October 10, 2023

Defending Deceptive Labeling Claims Under Rule 12(b)(1)

Bar Bites: A Food & Beverage Law Blog
Nathan A. Adams IV
Bar Bites: A Food & Beverage Blog

Most deceptive labeling claims are challenged in the first instance under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim for relief. Another strategy deserves consideration premised upon Federal Rule of Civil Procedure 12(b)(1) for lack of subject matter jurisdiction, especially when the plaintiff may not have suffered an injury in fact as necessary to prove standing. When a defendant mounts a factual challenge to standing, the court may look beyond the well-pleaded jurisdictional allegations of the complaint and consider extrinsic evidence adduced by the parties to decide whether, in fact, it has subject matter jurisdiction over the dispute. The presumption of correctness ordinarily accorded a complaint's allegations falls away. The plaintiff cannot satisfy its burden of producing competent proof of standing based merely on the pleadings.

For example, in Zapadinsky v. Blue Diamond Growers, No. 23-CV-231-JPS-JPS, 2023 WL 5116507 (E.D. Wis. Aug. 7, 2023), the plaintiff filed a putative class action lawsuit alleging that a label using the word "smokehouse," along with red and orange coloring evocative of fire, misled him into believing the almonds were actually made in a smokehouse instead of seasoned with liquid smoke flavoring as described on the label's ingredient list. The defendant made a factual challenge to the plaintiff's claim that he overpaid for the almonds by submitting evidence that the defendant and retailers charge the same wholesale and retail price for the challenged smokehouse almonds as for other flavors of the snack almonds. Plaintiff established that Walmart's Great Value brand sells almonds with liquid smoke flavor for a lower price, but the court determined that retail brands are distinguishable from brand names.

Ultimately, the court ruled that the plaintiff lacked an overpayment injury and, thus, Article III standing, where the plaintiff presented no competent evidence that he suffered an overpayment injury as a factual matter in response to the defendant's factual challenge. The plaintiff alleged only that the almonds were worth less than almonds actually made in a smokehouse, not that the almonds he bought were worth less than what he paid for them. The defendants showed that unflavored or other variants of almonds were priced the same as, if not more than, the smokehouse almonds. "In other words, plaintiff received what he paid for." Consequently, the court dismissed the plaintiff's claims for monetary damages for violations of the state unfair trade practice statute (Wis. Stat. § 100.20), express warranty, the implied warranty of merchantability/fitness for a particular purpose, the Magnuson-Moss Warranty Act, negligent misrepresentation and fraud.

Relatedly, the court rejected as insufficient for Article III standing the plaintiff's claim that he "would not have purchased" the almonds absent deceptive advertising. It is not the equivalent of claiming to have paid more than the actual value of the merchandise received. The court determined that the plaintiff lacked Article III standing for two more reasons: 1) there was no causal connection between the "Smokehouse®" label and any alleged injury and 2) the plaintiff is not entitled to injunctive relief because he cannot allege a future injury. First, the court determined that no reasonable consumer would view "Smokehouse®" – listed as one flavor among many – as describing the method of production versus the flavor. Additionally, the court determined that the plaintiff's argument that the "Smokehouse®" flavor is in red packaging and thus evokes "fire" is nonsensical. Second, the court determined that the plaintiff has the option to purchase three products that he admitted were properly labeled.

The Rule 12(b)(1) factual challenge to subject matter jurisdiction is an attractive tool enabling the defendant to tell the real story, rather than accept the well-pleaded allegations as true. When the circumstances are right to deploy this challenge, it can save the defendant thousands of dollars in defense of a lawsuit.

If you have questions about this strategy, please contact the author or another member of Holland & Knight's Food and Beverage Litigation Team.

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