Taking stock of food fables

Taking stock of food fables
On its labels and in its advertising, including its web site, Vitaminwater is classified as a “nutrient enhanced water beverage,” by Glacéau, the Coca Cola subsidiary that produces the popular drink.

This description and other parts of its advertising resulted in class action lawsuits in the United States and Canada, accusing the company of deceptive marketing. At least one of the U.S. lawsuits was settled out-of-court last year by Coca Cola. In Canada though, potential class action proceedings in Quebec and British Columbia, were not certified.

The Quebec Superior Court concluded that there was no prima facie case of deception. B.C. Supreme Court Justice Frits Verhoeven, without ruling on the merits of the marketing allegations, found that there was no common issue and a class action was not the appropriate procedure for such a claim.

“Whether the labelling and marketing of the product has actually misled a consumer is an inherently individualistic and fact based question,” wrote Verhoeven, in Clark v. Energy Brands Inc.

A notice of appeal has been filed in the B.C. proceeding. What still remains unclear though is whether the wave of food product litigation in the U.S., especially in the areas of labels and marketing that involve health claims, will come to Canada.

Litigation is so common in jurisdictions with strong consumer protection statutes, that the Northern District of California court, based in San Francisco, has been nicknamed “the food court.” It is a jurisdiction “where lawyers never go hungry,” joked the headline of a 2013 article in a Bloomberg Business publication.

There have been dozens of actions filed in just that jurisdiction since 2010, since Dannon Co. Inc. paid out more than US$20 million to settle a class action and consumer protection claims brought forward by a number of state governments, over the health benefits it attributed to its yogurt and a dairy drink product (In 2013, it settled a similar class action proceeding in Quebec, where it is known as Danone Inc., for an estimated $1.7 million, without admitting any wrongdoing).

The Vitaminwater and Danone class action proceedings are the most high profile to date in Canada. But even if the appetite for litigation turns out to be not as great, it is still a complex task for corporate counsel in this area.

Consumers are increasingly more health conscious and likely to read labels, putting more of an onus on companies to back up the beneficial claims. There is also increased media coverage in this area. A few months ago, the CBC consumer program Marketplace had a show about labels and the accuracy of what manufacturers advertised, in a segment it called “food fiction.”

There are numerous statutes and regulations that food companies must comply with and multiple agencies to oversee these rules. On the label side, not only must they be in French and English and include ingredients, allergens, and many other details, there are also definitions for terms such as “natural” or “local.”

The Canadian Food Inspection Agency definition of when a product can be classified as “natural” for example is more than 550 words long. It also distinguishes between natural products and natural flavours. Until 2013, the agency defined “local” as food produced within 50 kilometres of where it was sold. An interim policy, which is still in place, expanded the term “local” to food produced within the same province as it is sold, harmonizing the rules with provincial statutes such as Ontario’s Local Food Act.

In some cases, such as whether a food product is genetically modified, there is no mandatory requirement for including this information on a label (in the U.S., the only state to enact a genetically modified organism labelling law is Vermont and it is already facing an ongoing court challenge).

On a national level, the Safe Food for Canadians Act is supposed to streamline the regulatory framework  when it is scheduled to take effect later this year. It was introduced in 2012 and its implementation has been delayed over the drafting of regulations.

For food companies “I think it is fair to say it is confusing,” says Craig Lockwood, a partner at Osler Hoskin & Harcourt LLP in Toronto and a lawyer in its food products group. Health Canada has “been more proactive,” on the regulatory front than in the U.S., which also means there are more regulations that must be complied with, says Lockwood.

In Canada, the provincial consumer protection statutes may also determine where a class action is filed, says Robin Reinertson, a partner at Blake Cassels & Graydon LLP in Vancouver, and co-counsel for Vitaminwater in the B.C. proceeding. “There is a whole patchwork of regulations,” she says. Quebec and B.C. are considered to have more consumer friendly statutes, which may be why the Vitaminwater and Danone actions were filed in those provinces. The provisions in the B.C. Business Practices and Consumer Protection Act might be best described as “sellers beware,” says Reinertson, rather than the more commonly known principle of caveat emptor or buyer beware.

In the attempt to certify the Vitaminwater class action in B.C., the plaintiff’s allegation was that consumers would mistakenly conclude that it was a healthy beverage with a minimal amount of sugar. The court heard that a standard 591 ml bottle contains 32 grams of sugar, or about eight teaspoons.

