Food and Beverage Law Update: July 2021
Most Courts Are Rejecting "All Risk" Insurance Policy Claims Related to COVID-19
"The overwhelming majority of courts have concluded that neither COVID-19 nor the governmental orders associated with it cause or constitute property loss or damage for purposes of insurance coverage." So concluded the district court in Out West Restaurant Gp., Inc. v. Affiliated FM Ins. Co., No. 20-cv-06786, 2021 WL 1056627 (N.D. Cal. March 19, 2021). The court continued, "These decisions have reasoned that the virus fails to cause physical alteration of property because temporary loss of use of property (if any) during a pandemic and while government orders are in effect does not qualify as physical loss or damage." The plaintiffs argued otherwise that the "presence of the virus in the air makes restaurant properties with outdoor or indoor dining spaces unusable and unfit for normal occupancy"; the presence of the virus on surfaces "causes physical alteration of the integrity of the property and causes physical loss"; and COVID-19 and related governmental orders have caused physical loss of and/or damage to plaintiffs' property by impairing the value, usefulness or normal function of plaintiff's premises. The court granted the insurer's motion for judgment on the pleadings anyway and dismissed the case with prejudice.
A virus exclusion doomed the plaintiff's case in RDS Vending, LLC v. Union Ins. Co., No. 20-3928, 2021 WL 1923024 (E.D. Pa. May 13, 2021). The plaintiff's insurance policy excluded from coverage loss or damage "caused by or resulting from any virus, bacterium or other microorganism that induces or is capable of inducing physical distress, illness or disease." Furthermore, the court ruled that the stay-at-home order at issue was due to the existence of COVID-19 throughout Pennsylvania, and not because of some damage to a particular property. The plaintiffs in Islands Restaurants, L.P. v. Affiliated FM Ins. Co., No. 3:20-cv-02013, 2021 WL 1238872 (S.D. Cal. April 2, 2021), made a different argument concerning policy language covering property "against all risks of physical loss or damage" unless otherwise excluded. The plaintiffs argued that the policy's "physical loss or damage" requirement is at least ambiguous as to whether it encompasses their circumstances and that the ambiguity must be construed in their favor. The court disagreed.
National and California Data Breach Class Action Certified Against Restaurant Chain
In re Brinker Data Incident Litigation, No. 3:18-cv-686, 2021 WL 1405508 (M.D. Fla. April 14, 2021) concerns a data breach that the parent company of Chili's restaurants experienced in March and April 2018, allegedly involving 4.5 million customer payment cards stolen. Allegedly, hackers breached Brinker's back office systems through a vulnerable access point earlier identified in an informal risk assessment conducted by Brinker and installed malware that enabled the misappropriation. The plaintiffs seek compensation for the inability to use payment cards, lost time and other out-of-pocket expenses associated with the breach. Two plaintiffs argue that they experienced unauthorized charges on their accounts after the data breach. All three plaintiffs assert that all of the payment card information taken in the data breach is for sale on the dark web and testify that they experienced actual injuries, including late fees due to insufficient funds or time spent replacing cards and traveling to the bank. The court determined this is enough evidence of misuse fairly traceable to the data breach to show non-manufactured standing. The court certified for the plaintiffs' negligence claim all persons residing in the United States who made a credit or debit card purchase at any affected Chili's location during the period of the data breach who had their data accessed by cybercriminals and incurred reasonable expenses or time spent in mitigation of the consequences of the data breach. The court also certified California state unfair competition law claims for persons residing in California who fit similar requirements. The court deferred a ruling on class certification with respect to the plaintiffs' breach of implied contract claim and ordered the plaintiffs to complete a trial plan detailing how the court would manage a class action applying all 50 states' laws to the claim.
National Labor Relations Act
Ordinances Imposing Hourly Wage Surcharge Benefiting Grocery Store Workers Upheld
In N.W. Grocery Ass'n v. City of Burien, No. C21-0203, 2021 WL 1554646 (W.D. Wash. April 20, 2021) and N.W. Grocery Ass'n v. City of Seattle, No. C21-0142, 2021 WL 1055994 (W.D. Wash March 18, 2021), the district court dismissed the plaintiff's challenge to a city ordinance mandating that covered grocery store employers (i.e., employees of grocery businesses with 250 or more employees worldwide) pay employees an additional $4 to $5 over the employees' hourly rate of pay as "hazard pay." The plaintiffs argued that the ordinances are preempted by the National Labor Relations Act (NLRA) and violate the Equal Protection and Contracts Clauses of the federal and Washington constitutions. The courts disagreed, ruling that the NLRA does not preempt "minimum labor standards," which do not affect the process of collective bargaining, but rather set the minimum terms that form the backdrop of their bargaining process. The courts also rejected various constitutional claims such as Equal Protection and Contracts Clause claims under a rational basis review standard.
