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Food Fraud – An Emerging Litigation Risk

April 24, 2012 2 comments

Food Fraud presents an emerging litigation risk in California and nationwide.

What is Food Fraud?

Food fraud occurs when someone sells a product that is not what it purports to be.  A few examples include short weighting (e.g., including the weight of excessive ice glazing) of frozen seafood, species substitution, dilution of premium olive oil with inferior oil, and misrepresenting a product’s country of origin.

How do Fraudsters Get Away with It?

Many times, only minor distinctions differentiate competing products, so it can be difficult even for trained professionals to detect fraud.  Almost two hundred years ago, British writer Cyrus Redding stated that consumers could avoid food fraud by becoming “perfect[ly] acquaint[ed] with that which is good.”  But how can one become “perfectly acquainted” with the differences between conventionally-produced and “free range” eggs, other than by the price paid?

Why is this an Emerging Litigation Risk?

Food fraud is economic fraud, because labels matter, and customers want to get what they pay for.  Some states have already seen food fraud class actions filed that allege honey laundering.  Food fraud also presents a risk of food allergy personal injury litigation for companies that substitute cheaper finfish products like surimi for shellfish like crab.   Food fraud also may result in criminal indictment and imprisonment.  There  are also the indirect costs of negative publicity arising from conviction in the court of public opinion.

What can be Done to Manage Food Fraud Risks?

Companies that implement food fraud risk management plans that include traceability systems like RFID and third-party verifiers may be able to reduce their food fraud risks and increase sales.

Instant Soup Manufacturers: Does Your Product Package Increase the Risk of Burn Injury?

This story discusses the relatively high risk of serious burns young children may incur from tipping over cups of some brands of instant chicken noodle soup.

The purpose of this posting is not to critique any particular manufacturer’s product design, or to analyze the factual support for the National Institutes of Health study upon which the news story was based.  Rather, it is simply to call attention to a risk management issue — why sell a product in a relatively unsafe package when consumers will buy it in comparably-priced, safer packaging?

Some readers may ask whether this issue is just a redux of the purported McDonald’s hot coffee lawsuit impetus for tort reform.  It is not, for at least three reasons.

First, regardless of the disputed merits of the McDonald’s lawsuit that involved an adult who should know coffee is served hot, the chicken soup study addressed injuries children incurred.  Even if a jury finds that a child was comparatively negligent in causing his or her burn injuries, it may find that the child was less culpable than a similarly-situated adult.  Children are also often sympathetic plaintiffs; even more so if they have incurred an horrifically painful burn injury that resulted in permanent scarring.

Second, the cost of selling the soup in a more stable package (e.g., a foam bowl) is likely minimal.  Consumers will also likely buy just as much soup sold in a bowl (or another tip-resistant container) instead of a cup — a plaintiff’s attorney will almost certainly contend at trial that many manufacturers seem to have no trouble sourcing foam bowls and selling their products at competitive prices.

Finally, the cost of litigating just one serious burn injury case may approach the cost of switching to a more stable container.  A one-time investment in risk management may also pay dividends in the court of public opinion.

Labels (Still) Matter: Campbell’s Soup Pays Seven Figures to Settle “Low Sodium” Class Action

September 14, 2011 Leave a comment

The latest reminder that manufacturers must consider the costs and benefits of promoting health and nutrient content claims on product labeling:

Campbell’s Soup Company recently paid $1.4 million to settle a class action lawsuit that alleged its “Low Sodium” tomato soup labeling misled consumers.  The soup allegedly contained the same amount of sodium as the company’s regular soup, but Campbell’s sold it for a premium price.  (The complaint also alleged Campbell’s Healthy Request tomato soup claimed it was “Low in Fat,” even though it contained more fat than the company’s regular soup.)

Campbell’s denies liability and contends it complied with applicable laws. 

The purpose of this posting is not to comment on the factual or legal support for the parties’ claims or defenses.  The issue is that regardless of the merits, defending and resolving lawsuits arising out of product labeling claims can be very expensive.  Companies that invest proactively to minimize their litigation risks may avoid incurring these costs.