The action was aimed at all sales of the product since June 2008. By 2012, drinks such as Vitaminwater were now classified by Health Canada as food, rather than natural health products. As a result, until 2012, the number of grams of sugar did not need to be specified. Instead, the term “cane sugar” without any numerical data, was listed under “non medicinal ingredients,” in compliance with the natural health products rules.

Vitaminwater argued there was never any deception, since cane sugar was listed as the second ingredient and the calorie totals were also listed on bottles. As well, when compared to the standard 355 ml size for a can of pop, Vitaminwater contained slightly less sugar. Whether something is “healthy” cannot be determined objectively without looking at the characteristics of a specific individual, it maintained.

Verhoeven agreed, as far as he was able to determine whether there could be common damages for the purposes of a class action. The argument that all consumers were tricked into paying a “premium price” for the product was rejected. “The proposed class would include individuals who did not rely on any of the representations set out in the plaintiff’s claims, who purchased
Vitaminwater for reasons that have no connection to the plaintiff’s claims, and who would have purchased it in any event,” he wrote.

Lawrence Theall, a Toronto lawyer and co-author of a legal text on product liability in Canada, says he thinks that proposed class actions, such as the Vitaminwater case, are less likely to succeed in our courts. “If there is a serious outbreak or a product recall, you are going to have a class action every time,” says Theall, a partner at Theall Group LLP. But in cases such as Vitaminwater, where a marketing campaign may convince a consumer to choose one product over another, “what are the damages that you suffer?” asks Theall. “My view is that the courts [in Canada] are tending to see some of these actions as nuisance suits.”

At the same time, he urges companies to review carefully how a product is described on its label and in any marketing campaign. “It doesn’t mean you can’t be creative, but truth in advertising is never a bad thing. You don’t want to make claims you can’t back up,” says Theall, especially if there is any scientific or medical benefit put forward.

That view is echoed by Lockwood at Osler. If there is a health benefit claimed, “it should be substantiated by the science,” he says. As well, regulatory compliance will obviously reduce the litigation risk. “You may still be exposed but at least you have a defence,” says Lockwood.

Another area where potential problems may arise is the fact that many of the food products sold in Canada, originated in the U.S. It is not just a question of designing a label in both official languages, says Reinertson.

“The regulatory scheme here is very different. You can’t simply Canadianize labels at the last minute,” she says, adding that it is important to review labels regularly. “The statements made on labels are higher risk than advertising,” explains Reinertson, because not all consumers may have seen the marketing campaign. Reliance on any claims on labels will impact the damages, if a case proceeds to that stage.

The potential for food product litigation can also capture outside parties and even non-profit organizations. In 2013, a class action in the U.S. was initiated against Campbell soups and the American Heart Association over health endorsements provided as part of its “heart check” program. The Heart & Stroke Foundation announced last June that it was phasing out its health check program in Canada, which had faced allegations it was endorsing food products that were not healthy (the non-profit group declined to comment about its decision, when contacted by Canadian Lawyer InHouse).

With most food product cases brought in the form of a class action, the legal battle is often whether it is the appropriate forum to hear the dispute. It is rarely about the merits of the claim or the marketing standards that will apply.

Lawyers in other provinces point to Quebec as the one jurisdiction where class actions in this area have a better chance of success, in part because of its consumer protection legislation.

David Assor, a Montreal lawyer who represented the plaintiffs in the Danone class action, agrees that other provinces are more strict about requiring reliance on what is claimed on the label. “But the courts [in Quebec] are by no means rubber stamping motions for authorization,” says Assor, a partner at Lex Group Inc., which specializes in class actions. “You still have to show misleading or false representations,” he says. If a claim is “just a marketing tool,” it is more susceptible to litigation, states Assor.

In the area of food product liability, what has not been resolved in the courts is what kind of onus is on the consumer to assess the claims being made by manufacturers and then make a common sense decision on whether or not to make a purchase. In part, this may be because of how few cases are decided on the merits.

The most noteworthy ruling involving the standard for consumers is the Supreme Court of Canada’s 2012 decision in Richard v. Time Inc.

In that case, a Quebec resident believed he had won more than $800,000 based on what was written in a sweepstakes contest letter sent to him by Time magazine. He returned the entry form and subscribed to the magazine for two years, thinking this would entitle him to a free camera and photo album, in addition to the prize money.

After speaking to representatives of the magazine, he was told the forms were only an invitation to enter the sweepstakes contest.

