Paul Lipman has just obtained an MSJ in conjunction with a co-defendant and a dismissal for our national client, a food retailer in a large food-related class action case in Federal court. Plaintiff’s trial attorney was a nationally prominent class action trial attorney, and thrust of the case was to create a new theory of recovery that could have opened up many more such lawsuits had it been successful. Hundreds of thousands of dollars were spent on the plaintiff’s side just on experts. The case is subject to confidentiality agreements and is therefore discussed in generalities. It is, however, likely to have repercussions for 9th Circuit food related class actions going forward.
The suit sought millions of dollars for allegedly misrepresenting product and allegedly selling “deemed contaminated” product, and was brought under the UCL, CLRA and breach of warranty. In 2016, the CDC and FDA traced 9 cases of food borne illness to co-defendant Manufacturer, and to some products that Manufacturer sold to co-defendant Packer / Distributor during a four month time frame in 2014. After consultation with the FDA and CDC, Manufacturer over-broadly issued a recall for all product they produced and sold to Packer / Distributor over the four month period. The defendant grocery chain who bought these products from Packer / Distributor was notified by them of the recall and was provided a spreadsheet listing the over-broadly recalled items by purchase order number, lot code and “best by date”. The retailer then conducted an even more over-broad outreach to any customer who had purchased items of that type and brand, regardless of whether they bought the “correct” lot code and best-by date that defined what was and was not recalled product. This is because when you buy groceries, the cash-register bar code scanner only picks up a bar code, not separately printed material on the bag such as lot code or best-by date. Thus once a customer buys a bag, the only person who has access to that separately-printed information is the customer, who has generally thrown the bag away if he’s eaten it, or may still have it in the freezer and can check. The only thing the retailer has left in its system is the UPC (bar code) information that was scanned in, which does not include things like lot code or best-by date.
The limitations on cash register bar code scanners is not a conspiracy by retailers to protect themselves from class actions. On the contrary, it causes retailers to have to reach out and offer refunds to many more people than actually bought specific best-by dates and lot codes. Retailers often end up voluntarily warning and offering refunds to everyone who bought, say, a bag of Brand X frozen corn, even though only a small subset of these bags has the correct best by dates and lot codes that defined them as recalled product. Bar codes, the only thing scanners pick up, are governed by universal standards (hence, “Universal Bar Code”) and they do not encode things like best by dates, because their function is just to trigger the cash register to look up the correct price the store attaches to that bar code. If you buy a gallon of milk at any store, all it will pick up is the bar code, it will not read anything else stamped on the item. As a result it was not possible to know who bought the specific recalled bags with specific lot codes and best-by dates just from the cash register data, which only picks up the item type and its price. Consequently the defendant retailer reached out to everyone who had bought any of these item types going back 18 months to tell them all to check the dates on any bags they still had, and to offer a refund. This was done immediately, using industry-leading methods such as millions of robo-calls within 24 hours , next-3-receipts messaging, in-store sign messaging, etc.
As to who specifically bought recalled product, that is not possible to tell but is not always necessary for a class action, as long as you can prove how much of the allegedly defective product was sold. The one person who absolutely must prove that he was one of the people that bought recalled product is the putative class representative, i.e. the named plaintiff. This plaintiff said he could prove he bought recalled product, because his family got sick and his wife tested positive for the microbe. He said that when he was contacted by defendant’s recall team, he said his wife had been sick and that he would have her tested. He said she tested positive. Thus, he was chosen to be the putative class representative as they thought he had a strong chance of proving causation and standing. As to others who bought recalled product, it would not be possible to tell which individuals bought the recalled items but class actions allow suit to proceed if plaintiff can show how many sales there were in the aggregate, and then, if liability is proven, the court can direct all money proven as damages to be distributed to a charity, a mechanism called “cy pres” or “fluid recovery”. This supposedly serves the purpose of class actions, to let small individual claims that would never be brought individually, be aggregated so as to incentivize product quality. In this case, plaintiff proposed to take the recall spreadsheet showing all recalled product sold to the retailer, and simply multiply the number of recalled units sold to the retailer by the retail sales price per unit.
Several features of the case made it a test case for plaintiffs, and one that was vigorously fought and won by defendants:
- Instead of suing on behalf of physically injured buyers, the suit excluded physical injury claims and instead sought “only” economic damages. In addition to claiming that the food was misrepresented as free from contaminants, the suit claimed it was illegal, unfair and a breach of warranty to sell the recalled product. While the items were relatively inexpensive, millions of allegedly misrepresented units were sold.
- Of the 9 cases of food-borne illness nationwide that were traced by the CDC and FDA to a single manufacturer, none were identified as having been distributed or sold by our client or its distributor. Plaintiff realized he could not prove how many bags were actually contaminated, so he tried instead to sue simply on what was This would be a dangerous precedent. Plaintiff’s theory was that certain statutes define food as “adulterated” if they are produced under conditions making it reasonably likely that any given unit is contaminated, without having to prove which units were or were not actually contaminated. These statutes’ regular purpose is to let regulatory agencies like the FDA test only a portion of, say, a warehouse full of eggs, and if enough test positive, they can condemn or enjoin the sale of the whole warehouse. These statutes also enable civil and criminal penalties on sellers of contaminated product. They have not, however, been used heretofore in California as a civil standard to prove damages. In a nutshell, the “deemed adulterated” statutes are to let the government prevent sale before it happens, not to ascertain the scope of civil damages after the fact or substitute for proof of actual contamination and damages. Had the “statutory adulteration” theory worked, the plaintiff wanted all recalled merchandise as identified on the recall spreadsheet to be deemed statutorily adulterated, illegal to sell, and wanted a Full Refund for every unit sold. Had this model worked, it would have become the new means of generating class action victories without having to prove that any product, even in the aggregate, was actually contaminated, as long as it was either recalled, or if a jury could be convinced it was produced under conditions making contamination of any given likely enough to instigate a recall.
Originally, a motion to dismiss was denied. A plan was then undertaken in conjunction with a co-defendant Distributer, to show that plaintiff could not prove that the purchases on his loyalty card history were of recalled product. A sophisticated inventory and sales analysis was done by both defendants and the results merged, to rule out all but one of his purchases. As to this last one, defendants argued that it was at best speculative as to whether this was a recalled bag, defeating his standing to sue. The court also agreed with our argument the statutes regarding “adulterated” were meant to allow government agencies to order food not to be sold in emergencies, not to create a private right of action after the fact and act as a substitute for proving actual contamination of someone sues for damages. Once the court took “statutory adulteration” away from him, plaintiff was left unable to prove how many bags were sold that were actually contaminated, defeating the class action altogether. Finally, the court also agreed with us that the mere purchase of recalled product does not prove an economic injury.
This case was an important win against the “recall = injury” movement. If you are being sued for a recalled product, or have a recall you expect litigation from, feel free to call us to discuss a winning strategy