The latest reminder of the risks of perpetrating food fraud: on May 22, 2012, the U.S. government filed felony charges against a seafood importer for allegedly falsifying Country of Origin Labeling (COOL). According to the filing, Worldwide Shrimp Company and others conspired to violate the Lacey Act by labeling Mexican shrimp as a product of the U.S.
The defendants, of course, are innocent until proven guilty beyond a reasonable doubt. The purpose of this posting is not to suggest otherwise. Rather, it is to identify three (of many) underlying reasons why COOL laws are important to businesses and consumers.
Second, even if no one suffers personal injury from an imported food, in some states, economic injury is enough to provide standing for plaintiffs to sue, because labels matter. Consumers often are willing to pay more for foods from certain countries (or to avoid buying foods from others) for many reasons not directly related to safety, such as supporting local jobs or reducing energy use.
Finally, companies that are accused of violating COOL laws should keep in mind they risk conviction in the court of public opinion. Many consumers understand that companies willing to violate COOL laws may also be more likely to break other laws that affect food safety.
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.
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.
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).
Please see my new article in Food and Beverage Packaging regarding exaggerated labeling claims and potential liability for false advertising and unfair competition.