Food and Beverage Law Update: March 2021
Insurers Prevail in "All Risk" Policy Disputes Against COVID-19 Business Interruption Claims
Insurers have prevailed in several lawsuits filed by restaurants in connection with losses related to COVID-19. For example, in Emerald Coast Restaurants, Inc. v. Aspen Specialty Ins. Co., No. 3:20cv5898-TKW-HTC, 2020 WL 7889061 (N.D. Fla. Dec. 18, 2020), the district court incorporated the reasoning of several preceding cases that "almost uniformly held that economic losses resulting from state and local government orders closing businesses to slow the spread of COVID-19 are not covered under 'all risk' policy language … because such losses were not caused by physical loss of or damage to the insured property." In First Watch Restaurants, Inc. v. Zurich Am. Ins. Co., No. 8:20-cv-2374-VMC-TGW, 2021 WL 390945 (M.D. Fla. Feb. 4, 2021), the plaintiff did not allege that COVID-19 was actually present at any of its restaurants; instead, First Watch claimed it experienced direct physical loss due to the inability to operate its restaurants as intended. The defendants' motion to dismiss was granted under the physical loss or damage to property provision and special coverages section triggered when a civil or military order "prohibits access" to the insured location. The gubernatorial orders at issue restricted access but did not cut off takeout and delivery. Similarly, in 4431, Inc. v. Cincinnati Ins. Cos., No. 5:20 cv-04396, 2020 WL 7075318 (E.D. Pa. Dec. 3, 2020); Skillets, LLC v. Colony Ins. Co., No. 3:20cv678-HEH, 2021 WL 926211 (E. D. Va. Mar. 10, 2021); and El Novillo Restaurant v. Certain Underwriters at Lloyd's, London, No. 1:20-cv-21525-UU, 2020 WL 7251362 (S.D. Fla. Dec. 7, 2020), the courts determined that restaurants were not rendered uninhabitable or unusable due to the virus, but rather due to gubernatorial orders, and they were able to operate at limited capacity under the orders. Notably, these cases did not feature virus-exclusion clauses, or the courts declined to consider them for lack of coverage anyway.
Standing Based on Threat of Identity Theft Due to Data Breach Not Enough
In Tsao v. Captiva MVP Rest. Partners, LLC, 986 F. 3d 1332 (11th Cir. 2021), the court affirmed a district court ruling that the plaintiff failed plausibly to allege that he sustained injury-in-fact sufficient to confer putative class action standing against a restaurant that suffered a data breach of its point of sale system, exposing the restaurant's customers' credit card and other financial information. For nearly a year, a hacker exploited the defendant's point of sale system and gained access to customers' personal data through an outside vendor's remote connection tool. The plaintiff alleged that he faced future increased risk of unauthorized charges and identity theft, and that he proactively took steps to mitigate damage from data breach, including canceling his credit card, resulting in loss of rewards. The court noted that the U.S. Courts of Appeal for the Sixth, Seventh, Ninth and District of Colombia (D.C.) Circuits have all recognized that a plaintiff can establish injury-in-fact based on the increased risk of identity theft at the pleading stage, whereas the Second, Third, Fourth and Eighth Circuits have declined to finding standing on that theory. The court added that, generally speaking, the cases conferring standing after a data breach based on an increased risk of theft or misuse included at least some allegations of actual misuse or actual access to personal data. The Eleventh Circuit decided that to establish Article III standing the plaintiff needed to allege some actual misuse of customers' cards or data, or that the plaintiff faced substantial and imminent risk of future unauthorized charges or identity theft. The plaintiff did not allege that Social Security numbers, birth dates or driver's license numbers were compromised in the breach, and the card information allegedly accessed by the hackers cannot be used alone to open unauthorized new accounts. Furthermore, the court ruled that the plaintiff "cannot conjure standing … by inflicting injuries on himself" such as voluntarily canceling cards and giving up cash back or rewards points "to avoid an insubstantial, non-imminent risk of identity theft."
