claims for products that contain alleged “unnatural” ingredients such as soy lecithin, xanthum gum and so-called genetically modified organisms (GMOs). However, the reach of the food court has extended to products containing partially hydrogenated oils, slack-fill cases, “food fraud,” slave labor, evaporated cane juice, and “handmade” advertising claims, to name a few.

The latest food court iteration involves allegations that Kraft Heinz Foods Company’s “100% Grated Parmesan Cheese” product in the familiar green and yellow packaging supposedly misled consumers into buying the product, or paying a premium for it, because the product contained 3.8 percent cellulose. The case made headlines because cellulose is alleged to be derived from wood pulp. The plaintiffs’ theory of the case is that cellulose is not a component of parmesan cheese, and so the product name implying that the product is 100 percent parmesan cheese allegedly misled consumers.

The backstory here is that cellulose is a generally recognized as safe (GRAS) food additive which FDA permits in food products as an anti-caking agent, such as grated parmesan cheese. Cellulose is derived from plant matter. What is also not mentioned in the complaint or in the general press articles is that the presence of cellulose powder is disclosed on the back of the product in the ingredient panel.

In the complaint filed in federal court in Northern California, the plaintiffs point to advertisements that tout the “100% Grated Parmesan Cheese” name, including one ad that claims there are “no fillers.” The plaintiffs claim that this alleged deception of consumers ran afoul of statutes commonly invoked in food court litigation — California Consumer Legal Remedies Act, California’s Unfair Competition Act and False Advertising Law, among others. To prevail on these claims in a class action, the plaintiffs will have to prove on a class-wide basis that putative class members: (1) were exposed to a certain advertisement; (2) interpreted the challenged food marketing message in the same way; (3) a substantial number were misled into buying the product they otherwise would not, or into paying a premium for the product; (4) are otherwise “ascertainable” (capable of being identified as part of the class); and perhaps most significantly, (5) can proffer a sound damages methodology tied to the theory of liability (Comcast Corp. v. Behrend, 133 S. Ct. 1426 (2013) (e.g., can establish a valid price premium determination for the putative class if overcharging is the allegation).

If past cases (largely unreported) are any guide, plaintiffs here will find at least two formidable obstacles — proving up deception of a substantial number of consumers, and developing a class-wide damages methodology that meets the “predominance” requirement articulated in Comcast. For example, emerging decisional law suggests that to establish that a substantial number of consumers were misled, consumer surveys may be necessary to get past summary judgment and on to a jury. It is often not enough for the lead plaintiff to claim that he or she was misled, or simply argue that a judge or jury can decide whether a “reasonable consumer” would be misled.

Such surveys are expensive (easily in the tens of thousands of dollars), and the facts of this case may make it difficult for plaintiffs to collect favorable consumer survey data that is considered sufficiently reliable by the assigned judge. For example, consumers may interpret “100% Grated Parmesan Cheese” to mean that the grated cheese elements of this product are indeed 100 percent parmesan cheese, and that cellulose was added not to adulterate or “dilute” the cheese, but simply to make it more usable. Kraft Heinz will have a good case to make as to the legitimate purpose of the cellulose, the authenticity of the cheese portions of the product, and may even be able to produce a countervailing survey of its own.

There exist other facts as well that would seem to undermine claims of deception. There are no allegations that the grated cheese portion of this product is not all parmesan cheese (as opposed to other cheeses), or that the cellulose is unsafe, undisclosed, not compliant with FDA regulations, or has no function but to “extend” the amount of product in the container. Kraft Heinz can point to the ingredients listing which clearly indicates the addition of “cellulose powder.”

Perhaps the most challenging part of this case for the plaintiffs will be adducing a damages methodology that comports with Comcast. It is unlikely that the plaintiffs will be able to seek a full refund for product purchased by the putative class since courts typically find such products to have some benefit to consumers, which here would be an otherwise safe and wholesome cheese product. Instead, the plaintiffs’ counsel will have to adduce expert testimony as to the “price premium” supposedly paid by putative class members for the Kraft Heinz product over “comparable” products.

Such analyses in other “food court” cases have involved hedonic regression and conjoint analysis from the field of econometrics. In the past, the plaintiffs’ counsel have struggled to accumulate sufficient data and to employ a credible class-wide damages methodology to obtain class certification in accordance with the Comcast requirements. The concepts are difficult to understand and apply, and here, plaintiffs’ counsel will have to find competing products that either contain no or less cellulose, and which are less expensive than this widely distributed national brand.

This case seems to be one in a series of cases or reports involving parmesan cheese lately. For example, Walmart recently was sued in a New York federal court by a purported class of consumers for deception as to its “Great Value” 100 percent parmesan cheese. The charging allegations were similar to the Kraft Heinz case here, but the cellulose allegedly was higher, 7 to 10 percent.

Prior to both of these cases, the FDA found in the fall of 2015 that three “Market Pantry” brand “100 percent parmesan cheese” products distributed in thousands of retail stores by the Castle Cheese company contained no parmesan cheese at all, but rather Swiss, mozzarella, white cheddar and cellulose. Misdemeanor criminal charges were filed against key executives of this company for adulteration and misbranding under the federal Food, Drug & Cosmetics Act. This case is in a category apart from the other cases, but may serve to illustrate how governmental action can garner attention to a particular food category from the food court plaintiffs’ bar.

Passing off of a mixture of cheeses as parmesan cheese as alleged in the Castle Cheese case is a classic illustration of “food fraud.” The Grocery Manufacturers Association estimates that food fraud can cost the economy roughly $10 billion to $15 billion per year. So while food fraud is a serious problem in our food supply chain, the allegations against Kraft Heinz and Walmart that may have been inspired by Castle Cheese do not appear to fall into this category, and pose significant problems of proof of deception and damages to purported class counsel.

One thing is for certain — notions of “shopping for a lawsuit” and the “food court” appear here to stay for the foreseeable future.

Keller and Heckman Article in Law360: "Plaintiffs Face Challenges In 'Cheese' Class Actions"

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