Facial Challenge to N.Y. Farm Laborers Fair Labor Practices Act Dismissed
In N.Y. State Vegetable Growers Ass'n, Inc. v. Cuomo, No. 19-CV-1720, 2021 WL 2651996 (W.D. N.Y. May 28, 2021), report and recommendation adopted by N.Y. State Vegetable Growers Ass'n, Inc. v. Cuomo, No. 19-cv-1720, 2021 WL 2659646 (W.D. N.Y. June 28, 2021), the court dismissed the plaintiffs' pre-enforcement and facial challenge to the criminal Farm Laborers Fair Labor Practices Act, which extends wage and hour protections for farm laborers. In December 2019, the district court temporarily restrained the act. In April 2020, the New York State Legislature amended the act, whereupon the plaintiffs renewed their motion for a preliminary injunction. In July 2020, the district court lifted the temporary restraining order and denied plaintiffs' motion for injunctive relief. The plaintiffs amended their complaint to drop a preemption claim under the NLRA but maintain a claim that the act deprives them of their due process rights on the grounds that it is unconstitutionally vague and contradictory to such a degree that the plaintiffs are unable to comply with it. The court dismissed the plaintiffs' claim on grounds of ripeness, agreeing with the defendants that the New York State Department of Labor needs time to promulgate regulations.
State Wage Law Claim Hinged on Collective Bargaining Agreement Preempted
In Parsons v. Kroger Ltd. Partnership I, No. 2:20-cv-00392, 2021 WL 1234526 (S.D. W.Va. March 31, 2021), the court refused to remand the case and dismissed with prejudice the plaintiff's lawsuit under the West Virginia Wage Payment and Collection Act for the hourly wage rate she alleges she was promised but did not receive. The court determined that the plaintiff's claim hinged on whether she is entitled to the pay she seeks under a collective bargaining agreement negotiated in accordance with the NLRA. Section 301 of the NLRA preempts a state law claim if resolution of the state claim is inextricably intertwined with consideration of the terms of the labor contract or if application of state law to a dispute requires the interpretation of a collective bargaining agreement.
Wage and Hour
Notice of Proposed Rulemaking Issued to Bring Back the 80/20 Rule with a Twist
The Biden Administration has issued a notice of proposed rulemaking to bring back the U.S. Department of Labor's (DOL) so-called "80/20 rule" with a twist. Under the 80/20 rule, DOL indicated that if an employee spent "in excess of 20 percent" of the employee's time on untipped work, that work was performed more than "occasionally," and thus "no tip credit may be taken." In November 2018, DOL announced that it was abolishing the limitation on duties related to the tip-producing occupation if they were performed "contemporaneously" or within a "reasonable time" before or after "direct-service duties." Lower courts widely disregarded the new guidance. Now, DOL proposes that time spent on tip-generating duties remains eligible for the tip credit and, conversely, work that is unrelated to tip-producing work remains ineligible for the tip credit. The twist is that the concept of "related, but not-tip-generating" duties will be replaced with "work that directly supports tip-producing work." This is work that assists a tipped employee to perform the work for which the employee receives tips. The time spent on such work will be eligible for the tip credit only if "it is not performed for a substantial amount of time." The amount of time spent on "directly supporting" tasks or activities is "substantial" if: 1) for any workweek the directly supporting work exceeds 20 percent of the hours worked during the employee's workweek, or 2) for any continuous period of time, the directly supporting work exceeds 30 minutes. Employers have until Aug. 23, 2021, to submit comments on the proposed rule.
Labeling and Unfair Competition
Plant-Based Meat Labels Not Prohibited by Missouri Criminal Meat Advertising Statute
In Turtle Island Foods, SPC v. Thompson, 992 F. 3d 694 (8th Cir. 2021), the court of appeals affirmed the district court's ruling that plaintiffs do not have a substantial likelihood of success on the merits of their First Amendment challenge to Missouri's criminal meat advertising statute prohibiting "misrepresenting a product as meat that is not derived from harvested production livestock or poultry." Mo. Rev. Stat. 265.494(7). In the district court, the state argued that the plaintiff's labels, which describe plant-based meat as plant-based, but draw comparison to kinds of meat (e.g., "slow-roasted chick'n" or "DIY chorizo style sausage") are not misleading and, thus, not prohibited by the statute. The Missouri Department of Agriculture issued guidance in support. Although denying the plaintiffs' request for a preliminary injunction, the district court ruled preliminarily that the statute does not apply to plaintiffs' speech. The plaintiffs appealed the denial of the injunction nonetheless on the theory that the statute is a content-based restriction on their commercial speech. The court of appeals determined that the district court properly found that the plaintiffs were not likely to prevail on the merits of their claim because their intended speech was not likely to misrepresent a product as meat or fall within the scope of the statute.
