Surzyn v. Diamond Foods, Inc.

Filing 27

ORDER by Judge Saundra Brown Armstrong GRANTING DEFENDANTS 15 MOTION TO DISMISS. (ndr, COURT STAFF) (Filed on 5/28/2014)

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1 2 3 UNITED STATES DISTRICT COURT 4 FOR THE NORTHERN DISTRICT OF CALIFORNIA 5 OAKLAND DIVISION 6 7 DOMINIKA SURZYN, individually and on Case No: C 14-0136 SBA behalf of all others similarly situated, 8 Plaintiff, 9 ORDER GRANTING DEFENDANT’S MOTION TO DISMISS vs. Dkt. 15 10 DIAMOND FOODS, INC., a Delaware 11 limited liability company, and DOES 1 through 10, inclusive, 12 Defendants. 13 14 Plaintiff Dominika Surzyn, individually and on behalf of all others similarly 15 situated, brings the instant putative consumer fraud class action against Defendant Diamond 16 Foods, Inc. She alleges state law claims, inter alia, for unfair competition, false advertising 17 and negligent misrepresentation, based on Defendant’s “All Natural” designation on the 18 packaging of certain of its Kettle Brand TIAS! tortilla chips. The Court has jurisdiction 19 under the Class Action Fairness Act, 28 U.S.C. § 1332(d)(2). 20 The parties are presently before the Court on Defendant’s Motion to Dismiss and 21 Strike Complaint, pursuant to Federal Rule of Civil Procedure 12(b)(6) and (f), 22 respectively. Dkt. 15. Having read and considered the papers filed in connection with this 23 matter and being fully informed, the Court hereby GRANTS the motion to dismiss and 24 DENIES the alternative motion to strike as moot. Plaintiff is granted leave to amend. The 25 Court, in its discretion, finds this matter suitable for resolution without oral argument. See 26 Fed. R. Civ. P. 78(b); N.D. Cal. Civ. L.R. 7-1(b). 27 28 1 2 I. BACKGROUND Defendant manufactures and markets Kettle brand TIAS! tortilla chips, including the 3 following varieties which are at issue: All Natural Nacho Cheddar Tortilla Chips, All 4 Natural Zesty Ranch Tortilla Chips, All Natural Salsa Picante Tortilla Chips, All Natural 5 Sweet Baja Barbeque Tortilla Chips and All Natural Chili Con Queso Tortilla Chips 6 (collectively, “Products” or “Chips”). Compl. ¶ 1. The packaging for each variety of the 7 Chips bears the label “All Natural.” Id. 8 9 According to Plaintiffs, the “All Natural” designation is false, misleading and likely to deceive consumers because the Chips contain maltodextrin and/or dextrose, which are 10 alleged to be “unnatural, synthetic, and/or . . . artificial ingredient[s].” Id. ¶¶ 30, 36. 11 Plaintiff states that she “purchased one or more of the Products during the Class Period, 12 including, but not limited to, a purchase made during 2013 from a Whole Foods market 13 located in Alameda County, California, for the purchase price of approximately $3.00 to 14 $4.00.” Id. ¶ 55. 15 The Complaint alleges five causes of action: (1) violation of the California’s False 16 Advertising Law (“FAL”); (2) violation of the fraudulent and unfair prongs of the Unfair 17 Competition Law (“UCL”); (3) violation of the unlawful prong of the UCL; (4) violation of 18 the California Legal Remedies Act (“CLRA”); and (5) negligent misrepresentation. 19 Plaintiff seeks to represent a Class comprised of all California residents who purchased the 20 Chips “from January 9, 2010, through and to the date notice is provided to the Class.” 21 Compl. ¶ 56. 22 Defendant now moves to dismiss or strike all claims of the Complaint for failure to 23 state a claim under Federal Rule of Civil Procedure 12(b)(6) and (f), and for failure to plead 24 fraud with particularity under Rule 9(b).1 Defendant also seeks to dismiss or strike 25 Plaintiff’s allegations regarding its allegedly deceptive marketing and advertising 26 campaign. The motion is fully briefed and is ripe for adjudication. 