National Labor Relations Act
Circumstantial Evidence Supports NLRA Violation
In Cordua Restaurants, Inc. v. National Labor Relations Bd., 985 F. 3d 415 (5th Cir. 2021), the court determined that substantial evidence supported the finding of the National Labor Relations Board (NLRB) that the employer harbored animus toward a restaurant employee's protected activities. These activities included discussing payroll-related issues with his coworkers, filing a collective action lawsuit and requesting access to his own personnel records, as required for the NLRB to infer that the employee's protected activity was a motivating factor in the employer's decision to fire the employee, in violation of the National Labor Relations Act (NLRA) provision prohibiting interfering with, restraining or coercing employees in the exercise of their rights under the act. The NLRB may rely upon circumstantial evidence to infer that an employee's protected activity was a motivating factor in an employer's decision to fire the employee. The restaurant's general manager accessed the personal cell phone of the employee's coworker, photographed the employee's discussion with the coworker regarding collective action and then forwarded the private text messages to the company's chief operating officer, who used this surveillance allegedly coercively to question the employee about the lawsuit. The employer allegedly failed to conduct a meaningful investigation of the employee as to its allegations of his unauthorized access to the coworkers' confidential, personnel files, suggesting this was pretext.
Wage and Hour
Overtime Class Action Lawsuit States a Claim
In Florece v. Jose Pepper's Restaurants, LLC, No. 2:20-cv-02339-TC-ADM, 2021 WL 722822 (D. Kan. Feb. 24, 2021), the court ruled that the plaintiff adequately alleged four policies and practices in violation of federal and state minimum wage and overtime laws in her putative class action lawsuit: 1) prohibiting employees from clocking in until they began serving customers, even though they were required to be present and working prior to serving customers; 2) allowing employees to work overtime if they did not clock in; 3) denying overtime compensation after removing reported overtime hours from the timekeeping system; and 4) asking employees to report their overtime hours as regular hours worked under other employees' names. The defendants argued that the plaintiff lacked standing because she did not personally endure two of the four practices, but the court ruled this immaterial where the plaintiff adequately alleged she was denied minimum wage and overtime pay that she earned. The defendants also argued that the complaint fails to allege which week(s) the plaintiff worked in excess of 40 hours, but the court ruled it was enough that she alleged that on a weekly basis throughout her employment with the defendants, she routinely worked in excess of 40 hours per work week without receiving proper minimum wage and overtime compensation. The court also rejected the defendants' preemption and supplemental jurisdiction arguments. There is no preemption when federal and state law (i.e., the Fair Labor Standards Act and Missouri Minimum Wage Law) may coexist and, according to the court, the plaintiff presented no meaningful basis for the district court to decline supplemental jurisdiction over the state claims.
Labeling and Unfair Competition
A Reasonable Consumer Could Have Considered Graham Crackers Whole Wheat
In Campbell v. Whole Foods Market Gp., Inc., No. 1:20-cv-01291-GHW, 2021 WL 355405 (S.D. N.Y. Feb. 2, 2021), the plaintiff alleged that she was deceived by a box of Whole Foods graham crackers even though the ingredient label accurately described the crackers' content. The relevant front and identical back referred to "Honey Graham Crackers," "Organic" and golden brown crackers with a honey dipper resting in a bowl of honey. The plaintiff alleged that these representations lead the reasonable consumer to believe that the graham crackers are sweetened primarily with honey and that the crackers contain predominately whole grain flour, as opposed to regular "white" or "refined" flour. "Graham flour" means "whole wheat flour." The court admitted it was unaware of this: "when reading the phrase 'graham cracker,' this court too does not think of whole wheat flour — or, frankly, anything particularly healthy. In fact, before reading the complaint in this case, this judge did not know that the 'graham' in graham cracker referred to a type of flour: The crackers might have been named after a famous person named Graham, in the way that Peach Melba and Melba Toast were named after an opera singer." Nevertheless, the court denied the defendant's motion to dismiss under Sections 349 and 350 of the New York General Business Law, because the court decided that it "cannot assume that consumers will be equally ignorant of the clear-cut meaning of the term 'graham.'" The court added that the plaintiff adequately alleged that the packaging is likely to mislead a reasonable consumer into thinking that the product's primary sweetener is honey. But the court dismissed the plaintiff's remaining counts for negligent misrepresentation because the plaintiff failed to allege a special relationship giving rise to a duty to speak on the part of the defendant; fraud because the plaintiff failed to plead fraudulent intent; breach of express warranty and of the implied warranty of merchantability for failure to plead that the plaintiff provided notice of the alleged breach; and violation of the Magnuson-Moss Warranty Act because the plaintiff did not plead a written warranty and unjust enrichment as duplicative. Last, the court determined that the plaintiff had no standing to seek injunctive relief because she is aware of the allegedly deceptive packaging, and, therefore, cannot show that she will be harmed in the same way in the future.
