Food Maker’s Consumer Fraud Claim For Deficient Buttermilk Formula Tossed (IL ND Case Note)

The food company plaintiff in Kraft Foods v. SunOpta Ingredients, Inc., 2016 WL 5341809 sued a supplier of powdered buttermilk for consumer fraud when it learned that for over two decades the defendant had been selling plaintiff a buttermilk compound consisting of buttermilk powder mixed with other ingredients instead of “pure” buttermilk.

Granting the defendant’s motion to dismiss, the Northern District examines the “consumer nexus” requirement for consumer fraud liability and what conduct by a business entity can still implicate consumer concerns and be actionable under the Consumer Fraud Act, 815 ILCS 505/2 (the “CFA”).

The plaintiff believed it was receiving buttermilk product that wasn’t cut with other ingredients; it relied heavily on a 1996 product specification sheet prepared by defendant’s predecessor that claimed to use only pristine ingredients.

Upon learning that defendant’s buttermilk was not “pure” but was instead a hybrid product composed of buttermilk powder, whey powder, and dried milk, Plaintiff sued.

Dismissing the CFA claim, the Court rejected plaintiff’s argument that the ersatz buttermilk implicated consumer concerns since consumers were the end-users of the product and because consumer health and safety was possibly compromised.

The CFA offers broader protection than common law fraud.  Unlike its common law counterpart, the CFA plaintiff does not have to prove it actually relied on an untrue statement.  Instead, the CFA plaintiff must allege (1) a deceptive or unfair act or practice by defendant, (2) defendant’s intent that plaintiff rely on the deception or unfair practice, (3) the unfair or deceptive practice occurred during a course of conduct involving trade or commerce.

As its name suggests, the CFA applies specifically to consumers which it defines as “any person who purchases or contracts for the purchase of merchandise not for resale in the ordinary course of his trade or business but for his use or that of a member of his household.” 815 ILCS 505/1.  Where a CFA plaintiff is a business entity – like in this case – the court applies the “consumer nexus” test.  Under this test, if the defendant’s conduct is addressed to the market generally or otherwise implicates consumer protection concerns, the corporate plaintiff can have standing to sue under the CFA.

A classic example of conduct aimed at a business that still implicates consumer protection concerns is a defendant disparaging a business plaintiff or misleading consumers about that plaintiff.  But the mere fact that consumers are end product users normally isn’t enough to satisfy the consumer nexus test.  Here, defendants’ actions were twice removed from the consumer: Defendant supplied plaintiff with product who, in turn, incorporated defendant’s buttermilk product into its food offerings.

The Court also rejected plaintiff’s argument that defendant’s product imperiled “public health, safety or welfare issues.”  Since the plaintiff failed to plead any facts to show that defendant’s conduct affected, much less harmed, consumers, there was no consumer nexus (or connection) and plaintiff’s CFA claim failed.

Take-aways:

Even under relaxed Federal notice pleading standards, a consumer fraud plaintiff must still provide factual specifics in its Complaint.  The case illustrates that the consumer nexus test has some teeth.  Where the plaintiff is a sophisticated commercial entity and isn’t using a product as a consumer would, it will be tough for the plaintiff to show consumer protection concerns are involved.

 

Of Styx, Starbucks and A Drink Is Not A Beverage (??)

I remember being frantic one weeknight in the Fall of 1978. In a good way. My dad had picked me up from school (St. Thomas Aquinas – East Wichita, KS) in his Ice Blue Monte Carlo and together we trekked to David’s, the long shuttered department store in Wichita’s Parklane shopping mall. (I still recall the store’s ultra-catchy “D! A-V-I-D! Apostrophe S! – Come on into David’s!” ad jingle saturating local radio and television at the time.)

Nearing David’s and nearly hyperventilating with excitement, I was on the verge of buying my very first record album. Over the next few decades, I would accumulate well over a thousand records, cassettes, CDs and .mp3 singles. But Styx’s Pieces of Eight – the “Blue Collar Man” album, was my first record buy. And I do remember the event (to me it was an event given my life-long love of rock music and its history) like it was yesterday: the album’s plastic packaging, its glossy texture, the lemony smells of the store. All of it.

I had been on a mission to buy PoE ever since I heard “Renegade” on a Fourth Grade classmate’s K-Tel 8-track tape (showing my age alert!) a few weeks prior. The song was sandwiched between Amy Stewart’s “Knock on Wood” cover and Kansas’ “Point of No Return.” (That’s how much I listened to “Renegade” on my friend’s 8-track machine – I still remember – almost forty years later – the songs that both preceded and followed it with the same vividness as the song itself.)

