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.