The Supreme Court concluded that it must follow the spirit of Quebec’s Consumer Protection Act, when interpreting advertising that is alleged to be misleading or false. “To meet the objectives of the C.P.A., the courts views the average consumer as someone who is not particularly experienced at detecting the falsehoods or subtleties found in commercial representations,” wrote justices Thomas Cromwell and Louis LeBel for the court.

“The words ‘credulous and inexperienced’ therefore describe the average consumer for the purposes of the C.P.A. This description of the average consumer is consistent with the legislature’s intention to protect vulnerable persons from the dangers of certain advertising techniques,” they added. The Supreme Court ordered Time to pay $16,000 in damages to Jean-Marc Richard.

Whether this standard applies outside of Quebec is still a matter of debate. A year after the decision in Richard, an Ontario Superior Court judge was asked to determine this issue in the context of an action brought by the federal commissioner of competition over claims made by wireless providers about the number of dropped calls. “The consumer perspective in this case is that of a credulous and technically inexperienced consumer of wireless services,” wrote Justice Frank Marrocco in Canada (Competition Bureau) v. Chatr Wireless Inc.

Even in adopting that standard, Marrocco noted that the federal Competition Act has a different purpose than that of Quebec’s consumer protection laws.

In B.C., lawyers for plaintiffs “have urged the courts to adopt the Richard principles,” says Reinertson. In response, “defence counsel are arguing that the [B.C. consumer] legislation has to be applied with common sense,” she adds.

The credulous consumer standard has not generally been applied in common law jurisdictions, although it “is a fight that may still be played out,” says Lockwood.

In the area of food product liability and litigation, Quebec is distinct, says Theall. “It is the most pro-consumer province in the country,” he says.

In the Vitaminwater proceeding in B.C., Verhoeven was not required to address what the consumer standard might be. Still, he did not seem to accept that a naïve customer should be the benchmark. “A source of information may be pivotal to one consumer’s decision but may be immaterial to another consumer’s choice,” wrote Verhoeven. “I suspect many consumers would often be motivated to purchase the product largely for reasons of situational need and convenience (ie. thirst and convenient availability of the product). The circumstances of each and every consumer transaction are endlessly variable.”

In the heat of the moment,  is taking responsibility right out of the gate the right approach?

The more traditional risk of litigation in the area of food products is when something has gone wrong and could result in a health risk to consumers.

If there is a widespread recall and any evidence of harm to customers, a class action is almost inevitable and there is significant risk to the company’s reputation and its share price.

Perhaps the most high profile example in Canada in recent years was the listeria outbreak in 2008 linked to ready-to-eat foods produced at a Maple Leaf Foods Inc. plant in Ontario. By the end of that year, 20 deaths across five provinces were traced to listeriosis, according to Health Canada.

The response by Maple Leaf chief executive Michael McCain was immediate. He apologized to consumers, accepted responsibility, and took action to ensure it never happened again. “This isn’t about money, it is about public health,” McCain said at an August 2008 news conference. “The last people I am listening to are lawyers and accountants.” Within months, the company agreed to pay out up to $27 million in a class action settlement.

The company’s response and McCain’s actions were universally praised. Maple Leaf’s reputation in the eyes of the public was not permanently damaged and its share price has climbed steadily and is now three times its value at the time of the listeria outbreak, nearly seven years ago.

However, what hasn’t changed is the normal corporate response to a product recall. McCain continues to be part of a small club of chief executives who have issued such a public apology.

Elizabeth Bowker, co-counsel for Maple Leaf in the class action proceeding, notes that it may be the quickest settlement ever reached in this type of action. The company’s response “is still looked at as the gold standard in crisis management,” says Bowker, a partner at Stieber Berlach LLP in Toronto.

Still, she is not surprised corporate apologies remain an unusual event, because the best response in each situation is fact specific. “Once there is any admission of liability, you can’t get it back,” says Bowker. When advising clients on how to respond after a company has to deal with a problem such as a product recall, “lawyers are cautious and rightfully so,” she says.

A company’s business and litigation strategies may not always be the same, depending on the circumstances. “Ideally they mesh, but that is not always the case,” says Bowker.

When there is bad news about a company’s products in the media, Craig Lockwood, of Osler Hoskin & Harcourt LLP, says it is not uncommon for executives to want to provide an explanation.
“The question is, what do you say publicly?”

The often-invoked reason that a “matter is before the courts,” for not providing any comment, is understandable. “From a purely legal perspective, nothing you say publicly is likely to assist your defence,” says Lockwood.

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