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Markus Wilson and Doug Campen, Individually and On Behalf of All Others Similarly Situated v. Frito-Lay North America

April 1, 2013

MARKUS WILSON AND DOUG CAMPEN, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED,
PLAINTIFFS,
v.
FRITO-LAY NORTH AMERICA, INC. AND PEPSICO, INC.,
DEFENDANTS.



ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS' MOTION TO DISMISS PLAINTIFFS' FIRST AMENDED COMPLAINT

I.INTRODUCTION

Now before the Court is Defendants Frito-Lay North America, 20 Inc. ("Frito-Lay") and PepsiCo, Inc.'s ("PepsiCo") (collectively 21 "Defendants") motion to dismiss Plaintiffs Markus Wilson and Doug 22 Campen's ("Plaintiffs") first amended complaint. ECF Nos. 18 23 ("FAC"), 27 ("MTD"). The motion is fully briefed, ECF Nos. 34 24 ("Opp'n"),*fn1 38 ("Reply"), and suitable for decision without oral 25 argument, Civ. L.R. 7-1(b). For the reasons explained below, the 26 Court GRANTS in part and DENIES in part Defendants' motion. 27

II.BACKGROUND

The following facts are taken from Plaintiffs' FAC. 3 Defendants are producers of retail food products. FAC ¶ 19. 4 Plaintiffs are two California consumers who purchased a variety of 5 Defendants' food products between March 29, 2012 and March 29, 2008 6 (the "Class Period"). Id. ¶¶ 16-17. Plaintiff Wilson bought 7 "Lay's Classic Potato Chips" and Plaintiff Campen bought "Lay's 8 Classic Potato Chips, Lay's Honey Barbeque Potato Chips, Lay's 9 2 Kettle Cooked Mesquite BBQ Potato Chips, Cheetos Puffs, and Fritos 10 Original Corn Chips" (collectively the "Named Products"). Id. ¶

17. Plaintiffs allege that they bought other food products from 12 Defendants during the Class Period, but they do not specify what 13 these other products were. See id. Plaintiffs, on behalf of 14 themselves and others similarly situated, filed this putative class 15 action against Defendants, alleging that Defendants' website, 16 advertisements, and products contain deceptive and misleading labeling information, in violation of state and federal law. Id. 18

¶¶ 1-15. 19

The crucial factual background in this case concerns the 20 specific labeling practices that Plaintiffs claim are misleading.*fn2

The only labels actually put before the Court -- described further 22 below -- are two versions of a Lay's Classic Potato Chips bag and 23 labels for the Named Products as they appeared at the time 24 Defendants filed their RJN. Plaintiffs' allegations that 2 Defendants' labels are misleading and deceptive are based on 3 Defendants' labeling and advertising of their food products (1) as 4 being "All Natural" despite containing artificial or unnatural 5 ingredients, flavoring, coloring, or preservatives; (2) as having 6 "0 Grams Trans Fat" content despite having more than thirteen grams 7 of fat per fifty grams of food product; (3) as having "No MSG" 8 despite containing MSG; (4) as being "low sodium" despite having 9 more than 140 milligrams of sodium per serving size and per fifty grams of food product; (5) as being "healthy despite containing 10 disqualifying nutrient levels"; and (6) as including assertions 12 about other unauthorized health claims. See id. ¶ 2. 13

Plaintiffs assert that they "care about the nutritional 14 content of food and seek to maintain a healthy diet." Id. ¶ 149. 15

They also allege that they bought Defendants' Named Products and 16 other products throughout the Class Period, that they relied on Defendants' labeling and other statements in making their 18 purchases, and that they would not have purchased Defendants' 19 products had they known the truth about them. See, e.g., id. ¶¶ 20 150-157.

Based on these facts, Plaintiffs assert nine causes of action 22 against Defendants: (1-3) violations of the "unlawful," "unfair," 23 and "fraudulent" prongs of California's Unfair Competition Law's 24 ("UCL"), Cal. Bus. & Prof. Code § 17200, et seq.; (4-5) violations 25 of the "misleading and deceptive" and "untrue" prongs of 26 California's False Advertising Law ("FAL"), Cal. Bus. & Prof. Code 27 § 17500, et seq.; (6) violations of California's Consumers Legal 28 Remedies Act, Cal. Civ. Code § 1750, et seq.; (7) restitution based on unjust enrichment or quasi-contract; (8) breach of warranty 2 under California's Song-Beverly Act, Cal. Civ. Code § 1790, et 3 seq.; and (9) breach of warranty under the federal Magnuson-Moss 4 Act, 15 U.S.C. § 2301, et seq. 5 6

