Swearingen et al v. Healthy Beverage, LLC et al

Filing 102

ORDER by Judge Edward M. Chen Granting 92 Defendant's Motion to Dismiss. (emcsec, COURT STAFF) (Filed on 5/2/2017)

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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Plaintiffs,

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HEALTHY BEVERAGE, LLC, et al.,

Docket No. 92

Defendants.

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For the Northern District of California

United States District Court

ORDER GRANTING DEFENDANT’S
MOTION TO DISMISS

v.

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Case No. 13-cv-04385-EMC

MARY SWEARINGEN, et al.,

I.

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INTRODUCTION

Plaintiffs Mary Swearingen and Robert Figy filed this class action complaint against

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Defendant Healthy Beverage challenging Defendant‟s practice of labeling its products with the

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term “evaporated cane juice” (“ECJ”), which Plaintiffs assert is a misleading term for sugar.

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Currently pending before the Court is Defendant‟s motion to dismiss Plaintiffs‟ Second Amended

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Complaint. Docket No. 92 (“Motion”). The Court GRANTS the motion.
II.

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A.

BACKGROUND

California and Federal Laws Regulating Food Labeling
Food manufacturers in California must comply with identical state and federal laws and

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regulations that govern the labeling of food products. Foremost among these is the federal Food

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Drug and Cosmetic Act, 21 U.S.C. § 301 et seq. (“FDCA”), including its food labeling

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regulations, 21 C.F.R. § 101 et seq. California‟s Sherman Law adopts and incorporates the

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FDCA, stating that “[a]ll food labeling regulations and any amendments to those regulations

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adopted pursuant to the federal act, in effect on January 1, 1993, or adopted on or after that date

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shall be the food labeling regulations of this state.” California Health & Safety Code § 110100.

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Under the FDCA, food is “misbranded” if “its labeling is false or misleading in any particular,” or

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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 name, which is the

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name established by common usage or by regulation. 21 C.F.R. § 104(a)(1); 21 C.F.R. § 102.5.

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The position of the Food and Drug Administration (“FDA”) is that “evaporated cane juice” is not

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the common or usual name of any sweetener (e.g., sugar). In 2009, the FDA issued Guidance for

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Industry: Ingredients Declared As Evaporated Cane Juice, Draft Guidance (“Draft Guidance”),

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2009 WL 3288507. According to the Draft Guidance, the term ECJ is “false and misleading”

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because it “fails to reveal the basic nature of the food and its characterizing properties (i.e., that the

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ingredients are sugars or syrups) as required by 21 C.F.R. § 102.5.” Id. at *3; 21 U.S.C. 343(a)(1).

comment period on the Draft Guidance with the intent to “revise the draft guidance, if appropriate,

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For the Northern District of California

The FDA did not initially finalize its draft guidance. On March 4, 2014, the FDA reopened the

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United States District Court

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and issue it in final form.” See Swearingen, et al. v. Late July Snacks LLC, 13-CV-4324-EMC

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Docket No. 57 (Order on Supp. Briefing); Late July, 13-CV-4324-EMC Docket No. 53-1 (Def.

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Second Request for Judicial Notice, Ex. A, FDA Notice to Reopen Comment Period). On May 25,

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2016, the FDA issued its final guidance on the use of the term “evaporated cane juice,” titled

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“Ingredients Declared as Evaporated Cane Juice: Guidance for Industry” (“Final Guidance”). Late

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July, 13-CV-4324-EMC Docket No. 92. The Final Guidance states that “the common or usual

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name for an ingredient labeled as „evaporated cane juice‟ includes the term „sugar‟ and does not

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include the term „juice.‟” Final Guidance at 7. This is because the “basic nature” of ECJ is a

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“sugar.” Final Guidance at 7.

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B.

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Facts and Procedural History
Healthy Beverage is a producer of food products that sells its products, including Steaz

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Iced Green Tea and Steaz Organic Energy Drinks, to consumers through grocery and other retail

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stores throughout the United States and directly to consumers through its website. SAC ¶ 2.