27 1 28 A dismissal under Rule 9(b) is “functionally equivalent” to one under Rule 12(b)(6). Swartz v. KPMG LLP, 476 F.3d 756, 765 (9th Cir. 2007). -2- 1 2 II. LEGAL STANDARD Rule 12(b)(6) “tests the legal sufficiency of a claim.” Navarro v. Block, 250 F.3d 3 729, 732 (9th Cir. 2001). “Dismissal under Rule 12(b)(6) is proper when the complaint 4 either (1) lacks a cognizable legal theory or (2) fails to allege sufficient facts to support a 5 cognizable legal theory.” Somers v. Apple, Inc., 729 F.3d 953, 959 (9th Cir. 2013). “Rule 6 12(b)(6) is read in conjunction with Rule 8(a), which requires not only ‘fair notice of the 7 nature of the claim, but also grounds on which the claim rests.’” Zixiang Li v. Kerry, 710 8 F.3d 995, 998-99 (9th Cir. 2013) (quoting in part Bell Atl. Corp. v. Twombly, 550 U.S. 9 544, 556 n.3 (2007)). “To survive a motion to dismiss, a complaint must contain sufficient 10 factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ ” 11 Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 570). A 12 complaint must contain more than “labels and conclusions” or a “formulaic recitation of the 13 elements of a cause of action”; it must contain factual allegations sufficient to “raise a right 14 to relief above the speculative level.” Twombly, 550 U.S. at 555. 15 In assessing the sufficiency of the pleadings, “courts must consider the complaint in 16 its entirety, as well as other sources courts ordinarily examine when ruling on Rule 12(b)(6) 17 motions to dismiss, in particular, documents incorporated into the complaint by reference, 18 and matters of which a court may take judicial notice.” Tellabs, Inc. v. Makor Issues & 19 Rights, Ltd., 551 U.S. 308, 322 (2007). The court is to “accept all factual allegations in the 20 complaint as true and construe the pleadings in the light most favorable to the nonmoving 21 party.” Outdoor Media Group, Inc. v. City of Beaumont, 506 F.3d 895, 899-900 (9th Cir. 22 2007). Where a complaint or claim is dismissed, leave to amend generally is granted, 23 unless further amendment would be futile. Chaset v. Fleer/Skybox Int’l, 300 F.3d 1083, 24 1087-88 (9th Cir. 2002). 25 26 27 28 -3- 1 2 3 4 III. DISCUSSION A. ACTIONABLE MISREPRESENTATION 1. “All Natural” The first four causes of action are premised on violations of the UCL, FAL and 5 CLRA. The UCL makes actionable any “unlawful, unfair or fraudulent business act or 6 practice.” Cal. Bus. & Prof. Code § 17200. The CLRA likewise prohibits “unfair methods 7 of competition and unfair or deceptive acts or practices.” Cal. Civ. Code § 1770. The FAL 8 makes it unlawful to make or disseminate any statement concerning property or services 9 that is “untrue or misleading.” Cal. Bus. & Prof. Code § 17500. Actions brought under 10 these statutes are governed by the “reasonable consumer” test, which focuses on whether 11 “members of the public are likely to be deceived.” Williams v. Gerber Prods. Co., 552 F.3d 12 934, 938 (9th Cir. 2008). Although reasonableness can, in appropriate circumstances, be 13 decided as a question of law, “whether a business practice is deceptive will usually be a 14 question of fact not appropriate for decision on [a motion to dismiss].” Id. (citing Linear 15 Tech. Corp. v. Applied Materials, Inc., 152 Cal. App. 4th 115, 134-35 (2007)). 16 Defendant first contends that Plaintiff’s consumer protection claims must be 17 dismissed on the ground that the pleadings fail to allege a consistent definition of “All 18 Natural.” This argument lacks merit. Throughout the Complaint, Plaintiff repeatedly and 19 consistently alleges that the Chips are not “All Natural” because they contain “unnatural, 20 synthetic, and/or artificial ingredients.” Compl. ¶¶ 1, 6, 7, 9, 28, 30, 36, 51(h), 57, 58, 60, 21 64, 72(j), 78, 95, 119, 134, 151; see also id. ¶¶ 37-40 (alleging that maltodextrin and 22 dextrose are created through “enzymatic” processes