Swearingen v. Santa Cruz Nat., Inc., Case No. 13-cv-04291-SI

• Decision Date: 17 August 2016
• Docket Number: Case No. 13-cv-04291-SI
• Parties: MARY SWEARINGEN, et al., Plaintiffs, v. SANTA CRUZ NATURAL, INC., Defendant.
• Court: U.S. District Court — Northern District of California

MARY SWEARINGEN, et al., Plaintiffs, v. SANTA CRUZ NATURAL, INC., Defendant.

Case No. 13-cv-04291-SI

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA

August 17, 2016

ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT'S MOTION TO DISMISS PLAINTIFFS' FIRST AMENDED COMPLAINT

Re: Dkt. No. 24

Now before the Court is a motion by defendant Santa Cruz Natural, Inc. ("Santa Cruz") to dismiss plaintiffs' first amended class action complaint. Dkt. No. 24 ("Mot."). The motion is scheduled for a hearing on August 19, 2016. Pursuant to Civil Local Rule 7-1(b), the Court finds this matter appropriate for resolution without oral argument, and hereby VACATES the hearing. For the reasons set forth below, the Court GRANTS IN PART and DENIES IN PART defendant's motion pursuant to Rule 12(b)(6) and Rule 9(b).

BACKGROUND

This is a consumer class action. Defendant Santa Cruz is a beverage manufacturer which uses the term "organic evaporated cane juice" ("ECJ") on the label of various products, including its Lemonade Soda, Orange Mango Soda, Raspberry Lemonade Soda, and Ginger Ale Soda. Dkt. No. 23, First Amended Complaint ("FAC") ¶¶ 3, 5, Table 1.

Plaintiffs allege that they have purchased Lemonade Soda, Orange Mango Soda, Raspberry Lemonade Soda, and Ginger Ale Soda made by the defendant. Id. ¶ 5. Plaintiffs describe themselves as "health conscious consumers who wish to avoid 'added sugars' in the food products they purchase." Id. ¶ 71. They allege that "at the time they read the labels of Defendant's food products, they attempted to determine whether Defendant's food products contained 'added sugar' by reading the ingredient list. . . . [W]hen they read the ingredient list . . ., 'sugar' was not listed, thus they were led to believe that Defendant's food products that they purchased did not contain added sugar as an ingredient." Id. ¶ 132. Plaintiffs allege they "did not know that the ingredient 'evaporated cane juice' was, in reality, sugar at the time they made their purchases. Had they known 'evaporated cane juice' was the same thing as added sugar or syrup, Plaintiffs would not have purchased Defendant's food products." Id.

Plaintiffs allege that using the term ECJ violates Food and Drug Administration ("FDA") regulations which require food labels to reflect the common or usual name of an ingredient. Id. ¶¶ 23, 44-49 (citing 21 C.F.R. §§ 101.4, 102.5). Plaintiffs allege that the common or usual name for ECJ is actually "sugar," and that defendant uses the term "ECJ" instead to make its products appear healthier to consumers. Id. ¶¶ 16, 21, 23, 40, 44. Plaintiffs further allege that defendant's failure to comply with these FDA regulations violates California's Sherman Food, Drug, and Cosmetic Law ("Sherman Law"), California Health and Safety Code § 109875 et seq. Id. ¶¶ 8-10, 37-38, 61-65.

Based upon those alleged violations, plaintiffs filed a class action complaint against Santa Cruz on September 16, 2013. Dkt. No. 1, Compl. On December 30, 2013, plaintiffs filed the FAC, asserting causes of action under the following California consumer protection statutes: (1) the Unfair Competition Law ("UCL") for unlawful business practices; (2) the UCL for unfair business practices; (3) the UCL for fraudulent business practices; (4) the False Advertising Law ("FAL") for misleading and deceptive advertising (5) the FAL for untrue advertising; and (6) the Consumer Legal Remedies Act ("CLRA") for unlawful sale of misbranded products and misrepresentations regarding those products. FAC. Plaintiffs also allege causes of action for: (7) breach of express warranty; (8) breach of implied warranty; (9) negligent misrepresentation; (10) negligence; (11) unjust enrichment; (12) recovery in assumpsit; and (13) declaratory relief. Id.

On January 29, 2014, defendant moved to dismiss the first amended complaint. Dkt. No. 24. On April 2, 2014, this Court granted the motion and dismissed the action without prejudice pursuant to the doctrine of primary jurisdiction. Dkt. No. 37. On July 1, 2014, pursuant toplaintiffs' motion to alter or amend the judgment and/or for relief from judgment, the Court set aside the previous judgment, reopened the action, and stayed the action pursuant to the doctrine of primary jurisdiction pending reopened review by the FDA concerning its draft guidance on the use of the term "evaporated cane juice" on food product labels. Dkt. No. 47.