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Healthy Beverage uses the term “evaporated cane juice” on its package labels for, e.g., Steaz Iced

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Green Tea with Blueberry Pomegranate, Steaz Iced Green Tea with Peach, and Steaz Organic

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Energy Drink Orange; its product labeling does not use the term “added sugar”. SAC ¶ 4, 35. The

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company uses the same term (“evaporated cane juice”) on its website and in advertising. SAC ¶
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113.

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Plaintiffs Mary Swearingen and Robert Figy, citizens of California, bought and purchased

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Healthy Beverage products Steaz Iced Green Tea with Blueberry Pomegranate, Steaz Iced Green

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Tea with Peach, Steaz Organic Energy Drink Orange, Steaz Organic Energy Drink Berry, and

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Steaz Organic Energy Drink Super Fruit. SAC ¶ 2. The label for these products used the term

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ECJ during the Class Period which is defined as September 30, 2009 to the present. SAC ¶¶ 1,

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135. Plaintiffs are health-conscious consumers who wish to avoid “added sugars” in the products

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they purchase. Id. ¶ 62. As such, they scanned the ingredient lists of the products at issue for

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forms of added sugar and failed to recognize “evaporated cane juice” as one of these forms. Id. ¶
63. They would not have bought the products had they known that these products contained

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“added sugar.” Id. ¶ 86.

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For the Northern District of California

United States District Court

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Plaintiffs first filed a class action complaint for equitable and injunctive relief on

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September 20, 2013. Docket No. 1 (Complaint). On April 28, 2014, Defendant filed a motion to

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dismiss the First Amended Complaint, and, in the alternative, to stay the action pending the Ninth

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Circuit‟s decision in Kane, et al. v. Chobani, Inc., No. 14-15670, where the plaintiffs alleged that

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Chobani unlawfully and deceptively used the term “evaporated cane juice” to describe added

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sugar in its yogurt products, and the FDA‟s consideration of ECJ. Docket No. 49. Following the

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FDA‟s notice that it had reopened the comment period on its draft guidance regarding ECJ, this

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Court denied in part the motion to dismiss and stayed the action pursuant to the doctrine of

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primary jurisdiction on June 11, 2014. Docket No. 58.

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On July 22, 2016, after the FDA issued its Final Guidance, this Court lifted the stay.

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Docket No. 89. Plaintiffs filed their Second Amended Complaint shortly after. Docket No. 90.

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Based on their allegations in the Second Amended Complaint, plaintiffs brought claims for: (1)

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violations of the California Business & Professions Code § 17200 (Unfair Competition Law); (2)

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violations of California Business & Professions Code § 17500 (California False Advertising Law)

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(FAL); (3) violations of California Civil Code § 1750, et. seq. (Consumers Legal Remedies Act);

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and (4) unjust enrichment. Docket No. 90 ¶¶ 145-206. Defendant then filed the instant motion to

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dismiss the Second Amended Complaint, and, in the alternative, to strike all references to the
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health benefits of green tea and prayers for injunctive relief. Docket No. 92.
III.

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A.

DISCUSSION

Motion to Dismiss Second Amended Complaint

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1.

Legal Standard

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Defendant seeks to dismiss Plaintiffs‟ Second Amended Complaint with prejudice for

Rule 12(b)(6), a party may move to dismiss based on the failure to state a claim upon which relief

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may be granted. A motion to dismiss based on Rule 12(b)(6) challenges the legal sufficiency of

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the claims alleged. See Parks Sch. of Bus. v. Symington, 51 F.3d 1480, 1484 (9th Cir. 1995). In

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considering such a motion, a court must take all allegations of material fact as true and construe

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them in the light most favorable to the nonmoving party, although “conclusory allegations of law

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For the Northern District of California

failure to state a claim pursuant to Federal Rule of Civil Procedure 12(b)(6). Motion at 2. Under

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United States District Court

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and unwarranted inferences are insufficient to avoid a Rule 12(b)(6) dismissal.” Cousins v.

