Rausch v. Flatout, Inc.

Background

The opinion addresses Flatout, Inc.’s motion to dismiss Rebecca Rausch’s complaint. The complaint alleged that several Flatout products advertised their protein content outside the Nutrition Facts panel but did not include the quality-adjusted percent daily value for protein in that panel. The opinion gives Flatout’s Light Original Flatbread as an example: its package allegedly stated “6g protein,” while its Nutrition Facts panel listed only the six grams and did not include the quality-adjusted percentage.

The Food and Drug Administration requires a product’s Nutrition Facts panel to list the grams of protein per serving. If a product makes a “protein claim” elsewhere on its label, the regulations also require the manufacturer to include the “corrected amount of protein per serving,” expressed as a percent of daily value. That corrected amount accounts for protein quality, including amino-acid content and digestibility. The complaint alleged that wheat protein was the primary protein source in Flatout’s products and that wheat protein had an amino-acid score between .4 and .5.

Rausch asserted several California-law theories. Her claims under the unlawful prong of California’s Unfair Competition Law alleged that Flatout’s labels violated federal food-labeling regulations, which California’s Sherman Law incorporates. Her other claims—including claims under the fraudulent prong of the Unfair Competition Law, California’s False Advertising Law, the Consumer Legal Remedies Act, and claims for fraud, deceit, misrepresentation, and unjust enrichment—were based on the theory that the labels would deceive a reasonable consumer. She also pleaded a separate methodology theory, while acknowledging that the court’s prior decision in a related matter foreclosed it unless that decision was reversed on appeal.

Court’s analysis

The court held that Rausch plausibly alleged that Flatout’s Nutrition Facts panels violated 21 C.F.R. § 101.9(c)(7)(i), because the complaint alleged that Flatout made protein claims without including the required quality-adjusted percent daily value. The court also concluded that the protein statements outside the Nutrition Facts panels were unlawful under 21 C.F.R. § 101.13(n), which permits nutrient-content claims outside the panel only when the Nutrition Facts panel complies with the applicable requirements.

The court further held that Rausch plausibly alleged that the outside-the-panel protein statements were misleading under 21 C.F.R. § 101.13(i)(3). The court disagreed with part of its earlier reasoning in Nacarino v. Kashi, explaining that prominently advertising a product’s protein quantity may implicitly suggest that the product is a good source of protein. In the court’s view, the quality-adjusted percent daily value provides context about how the advertised protein fits into a consumer’s nutritional needs. The court therefore concluded that a protein-quantity statement outside the Nutrition Facts panel is plausibly misleading when it is not accompanied by the required quality-adjusted percent daily value.

The court rejected Flatout’s implied-preemption argument. Federal law expressly preempts state labeling claims that impose requirements “not identical to” federal requirements, but the court concluded that Rausch’s claims were based on alleged noncompliance with the federal requirements and therefore could proceed at this stage. The court also found that Rausch plausibly alleged standing to seek an injunction, an inadequate legal remedy, standing to challenge products she did not purchase because they were allegedly substantially similar to products she did purchase, and deception of a reasonable consumer. The court held that the economic-loss rule did not bar the claims on the record before it.

Disposition

The court dismissed the methodology claims for the reasons stated in Nacarino. It also dismissed the punitive-damages claims because Rausch’s conclusory allegation that Flatout acted “willfully and maliciously” was insufficient. The dismissal was with leave to amend. The court stated that any amended complaint was due within 14 days and that, if discovery revealed information relevant to punitive damages, Rausch could seek leave to amend at that point. The remaining labeling-related claims were allowed to move forward. Because this was a Rule 12 motion-to-dismiss ruling, the classification is procedural under the stated convention, even though the court interpreted the governing labeling rules.