which are not natural). Defendant 23 nonetheless asserts that such definition is at odds with the allegations in Paragraph 41 of the 24 Complaint, which state: “According to Consumers Union, ‘Eighty-six percent of 25 consumers expect a “natural” label to mean processed foods do not contain any artificial 26 ingredients.’” Compl. ¶ 41 (emphasis added). The Court, however, disagrees that these 27 allegations are contradictory, as “artificial” is synonymous with “synthetic” and/or 28 “unnatural.” In any event, the allegations in Paragraph 41, which are not repeated -4- 1 elsewhere in the pleadings, are offered merely as background regarding consumer 2 perceptions as to the meaning of “natural” products, and not as the operative definition of 3 “All Natural” for purposes of Plaintiff’s claims. 4 Next, Defendant urges the Court to follow Pelayo v. Nestle, No. 13-5213 JFW, 2013 5 WL 5764644 (C.D. Cal. Oct. 25, 2013), which it contends dismissed “nearly identical” 6 claims to those at issue here. Mot. at 8. In that case, the plaintiff alleged that the “All 7 Natural” designation on Buitoni-brand packaged pasta products was false and misleading 8 because the products contained ingredients that were unnatural, artificial or synthetic. In 9 rejecting the plaintiff’s UCL and CFRA claims, the court cited a report by the Federal 10 Trade Commission (“FTC”) in which it purportedly “declined to adopt a definition of 11 ‘natural’ because ‘natural may be used in numerous contexts and may convey different 12 meanings depending on that context.’” Pelayo, 2013 WL 5764644, at *5 (citing 75 Fed. 13 Reg. 63552-01). Based on the FTC’s comments, the court concluded that “it is implausible 14 that ‘a significant portion of the general consuming public or of targeted consumers” would 15 be deceived or misled by the use of the term ‘All Natural’ on the Buitoni Pastas.” Id. 16 The Pelayo court’s reliance on the FTC’s report as a basis to dismiss the action is 17 misplaced. Though not discussed in the court’s ruling, the FTC’s report relates to the 18 FTC’s Guides for the Use of Environmental Marketing Claims (“Guides”), the purpose of 19 which is to “help marketers make truthful and substantiated environmental claims[.]” 75 20 Fed. Reg. 63552-01, § I (2010). The Guides, first published in 1992, are periodically 21 updated and revised, and the report cited in Pelayo is the FTC’s proposed 2010 update. Id. 22 With regard to the meaning of “natural,” the FTC chose not to create a specific section in 23 the Guides to define that term. Id. § IV.B.4. The FTC explained that “definitions for terms 24 such as natural must be based on what consumers understand those terms to mean,” but that 25 “no commenters provided consumer perception evidence indicating how consumers 26 understand the term ‘natural.’” Id. § IV.B.4.b. In the absence of such information, the FTC 27 declined to proffer specific guidance on the meaning of “natural,” particularly since 28 consumer perception of the term may vary depending on the context in which it is used. Id. -5- 1 Nothing in the FTC’s analysis either directly or inferentially supports the Pelayo 2 court’s conclusion that it is “implausible” that consumers would be misled or confused by 3 the use of “All Natural” on food product packaging. The FTC simply found that the 4 meaning of “natural” is context-specific, and in the absence of contextualized evidence 5 regarding consumer perceptions, it was inappropriate to provide specific guidance on the 6 meaning of that term. Thus, rather than justifying the Pelayo court’s dismissal of the action 7 at the pleading stage, the FTC’s observations support the conclusion that the question of 8 whether consumers were deceived by an “All Natural” designation must be resolved based 9 on consideration of evidence—and not at the pleading