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Swearingen v. Late July Snacks LLC

United States District Court, N.D. California

May 5, 2017

MARY SWEARINGEN, et al., Plaintiffs,
v.
LATE JULY SNACKS LLC, Defendant.

          ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT'S MOTION TO DISMISS DOCKET NO. 101

          EDWARD M. CHEN United States District Judge.

         I. INTRODUCTION

         Plaintiffs Mary Swearingen and Robert Figy filed this class action complaint against Defendant Late July Snacks challenging Defendant's practice of labeling its products with the term "evaporated cane juice" ("ECJ") which Plaintiffs assert is a misleading term for sugar. Currently pending before the Court is Defendant's motion to dismiss Plaintiffs Second Amended Complaint. Docket No. 101 ("Motion"). The Court DENIES the motion.

         II. BACKGROUND

         A. California and Federal Laws Regulating Food Labeling

         Food manufacturers in California must comply with identical state and federal laws and regulations that govern the labeling of food products. Foremost among these is the federal Food Drug and Cosmetic Act, 21 U.S.C. § 301 et seq. ("FDCA"), including its food labeling regulations. 21 C.F.R § 101 et seq. Pursuant to California Health & Safety Code § 110100, California's Sherman Law adopts and incorporates the FDCA, stating that "[a]ll food labeling regulations and any amendments to those regulations adopted pursuant to the federal act, in effect on January 1, 1993, or adopted on or after that date shall be the food labeling regulations of this state." Under the FDCA, food is "misbranded" if "its labeling is false or misleading in any particular, " or if it does not contain certain information on its label or its labeling. 21 U.S.C. § 403(a).

         The FDCA requires that ingredients be listed by their common or usual names, which are the names established by common usage or by regulation. 21 C.F.R. § 104(a)(1); 21 C.F.R. § 102.5. The position of the Food and Drug Administration ("FDA") is that "evaporated cane juice" is not the common or usual name of any sweetener (e.g., sugar). In 2009, the FDA issued Guidance for Industry: Ingredients Declared As Evaporated Cane Juice, Draft Guidance ("Draft Guidance"), 2009 WL 3288507. According to the Draft Guidance, the term ECJ is "false and misleading" because it "fails to reveal the basic nature of the food and its characterizing properties (i.e., that the ingredients are sugars or syrups) as required by 21 C.F.R. § 102.5." Id. at *3; 21 U.S.C. 343(a)(1). The FDA did not initially finalize its draft guidance. On March 4, 2014, the FDA reopened the comment period on the Draft Guidance with the intent to "revise the draft guidance, if appropriate, and issue it in final form." See Docket No. 57 (Order on Supp. Briefing); Docket No. 53-1 (Def Second Request for Judicial Notice, Ex. A, FDA Notice to Reopen Comment Period). On May 25, 2016, the FDA issued its final guidance on the use of the term "evaporated cane juice, " titled "Ingredients Declared as Evaporated Cane Juice: Guidance for Industry" ("Final Guidance"). Docket No. 92. The Final Guidance states that "the common or usual name for an ingredient labeled as 'evaporated cane juice' includes the term 'sugar' and does not include the term 'juice.'" Id. at 7. This is because the "basic nature" of ECJ is a "sugar." Id.

         B. Facts and Procedural History

         Late July is a producer of retail food products. Docket No. 99 (Second Amended Complaint ("SAC")) ¶ 21. During part of the period covered by the allegations in this case, Late July manufactured, advertised, marketed, and sold products, such as Late July's Classic Saltines Crackers, Classic Rich Crackers, Sea Salt By The Seashore Multigrain Snack Chips, and other varieties of crackers and snack chips, labeled using the term "evaporated cane juice" on their ingredient lists to thousands of consumers nationwide, including many who reside in California.[1] SAC ¶¶ 2, 20.

         Plaintiffs Mary Swearingen and Robert Figy, citizens of California, bought and purchased Late July products including a variety of crackers and snack chips labeled with ECJ during the Class Period, defined as September 18, 2009 to the present. SAC ¶¶ 2, 19. Plaintiffs are health-conscious consumers who wish to avoid "added sugars" in the products they purchase. Id. ¶ 72. As such, they scanned the ingredient lists of the products at issue for forms of added sugar and failed to recognize "evaporated cane juice" as a form of sugar. Id. ¶ 73. They would not have bought the products had they known that these products contained "added sugar." Id. ¶ 97.

         Plaintiffs first filed a class action complaint for equitable and injunctive relief on September 18, 2013. Docket No. 1 (Complaint). On February 3, 2014, Late July moved to dismiss the First Amended Complaint, arguing, in part, that this Court should apply the doctrine of primary jurisdiction based on the FDA's ongoing regulatory proceeding concerning the use of ECJ on food labels. Docket No. 32. Following the FDA's notice that it had reopened the comment period on its draft guidance regarding ECJ, this Court denied in part the motion to dismiss and stayed the action pursuant to the doctrine of primary jurisdiction on May 29, 2014. Docket No. 69.

