Phan v. Sargento Foods, Inc.

Background

Quynh Phan filed a putative class action against Sargento Foods, Inc., alleging false advertising involving dairy cheese products labeled “No Antibiotics*.” The packaging explained the asterisk in smaller text: “Our cheese is made from milk that does not contain antibiotics.” Phan alleged that reasonable consumers could understand the label to mean either that the products were made from milk from cows that had not received antibiotics or that the products never contained antibiotics. She alleged that Sargento products were made from milk from cows that received antibiotics and that at least some products contained detectable antibiotic levels.

Phan alleged that she purchased Natural String Cheese Snacks and Sharp Cheddar Cheese Slices, relied on the label, and paid more or purchased products she otherwise would not have purchased. Her complaint asserted state consumer-protection claims, a nationwide breach-of-express-warranty claim, and a nationwide unjust-enrichment claim. She also proposed a multistate consumer-protection subclass involving Alabama, California, Connecticut, Florida, Illinois, Michigan, Minnesota, Missouri, New Jersey, and New York.

Motion to Dismiss

The court applied the pleading standard requiring enough factual allegations to make a claim plausible. Because the allegations involved fraud, the complaint also had to describe the alleged falsity with particularity.

First false-advertising theory: cows received antibiotics. The court denied dismissal of this theory. It held that whether a reasonable consumer would understand “No Antibiotics*” to mean that the cows had not received antibiotics was a factual dispute that could not be resolved on a motion to dismiss. The court stated that the small-print explanation did not make that interpretation legally impossible.

Second false-advertising theory: products contained antibiotics. The court dismissed this theory because Phan alleged that only some products contained antibiotics and relied on testing of one product that Phan had not purchased. The court concluded that this did not show that all or most products contained antibiotics, or that the products Phan purchased were among the allegedly affected products. The court granted leave to amend this theory.

Warranty and unjust-enrichment claims. The court stated that its analysis of the consumer-protection claim applied equally to the breach-of-warranty and unjust-enrichment claims. Thus, those claims were dismissed in part to the extent they relied on the theory that the products contained antibiotics, while the theory concerning milk from cows that received antibiotics could proceed.

Monetary equitable relief. The court dismissed the request for monetary equitable relief without prejudice because Phan had not shown that legal remedies, such as damages, were inadequate. The court did not give leave to amend on this issue at that time, although it stated that Phan was not precluded from asking for leave to amend in the future if facts developed showing that legal remedies were inadequate.

Motion to Strike and Dismiss Class Allegations

Sargento also sought to strike class claims and allegations and to dismiss for lack of standing. The court held that it could address certain class issues at the pleading stage when discovery would not change the central legal problem.

Nationwide unjust-enrichment and warranty claims. The court granted Sargento’s motion to strike these nationwide claims. It concluded that the laws of the 50 states varied materially for unjust enrichment and breach of express warranty, including differences involving requirements such as privity, notice, reliance, and available remedies. Those differences meant that common questions would not predominate and that a nationwide class would not be manageable on the allegations presented. The court gave Phan leave to amend to assert a narrower class.

Multistate consumer-protection claim. The court held that the consumer-protection laws of the ten proposed states differed in matters including scienter, reliance, damages, materiality, procedural requirements, and statutes of limitations. The court concluded that Phan could not serve as the representative for unnamed class members in the other states on the existing record. Phan could proceed only with a California subclass, but could amend if individuals who could serve as representatives for other states were added.

Disposition

The court granted in part and denied in part Sargento’s motion to dismiss and granted in part and denied in part Sargento’s motion to strike. Phan received leave to amend the second false-advertising theory and to propose narrower or differently represented class claims. The amended complaint was due June 30, 2021. The order disposed of Docket Nos. 16 and 18.