stage. See Williams, 552 F.3d at 939 10 (reversing the dismissal of UCL and false advertising claims, finding that “the statement 11 that Fruit Juice Snacks was made with ‘fruit juice and other all natural ingredients’ could 12 easily be interpreted by consumers as a claim that all the ingredients in the product were 13 natural, which appears to be false.”); accord Rojas v. Gen’l Mills, Inc., No. C 12-5099 14 WHO, 2014 WL 1248017, at *7-8 (N.D. Cal. Mar. 26, 2014) (“100% Natural” and “All 15 Natural” representations on Nature Valley granola bars could mislead a reasonable 16 consumer where the products contained genetically modified organisms, i.e., GMOs); 17 Parker v. J.M. Smucker Co., No. C 13-690 SC, 2013 WL 4516156, at *6 (N.D. Cal. Aug. 18 23, 2013) (plaintiff’s allegations that a reasonable consumer would believe that a product 19 labeled as “all natural” contained no bioengineered or chemically altered ingredients 20 “cannot be resolved as a matter of law”); Vicuna v. Alexia Foods, Inc., No. C 11-6119 PJH, 21 2012 WL 1497507, at *2 (N.D. Cal. Apr.27, 2012) (same); Astiana v. Ben & Jerry’s 22 Homemade, Inc., Nos. C 10-4387 PJH, C 10-4937 PJH, 2011 WL 2111796, at *5-6 (N.D. 23 Cal. May 26, 2011) (same). 24 The Court concludes that Pelayo is not persuasive, and declines Defendant’s 25 invitation to follow it. See Jou, 2013 WL 6491158, at *8 (stating that Pelayo “is at odds 26 with basic logic, contradicts the FTC statement on which it relies, and appears in conflict 27 with the holdings of many other courts, including the Ninth Circuit.”); accord Rojas, 2014 28 WL 1248017, at *6. -6- 1 2 2. Other Packaging Information Defendant next argues that “All Natural” cannot be deemed false, misleading or 3 deceptive when considered in context with other information provided on the packaging. 4 Mot. at 9-10. In particular, Defendant points to (1) the ingredient panel on each of the 5 Chips which lists maltodextrin and/or dextrose as ingredients, and (2) the “Our Natural 6 Promise” statement set forth on the backside of the packaging. The “Our Natural Promise” 7 panel reads as follows: OUR NATURAL PROMISE 8       9 10 11 0 grams trans fat Only all natural colors and flavors Only natural oils No preservatives Non-GMO ingredients Real food ingredients 12 13 Def.’s Request for Judicial Not. Ex. A, Dkt. 16. Defendant contends that the ingredient list 14 and “Our Natural Promise” statement clarify any ambiguity created by the “All Natural” 15 designation. Mot. at 10.2 16 The Ninth Circuit has rejected the argument that the accurate disclosure of 17 ingredients on product packaging necessarily insulates a food product manufacturer from 18 liability for misleading statements elsewhere on the product packaging: We do not think that the FDA requires an ingredient list so that manufacturers can mislead consumers and then rely on the ingredient list to correct those misinterpretations and provide a shield for liability for the deception. Instead, reasonable consumers expect that the ingredient list contains more detailed 19 20 21 22 2 23 24 25 26 27 28 Defendant requests that the Court take judicial notice of a photographic image of a bag of Kettle brand TIAS! All Natural Nacho Cheddar tortilla chips which shows the “Our Natural Promise” statement, along with an excerpt of chips’ ingredients. Dkt. 16. Under Federal Rule of Evidence 201(b), “[t]he court may judicially notice a fact that is not subject to reasonable dispute because it can be accurately and readily determined from sources whose accuracy cannot reasonably be questioned.” Plaintiff objects on the basis that a court cannot take judicial notice of an adjudicative fact, i.e., the actual language on each of Chips’ packaging. The Court agrees that it is improper to take judicial notice of the photographic image of one variety of TIAS! All Natural tortilla chips to establish what specific information is contained on each of the five varieties of Chips. In any event, as discussed above, the “Our Natural Promise” statement does not support Defendant’s argument for dismissal. -7- information about the product that confirms other representations on the packaging. 