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A Guide to Navigating COVID-19 Price-Gouging Litigation Against Manufacturers, Suppliers, and Retailers of Food and Consumer Goods in the U.S.

The COVID-19 pandemic has led to sharp spikes in demand for basic necessities, alcohol-based disinfecting products, and essential food staples. Consumers have been willing to pay a premium to stock up on these items from both brick-and-mortar and online marketplaces.  While there is no federal law establishing clear guidelines regarding price gouging, many states have laws that limit or prohibit sellers from charging excessive prices for certain consumer products, which are triggered by the declaration of an emergency by federal, state, and/or local officials. Plaintiffs’ lawyers and states’ attorneys general have begun bringing state and nationwide class actions for price gouging against suppliers, distributors, and retailers of essential products, and we expect this litigation to increase in coming months.

In this three part series, we provide the statutory landscape and analyze the newly filed litigation, outline some key litigation strategies, and advise on best practices for manufacturers and retailers to minimize risk of litigation or investigation for pricing practices.

PART ONE:  Landscape of COVID-19 Price Gouging Regulation

Part One of this report provides an overview of the statutory landscape governing price gouging and summarizes some of the newly filed cases.

Statutory Landscape

Most of the 50 states have enacted specific laws prohibiting price gouging; in other states, actions are brought under general consumer protection statutes.  Many states’ price-gouging statutes do not provide a private right of action, instead vesting prosecutorial authority in the state attorney general’s office.

While most states prohibit price gouging, the laws vary greatly.  Many states, such

Year in Review: 2019 Food and Beverage Litigation and Regulatory Roundup

2019 was another active year for new regulatory activity and litigation targeting the food, beverage, and supplement industries.

In this roundup, Bryan Cave Leighton Paisner LLP presents a collection of regulatory developments, key court decisions, and notable settlements that were reached in 2019 and early 2020.

The highlights of this 2019 roundup include:

  • New federal legislation governing food labeling.
  • New regulations and a burst of litigation regarding CBD-based products.
  • An update on slack fill litigation.
  • Notable rulings, trials, and settlements.
  • Prop 65 and food safety update.
  • A preview of areas to watch in 2020.

We will continue our commitment to monitoring and analyzing industry trends in these areas and advising clients on legal and regulatory developments.

 

Pepper Purchasers Reach $2.5 Million Class Settlement Over Underfilled Containers

In a multidistrict litigation accusing McCormick & Co. of deceptively underfilling the pepper it sells in grinders and tins, a D.C. federal judge preliminarily approved a $2.5 million class settlement last week.

Consumers first sued McCormick in 2015, challenging the spice manufacturer’s response to economic pressures in the black pepper marketplace.  Facing rising wholesale prices and a decreased market share, McCormick reduced the weight of ground pepper in its tins and peppercorns in its pepper grinders by 25% and 19%, respectively, but did not reduce the container size or change the price.   Retailers sold the containers with reduced amounts between March 2015 and June 2016.  The plaintiffs’ original complaint alleged that McCormick and other brands it supplied misled consumers by constructing the packages to hide the reduction of product with “nonfunctional slack-fill,” or empty space.

Within months of the first case against McCormick, additional copycat consumer suits followed. In late 2015, the Judicial Panel on Multidistrict Litigation transferred all McCormick black pepper slack-fill cases to the U.S. District Court for the District of Columbia. After surviving a motion to dismiss, the plaintiffs moved to certify a variety of multistate and single-state classes of pepper purchasers alleging violation of state consumer protection laws and unjust enrichment.

In July 2019, in a 110-page opinion, the court certified single-state classes of individuals asserting statutory consumer protection claims in three states: California, Florida and Missouri.

The court held that purchasers “were uniformly exposed to the same alleged misrepresentation — pepper containers that did not

California Amends Slack Fill Law to Provide Additional Exemptions

Governor Jerry Brown recently signed into law Assembly Bill 2632, which amended California’s slack fill statute to create several exemptions. This amendment will be an additional hurdle to the plaintiff bar, which has been flooding the courts with slack fill related lawsuits in recent years. These lawsuits, typically filed as class actions, allege that product packaging is misleading to the extent it contains nonfunctional empty space, known as slack fill, which causes consumers to believe they are receiving more of the product than they actually are.

