Alerts

AD-ttorneys@law – March 27, 2018

Alerts / March 27, 2018

In This Issue:

Some New Guidance on Delayed Nutrition Labels

FDA preps for upcoming label transition with industry advice on sugars, carbs

What’s in the Label?

In early March 2018, the Food and Drug Administration (FDA) released a few more details to the food and beverage industry about how to adapt to the first major revamp of nutrition labels in years. According to the FDA, the new enhanced labels provide necessary guidance for consumers in a nutrition landscape that has evolved significantly since the last meaningful changes to label regulations.

Guidances

One of the more high-profile changes for nutrition labels involves sugar listings – the new label distinguishes between added sugars and naturally occurring sugars. Based on these types of changes, the FDA is issuing updated draft guidance addressing new distinctions.

The FDA guidance uses sugar-based products including honey, maple syrup and cranberry-derived foods as examples of when disclosures are needed about added sugars, and it suggests how such disclosure can be given. Because maple syrup and honey are treated as added sugars, the FDA has added visual elements to labels on these products that redirect consumers to “contextual information” that makes it clear that the products are still natural.

In addition, the FDA issued final guidance on the evidence the FDA is looking for on nondigestible carbs and how to classify such carbs on the new labels. Previously, manufacturers were able to declare that products containing isolated or synthetic fiber were dietary fiber. However, the FDA’s new definition of dietary fiber allows only naturally occurring fibers in fruit, vegetables and whole grains “as well as seven other isolated or synthetic fibers that are well recognized by the scientific community for having physiological benefits” to be considered fiber. The FDA’s recent release stated that the agency is reviewing petitions for how to classify nondigestible carbs and would give clear guidance to such petitioners on how to meet the FDA’s standards.

Changes to more accurately reflect what people actually eat and drink were also made to label serving sizes for certain products in a final piece of guidance for manufacturers.

The Takeaway

To introduce the new label, the FDA is planning a big rollout and featuring an educational campaign that will reach out to consumers through “educational videos, social media campaigns and user-friendly websites.” The campaign is intended to help consumers grasp how their nutritional choices directly affect their health. But one watchdog group is urging more immediate action.

In October 2017, Dr. Peter Laurie, director and president of the Center for Science in the Public Interest (CSPI), made statements criticizing the Trump administration for delaying the arrival of the new labels. They were originally mandated to be in use by July 2018, but the FDA issued a decision putting off new label adoption until 2020 for larger companies and 2021 for smaller players.

Following the latest FDA announcements, CSPI director Jim O’Hara argued that the new guidance minimized the need for a delayed rollout of the new labels. “A July 2019 compliance date for all companies for the updated Nutrition Facts label is both realistic and achievable,” O’Hara claims. “In fact, more than 15,000 of the upgraded labels are already on grocery store shelves.” However, based on the extension from the FDA for the adoption of the label requirements, it is uncertain whether companies will sufficiently adopt the new label requirements prior to the mandated commencement date.

Snack Boxes Spark Slack-Fill Class Attack

Taste of Nature, Inc. accused of deceptive double stuffing

Most Delicious Lineup EVER

Sierra Gillespie of Redondo Beach, California, sure can cast a wide net.

Cookie Dough Bites, Chocolate Chip Cookie Dough Bites, Fudge Brownie Cookie Dough Bites, Santa’s Village Chocolate Chip Cookie Dough Bites, Cookies N’ Cream Cookie Dough Bites, Cinnamon Bun Bites, Red Velvet Cupcake Bites, Moon Pie Bites, Strawberry Dream Bites, Birthday Cake Cookie Dough Bites, Peanut Butter Cookie Dough Bites, Muddy Bears, Shari Candies Cherry Sour Balls, Despicable Me 2 Sour Gummies, Sqwigglies and Hello Kitty Treats: Each one is named as an offending product in Gillespie’s slack-fill class action against Taste of Nature Inc., the California-based snack manufacturer that makes all of them.

Containers Within Containers Within …

Gillespie filed her complaint in the Central District of California on March 13, 2018, claiming that the products are uniformly slack-filled in such a way as to render the packaging misleading and unlawful.