1 2 3 Williams, 552 F.3d at 939-40; accord Lam v. Gen. Mills, Inc., 859 F. Supp. 2d 1097, 1105 4 (N.D. Cal. 2012) (“ingredients list cannot be used to correct the message that reasonable 5 consumers may take from the rest of the packaging”). Following Williams, numerous 6 decisions from this District have rejected the argument that Defendant makes here, i.e., that 7 an “All Natural” representation on the front of the packaging is not deceptive, as a matter of 8 law, merely because the ingredient panel lists the allegedly non-natural ingredient. See 9 Rojas, 2014 WL 1248017, at *7-8 (rejecting defendant’s contention that the ingredient list 10 on the product packaging resolved any possible consumer confusion by identifying which 11 ingredients in the products are not “100% Natural”); Wilson v. Frito-Lay N. Am., Inc., No. 12 C 12-1586 SC, 2013 WL 1320468, at *12-*13 (N.D. Cal. Apr. 1, 2013) (“the Court finds 13 that Plaintiffs have adequately pled that a reasonable consumer could interpret a bag of 14 chips claiming to have been ‘Made with ALL NATURAL Ingredients’ to consist 15 exclusively of natural ingredients, contrary to the reality described in the nutrition box.”); 16 Jou v. Kimberly-Clark Corp., No. C-13-3075 JSC, 2013 WL 6491158, at *8-9 (N.D. Cal. 17 Dec. 10, 2013) (“Defendant cannot rely on disclosures on the back or side panels of the 18 packaging to contend that any misrepresentation on the front of the packaging is 19 excused.”). 20 In its reply, Defendant argues that the inclusion of the “Our Natural Promise” 21 statement somehow distinguishes this case from the rule set forth in Williams. Reply at 6. 22 It does not. As noted, the “Our Natural Promise” purports to convey, inter alia, that the 23 Chips contain “[o]nly all natural colors and flavors” and “[r]eal food ingredients.” RJN Ex. 24 A. It is unclear how these representations resolve any ambiguity regarding the meaning of 25 “All Natural.” If anything, the Our Natural Promise statement serves to further mislead the 26 consumer—not clarify what is meant by that term. The Court is thus not persuaded that the 27 ingredient panel and the Our Natural Promise statement demonstrate, as a matter of law, 28 -8- 1 that no reasonable consumer would likely be deceived by Defendant’s characterization of 2 the Chips as being “All Natural.” 3 B. 4 The next issue before the Court is whether Plaintiff’s claims comport with the PLEADING FRAUD WITH PARTICULARITY 5 heightened pleading requirements of Rule 9(b). It is well-settled that fraud claims and 6 claims that “sound in fraud” or those that are “grounded in fraud” must pled with 7 particularity. Kearns v. Ford Motor Co., 567 F.3d 1120, 1125 (9th Cir. 2009) (holding that 8 Rule 9(b) applies to UCL claims under the UCL). This rule also applies to claims for 9 negligent misrepresentation. Das v. WMC Mortg. Corp., 831 F. Supp. 2d 1147, 1166 (N.D. 10 Cal. 2011). To plead fraud with particularity, “[the] complaint must ‘identify the who, 11 what, when, where, and how of the misconduct charged, as well as what is false or 12 misleading about the purportedly fraudulent statement, and why it is false.’” Salameh v. 13 Tarsadia Hotel, 726 F.3d 1124, 1133 (9th Cir. 2013) (quoting Cafasso, U.S. ex rel. v. Gen. 14 Dynamics C4 Sys., Inc., 637 F.3d 1047, 1055 (9th Cir. 2011)). 