Are Health Claims on Kids’ Cereals Misleading? Why Should My Company Care?

August 16, 2011 1 comment

Yale University’s Rudd Center for Food Policy and Obesity recently published a study that found parents often misinterpreted the meaning of nutrient content and health claims presented on kids’ cereals.  The cereals included an “average [of] 3.1” “nutrition-related” messages per box, but they also contained an average of 35 percent added sugar by weight.

The study concluded that its participants misinterpreted the claims in two ways.  First, they “inferred” that the sugary cereals were “more nutritious” than competing products, despite their “below average . . . nutritional quality.”  Second, they attached broader meanings to the manufacturers’ health claims than their “literal interpretation.”   For example, 74% of the parents believed that an “‘antioxidants and vitamins’ (i.e. immunity) claim meant it might keep their child from getting sick.”

Most critically, the authors concluded the parents’ “beliefs predicted greater willingness to buy the cereals.”  Please recall my article regarding the Kwikset case that allowed a false advertising class action to proceed, because claims on “labels matter.”  Manufacturers of foods that some authors may deem have “below average . . . nutritional quality” may want to conduct a cost-benefit analysis evaluating the potential increased sales from advertising health claims against the risk that findings like those from the Yale study may support an unfair competition class action claim, as well as possible negative publicity in the court of public opinion.  Public interest groups may also attempt to support efforts to expand the jellybean rule to further limit manufacturers’ use of these claims.

You may be Sued Even if You Sell Safe Food

Your food processing company or restaurant may be sued even if it sold perfectly safe food, and even if your customers incurred no physical injury.  Recently, a New Jersey state appellate court ruled that Hindu restaurant patrons could sue a restaurant for serving them a dish containing meat, after they expressly told the staff they were strict vegetarians.

The customers claim they incurred spiritual and emotional injuries.  They seek damages to recover the cost of traveling to India to cleanse their souls.

The purpose of this posting is not to question anyone’s religious beliefs or comment on any factual support for the plaintiffs’ allegations or the restaurant’s possible defenses.

Rather, this litigation should serve as a reminder that “labels matter.”  As discussed in Kwikset v. Sup. Ct. (Benson) 51 Cal.4th 310, 330 (2011), companies that incorrectly represent that their product is, for example, Kosher, when it is not, may not cause any physical harm to a customer who follows Kosher dietary laws.  However, a customer that pays for food that a company misrepresents is Kosher likely has standing to sue the company for an economic injury based on that misrepresentation (at least in California).  It appears that the New Jersey courts are following similar reasoning in this recent case.

The takeaway message: your customers take your representations seriously, and misrepresentations can be very costly.  Just ask McDonald’s.  In 2009, it paid $10 million to resolve claims arising out of allegedly mislabeling its french fries as vegetarian, even though no plaintiff incurred any physical injury (although the company represented that “vegetarians can enjoy” its french fries, they contained beef flavoring; nonetheless, McDonald’s denied plaintiffs’ allegations).

Are your Health and Nutrient Content Claims Accurate and Well-Documented? Labels Matter.

Please see my new article in Food and Beverage Packaging regarding exaggerated labeling claims and potential liability for false advertising and unfair competition.

Customers Will Pay More for Safer Food

The March 2011 Deloitte Consumer Food Safety Survey confirms that customers are aware of food safety issues, and they are willing to pay more for safer food products.  Food processors, distributors, and retailers may all benefit from this trend by developing and implementing food safety risk management plans.

Customers are Aware of Food Safety Issues

 According to the Deloitte survey, 73 percent of consumers are “more concerned than they were five years ago about the food [they] eat,” an increase of eight percentage points over 2010 figures.  The top five food safety concerns include ingredient safety, toxins and chemicals in packaging materials, and contracting a food-borne illness.  About 91 percent of consumers think the number of food recalls has stayed the same or increased since the prior year. 