Gillespie alleges that the offending Taste of Nature snacks mentioned above are packed in a plastic pouch, which is then inserted in a cardboard box. Gillespie contends that within the pouch, the packages contain 47 percent slack-fill. If the snacks are emptied into the box without the pouch, that figure jumps to 58 percent. The allegations continue by stating that this particular packaging configuration, despite its novelty, did not meet any of the traditional “safe harbor” exceptions under the law governing slack-fill because it was not so designed to protect the products or to meet the required space for nutrition labeling.

The Takeaway

Gillespie is seeking damages under the California Business and Professions Code for unfair and unlawful business acts and practices, for deceptive advertising practices, and for violations of the Consumer Legal Remedies Act of the California Civil Code. She also seeks an order enjoining the future continuation of the defendant’s packaging practices.

Sunrun’s Recent TCPA Class Action

Plaintiff alleges that Sunrun is overzealous with automated calls

I Gotta Wear Shades

Sunrun, Inc., a Nevada-based solar power company, installs, maintains and repairs residential solar power systems. This turnkey approach, with little or no support required from the consumer, has garnered more than 180,000 clients in 21 states for the company. In an industry that is subject to highs and lows, Sunrun’s survival for the past 11 years is a mark of distinction in its own right. Sunrun boasted profits of $124.5 million and sales of $529.7 million in 2017.

Like its peers in the solar power industry, the company’s marketing efforts appeal to the unique proposition of alternative energy capitalism: Customers both save money and help the environment.

Talkin’ on Sunshine

According to one consumer, however, Sunrun’s marketing efforts include numerous unsolicited phone calls.

California consumer Susan Knapp claims in her recently filed class action suit that Sunrun called her multiple times, beginning around August 2017, to promote its solar equipment. The plaintiff alleges that these calls came despite the fact that she never consented to them, and her number had been listed on the National Do Not Call Registry since 2009. The complaint was filed in the United States District Court for the Eastern District of California on March 8, 2018.

The case is split between two classes – the class of consumers who received calls from Sunrun without giving prior express consent, and the class of consumers who received calls from Sunrun despite being listed on the Do Not Call Registry.

The Takeaway

Knapp admits in the suit to not knowing the overall number of class members, but she assumes that they “number in the thousands, if not more.”

The complaint alleges that Sunrun is liable for negligent and knowing and/or willful violations of the Telephone Consumer Protection Act (TCPA), which are allegations that can cost defendants $500 and $1,500, respectively, per call. With numbers like these, the overall damages could be quite significant – well over the minimum $5 million amount in controversy required for federal court jurisdiction.

Based on these types of allegations and high potential damages, companies that engage in telemarketing continue to face high risks and costly consequences, including class action lawsuits. Companies should look to work with legal counsel when anticipating compliance issues with the TCPA and related regulatory schemes.

Ouch! Yelp and Plaintiff Slug It Out in TCPA Class Action

Main bone of contention: What constitutes a business relationship?

One-Star Review

Back in June 2017, Jonathan Sapan filed a Telephone Consumer Protection Act (TCPA) class action against Yelp, the online review giant, in the Northern District of California. He claimed that the company made six calls to his residential number between January and March of that year without checking the National Do Not Call Registry, to which he had been subscribed since 2013.

He claims the calls were business pitches and were used to push Yelp’s business consultant services. He sued for TCPA violations, seeking the standard fines from his adversary to compensate for his wasted time and telephone service fees.

Shadowy Company

Yelp struck back with a motion for summary judgment in February 2018. The company claimed that because Sapan was an active Yelp user (with an account allegedly opened in 2013), he had created an established business relationship with Yelp and Yelp therefore did not violate the TCPA with calls to his number. Even though Sapan’s account was free and he did not list his own business, Yelp contended that the relationship still met the legal definition of established business relationship.

The TCPA defines the established business relationship as “a voluntary two-way communication between a person or entity and a residential subscriber with or without an exchange of consideration on the basis of the subscriber's purchase or transaction with the entity within the eighteen (18) months immediately preceding the date of the telephone call.” Yelp took pains to note that the Federal Communications Commission maintains that the relationship does not have to be financial in nature and that Sapan’s Yelp membership met the other criteria.