In May 2016, the FDA issued its final guidance. U.S. Food & Drug Admin., Ingredients Declared as Evaporated Cane Juice: Guidance for Industry (2016) ("Final Guidance"). In light of this development, the Court lifted the stay on this action. Dkt. No. 62. Following a case management conference, the Court agreed to reinstate defendant's motion to dismiss the first amended complaint [Dkt. No. 24] and consider those grounds not addressed in the Court's prior orders. Id. The parties filed supplemental briefing on August 8, 2016. Dkt. Nos. 65, 66. The Court now DENIES IN PART and GRANTS IN PART defendant's motion.

LEGAL STANDARD

Under Federal Rule of Civil Procedure 12(b)(6), a district court must dismiss a complaint if it fails to state a claim upon which relief can be granted. To survive a Rule 12(b)(6) motion to dismiss, the plaintiff must allege "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). This "facial plausibility" standard requires the plaintiff to allege facts that add up to "more than a sheer possibility that a defendant has acted unlawfully." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). While courts do not require "heightened fact pleading of specifics," a plaintiff must allege facts sufficient to "raise a right to relief above the speculative level." Twombly, 550 U.S. at 544, 555. While a court deciding a motion to dismiss must take a complaint's well-pleaded factual allegations as true, it also must determine, relying on its "judicial experience and common sense," whether those allegations amount to a "plausible" claim. Iqbal, 556 U.S. at 664.

Additionally, fraud claims are subject to a higher standard and must be pleaded with particularity. Fed. R. Civ. P. 9(b). This is true of state law claims, such as those under the UCL, CLRA, and FAL, that are grounded in fraud, and which must "be accompanied by the who, what, when, where, and how of the misconduct charged." Vess v. Ciba-Geigy Corp. USA, 317 F.3d1097, 1103, 1106 (9th Cir. 2003) (quotation marks omitted). Such claims "must be specific enough to give defendants notice of the particular misconduct which is alleged to constitute the fraud charged so that they can defend against the charge and not just deny that they have done anything wrong." Swartz v. KPMG LLP, 476 F.3d 756, 764 (9th Cir. 2007) (citation omitted). A plaintiff claiming fraud must also plead reliance. Kwikset Corp. v. Super. Ct. of Orange Cnty., 51 Cal. 4th 310, 326-27 (2011) (UCL); Princess Cruise Lines, Ltd. v. Super. Ct. of Los Angeles Cnty., 179 Cal. App. 4th 46 (2009) (CLRA). The challenged statements must be judged against the "reasonable consumer" standard under the UCL, CLRA, and FAL. Consumer Advocates v. Echostar Satellite Corp., 113 Cal. App. 4th 1351, 1360 (2003).

If the Court dismisses the complaint, it must then decide whether to grant leave to amend. The Ninth Circuit has "repeatedly held that a district court should grant leave to amend even if no request to amend the pleading was made, unless it determines that the pleading could not possibly be cured by the allegation of other facts." Lopez v. Smith, 203 F.3d 1122, 1130 (9th Cir. 2000) (citations and internal quotation marks omitted).

DISCUSSION

I. Standing

Defendant asserts that plaintiffs lack both statutory standing under the UCL, CLRA, and FAL, as well as Article III standing to assert claims regarding products they did not purchase.

A. Statutory Standing

Defendant Santa Cruz argues that plaintiffs lack standing to bring their UCL, CLRA, and FAL claims because they have failed plausibly to plead reliance. Mot. at 9-10. Santa Cruz focuses particularly on what is argues is a failure to plead reliance for claims under the unlawful prong of the UCL. Id. at 9-10. Santa Cruz also argues that plaintiffs lack statutory standing because they have alleged no economic injury. Id. at 10-11.

The UCL, FAL, and CLRA all require a plaintiff to demonstrate standing. See generally Kwikset, 51 Cal. 4th 310, 323-27 (2011) (discussing standing under the FAL, CLRA, and UCL);Meyer v. Sprint Spectrum L.P., 45 Cal. 4th 634, 641 (2009) (discussing standing under the CLRA). Standing under the FAL or CLRA requires a plaintiff to allege that he relied on the defendant's purported misrepresentation and suffered economic injury as a result. Kwikset, 51 Cal. 4th at 326 ("Proposition 64 requires that a plaintiff's economic injury come 'as a result of . . . a violation of the false advertising law . . . . The phrase 'as a result of in its plain and ordinary sense means 'caused by' and requires a showing of a causal connection or reliance on the alleged misrepresentation . . . . This commonsense reading of the language mirrors how we have interpreted the same language in . . . the Consumers Legal Remedies Act." (citations omitted)); see also Cal. Bus. & Prof. Code § 17535 (directing that applicable government representative must have "suffered injury in fact and ha[ve] lost money or property as a result of a violation of this chapter" and clarifying that "[a]ny person may pursue representative claims or relief on behalf of others only if the claimant meets the standing requirements of this section . . . "); Cal. Civ. Code § 1780(a) (granting standing to consumers who have suffered damage "as a result of" a violation). California courts have also extended this reliance requirement to claims under the unlawful prong of the UCL that are based, as here, on allegations of misrepresentation and deception. See Durell v. Sharp Healthcare, 183 Cal....