Consumers Concerned about Safety of Fresh and Imported Foods

Consumers generally reported the greatest safety concerns about fresh foods, such as meat, fish and seafood, and fruits and vegetables.  Fresh food producers, distributors, and retailers may benefit from developing, implementing, and regularly updating their cold chain risk management and HACCP plans to maintain and improve food safety to minimize the risk of food-borne illness and food recalls (as well as the risks of litigation and lost brand value).

Consumers Hold Manufacturers and Retailers Accountable for Food Recalls

More than three-fourths of those surveyed told Deloitte that they hold manufacturers responsible for communicating food recall information.  A majority expect that retailers will also notify them about food recalls.  Critically, almost 20 percent of consumers reported they would buy “somewhat more expensive” products that included traceability information, compared to lower-priced products without it.  These data highlight the need for food growers and manufacturers, distributors, and retailers to adopt and implement food recall risk management plans before a problem arises to meet your customers’ rising food safety demands.  (You will be able to read more about food recall risk management plans in my upcoming July 2011 publication).

“Gluten Free” Update: Baker Behind Bars

Paul Seelig, the owner of Great Specialty Products, has been sentenced to 9-11 years in prison for falsely representing to his customers that his bread was gluten free.  According to testimony from one of his former employees, Mr. Seelig also told customers that his products were “homemade,” even though he apparently just repackaged baked goods he bought at various stores.

The takeaway message (other than the obvious: follow the law) is that customers rely on a company’s representations, so it is important for those representations to be correct, documented, and verifiable.  Even if Seelig had truthfully represented that he tested his products weekly, he failed to produce any records confirming this at trial.  “Get it in writing” is as true now as it ever was; do you think your customers expect (and pay for) any less?

Most Ironic Food Recall of 2011: Toxic Waste Candy Recalled (Again) for Being Too Toxic

On March 26, the makers of Toxic Waste candy recalled their “Toxic Waste® Short Circuits™ Bubble Gum” for excessive lead content.  This is the second Toxic Waste candy product recalled in 2011 for excessive lead levels. 

The gum was distributed between January 4, 2011 and March 18, 2011.  This raises the question of the extent to which the recalled product may already have been consumed.  Time is of the essence for food recalls, and managing a food recall is easier for both the manfacturer and consumer when a product is recalled sooner than later.

As with the January 2011 recall of the company”s “nuclear sludge” candy, the recalled candy at issue here was imported.  Although non-chocolate candy accounted for only 7.3 percent of FDA food import violations from 1998 to 2004, it is difficult to find specific data regarding the scope of these violations.  However, the FDA provides information about how it monitors and regulates food importation.  Additionally, while candy manufacturers are not at this time required to develop and implement HACCP plans, companies may want to consider doing so sooner than later to manage their risk of food recalls.

California Restaurants and Retail Foodservice Companies: Do You Post Proposition 65 Warnings?

Your restaurant serves wholesome food and artisinal cocktails; the menu touts all of the fresh ingredients, including the farms where you obtain your fresh produce and meats.  Did you also disclose a Proposition 65 warning about potential food safety hazards?

California’s Proposition 65 requires businesses to notify consumers that hazardous chemicals may be present in products purchased on the premises.  A consumer may sue your restaurant and allege that it does not comply with this requirement.  Even if such a lawsuit is frivolous, litigation can be quite expensive.

Fortunately, a business can take cost-effective steps to protect itself from the risks of this litigation by posting prescribed warnings, such as:

“WARNING:  Chemicals known to the State of California to cause cancer, or birth defects or other reproductive harm may be present in foods or beverages sold or served here.”

I know, a warning label may not be the most enticing way to upsell your customers.  However, think about this simple fact: the U.S. government has required warning labels on alcoholic beverages since 1989, but there is little (if any) evidence that they have affected sales.  (There is also a specific Proposition 65 warning for alcoholic beverages.)

However, there are emerging Proposition 65 litigation risks, such as neurotoxic acrylamide in fried foods and carcinogenic heterocyclic amines (HCAs) in grilled foodsThe San Francisco Department of Public Health publishes this handy (and free) FAQ about Proposition 65 for restaurants and other food establishments.

For more information, feel free to read the article I co-authored regarding Proposition 65 Risk Management.