Yelp also noted the existence of Tierrasanta Pro Roofing (Tierrasanta). Tierrasanta is a company with an inactive listing on Yelp. However, the bearing on Sapan’s case is attenuated. Yelp claimed that Tierrasanta listed a phone number that was identical to Sapan’s residential line, which explained why Yelp representatives reached out to this number. Further, Yelp claimed that Sapan visited the Tierrasanta Yelp listing several times, presumably seeing that the number was the same as his own but doing nothing to correct the mistake.

The Takeaway

Sapan opposed Yelp’s motion and attacked the idea that his relationship with Yelp let the company off the hook.

Sapan notes in his opposition that although he had a free account with Yelp, he did not engage in two-way communication with the company, because he used the account to communicate with other Yelp users but not with the company itself. “Mr. Sapan never engaged in any back-and-forth communications with Yelp regarding any goods or services in any medium whatsoever, and most certainly never purchased anything nor transacted any business,” the opposition maintained. Additionally, his activity in establishing the account itself was not two-way communication, because interactions with the website are automated in nature.

In addition, Sapan argued that since he never gave his number to the company, he never consented to the calls. He also dismissed the idea that agreeing to terms of service was transactional in nature, noting ironically that “While Yelp claims its Terms of Service are a ‘business’ transaction, Yelp’s 2012 terms of service flatly states that mere Yelp user’s accounts are ‘for your personal, non-commercial use only,’ showing that any business relationship would run afoul of Yelp’s own purported rules.”

Finally, Sapan objected to the mention of his visit to the Tierrasanta page, claiming that the information was irrelevant and that Yelp was mentioning it to erode his credibility. Sapan claimed he did not attempt to change the number on Tierrasanta’s page because he wanted to be a “prudent and reasonable litigant” and avoid any suggestion that he had something to do with the listing. “This should not make any difference anyway,” he argued, “since legal telemarketers would check the official Do Not Call Registry [and] not some random listing on the internet.”

It will be interesting to see how the court reacts to these two different visions of an “established business relationship” and an important decision for companies and consumers who use services such as Yelp on a recurring basis.

Mattress Manufacturer Won’t Sleep on Made-in-USA Complaint

Nectar Brand settles with Federal Trade Commission

Where Did I Fall Asleep?

Nectar Brand (aka Nectar Sleep and DreamCloud) boasts a great tagline for its mattresses: “The Bed Other Mattresses Dream About.”

As in all dreams, unfortunately, things are not always what they seem.

According to the Federal Trade Commission (FTC), the California-based mattress maker was claiming that its products were “Designed and Assembled in USA” when in actuality they were not. In other cases, the FTC claims, Nectar Brand advertised that its products were assembled in the States, which was also untrue.

The “mattresses are wholly imported from China,” notes the FTC in its complaint, “and Respondent performs no assembly operations in the United State."

All these allegations were tucked neatly into a complaint filed on March 13, 2018.

The Takeaway

The allegations in the complaint were resolved by consent order. The consent order addresses both alleged misrepresentations regarding the design and assembly of the mattresses in the USA. It also prohibits Nectar Brand from making unqualified made-in-the-USA claims unless it can prove that every aspect of the manufacture of the mattresses, including all the components involved, takes place in the United States.

The consent order also demands that any qualified claim by Nectar Brand of U.S. origin must be accompanied by “clear and conspicuous” disclosure. And it includes the expected general prohibition against false origin claims in the company’s future marketing materials. This consent order is another example of the FTC taking action against companies that purport their products are fully USA designed and manufactured to curry favor from U.S. buyers, while concurrently reaping the benefits of extraterritorial manufacturing laws.

Baker & Hostetler LLP publications are intended to inform our clients and other friends of the firm about current legal developments of general interest. They should not be construed as legal advice, and readers should not act upon the information contained in these publications without professional counsel. The hiring of a lawyer is an important decision that should not be based solely upon advertisements. Before you decide, ask us to send you written information about our qualifications and experience.