February 25, 2020

Food and Beverage Law Update: February 2020

Holland & Knight Alert
Nathan A. Adams IV


Individual Examination into Effect of Alleged False "No Artificial Flavors" Label Necessary

In Marotto v. Kellogg Co., No. 18 Civ 3545, 2019 WL 6798290 (S.D. N.Y. Dec. 5, 2019), the court declined to certify a putative class action against makers and marketers of Pringles® brand potato chips. The class action alleged that a "no artificial flavors" label was misleading because the product contains "sodium diacetate" and "malic acid." The court determined that the predominance requirement for class certification was not met. The issue of whether individual consumers were motivated by the label to purchase chips would require individualized inquiries. Just four of the 20 different versions of labels utilized during the class period contained the "no artificial flavors" language. According to the court, "If the proposed class were certified, the court would need to engage in fact-finding as to the inner workings of (at least) tens of thousands (and likely more) of consumers' minds. And ultimately, the court would need some meaningful way of determining the interplay between the weight a class member placed on the 'No Artificial Flavors' label and harm to that class member. Such a process would be as individualized as it is nonsensical."

"Hazelnut Crème" Coffee Without Hazelnut Gives Rise to Deceptive Trade Claim

In Dumont v. Reily Foods Co., No. 18-2055, 2019 WL 3729035 (1st Cir. Aug. 8, 2019), the court 2-1 reversed dismissal of the plaintiff's putative class action, alleging that labeling of "Hazelnut Crème" coffee was deceptive under Massachusetts consumer protection law because it contained no hazelnut. The court determined that the plaintiff met the heightened pleading standard for fraud; stated a violation of the Massachusetts consumer protection law, Mass. Gen. Laws Ann. Ch. 93A, §2(a); and the claim was not preempted by the Federal Food, Drug and Cosmetic Act (FDCA). The complaint could be read to allege liability not only because the label constituted misbranding under federal law, but also because the label had the capacity to deceive or mislead reasonable consumers. Judge Sandra Lynch dissented because in her view the reasonable consumer would not view the phrase "Hazelnut Crème" as announcing the presence of hazelnut in a bag of coffee that also proclaims it is "100% Arabica Coffee." "Crème" is generally defined as a "cream or cream sauce as used in cookery" or "a sweet liqueur." Therefore, in the context of a package of ground, dry coffee, as in this case, the two words, "Hazelnut Crème," state the flavoring of the coffee.

Wage and Hour

80/20 Rule Prevails Over New DOL Guidance

Courts have continued to disregard the U.S. Department of Labor's (DOL) November 2018 guidance doing away with the so-called "80/20 rule." An employer generally may utilize the tips of tipped employee to meet its minimum wage obligations under the Fair Labor Standards Act (FLSA), but the FLSA does not explain how the tip credit applies to an employee who performs both tipped and untipped work. Under the 80/20 rule, DOL indicated that if an employee spent "in excess of 20 percent" of his time on untipped work, that work was performed more than "occasionally," and thus "no tip credit may be taken." In November 2018, DOL said that it was abolishing the limitation on "the amount of duties related to tip-producing occupation that may be performed" so long as such related duties were performed "contemporaneously" or within "a reasonable time" before or after "direct-service duties."

In Berger v. Perry's Steakhouse of Ill., LLC, No. 14 C 8543, 2019 WL 7049925 (N.D. Ill. Dec. 23, 2019), the court ruled that the new interpretation was inapplicable under the facts because the conduct occurred beforehand, but added that neither Auer nor Skidmore deference is appropriate to the new rule and that the 80/20 rule is a reasonable interpretation of the dual jobs regulation. Likewise, in Flores v. HMS Host Corp., No. 8:18-cv03312-PX and 8:18-cv-03322-PX, 2019 WL 5454647 (D. Md. Oct. 23, 2019), the court declined to accord the new DOL rule "any persuasive value," but added that even if it did, dismissal would not be warranted because, viewing the allegations as true, a plausible inference is that the plaintiffs had to perform nontipped work not "contemporaneous" with tipped work or for a "reasonable time immediately before or after" tipped work. "For example, duties such as vacuuming and cleaning the booths and chairs immediately before closing plausibly could occur after customers have left ... and could have lasted long enough to be considered an 'unreasonable time' past shift hours."

In Howe v. Johnny's Italian Steakhouse, LLC, No. 4:16-cv-00086-SMR-HCA, 2019 WL 7500237 (S.D. Iowa Oct. 22, 2019), the court assumed without deciding that the 80/20 rule applied to the plaintiff's claim and dismissed the claim. In Belt v. P.F. Chang's China Bistro, Inc., 401 F. Supp. 3d 512 (E.D. Pa. 2019), the court determined that the new guidance "is unreasonable and does not reflect the DOL's fair and considered judgment" and reverted to the 80/20 rule.

Offers of Judgment That Settle FLSA Actions Do Not Need Approval

In Yu v. Hasaki Rest., Inc., 944 F. 3d 395 (2d Cir. 2018), the court ruled that approval for fairness by a district court or the Department of Labor is not required of an offer of judgment that settles an FLSA action, pursuant to Federal Rule of Civil Procedure 68(a).

