Extracted from Law360
As we ring in the new year, what should the food and beverage industry expect in 2019 from slack-fill litigation, partially hydrogenated oil, or PHO, lawsuits, and the messy regulatory landscape of cannabidiol and THC edibles?
In the slack-fill world, both the Southern District of New York and the California legislature have taken common-sense steps likely to make slack-fill litigation less appealing to the plaintiffs bar. The U.S. Court of Appeals for the Ninth Circuit issued two opinions in PHO litigation — one that appears to derail PHO use claims and another that may breathe life into some PHO labeling claims — though the practical impact of these opinions is likely limited since the industry has been phasing out PHOs for years. Finally, the 2018 Farm Bill could have a significant impact on the hemp industry generally and CBD-containing products in particular — possibly triggering increased U.S. Food and Drug Administration attention.
In 2019, we expect to see fewer slack-fill suits filed against food and beverage companies. These lawsuits allege product packaging containing “nonfunctional slack fill” (essentially, empty space within product packaging) misleads consumers to believe that they are purchasing more product than is packaged. Until somewhat recently, most food and beverage companies deemed it prudent to resolve threatened slack-fill class actions by settlement. However, in 2018, companies have shown increasing willingness to litigate these cases, yielding favorable rulings likely to encourage industry members to defend rather than settle and deter plaintiffs from bringing suit.
In an Aug. 1, 2018, ruling, the Southern District of New York granted Tootsie Roll Industries LLC’s motion to dismiss, explaining the decision, in part, on the court’s unwillingness to “enshrine into the law an embarrassing level of mathematical illiteracy,” given that a person of “ordinary intelligence” could determine the amount of product they would receive by reading the net weight, printed on the front of the package, or by multiplying the serving size by the number of servings per container, printed on the back of the package. Also in August 2018, Just Born defeated certification in a case alleging slack fill in Mike and Ike candy on the basis of ascertainability and predominance.
California, which has been a popular forum for slack-fill suits, also took steps in 2018 to stem the tide of slack-fill litigation. On Sept. 19, 2018, California Gov. Jerry Brown signed into law Assembly Bill 2632, which amends the state’s slack-fill law to provide additional protections to manufacturers by adding to the list of situations in which excess capacity in a container would not be considered “nonfunctional.” The additions include when the dimensions of the product are visible to the consumer through the exterior packaging, when a fill line is used and when the product is sold through a mode of commerce that does not allow the consumer to view or handle the physical container or product — as is the case for online purchases.
For companies whose products contain (or used to contain) partially hydrogenated oils, the Ninth Circuit deserves attention; it issued two PHO-related decisions in the second half of 2018, and we expect these cases to shape the litigation environment differently.
In a brief, unpublished opinion filed in August, the Ninth Circuit affirmed a lower court’s decision to dismiss a plaintiff’s claim alleging that the use of PHOs before June 18, 2018, was a violation of California law as an unlawful, unfair or fraudulent business act or practice. The court held that because federal law did not prohibit PHOs at the time the products were manufactured, the defendant’s use of PHOs could not support allegations that the manufacturer acted unlawfully or unfairly. The Ninth Circuit’s decision, while unsurprising, affirms the industry’s understanding that a safe harbor exists under federal law for PHO-containing products manufactured before the applicable compliance date (June 18, 2018, for most products). This ruling is consistent with district court decisions in the Ninth Circuit and elsewhere that found state law claims challenging the use of PHOs preempted by the FDA’s 2015 final determination (permitting PHO usage through June 18, 2018) and Section 745 of the Consolidated Appropriations Act of 2016, which states that no food containing PHO shall be deemed “adulterated” because of its PHO content until the compliance date.
In a far more surprising decision, the Ninth Circuit’s ruling on a case regarding a trans fat claim may lead to increased litigation over nutrient content claims based on values derived from the FDA’s rounding rules. In Hawkins v. Kroger, the plaintiff alleged that the label statement “0g Trans Fat per serving” was false and misleading, given that a serving of the product actually contained trans fat at a measurable (albeit low — less than 0.5 grams) level.
To comply with the FDA’s rounding rules, the manufacturer was required to state in the nutrition label that the product contained 0 grams trans fat per serving. To avoid confusing customers, the manufacturer used the same (rounded) number in its voluntary claim as it was required to use in its nutrition label. The Ninth Circuit reiterated its position that “a requirement to state certain facts in the nutrition label is not a license to make that statement elsewhere on the product,” and as such, the plaintiff’s claim was not preempted.
The impact of Hawkins, however, is likely limited. First, Hawkins is only binding precedent in the Ninth Circuit and conflicts with other well-reasoned (albeit unpublished) circuit precedent — so it may not be particularly persuasive to courts in other jurisdictions. More importantly, given the FDA’s 2015 final determination that PHOs were no longer generally recognized as safe as of the 2018 compliance date, depending on when a company phased out PHOs, the potentially viable class period is dwindling.
The Agricultural Act of 2018, also known as the 2018 farm bill, was signed into law on Dec. 20. It amends the Controlled Substances Act’s definition of marijuana to exclude hemp, makes crop insurance available for hemp and lifts restrictions currently in place on cultivating hemp. Previously, hemp was lawfully cultivated under the auspices of institutions of higher education and authorized state pilot programs, which issue research permits to allow farmers to grow industrial hemp. The 2018 farm bill significantly reduces barriers that hinder cultivation and marketing of hemp and hemp-derived ingredients, including cannabidiol, or CBD. We expect these changes will accelerate growth in an already quickly growing market segment.
The farm bill will not resolve all legal hurdles, however; the FDA takes the position that the two best-known hemp-derived ingredients, CBD and tetrahydrocannabinol or THC, cannot lawfully be included in foods or dietary supplements. THC is the psychoactive component of marijuana most associated with recreational use; CBD is generally considered nonpsychoactive (some suggest the term nonintoxicating is more accurate) and its proponents assert it has various therapeutic uses, including treatment of anxiety, insomnia and arthritis. The FDA has to date limited its public enforcement measures on CBD to issuing warning letters to a handful of companies making therapeutic claims related to serious disease conditions. However, it would not be surprising if the agency decided a more robust response was merited if, thanks in part to the 2018 farm bill, the interest in and market for hemp-derived products continues to expand.