III.LEGAL STANDARD

A.Motions to Dismiss

A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) "tests the legal sufficiency of a claim." Navarro v. 10 Block, 250 F.3d 729, 732 (9th Cir. 2001). "Dismissal can be based on the lack of a cognizable legal theory or the absence of 12 sufficient facts alleged under a cognizable legal theory." 13 Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 14 1988). "When there are well-pleaded factual allegations, a court 15 should assume their veracity and then determine whether they 16 plausibly give rise to an entitlement to relief." Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009). However, "the tenet that a court 18 must accept as true all of the allegations contained in a complaint 19 is inapplicable to legal conclusions. Threadbare recitals of the 20 elements of a cause of action, supported by mere conclusory 21 statements, do not suffice." Id. (citing Bell Atl. Corp. v. 22 Twombly, 550 U.S. 544, 555 (2007)). The court's review is 23 generally "limited to the complaint, materials incorporated into 24 the complaint by reference, and matters of which the court may take 25 judicial notice." Metzler Inv. GMBH v. Corinthian Colls., Inc., 26 540 F.3d 1049, 1061 (9th Cir. 2008) (citing Tellabs, Inc. v. Makor 27 Issues & Rights, Ltd., 551 U.S. 308, 322 (2007)).

When a motion to dismiss is granted, a district court must decide whether to grant leave to amend. Generally, the Ninth 2 Circuit has a liberal policy favoring amendments and, thus, leave 3 to amend should be freely granted. See, e.g., DeSoto v. Yellow 4 Freight System, Inc., 957 F.2d 655, 658 (9th Cir. 1992). However, 5 a court does not need to grant leave to amend in cases where the 6 court determines that permitting a plaintiff to amend would be an 7 exercise in futility. See, e.g., Rutman Wine Co. v. E. & J. Gallo 8 Winery, 829 F.2d 729, 738 (9th Cir. 1987) ("Denial of leave to 9 amend is not an abuse of discretion where the pleadings before the 10 court demonstrate that further amendment would be futile.").

B.Rule 9(b)

Claims sounding in fraud are subject to the heightened 13 pleading requirements of Federal Rule of Civil Procedure 9(b), 14 which requires that a plaintiff alleging fraud "must state with 15 particularity the circumstances constituting fraud." See Kearns v. 16 Ford Motor Co., 567 F. 3d 1120, 1124 (9th Cir. 2009). "To satisfy Rule 9(b), a pleading must identify the who, what, when, where, and 18 how of the misconduct charged, as well as what is false or 19 misleading about [the purportedly fraudulent] statement, and why it 20 is false." United States ex rel Cafasso v. Gen. Dynamics C4 Sys., 21 Inc., 637 F.3d 1047, 1055 (9th Cir. 2011) (internal quotation marks 22 and citations omitted). 23 24

IV. DISCUSSION

Defendants make six arguments about why Plaintiffs' FAC should 26 be dismissed: (1) Plaintiffs did not sufficiently plead why PepsiCo 27 can be held liable for Frito-Lay's actions; (2) Plaintiffs lack 28 standing as to products they do not claim to have purchased; (3) Plaintiffs fail to state claims for all of their causes of action 2 because no reasonable consumer is likely to be harmed or deceived 3 by the labels at issue, and because Plaintiffs' claims fail to meet 4

Rule 9(b)'s heightened pleading standard; (4) Plaintiffs' unjust 5 enrichment and quasi-contract claims fail as a matter of law; (5) 6 Plaintiffs fail to state a claim under the Magnuson-Moss Warranty 7 Act ("MMWA"); and (6) Plaintiffs fail to state a claim under the 8 Song-Beverly Consumer Warranty Act ("Song-Beverly"). See generally 9 MTD. 10

A. The Statutory Framework

The Food, Drug, and Cosmetic Act ("FDCA"), 21 U.S.C. § 301 et 12 seq., as amended by the Nutrition Labeling and Education Act of 13 1990 ("NLEA"), 21 U.S.C. § 343(r), et seq., is the operative 14 statute in this matter. 15

The many subsections of 21 U.S.C. § 343 establish the 16 conditions under which food is considered "misbranded." Generally, food is misbranded under 21 U.S.C. § 343(a)(1) if "its labeling is 18 false or misleading in any particular." Sections 343(q) and (r) 19 regulate the information that must be included in all packed 20 products' "nutrition box," as well as all other nutrient content 21 claims that appear elsewhere on the label. 22