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Lockyer, 568 F.3d 1063, 1067 (9th Cir. 2009). While “a complaint need not contain detailed

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factual allegations . . . it must plead „enough facts to state a claim to relief that is plausible on its

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face.‟” Id. “A claim has facial plausibility when the plaintiff pleads factual content that allows

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the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.”

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Ashcroft v. Iqbal, 556 U.S. 662 (2009); see also Bell Atl. Corp. v. Twombly, 550 U.S. at 556. “The

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plausibility standard is not akin to a „probability requirement,‟ but it asks for more than sheer

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possibility that a defendant acted unlawfully.” Iqbal, 556 U.S. at 678.

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Claims sounding in fraud or mistake are subject to the heightened pleading requirements of

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Federal Rule of Civil Procedure 9(b), which requires that a plaintiff alleging fraud “must state with

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particularity the circumstances constituting fraud.” Fed. R. Civ. P. 9(b); see Kearns v. Ford Motor

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Co., 567 F.3d 1120, 1124 (9th Cir.2009). To satisfy the heightened standard under Rule 9(b), the

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allegations must be “specific enough to give defendants notice of the particular misconduct which

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is alleged to constitute the fraud charged so that they can defend against the charge and not just

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deny that they have done anything wrong.” Semegen v. Weidner, 780 F.2d 727, 731 (9th

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Cir.1985). Thus, claims sounding in fraud must allege “an account of the „time, place, and

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specific content of the false representations as well as the identities of the parties to the
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misrepresentations.‟ ” Swartz v. KPMG LLP, 476 F.3d 756, 764 (9th Cir.2007) (per curiam)

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(internal quotation marks omitted). The plaintiff must set forth “what is false or misleading about

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a statement, and why it is false.” In re Glenfed, Inc. Sec. Litig., 42 F.3d 1541, 1548 (9th Cir.1994)

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(en banc), superseded by statute on other grounds as stated in Ronconi v. Larkin, 253 F.3d 423,

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429 n. 6 (9th Cir. 2001).
Plaintiffs‟ UCL, FAL, and CLRA Claims

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2.

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As noted above, in this case, Plaintiffs essentially assert fraud-based claims of misleading

business act or practice.” Cal. Bus. & Prof. Code § 17200. Because § 17200 is written in the

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disjunctive, it establishes “three varieties of unfair competition: practices which are unlawful,

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unfair, or fraudulent.” Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone, Co., 20

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For the Northern District of California

labeling under the UCL, FAL, and CLRA. The UCL prohibits any “unlawful, unfair or fraudulent

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United States District Court

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Cal. 4th 163, 180 (1999). Practices are “unlawful” when they violate other laws: § 17200

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“borrows” violations of other laws, treating them as unlawful practices that are independently

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actionable under the UCL. Id. at 179 [citations omitted]. Practices are “unfair” when grounded in

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“some legislatively declared policy or proof of some actual or threatened effect on competition.”

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Id. at 186-87. “Unfair,” under § 17200, refers to conduct that could violate an antitrust law, that

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violates the policy or spirit of such laws, or that could otherwise significantly threaten or harm

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competition. Id. at 187. Practices are “fraudulent” when “members of the public are likely to be

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deceived”; more specifically, under the fraud prong, “reliance [on the part of the plaintiff] is an

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essential element of fraud.” Poldolsky v. First Healthcare Corp., 50 Cal. App. 4th 632, 647-48, as

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modified (Nov. 5, 1996), as modified (Nov. 20, 1996); In re Tobacco II Cases, 46 Cal. 4th 298,

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326 (2009).

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The FAL prohibits any “unfair, deceptive, untrue, or misleading advertising.” Cal Bus. &

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Prof. Code § 17500. The CLRA prohibits “unfair methods of competition and unfair or deceptive

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acts or practices.” Cal. Civ. Code § 1770. Claims asserting fraud or deception under each of these

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three statutes are analyzed using the “same objective test, that is, whether „members of the public

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are likely to be deceived.‟” Tait v. BSH Home Appliances Corp., 289 F.R.D. 466, 480 (C.D. Cal.