PoE did not disappoint. Besides the mighty “Renegade,” some other choice PoE cuts include “Queen of Spades”, “Great White Hope,” and the title track. The aforementioned “Blue Collar Man,” still a rock radio staple and one of the most prominent in the Styx catalog, is yet another of PoE’s high-octane offerings. And so Styx became my favorite band. And I wore PoE out; listening to it on all days and at all hours.

Fast forward to the early 1980s and I was introduced to heavier fare like Maiden, Priest and Dio. My interest in Styx waned. I suspected, and peer pressure confirmed, that the band just wasn’t metal enough. Jump ahead a year or two when another classmate’s older brother played Into the Void‘s menacing and atonal intro and Black Sabbath (or “Sab” as metal aficianados are want to call them) quickly became (and would later become) my all-time favorite music group regardless of genre. Styx and bands like it were relegated to afterthought status.

But not before 1981’s Paradise Theater and one of its top tracks, “Too Much Time on My Hands” burst into the pop music consciousness. An FM stalwart and iconic Early MTV offering, TMTOMH’s vaguely disco-tinged beat and catchy hand claps still trigger nostalgia pangs. I remember roller skating (!!) to the song at Skate East and Traxx – two venerable Wichita roller skating venues that long ago succumbed to the wrecking ball and internal detonations.

In the song, Tommy Shaw, the diminutive lead guitarist and Alabaman (I think), laments the perils of idle time and fair-weather compadres (“I got! dozens of friends and the fun never ends, that is as long as I’m buying…”) and even sprinkles in an incongruous Commander-in-Chief aspiration. (“Is it any wonder I’m not the President?“) So memorable is TMTOMH’s video that even Jimmy Fallon, erstwhile SNL castmember and current Tonight Show host, gushed over it and did a verbatim sendup of the song with actor Paul “I Love You Man” Rudd.

I mention all this because today’s featured case – Forouzesh v. Starbucks Corp., (unfairly or not) reminds me of someone who clearly had…..tick tick tick (you guessed it)…. too much time on his hands.

The plaintiff, on his own and on behalf of all California residents who purchased a Starbucks cold drink in the past decade, sued the Seattle coffee titan for systemic fraud. He claimed Starbucks misrepresented the amount of fluid ounces in its cold drink offerings. Specifically, he claimed the coffee giant lied on its on-line menu about the amount of liquid in its drinks by underfilling its cups and adding ice to make the cups appear full. The plaintiff brought various common law and statutory fraud and breach of warranty claims in his lawsuit.

The California District Court dismissed the suit on Starbucks’ Rule 12(b)(6) motion. The Court noted that under Rule 8(a), a complaint must give a defendant fair notice of what a claim is and its basis. The complaint must meet a “plausibility standard” in which a complaint’s factual allegations are enough to raise a right to relief above the speculative level. A plaintiff must do more than simply allege labels, conclusions and a “formulaic recitation” of the elements of a given cause of action.

An action for fraud is subject to a more exacting pleading standard. Rule 9(b) requires a fraud plaintiff to allege underlying fraud facts with sharper specificity, including the time, place, persons involved, and content of the false statement.

Rejecting the plaintiff’s statutory consumer fraud and unfair competition claims, the Court found that a “reasonable consumer” would not likely be deceived by Starbucks’ website description of its cold drink measurements. Indeed, the Court held “but as young children learn, they can increase the amount of beverage they receive if they order “no ice.” Ouch?

And since young children could figure out that more ice means less liquid, the Court concluded that a reasonable consumer would not be deceived by Starbucks’ stated fluid ounce stats. Added support for the Court’s holding lay in the fact that Starbucks’ cold drink containers are clear. A consumer can clearly see that a given drink consists of both ice and liquid. If a consumer wants more liquid, he can simply order with “no ice.”

The Court’s finding of no deception also doomed the plaintiff’s common law fraud claims. It held that since a reasonable consumer would comprehend that Starbucks’ cold drinks contain both ice and liquid, the plaintiff could not establish either a misrepresentation by Starbucks or plaintiff’s justifiable reliance on it – two required fraud elements.