15 Defendant contends that the Complaint fails to comport with Rule 9(b) because 16 Plaintiff has failed to identify (1) which of the five varieties of Chips contains maltodextrin, 17 dextrose, or both, or (2) which of the Chips she actually purchased. Mot. at 10-11. The 18 first contention has no merit, as the Complaint expressly identifies which “unnatural 19 ingredient” (i.e., maltodextrin, dextrose, or both) is contained in each of the five varieties of 20 Chips. Compl. ¶ l(a)-(e). As for the second contention, however, the Court finds that 21 Plaintiff’s allegations are insufficient. The Complaint does not specify which of the Chips, 22 if any, Plaintiff purchased, and instead alleges only that “Plaintiff has purchased one or 23 more of the Products during the Class Period[.]” Id. ¶ 56. This vague allegation is 24 insufficient. At a minimum, Defendant is entitled to fair notice of the particular product 25 Plaintiff purchased. See Thomas v. Costco Wholesale Corp., No. C 12-02908 EJD, 2013 26 WL 1435292, at *9 (N.D. Cal. April 9, 2013) (granting a motion to dismiss where “the 27 Amended Complaint does not clearly and unambiguously state which particular food 28 -9- 1 products were purchased by which particular Plaintiff.”). The Court grants Plaintiff leave 2 to amend to cure this deficiency. 3 C. 4 Finally, Defendant moves to dismiss or strike Plaintiff’s claims insofar as they are 5 predicated upon its alleged “widespread marketing and advertising campaign[.]” Compl. 6 ¶ 41; see Mot. at 11-12. Defendant contends that the pleadings are devoid of facts that 7 Plaintiff was personally exposed to such a campaign and therefore lacks standing to claim 8 that she was injured by such conduct. See Sevidal v. Target Corp., 189 Cal. App. 4th 905, 9 928 (2010) (finding that plaintiffs who were not exposed to allegedly false advertisement 10 MARKETING AND ADVERTISING ALLEGATIONS lacked standing under the UCL). 11 Plaintiff does not respond to Defendant’s argument, except to assert that she has 12 standing to represent consumers who purchased any of the different types of Chips at issue. 13 Opp’n at 10-11. That argument misses the point. Defendant is not taking the position in its 14 motion that Plaintiff lacks standing to represent consumers of other varieties of Chips; 15 rather, its position is that the pleadings fail to allege sufficient facts showing that Plaintiff 16 was in subjected to and harmed by the alleged marketing and advertising campaign. 17 Given the lack of factual allegations establishing Plaintiff’s standing, coupled with 18 Plaintiff’s failure to respond to Defendant’s arguments on this issue, the Court dismisses 19 Plaintiff’s consumer protection claims insofar as they are predicated on Defendant’s alleged 20 marketing and advertising campaign. The Court grants Plaintiff leave to amend to cure this 21 deficiency.3 22 IV. CONCLUSION 23 For the reasons stated above, 24 IT IS HEREBY ORDERED THAT: 25 1. 26 Defendant’s motion to dismiss is GRANTED. Defendant’s alternative motion for a more definite statement is DENIED AS MOOT. 27 3 28 Because the Court is dismissing Plaintiffs’ putative marketing and advertising campaign claims, Defendant’s alternative request to strike is denied as moot. - 10 - 1 2. Plaintiff shall have twenty-one (21) days from the date this Order is filed to 2 file a First Amended Complaint, consistent with the Court’s rulings. Plaintiff is advised 3 that any additional factual allegations set forth in their amended complaint must be made in 4 good faith and consistent with Federal Rule of Civil Procedure 11. To avoid unnecessary 5 motion practice, the parties shall meet and confer in good faith regarding the sufficiency of 6 Plaintiff’s amended allegations in their forthcoming First Amended Complaint. 7 8 IT IS SO ORDERED. Dated: May 28, 2014 ______________________________ SAUNDRA BROWN ARMSTRONG United States District Judge 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 - 11 -

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