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2012) (quoting In re Tobacco II Cases, 46 Cal. 4th 298, 312 (2009)); see also Williams v. Gerber
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Prod. Co., 523 F.3d 934, 938 (9th Cir. 2008), opinion amended and superseded on denial of reh’g,

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552 F.3d 934 (9th Cir. 2008). Fraud claims under each statute require “proof of reliance on the

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alleged misrepresentations or omissions” by the defendant. In re MyFordTouch Consumer

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Litigation, C-13-3072-EMC, Docket No. 301 at 2 (N.D. Cal. 2016) (citing In re Tobacco II, 46

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Cal. 4th at 328).

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Plaintiffs allege that Defendant‟s mislabeling of its products with the term “evaporated

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cane juice” (“ECJ”) is unlawful under the UCL. SAC ¶ 6. As noted above, the Sherman law

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adopts and incorporates the federal Food Drug and Cosmetic Act, 21 U.S.C. § 301 et seq.

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(“FDCA”). 21 U.S.C. § 343(a). Under the FDCA, food is “misbranded” if “its labeling is false or

labeling. 21 U.S.C. § 403(a). Accordingly, under the Sherman Law, products are “misbranded”

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For the Northern District of California

misleading in any particular,” or if it does not contain certain information on its label or its

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United States District Court

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when their “labeling is false or misleading.” See 21 U.S.C. § 343(a); 21 U.S.C. § 403(a).

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Plaintiffs contend that Healthy Beverage‟s use of the term ECJ was “false and misleading” in light

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of the FDA‟s determination that ECJ is not the common or usual name for sugar. SAC ¶ 40; Final

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Guidance at 6.

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As an initial matter, the Court rejects Plaintiffs claim that reliance need not be shown for

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their claims arising under the “unlawful” prong or any other prong of the UCL in this case. The

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California Supreme Court has made it clear that, regardless of which prong of the UCL a plaintiff

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asserts, when the basis of the UCL claim is a claim of misrepresentation, a plaintiff must

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demonstrate actual reliance on the allegedly deceptive or misleading statements. Kwikset Corp. v.

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Superior Court, 51 Cal. 4th 310, 326, 327 n.10 (2011).

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Plaintiffs argue that if it is required, the requisite reliance can be inferred because Healthy

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Beverage‟s use of ECJ constitutes a “material misrepresentation,” and that even if the plaintiff

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fails to plead actual reliance, “a presumption, or at least an inference, of reliance arises wherever

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there is a showing that a misrepresentation was material.” Engalla v. Permanente Med. Group,

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Inc., 15 Cal. 4th 951, 977 (1997). A misrepresentation is judged to be “material” if “a reasonable

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man would attach importance to its existence or nonexistence in determining his choice of action

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in the transaction in question.” Engalla, 15 Cal 4th 951, 977 (1997). However, even where a
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misrepresentation is material, a court cannot presume reliance “where the underlying theor[y] of

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liability is implausible.” Pratt v. Whole Food Mkt. California, Inc., No. 12-05652-EJD, 2015 WL

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5770799, *7 (N.D. Cal. Sept. 30, 2015). Nor can courts presume reliance where the record will

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not permit it. Caro v. Proctor & Gamble Co., 18 Cal. App. 4th 644, 668 (1993).