Dietary Supplement Label Satisfied FDA Structure/Function Claim Test
In Greenberg v. Target Corp., 985 F. 3d 650 (9th Cir. 2021), the court affirmed summary judgment in favor of the defendant manufacturers and sellers of biotin supplements on grounds of federal preemption. The U.S. Food and Drug Administration (FDA) allows two types of claims under the Federal Food, Drug and Cosmetic Act (FDCA) with respect to dietary supplements: disease claims and structure/function claims. The defendant defended the putative class action based on compliance with the structure/function claim, which requires three things: 1) the manufacturer must have substantiation that a labeling statement is truthful and not misleading; 2) the statement must contain a prominent disclaimer that the FDA has not evaluated the statement and that the product "is not intended to diagnose, treat, cure or prevent any disease"; and 3) the statement itself may not "claim to diagnose, mitigate, treat, cure or prevent" disease. The court ruled that the defendant satisfied all requirements. The plaintiff did not dispute that scientific evidence exists showing that biotin — the nutrient — supports healthy hair and skin. The defendant did not claim that the product would provide a health benefit to each consumer. The product included the required disclaimer twice. Finally, the label disclaims, "This product is not intended to diagnose, treat, cure or prevent any disease." Consequently, the court determined that the FDCA authorizes the defendant's structure/function claim about biotin and preempted state law claims for violation of California's Unfair Competition Law and California's Legal Remedies Act.
A Reasonable Consumer Would Not Have Construed Vanilla as from Vanilla Beans
In Twohig v. Shop-Rite Supermarkets, Inc., No. 20-cv-763, 2021 WL 518021 (S.D. N.Y. Feb. 11, 2021) and Barreto v. Westbrae Natural, Inc., No. 19-cv-9677, 2021 WL 76331 (S.D. N.Y. Jan. 7, 2021), plaintiffs argued that a soy milk container was deceptive in violation of Sections 349 and 350 of the New York General Business Law because it contained the word "vanilla" under the word "soymilk." The plaintiffs claimed that the reasonable consumer would conclude that the product's vanilla taste was from vanilla beans, although the ingredient list indicated otherwise. The court in Twohig decided that a reasonable consumer would understand that "vanilla" is merely a flavor designator, not an ingredient claim. The court in Barreto found "no claim anywhere on the packaging that natural vanilla is the predominant source of the vanilla flavor." The plaintiffs in Twohig relied on a consumer survey and said it showed that over 43 percent of consumers expected the origin of the product's vanilla to be vanilla beans. But the court observed that the survey did not give participants the option of stating that they believed that the label conveyed nothing about the origin of the vanilla taste. The court also observed that the survey did not demonstrate that respondents believed the flavor came predominantly or exclusively from vanilla beans as the plaintiffs alleged. The court dismissed other claims too, including fraud due to the plaintiffs' failure to plead facts that give rise to a strong inference of fraudulent intent; negligent misrepresentation for failure to plead a special relationship; breach of an express or implied warranty for lack of any allegation that the product was made exclusively with natural vanilla; and unjust enrichment as duplicative.
- The FDA is poised to increase its enforcement efforts to ensure that packaged foods declare the presence of food allergens. The FDA has already issued warning letters and wants manufacturers to focus on prevention.
- The FDA has responded to the U.S. House of Representatives report on levels of heavy metals in baby food with a letter to industry reminding manufacturers of their responsibilities under the Current Good Manufacturing Practice, Hazard Analysis, and Risk-Based Preventive Controls for Human Food final rule issued on Sept. 17, 2015, 80 Fed. Reg. 55908.
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