The new law, which will amend California Business and Professions Code Sections 12606 and 12606.2, includes the following key changes:

  • The amended law exempts packaging sold in a mode of commerce that “does not allow the consumer to view or handle the physical container or product.” It could be argued that this exempts online sales.
  • The amended law exempts product packaging that clearly and conspicuously depicts the product “fill line” on exterior packaging or the immediate product container if visible at point of sale.
  • Food containers are now exempt where “[t]he actual size of the product or immediate product container is clearly and conspicuously depicted on any side of the exterior packaging, excluding the bottom, accompanied by a clear and conspicuous disclosure that the depiction is the ‘actual size’ of the product or immediate product container” and “t]he dimensions of the product or immediate product container are visible through the exterior packaging.”

The new amendment comes in the wake of yet another

End of the Road for Mike and Ike Slack Fill Case

In another victory for a candy manufacturer, a federal court in Missouri denied class certification earlier this month, effectively ending the plaintiff’s attempt to seek damages on a class-wide basis for all consumers of Hot Tamales and Mike and Ike candies.

The lawsuit, White v. Just Born, alleged that boxes of the candy were underfilled, leaving unusable empty space, known as “slack fill,” that deceived the consumer into thinking he was receiving more candy than was actually in the package. The plaintiff sought certification of a Missouri class, and two multi-state unjust enrichment classes, on the theory that the actual value of the candy was less than the consumers paid for it.

The court declined to certify all three classes, ruling that proving class-wide violation of Missouri’s Merchandising Practices Act “will involve predominantly individual inquiries as to whether each class member purchased the candy.” Because most consumers purchase this type of product from a third-party retailer rather than from the manufacturer – at a movie theater, for example – there is no master list to provide common proof of purchase. Each class member will need to demonstrate his own individualized purchase, which makes the class unascertainable.

Furthermore, the court found that the “litigation would be dominated by individual inquiries into whether each class member was deceived by any slack-fill in a box before purchasing it. In other words, it would be dominated by causation and knowledge.” Because “an individual who knew what he was getting before he purchased one of

New York Court Takes Critical View of Slack Fill Claims

As we have previously reported, slack fill litigation remains on the rise, with plaintiffs continuing to file consumer lawsuits – typically putative class actions – alleging food packaging is deceptive because it contains empty space, or nonfunctional slack fill, thereby disguising the amount of product in the package.

While some federal courts in Missouri and California have allowed these claims to advance past the pleading stage, one federal court in New York recently took a harsher stance and granted the defendant’s motion to dismiss.

The lawsuit, Daniel v. Tootsie Roll Industries, LLC, claimed that the manufacturer of Junior Mints tricked consumers into overpaying for the candy by leaving more than one-third of its boxes full of empty space, known as “slack fill.”

In a 44-page decision, U.S. District Judge Naomi Reice Buchwald of the Southern District of New York found plaintiffs did not allege a viable claim for consumer fraud under New York law, holding “reasonable” consumers could have determined the weight and the number of candies from the packaging, and would expect some empty space.

Noting that the package clearly disclosed the weight of the candy, Judge Buchwald determined that “the Product boxes provide more than adequate information for a consumer to determine the amount of Product contained therein.”

“Assuming that a reasonable consumer might ignore the evidence plainly before him attributes to consumers a level of stupidity that the court cannot countenance… The law simply does not provide the level of coddling plaintiffs seek… [and] the Court declines

Beware the Empty Space: No Slack in Slack Fill Cases, Which Continue to Flood Courts

As we previously reported, slack fill litigation remains on the rise.  Plaintiffs continue to file consumer lawsuits – typically putative class actions – alleging food packaging is deceptive because it contains empty space, or nonfunctional slack fill, and disguises the amount of product in the package.

This roundup of recent decisions demonstrates that more plaintiffs are getting past early pleading challenges but likely will face significant barriers to success at summary judgment and class certification.

On February 16, 2018, a Missouri federal district court denied Nestlé’s motion to dismiss in Hawkins v. Nestlé USA, Inc., No. 4:17CV205 -HEA, 2018 WL 926130 (W.D. Mo. Feb. 16, 2018) challenging allegations that boxes of Raisinets candy contain 45 percent nonfunctional slack fill. In its motion to dismiss, Nestlé argued that a reasonable consumer would instantly realize the package was half-empty because of its “maraca-like rattle.”  The court rejected this argument because Nestlé relied on matters outside of the complaint and held that plaintiff had pleaded sufficient facts to state claims for violation of the Missouri Merchandising Practices Act and unjust enrichment.

Though relying on a different state’s consumer deception statute, a California federal district court reached a similar result last summer in Escobar v. Just Born Inc., No. CV 17-01826 BRO (PJWx), 2017 WL 5125740 (C.D. Cal. Jun. 12, 2017).  The court denied a motion to dismiss and rejected the defendant’s argument that by shaking the package and reading the label, the plaintiff could have determined that the package was half empty:

“[T]he Court cannot

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