Challenge to Dog Food Packaging Claims Such as "Biologically Appropriate" Dismissed
In Weaver v. Champion Petfoods USA, Inc., No. 20-2235, 2021 WL 2678801 (7th Cir. June 30, 2021), the court of appeals affirmed the district court's grant of summary judgment to the defendant on a consumer's putative class action lawsuit claiming that the defendant's food packaging violated the Wisconsin Deceptive Trade Practices Act and asserting fraud and negligence in connection with the defendant's allegedly deceptive marketing. The act generally prohibits false, deceptive or misleading representations or statements of fact in public advertisements or sales announcements. The act may be violated even if a representation is not literally false, but is likely to mislead a reasonable consumer in a material respect. The court determined that the producer's representations on its packaging that its food was "biologically appropriate," made with "fresh regional ingredients" and "never outsourced" were not false or misleading. The court also ruled that the plaintiff failed to show that the defendant had a legal duty to disclose the risk that its food might contain Bisphenol A (BPA) or pentobarbital, as required to support his fraud and negligence claims. The plaintiff argued that "biologically appropriate" food would not contain BPA, but the court ruled that the plaintiff failed to provide evidence such as consumer surveys that a reasonable consumer would believe that the product was BPA-free on this basis. Likewise, the court ruled that the plaintiff failed to show that the dog food he purchased was at risk of containing pentobarbital. The plaintiff also failed to present evidence that a reasonable consumer would assume that all of the defendant's dog food was made from "fresh regional ingredients," and that none was sourced from a third party. The defendant included some regional ingredients, some internationally sourced ingredients and some ingredients sourced from third parties.
Alleged Misleading Smoky Flavor Label Claim Survives Dismissal
In Colpitts v. Blue Diamond Growers, No. 20 Civ. 2487, 2021 WL 981455 (S.D. N.Y. March 16, 2021), the plaintiff filed a putative class action lawsuit on the grounds that the defendant's use of the word "Smokehouse®" and a color scheme evocative of fire on a specific variety of almonds packaging misleads consumers into thinking that the almonds were prepared by a natural smoking process, when in fact the product retains its taste from added flavors that imitate a smoky flavor. The district court dismissed with prejudice the plaintiff's claims for fraud, negligent misrepresentation, breaches of express and implied warranties, unjust enrichment and violation of the Magnuson-Moss Warranty Act, but allowed the plaintiff's claims for damages under N.Y. G.B.L. ss. 349-350. Section 349 declares unlawful "[d]eceptive acts or practices in the conduct of any business, trade, or commerce or in the furnishing of any service." Section 350 prohibits "[f]alse advertising in the conduct of any business, trade, or commerce or in the furnishing of any service." The court determined that the plaintiff had standing based on his allegation that, had he and class members known the truth, they would not have bought the product or would have paid less for it. He pleaded an injury under Sections 349 and 350 by alleging that 1) he purchased the product at a premium compared to competitors' prices in reliance on defendant's alleged misrepresentation, and 2) the purchase occurred within his district and/or state during the relevant statute of limitations. The defendant argued that the plaintiff's Section 349 and 350 claims should be dismissed because he seeks to enforce a federal regulation, 21 C.F.R. s. 101.22(i), that sets out flavor-related labeling requirements for food products without a private right of action, but the court ruled that the claims are viable, notwithstanding the overlap with another statute that is not independently actionable, and that the plaintiff alleged other free-standing claims of deceptiveness. At bottom, the court concluded that the plaintiff plausibly pleaded that the product is likely to mislead a reasonable consumer into believing that the defendant's almonds were manufactured through an actual smoking process. The court dismissed the plaintiff's common law claims for lack of allegations bearing upon fraudulent intent, a special relationship, lack of notice and lack of privity. The unjust enrichment claim was duplicative.
Alleged De Minimis Vanilla in Vanilla Cream Label Claims Dismissed
In Budhani v. Monster Energy Co., No. 20-cv-1409, 2021 WL 1104988 (S.D. N.Y. March 22, 2021), the district court dismissed the plaintiff's claim that the reference to "Vanilla Cream" on the label of the Espresso Monster Vanilla Cream Triple Shot is false and misleading because the product allegedly contains only trace or a de minimis amount of vanilla from real vanilla beans. On the one hand, the court determined that such a claim may be actionable under New York General Business Law ss. 349 and 350. On the other hand, the court ruled that the plaintiff failed to plead more than conclusory statements about the product containing only trace amounts of vanilla beans. Although the complaint contained allegations about the results of a Gas Chromatography-Mass Spectrometry Test, the court said it could infer no more than "that vanilla from the vanilla beans may contribute 49 percent of the vanilla, but not all or most of the flavor … ." Furthermore, "while it may be possible that the product contains artificial flavors, plaintiff has not made any well-pled allegations establishing that it is plausible that the product contains artificial compounds." The court gave leave for the plaintiff to amend the complaint as to the Section 349 and 350 claims, but dismissed with prejudice the plaintiff's claim alleging violation of U.S. Food and Drug Administration (FDA) regulations, negligent misrepresentation, breach of express warranty, breach of implied warranty of merchantability, breach of the Magnuson-Moss Warranty Act, fraud and unjust enrichment.