         On July 22, 2016, following the FDA's issuance of its Final Guidance, this Court lifted the stay. Docket No. 98. Plaintiffs filed their Second Amended Complaint shortly thereafter. Docket No. 99. Based on their allegations in the Second Amended Complaint, Plaintiffs brought claims for: (1) violations of California Business & Professions Code § 17200 (Unfair Competition Law or UCL); (2) violations of California Business & Professions Code § 17500 (California False Advertising Law or FAL); (3) violations of California Civil Code § 1750, et seq. (Consumer Legal Remedies Act or CLRA); and (4) and unjust enrichment. SAC ¶¶ 151-212. Late July then filed the instant motion to dismiss the Second Amended Complaint. Docket No. 101.

         III. DISCUSSION

         A. Legal Standard

         Late July seeks to dismiss Plaintiffs' Second Amended Complaint for failure to state a claim pursuant to Federal Rule of Civil Procedure 12(b)(6). Under Rule 12(b)(6), a party may move to dismiss based on the failure to state a claim upon which relief may be granted. A motion to dismiss based on Rule 12(b)(6) challenges the legal sufficiency of the claims alleged. See Parks Sch. of Bus. v. Symington, 51 F.3d 1480, 1484 (9th Cir. 1995). In considering such a motion, a court must take all allegations of material fact as true and construe them in the light most favorable to the nonmoving party, although "conclusory allegations of law and unwarranted inferences are insufficient to avoid a Rule 12(b)(6) dismissal." Cousins v. Lockyer, 568 F.3d 1063, 1067 (9th Cir. 2009). While "a complaint need not contain detailed factual allegations . . . it must plead 'enough facts to state a claim to relief that is plausible on its face.'" Id. "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 556 U.S. 662 (2009); see also Bell Atl. Corp. v. Twombly, 550 U.S. at 556. "The plausibility standard is not akin to a 'probability requirement, ' but it asks for more than sheer possibility that a defendant acted unlawfully." Iqbal, 556 U.S. at 678.

         Claims sounding in fraud or mistake are subject to the heightened pleading requirements of Federal Rule of Civil Procedure 9(b), which requires that a plaintiff alleging fraud "must state with particularity the circumstances constituting fraud." Fed.R.Civ.P. 9(b); see Kearns v. Ford Motor Co., 567 F.3d 1120, 1124 (9th Cir. 2009). To satisfy the heightened standard under Rule 9(b), the allegations must be "specific enough to give defendants notice of the particular misconduct which is alleged to constitute the fraud charged so that they can defend against the charge and not just deny that they have done anything wrong." Semegen v. Weidner, 780 F.2d 727, 731 (9th Cir. 1985). Thus, claims sounding in fraud must allege "an account of the 'time, place, and specific content of the false representations as well as the identities of the parties to the misrepresentations.'" Swartz v. KPMG LLP, 476 F.3d 756, 764 (9th Cir. 2007) (per curiam) (internal quotation marks omitted). The plaintiff must set forth "what is false or misleading about a statement, and why it is false." In re Glenfed, Inc. Sec. Litig., 42 F.3d 1541, 1548 (9th Cir.1994) (en banc), superseded by statute on other grounds as stated in Ronconi v. Larkin, 253 F.3d 423, 429 n. 6 (9th Cir. 2001).

         B. Plaintiffs' UCL, CLRA, and FAL Claims

         As noted above, Plaintiffs assert fraud-based claims under the UCL, FAL, and CLRA.

         The UCL prohibits any "unlawful, unfair or fraudulent business act or practice." Cal. Bus. & Prof. Code § 17200. Because § 17200 is written in the disjunctive, it establishes "three varieties of unfair competition: practices which are unlawful, unfair, or fraudulent." Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone, Co., 20 Cal.4th 163, 180 (1999). Practices are "unlawful" when they violate other laws: § 17200 "borrows" violations of other laws, treating them as unlawful practices that are independently actionable under the UCL. Id. at 179 [citations omitted]. Practices are "unfair" when grounded in "some legislatively declared policy or proof of some actual or threatened effect on competition." Id. at 186-87. "Unfair, " under § 17200, refers to conduct that could violate an antitrust law, that does violate the policy or spirit of such laws, or that could otherwise significantly threaten or harm competition. Id. at 187. Practices are "fraudulent" when "members of the public are likely to be deceived"; more specifically, under the fraud prong, "reliance [on the part of the plaintiff] is an essential element of fraud." Poldolsky v. First Healthcare Corp., 50 Cal.App.4th 632, 647-48, as modified (Nov. 5, 1996), as modified (Nov. 20, 1996); In re Tobacco II Cases, 46 Cal.4th 298, 326 (2009).

         The FAL prohibits any "unfair, deceptive, untrue, or misleading advertising." Cal Bus. & Prof. Code § 17500. The CLRA prohibits "unfair methods of competition and unfair or deceptive acts or ...


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