Court Dismisses Restaurant's Counterclaims Against Government

In Acosta v. Madeira Rest., Inc., No. 19-093, 2019 WL 3084468 (D. R.I. July 15, 2019), the court dismissed counterclaims seeking damages under the Federal Tort Claims Act (FTCA) for harm caused by a purported false or misleading press release and reimbursement of legal fees and costs under the Equal Access to Justice Act (EAJA) after the plaintiff sued the defendant for violation of the FLSA. The government does not waive sovereign immunity under the FTCA when claims against the government arise out of libel, slander or misrepresentation. The EAJA authorizes courts to award legal fees and expenses to the prevailing party in a civil action against the United States, but a claim under the EAJA is premature before a party has been granted relief, and thus prevailed. The court observed that the dismissal would not prevent the defendant from seeking reimbursement under the EAJA should it prevail and file a timely petition.


Franchisees Preliminary Enjoined from Using Franchisors' Marks

In Little Caesar Enter., Inc. v. Miramar Quick Serv. Rest. Corp., No. 2:18-cv-10767, 2019 WL 3219844 (E.D. Mich. July 16, 2019), the district court granted franchisors preliminary injunctive relief against franchisees' alleged repeated violation of the franchise agreement that governs the parties' relationship. The plaintiffs sued for breach of contract, trademark infringement, unfair competition and trade dress infringement. The court determined that the plaintiffs had a likelihood of succeeding on the merits. Defaults under the franchise agreement included the defendants' willful or repeated failure to meet operational and maintenance standards, refusal of inspections and failure to make required payments. The defendants admitted to frequently failing to report gross weekly sales and to pay royalty and advertising fees due on those sales. The plaintiff's inspector found food items not properly dated for expiration, a broken sink and missing sanitization buckets. The defendants continued to hold out their restaurants as licensed Little Caesars franchises after termination of the franchise agreement, thereby using the plaintiffs' marks without permission and creating a likelihood of confusion.


Wireless Service Text to Customer About Free Sub Not Actionable Under TCPA

In Warciak v. Subway Rest., Inc., No. 19-1577, 2020 WL 559105 (7th Cir. 2020), the court affirmed dismissal of the plaintiff's action under the Telephone Consumer Protection Act (TCPA), arising from a text message sent by his wireless carrier, stating he could get a free sandwich from the chain just for being the carrier's customer. The court determined that 1) the wireless carrier exemption applied because the text was made by a wireless service carrier and the plaintiff was not charged for the text, and 2) the wireless service carrier did not have apparent authority to act on behalf of the restaurant chain, as required for the chain to be vicariously liable under the TCPA.


ADA Website Litigation Still on the Rise

Title III Americans with Disabilities Act (ADA) litigation premised upon website violations is still on the rise. Restaurants can learn from other targets of these claims. Many of the plaintiffs are repeat litigants. For example, in Camacho v. Vanderbilt Univ., 18 Civ. 10694, 2019 WL 6528974 (S.D. N.Y. Dec. 4, 2019), the defendant challenged the plaintiff's standing to bring the lawsuit on the grounds that the plaintiff "filed 50 nearly identical suits against various colleges and universities across the country." The court was not concerned because "it would be plausible for Plaintiff to visit the websites of all 50 schools, if they were accessible." The defendant's physical address is in Nashville, Tennessee, yet the plaintiff sued the defendant in New York. The defendant challenged personal jurisdiction, but the court determined that the website had a sufficient degree of interactivity and commercial nature with a nexus to the lawsuit to invoke its jurisdiction. Specifically, the court determined that a net price calculator qualified and that the plaintiff intended to plead that the defendant targets its website at New Yorkers by using the website to solicit applications during college fairs held in the state of New York. The court determined that another foundation for jurisdiction pleaded by the plaintiff — that the defendant receives tuition payments from students who come from New York — had no nexus to the lawsuit. The defendant in Gomez v. Bird Automotive, LLC, 411 F. Supp.3d 1332 (S.D. Fla. 2019), also asserted the plaintiff failed to establish the required nexus between a website and the defendant's physical premises for purposes of the plaintiff's ADA claim, but did so as an affirmative defense. The defendant also alleged as an affirmative defense failure to state a claim because the defendant provided the plaintiff with a good, service, facility, privilege, advantage or accommodation that was equal to that afforded other individuals. The court struck these defenses. About the supposed standing and equal treatment defenses, the court said that the defendant merely recited the legal standard and failed to explain how they applied to the facts of the case. Concerning the supposed nexus defense, the court said the statement identified a defect in the complaint as opposed to reasons that explain how the defendant was not liable.


2020 Florida Alcoholic Beverages Trade Practices Guide Now Available

The 2020 Florida Alcoholic Beverages Trade Practices Guide, written by Holland & Knight Partner Luis Gonzalez, is a reference tool that addresses Florida Statute §561.42, referred to as the Tied House Evil law. The statute provides prohibitions and limitations related to the relationships and interactions between manufacturers, distributors, importers, brand owners, brokers and sales agents on the one hand, and vendors on the other. Topics covered in the guide include definitions, advertising, signage, tasting and sampling, sweepstakes, trade shows and seminars, among others.

The guide is for informational purposes only and is subject to change at any time. The information contained in this guide was derived from Florida Statutes (Fla. Stat.) and Florida Administrative Code (F.A.C.) and was current as of January 2020.   

Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem. Moreover, the laws of each jurisdiction are different and are constantly changing. If you have specific questions regarding a particular fact situation, we urge you to consult competent legal counsel.

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