Section 343(q) governs information that must be disclosed 23 about certain nutrients in food products -- principally in the 24 nutrition box area. Section 343(r) discusses "nutrition levels and 25 health-related claims" about food products made anywhere on their 26 labels. It governs all voluntary statements about nutrition 27 content or health information that a manufacturer includes on the 28 food label or packaging. The Food and Drug Administration ("FDA") has classified these nutrient claims as "express" (e.g., "100 2 calories"), "implied" (e.g., "high in oat bran"), and "health 3 claims," which "characteriz[e] the relationship of any substance to 4 a disease or health-related condition." 21 C.F.R. §§ 101.13, 5 101.14; see also Chacanaca v. Quaker Oats Co., 752 F. Supp. 2d 6 1111, 1116-17 (N.D. Cal. 2010) (describing the statutory scheme). 7

Section 343(r) clarifies that it does not govern nutrition content 8 claims made under Section 343(q) (i.e., inside the nutrition box), 9 though an accompanying regulation, 21 C.F.R. § 101.13, clarifies 10 that "[i]f such information is declared elsewhere on the label or in labeling, it is a nutrition content claim and is subject to the 12 requirements for nutrient content claims [under Section 343(r)]." 13

See Chacanaca, 752 F. Supp. 2d at 1117. 14

B. Plaintiffs' Claims Against PepsiCo

Plaintiffs name PepsiCo as a defendant, but they never explain 16 exactly how PepsiCo, as Frito-Lay's parent company, is liable for Frito-Lay's activity. To cure this problem, Plaintiffs ask the 18 Court to take judicial notice of a website purported to be 19 published by PepsiCo, on which PepsiCo allegedly directs consumers 20 to Frito-Lay's website. See ECF No. 35 (Pl.'s Response to Def.'s 21 RJN) at 1-2, Exs. 2-3. Plaintiffs also claim in their opposition 22 brief that they alleged PepsiCo to have jointly and unlawfully 23 labeled the misbranded products. Opp'n at 4-5 (citing FAC ¶¶ 2-4).

The Court DENIES Plaintiffs' request for judicial notice of 25 these documents, made in response to Defendants' RJN, as an 26 impermissible attempt to amend the pleadings. Plaintiffs did not 27 plead anything about these particular websites in their FAC. 28

Rather, they now attempt to supply new facts in their opposition brief and their response to Defendants' RJN. The Court declines to 2 allow this practice. See, e.g., Schneider v. Cal. Dep't of 3 Corrections, 151 F.3d 1194, 1197 n.1 (9th Cir. 1998) ("[A] court 4 may not look beyond the complaint to . . . a memorandum in 5 opposition to a defendant's motion to dismiss."). However, the 6 Court takes judicial notice of the exhibits attached to Plaintiff's 7 opposition, which Defendants did not oppose, since those documents 8

-- FDA complaint letters, part of an FDA brochure, and a Lay's 9

Classic Potato Chips label -- are all either part of the public record or incorporated by reference into Plaintiffs' actual allegations are plainly that "Defendants" 13 made false claims about their products in a SEC filing and on an 14 unidentified website. FAC ¶¶ 2-4. These allegations fail to rise 15 above "threadbare recitals" of legal conclusions even when the 16

Court construes them most liberally. See Iqbal, 556 U.S. at 678.

The Court finds these pleadings insufficient to show that PepsiCo 18 is properly named as a defendant in this case. Plaintiffs' claims 19 against PepsiCo are DISMISSED with leave to amend. Plaintiffs may 20 amend to plead how PepsiCo is responsible for the allegedly 21 actionable conduct at issue here. 22

C. Standing

Plaintiffs plead that they bought five different Frito-Lay 24 products, but their claims appear to be based on a much wider 25 variety of products that they do not specify in their complaint, 26 including "other varieties of potato chips, corn-based snacks like 27 Cheetos and Fritos, and other types of salty snacks." Opp'n at 4; 28 see also FAC ¶ 1 (challenging "potato chips and other snack food products . . . sold by [Frito-Lay]"). Defendants argue that 2 "Plaintiffs' standing arguments sweep far too broadly," because 3 Plaintiffs allege that they have standing to bring their case based 4 on an array of products that they do not even name. Reply at 1-2. 5

At this point, however, it is unnecessary for the Court to address 6 the issue of standing for these products: as discussed infra, 7 Plaintiffs' claims as to the unidentified products fail for lack of 8 specificity under Rule 9(b). See, e.g., Jones v. Conagra Foods, 9 Inc., -- F. Supp. 2d --, 2012 WL 6569393, at *11 (N.D. Cal. Dec. 17, 2012) (dismissing plaintiffs' claims against defendant for failure to meet Rule 9(b)'s specificity standard because plaintiffs 12 did not provide details about "exactly which products they 13 purchased"). 14