Lastly, the Court rejected the plaintiff’s state law breach of warranty claims. The Court found that Starbucks did not specifically state that its cold drinks contained a specific amount of liquid. All the coffee maker said – via its web page – was that it offered cold drinks for sale in various cup sizes (12 oz – Tall; 16 oz. – Grande, 24 oz. – Venti). Absent any specific allegations that Starbucks expressly or impliedly warranted that its cold drinks contained a specific amount of liquid, the plaintiff couldn’t make out a valid breach of warranty claim.

Afterwords: The plaintiffs’ failed fraud suit against Starbucks illustrates that while Federal pleading standards normally more relaxed than their State court counterparts, this isn’t so with fraud claims.

The plaintiff’s failure to pin a specific misstatement concerning Starbucks’ cold drink contents doomed his claims. The court also gives teeth to the reasonable consumer standard that applies to state law consumer protection statutes. Since the plaintiff was unable to show a reasonable consumer would have been deceived by Starbucks’ published cold drink measurements, the plaintiff’s unfair competition and consumer fraud actions failed.

Oh, and to bring things full-circle, I suppose I should report that neither Renegade norBlue Collar Man nor Too Much Time on My Hands is my favorite Styx tune. That honor goes to “Castle Walls” – the second or third song on Side 2 of 1977’s Grand Illusion album. Give it a listen. It’ll definitely cure what ails ya.

Fire Alarm Contract Doesn’t Create Implied Warranty Claim – IL ND

Two titans of their respective industries went head-to-head in Allstate Indemnity Company v. ADT, LLC, 2015 WL 3798715 (N.D.Ill. 2015), a dispute over an alarm company’s responsibility for fire damage to its homeowner customer.

After a 2013 house fire decimated its insured’s home to the tune of about $1.4M in damages, the plaintiff home insurer (Allstate) sued ADT, the home smoke and fire alarm installer, for negligence, breach of contract and consumer fraud for failing to complete smoke detector repairs it was hired to complete about 7 months before the fire.

The Northern District, in Allstate Indemnity Company v. ADT LLC, 2015 WL 3798715, *2 (N.D.Ill. June 17, 2015), granted ADT’s motion to dismiss the complaint with prejudice and in doing so, addressed some important issues involving contract interpretation, exculpatory provisions and damage limitations in home security contracts.

The 2007 alarm contract (the “Alarm Contract”) was for an initial three-year term and was automatically renewed for 30-day increments unless terminated in writing. The Alarm Contract contained a limited warranty and a waiver clause that provided that the alarm company was not an insurer against damage to the insured home.

Other than some basic warranties, ADT’s contract disclaimed consequential or incidental damages.

The court rejected the insurer’s argument that the contract’s damage waiver was unenforceable. In Illinois, an exculpatory clause or damage waiver is enforceable unless it is unconscionable or violates public policy. Since there were no public policy concerns implicated, the alarm contract damage waiver was upheld and defeated Allstate’s claims.

Allstate also lost its breach of implied warranty claim.  Illinois doesn’t recognize an implied warranty in service contracts. The only settings where a court recognizes an implied warranty is in (1) contracts involving the sale of goods, (2) contracts involving residential property construction (where the implied warranty of habitability attaches) and (3) construction contracts – where Illinois recognizes an implied warranty of performance in a good, workmanlike manner.

Since the Alarm Contract didn’t involve the sale of goods and wasn’t a construction contract, Allstate’s implied warranty claim failed.

Lastly, the court discarded Allstate’s consumer fraud claim.  The Illinois Consumer Fraud and Deceptive Business Practices Act (ICFA), 815 ILCS 505/2 broadly prohibits unfair methods of competition and unfair or deceptive acts.  But where a consumer fraud claim simply duplicates a breach of contract claim, the consumer fraud count is redundant and should be stricken.

A plaintiff can’t “dress up” a garden-variety contract claim as one sounding in fraud.  Here, since Allstate repackaged its breach of contract suit and labeled it as a consumer fraud claim, the court dismissed Allstate’s ICFA claim.

Key take-aways:

1/ A clear waiver provision in a service contract will be enforced as written; even if it puts some financially harsh consequences on the plaintiff;

2/ Service contracts won’t give rise to an implied warranty claim in Illinois;

3/ A breach of contract does not equate to consumer fraud.  A repackaged breach of contract claim that is appended with a consumer fraud label will be dismissed as redundant (to the parallel breach of contract claim).

Reference: http://law.justia.com/cases/federal/district-courts/illinois/ilndce/1:2014cv09494/303656/21/