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Here, even assuming that the use of ECJ constitutes a material misrepresentation, Plaintiffs

“Healthy Beverage‟s website, http://steaz.com, is incorporated into the label for each of

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Defendants‟ products.” SAC ¶ 14. That website specifically states that “cane juice is natural

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sugar.” SAC ¶¶ 106, 127. Since Plaintiffs specifically allege that they “read and reasonably relied

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on the labels” on Defendants‟ products, SAC ¶ 127, the materials they read include the statements

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on Healthy Beverage‟s website incorporated into the labels. Given that allegation, Plaintiffs

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For the Northern District of California

cannot plausibly claim to have relied on any such misrepresentation. Plaintiffs‟ SAC alleges that

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United States District Court

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therefore knew ECJ was in fact sugar. Thus, Plaintiffs cannot have reasonably relied upon

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Healthy Beverage‟s misleading use of the term ECJ on its packaging. At the hearing on this

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motion, Plaintiffs‟ counsel did not dispute this fact. Indeed, counsel conceded that Plaintiffs “may

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have looked at” the website, but merely argued that they “did not focus” on it. Docket No. 101 at

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6:20-23. Whether or not they “focused” on Healthy Beverage‟s disclosure, they concede that read

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it. Under these facts, reliance on the package label is not reasonable. For that reason, Plaintiffs‟

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claims of mislabeling under the UCL, FAL, and CLRA all fail to state a claim.

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That leaves only Plaintiffs‟ claim for unjust enrichment. Healthy Beverage first argues that

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that claim should be dismissed on the ground that “in California, there is not a standalone cause of

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action for „unjust enrichment.‟” Astiana v. Hain Celestial Group, Inc., 783 F.3d 753, 762 (9th Cir.

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2015). As the court in Astiana recognized, however, California courts have stated that courts may

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construe an unjust enrichment claim “as a quasi-contract claim seeking restitution.” Rutherford

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Holdings, LLC v. Plaza Del Rey, 223 Cal. App. 4th 221, 231 (2014). Thus, as the Ninth Circuit

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previously explained, the “Supreme Court of California and California Courts of Appeal have

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recognized actions for relief under the equitable doctrine of unjust enrichment.” Naoko Ohno v.

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Yuko Yasuma, 723 F.3d 984, 1006 (9th Cir. 2013) (citing Ghirardo v. Antonioli, 14 Cal.4th 39

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(1996)). “The doctrine applies where plaintiffs, while having no enforceable contract, nonetheless
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have conferred a benefit on defendant which defendant has knowingly accepted under

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circumstances that make it inequitable for the defendant to retain the benefit without paying for its

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value.” Hernandez v. Lopez, 180 Cal.App.4th 932, 938 (2009). For example, Dunkin v. Boskey,

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82 Cal. App. 4th 171, 197 (2000), the court held that where a purported contract granting plaintiff

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paternity rights to a child conceived by artificial insemination, the plaintiff could nonetheless

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recover damages equal to the amount of benefit he had conferred on defendant in reliance of the

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agreement under an unjust enrichment theory. Alternatively, “a party to an express contract can

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assert a claim for restitution based on unjust enrichment by „alleg[ing in that cause of action] that

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the express contract is void or was rescinded.‟” Rutherford Holdings, 223 Cal. App. 4th at 231
(quoting Lance Camper Manufacturing Corp. v. Republic Indemnity Co. 44 Cal.App.4th 194, 203

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(1996)).

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For the Northern District of California

United States District Court

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Late July is therefore incorrect in asserting that the unjust enrichment claims should be

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dismissed solely on the ground that no such claim is cognizable under California law; it is, so long

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as the Court construes it as a quasi-contract claim for restitution. Nonetheless, Plaintiffs do not,

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and cannot, state such a claim. It is not clear whether Plaintiffs allege that they had a contractual

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relationship with Healthy Beverage on the basis of their purchases, but their claim fails under

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either theory of unjust enrichment. If Plaintiffs argue that Healthy Beverage accepted a benefit

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from them without a contract, it would not be “inequitable for [Healthy Beverage] to retain the

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benefit” where Plaintiffs acknowledge that they were aware of the true nature of ECJ. Hernandez,

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180 Cal.App.4th at 938. Conversely, to the extent Plaintiffs allege that they did have a contractual

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relationship with Healthy Beverage, the SAC contains no allegation that their contracts to

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purchase Healthy Beverage‟s products were “void or rescinded.” Rutherford Holdings, 223 Cal.

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App. 4th at 231. Plaintiffs merely state that “[b]y the actions described in this SAC,” i.e.

