Who wins in food industry class action cases?

Who wins in food industry class action cases?

Editor’s note: This is the second in a two-part series examining the phenomenon of class action lawsuits targeting the food and beverage industry. In part one, Food Dive explored why so many of these cases are filed.

In 2016, Kellogg was sued in a California court by consumers objecting to the company’s liberal use of health claims.

According to the initial complaint, labeling on about 50 packages included the phrase “whole grain” more than 130 times, “health” or “healthy” more than 40 times, “wholesome” more than 20 times, and “nutrition” or “nutritious” at least 15 times. Yet many of those products have high amounts of sugar, and the consumers argued it was misleading to allow Kellogg to use label claims that made them seem healthier. 

Kellogg countered that all of its label claims were accurate, and that it never represented that its products were low in sugar. (The company did not respond to a request for an interview for this story.)

After years of arguments and filings, Kellogg agreed to a $20 million settlement in 2019, and to change its labels.

Where did that money go?

According to court documents, 513,342 of the potential millions of consumers who bought an affected Kellogg cereal between Aug. 29, 2012, and May 1, 2020, submitted a claim for a piece of the settlement. Depending on the amount of cereal each person bought, they received somewhere between $2.35 and $31.23, with the average refund being $14.09. The initial plaintiff received $10,000, and the four other named plaintiffs received $5,000 each. 

The plaintiffs’ attorneys received the largest payout: 30% of the settlement fund, or $3.9 million. They also received nearly $1.2 million in case costs.

Top Class Actions President and CEO Scott Hardy said that he often hears from consumers who participated in class actions who are surprised at the small size of payments. But consumers need to recall what they spent on the product in the first place, he said.

“Sometimes people go, ‘Why did I only get 50 cents?’ And maybe that’s what you were truly due,” Hardy said.

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The $20 million settlement for Kellogg was large, but by no means unique in its size and scope. Rick Shackelford, co-chair of law firm Greenberg Traurig’s Food, Beverage and Agribusiness Practice, said that food and beverage manufacturers rarely budget for settlements, and often have to absorb the costs out of their operating funds.

But even when a class action case doesn’t end in a settlement, it is often a big headache for the manufacturer, Shackelford said. The lawsuits can be time consuming and expensive, and may put a company or brand’s very reputation on the line. Winning a class action case is a moving target, he said, and it can take many forms.

“The best definition of a win is the one that best meets the client’s interests — not only resolving this matter, however and at whatever stage it might be resolved — but that also protects the brand in the marketplace, the perception of the brand, that doesn’t cause harm to the sales,” he said.

Filing and fighting

It’s easy to file a class action lawsuit, said Charles Sipos, a partner in Perkins Coie’s food litigation segment. In general, it takes an idea, an attorney, a plaintiff and a filing fee. 

Sipos said that the low barrier to entry is part of the reason class action cases in the food and beverage space are so popular. Another reason is that food is ubiquitous, and there’s always a large potential group of consumers who could have been wronged by a company. And product labels — complete with ingredient and nutritional claims — tend to be in circulation for a period of years, so there is ample time to prepare a case asserting that they are inaccurate.

Some class action complaints against food companies are longer and more detailed than others. The 2016 case against Kellogg for health-targeted labeling on sugary cereal is 148 pages long and presents a history of different forms of sugar, details on the body’s physiological responses to excess consumption and charts showing obesity and disease rates that can be correlated to eating the sweetener.

The initial vanilla lawsuit from prolific class action attorney Spencer Sheehan that accuses A&W Root Beer of deceiving consumers with a claim of being made with aged vanilla isn’t nearly as full of research. Instead, the 19-page complaint summarizes the craft of the soda jerks who custom-blended fountain sodas — often with vanilla — a century ago. 

“The best definition of a win is the one that best meets the client’s interests — not only resolving this matter, however and at whatever stage it might be resolved — but that also protects the brand in the marketplace, the perception of the brand, that doesn’t cause harm to the sales.”

Rick Shackelford

Co-chair of Food, Beverage and Agribusiness Practice, Greenberg Traurig

Anecdotally, Shackelford with Greenberg Traurig said that he’s seen more cases being filed — and many of them being less formal — during the pandemic, especially since courts were largely out of commission for this type of case for much of 2020. But regardless of how detailed or formal the initial complaint is, food manufacturers have to do the same job of defending themselves. 

In general, Sipos said, it takes much more work for a manufacturer to mount a defense than it does for a plaintiff to put together the case — a phenomenon he called “asymmetrical discovery.” The research and documentation that a manufacturer can ask for is largely limited to the plaintiffs’ purchase and dietary habits, including proof that a consumer bought the product in question, information on their normal eating patterns, and evidence of altered behavior because of the issue central to the lawsuit. Meanwhile, manufacturers can be forced to dig up voluminous documents on product ingredients, manufacturing methods and R&D. 

Class action cases rarely see trial, though there are no detailed statistics on what happens to them and when. Shackelford sees them as a freeway with a lot of off ramps. 

Manufacturers’ motions to dismiss cases are one of the first exits on this highway, as companies look for faults in the initial arguments.

A 2019 case claiming Mondelēz’s Nabisco and Honey Maid graham crackers had misleading labeling was dismissed before much litigation action in July 2020 by U.S. Magistrate Judge Sanket Bulsara. Among the judge’s reasons to dismiss the case were improper jurisdiction — the case was filed in a New York federal court, but only two of 17 named plaintiffs bought the product in the state. None of the plaintiffs were regular purchasers of the graham crackers and said in the future, they would only buy them if they felt the labels were not misleading. This means, Bulsara wrote, these consumers aren’t particularly harmed by current labeling. And, the judge said, reasonable consumers don’t equate graham crackers with a product made with whole wheat graham flour, which plaintiffs said they incorrectly assumed was an ingredient.

If a case isn’t dismissed at the beginning, Sipos said, the next test is at the class certification phase: determining whether there is a problem identified in the case that truly impacts a group of consumers. It can take up to a year and a half to get to this point, he said. That time is generally filled with finding expert witnesses, doing research and building a case.

All class action cases, regardless of the subject matter, need to go through this process. Whether a case is “legitimate,” Shackelford said, is in the eye of the beholder, but some are “better grounded.”

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“From both sides’ perspective, there can be some exploitation and ambiguities,” he said.

In October, a judge decided not to certify the class in a case against Breyers ice cream maker Unilever about the brand’s Natural Vanilla ice cream, which does not use 100% vanilla extract. In her ruling, U.S. District Judge Yvonne Gonzalez Rogers wrote the plaintiff “has not shown that the alleged misrepresentations could be deceptive as a matter of law.” The consumers filing the case submitted as evidence results of a study in which people were asked their preference for a container of ice cream that was flavored entirely with natural vanilla or one that had other vanilla flavoring. Although the survey showed 88.6% said they preferred the completely naturally flavored option, Rogers pointed out that they were not asked about how the origin of the flavoring would impact purchase decisions.

Source: fooddive.com

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