D. Plausibility and Specificity

Defendants argue that the entire FAC sounds in fraud and must 16 therefore meet the heightened pleading standard of Rule 9(b) because it alleges a continuous course of false, deceptive, and 18 misleading activity. See Opp'n at 24-25; MTD at 19-20. Plaintiffs 19 respond that the FAC complies with Rule 9(b) because it is specific 20 enough to give defendants notice of their alleged misconduct, and, 21 separately, that their unlawful business practices claim under the 22 UCL need not comply with Rule 9(b) because it does not sound in 23 fraud. Opp'n at 24. Regarding Plaintiffs' latter point, the rule is that 25 plaintiffs need not satisfy Rule 9(b) as to the UCL's unlawful 26 prong when the basis of their claim does not sound in fraud. See Vess v. Ciba-Geigy Corp., 317 F.3d 1097, 1105-06 (9th Cir. 2003).

However, when it does, and especially when a plaintiff alleges a unified course of fraudulent conduct that forms the basis of their 2 UCL claims, plaintiffs must plead the UCL claims with specificity. 3

Id. In this case, Plaintiffs base their unlawful business practice 4 claims on Defendants' alleged violations of underlying laws by way 5 of allegedly fraudulent or deceptive labeling and advertising 6 practices. See FAC ¶¶ 176-79. Consequently Plaintiffs' entire 7 FAC, including its unlawful business practices claim, sounds in 8 fraud and must meet Rule 9(b)'s heightened pleading standards. See 9 Kearns, 567 F.3d at 1125; Vess, 317 F.3d at 1103-04. It is true 10 that, as discussed below, the actual likelihood of deception in UCL, FAL, and CLRA cases is judged by a "reasonable consumer" 12 standard. See Williams v. Gerber Prods. Co., 552 F.3d 934, 938-40 13 (9th Cir. 2008); Colucci v. ZonePerfect Nutrition Co., No. 12-2907 14 SC, 2012 WL 6737800, at *7 (N.D. Cal. Dec. 28, 2012). However, 15 whether a plaintiff even reaches that point at the pleading stage 16 is governed in part by Rules 8 and 9(b). See, e.g., Colucci, 2012 WL 6737800, at *7; Jones, 2012 WL 6569393, at *11. 18

Many of Plaintiffs' allegations fail to meet Rule 9(b)'s 19 heightened pleading standard because Plaintiffs simply fail to 20 provide underlying factual details that give Defendant notice and 21 explain to the Court "the who, what, when, where, and how" of the 22 misconduct charged. Vess, 317 F.3d at 1106. Plaintiffs allege 23 that Defendants made false and misleading statements about a 24 variety of their products, but at no point in their 53-page, 252-25 paragraph FAC do Plaintiffs provide details about those products, 26 or about the advertisements and websites they frequently quote to 27 support their claims. Nor does Plaintiffs' opposition brief 28 clarify these issues. Plaintiffs simply have not pled which products they purchased in a way sufficient for Defendants to be on 2 notice of the products that are actually at issue. See Jones, 2012 3 WL 6569393, at *11. 4

Further, as to Rule 8, "[t]o survive a motion to dismiss, a 5 complaint must contain sufficient factual matter, accepted as true, 6 to 'state a claim to relief that is plausible on its face,'" Iqbal, 7 556 U.S. at 663 (quoting Twombly, 550 U.S. at 370), and the 8 critical facts must be pled as part of the "short and plain 9 statement of the claim showing that the pleader is entitled to 10 relief," Fed. R. Civ. P. 8. Plaintiffs' claims about unpurchased or unnamed products do not rise to this level: given the variation 12 in food labeling even among the Named Products, the Court cannot 13 assume that all of the products at issue are mislabeled even if 14 Plantiffs' pleadings are taken as true.

Despite Plaintiffs' pleading defects, Defendants gamely 16 address Plaintiffs' claims, supplying the labels toward which Defendants assume Plaintiffs' allegations are addressed. See MTD 18 at 7-21; Reply at 5-12; Def.'s RJN Exs. B-F. Plaintiffs do not 19 object to the Court's taking notice of these current labels: they 20 appear to agree that the labels Defendants supply are at least some 21 of the labels at issue in their case. See ECF No. 35 (Pl.'s 22

Response to Def.'s RJN) at 1. The Court therefore assumes that the 23 packaging in Defendants' RJN -- the Named Products' packaging -- is 24 essentially the same packaging that Plaintiffs claim is misleading. 25

As for the one instance in which Plaintiffs argue that there is a 26 material difference in the labels before the Court -- the Lay's 27

Classic Potato Chips labeling and advertisement Plaintiffs include 28 in their FAC at paragraph five, versus different labeling for the same product included in Defendants' RJN -- the Court's analysis 2 below will address both labels, since ...


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