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fraudulent misrepresentation with respect to ECJ, “Defendant was unjustly enriched at the expense

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of Plaintiffs and the Class.” It is true that a fraudulent misrepresentation makes a contract

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voidable and/or subject to rescission. See Restatement (Second) of Contracts § 164 (1981); Cal.

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Civ. Code § 1689. But this is so only where the party seeking the remedy relied to his or her

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detriment on the misrepresentation. See Restatement (Second) of Contracts § 164 cmt. c (1981)
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(“No legal effect flows from either a non-fraudulent or a fraudulent misrepresentation unless it

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induces action by the recipient, that is, unless he manifests his assent to the contract in reliance on

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it.”). In short, any claim for unjust enrichment fails for the same reason that Plaintiffs‟ claims

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under the UCL, FAL, and CLRA fail; it depends on a finding that Plaintiffs‟ relied to their

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detriment on Defendants‟ misrepresentations. Because no such finding is plausible in light of

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Plaintiffs‟ allegations, the unjust enrichment claim fails as well.

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B.

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Leave to Amend
“After a party has amended a pleading once as a matter of course, it may only amend

LLC v. Aspeon, Inc., 316 F.3d 1048, 1051–52 (9th Cir. 2003). Such amendments are governed by

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Federal Rule of Civil Procedure 15, which provides that “[t]he court should freely give leave when

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For the Northern District of California

further after obtaining leave of the court, or by consent of the adverse party.” Eminence Capital,

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United States District Court

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justice so requires.” Fed. R. Civ. P. 15(a)(2). The Ninth Circuit has instructed that “this policy is

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to be applied with extreme liberality.” Owens v. Kaiser Found. Health Plan, Inc., 244 F.3d 708,

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712 (9th Cir.2001) (quoting Morongo Band of Mission Indians v. Rose, 893 F.2d 1074, 1079 (9th

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Cir.1990)). At the same time, “[l]iberality in granting a plaintiff leave to amend is subject to the

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qualification that the amendment not cause undue prejudice to the defendant, is not sought in bad

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faith, and is not futile.” Bowles v. Reade, 198 F.3d 752, 757 (9th Cir. 1999).

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“A motion for leave to amend may be denied if it appears to be futile or legally

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insufficient. However, a proposed amendment is futile only if no set of facts can be proved under

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the amendment to the pleadings that would constitute a valid and sufficient claim or defense.”

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Miller v. Rykoff-Sexton, Inc., 845 F.2d 209, 214 (9th Cir. 1988) (citing Gabrielson v. Montgomery

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Ward & Co., 785 F.2d 762, 766 (9th Cir.1986)).

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The Court finds that any amendment in this case would be futile. Plaintiffs have conceded

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reading Healthy Beverage‟s website, which disclosed that ECJ is “natural sugar.” An allegation of

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reliance, which is necessary for all of Plaintiffs‟ claims, is impossible. An amended complaint,

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moreover, may only allege “other facts consistent with the challenged pleading.” Reddy v. Litton

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Industries, Inc., 912 F.2d 291 (9th Cir. 1990) (citing Schreiber Distributing Co. v. Serv-Well

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Furniture Co., Inc., 806 F.2d 1393, 1401 (9th Cir. 1986)). Plaintiffs have already amended their
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complaint twice. The Court will not allow them a third bite at the apple to amend a factual

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allegation that is squarely inconsistent with a prior allegation. Accordingly, the Court dismisses

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Plaintiffs‟ claims with prejudice.
IV.

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CONCLUSION

For the foregoing reasons, the Court GRANTS Defendant‟s motion to dismiss and

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DISMISSES Plaintiffs‟ Second Amended Complaint with prejudice. The Clerk is instructed to

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enter judgment and close the file.

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This order disposes of Docket No. 92.

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IT IS SO ORDERED.

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For the Northern District of California

United States District Court

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Dated: May 2, 2017
______________________________________
EDWARD M. CHEN
United States District Judge

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