Class Action and Product Insights for Your Business
September 08, 2015 - False Advertising, Food Misbranding

“Food” Courts Confirm That Price Premium Is the Proper Measure of Damages in Misbranding Cases

The flurry of food mislabeling class actions filed in California federal courts has recently come to a halt under the U.S. Supreme Court’s holding in Comcast v. Beherend. Comcast requires that putative class action plaintiffs present a damages model tied to their theory of liability. District courts in food mislabeling cases have limited plaintiffs’ recovery to price premium: the difference between the product as labeled and the product as received. But plaintiffs have yet to present a damages model that controls for factors other than misbranding that impact price. As a result, courts have denied certification of a damages class.

Mislabeling plaintiffs are now searching for a new theory that would allow them to bypass price premium. Nonrestitutionary disgorgement based on a claim of unjust enrichment has become the theory de jure. These plaintiffs allege that proof of price premium is unnecessary for this claim, and courts can award whatever remedy they deem is warranted.

Courts aren’t buying it. For example, in a series of three mislabeling actions against Nestlé decided in early July, Trazo v. Nestlé USA, Inc., Coffey v. Nestlé USA, Inc., Belli v. Nestlé USA, Inc., Magistrate Judge Paul S. Grewal permitted plaintiffs to pursue unjust enrichment, but precluded them from seeking nonrestitutionary disgorgement under that theory, holding that “nonrestitutionary disgorgement is not the appropriate remedy for an unjust enrichment/quasi-contract claim based on alleged mislabeling of a consumer product.” As the court explained:

The nonrestitutionary disgorgement remedy which Trazo seeks would require Nestlé “to surrender . . . all profits earned as a result of [the alleged] unfair business practice regardless of whether those profits represent money taken directly from persons who were victims of the unfair practice.” Yet, Trazo’s amended complaint specifically sought restitution, “a remedy whose purpose is ‘to restore the status quo by returning to the plaintiff funds in which he or she has an ownership interest.’” “The proper measure of restitution in a mislabeling case is the amount necessary to compensate the purchaser for the difference between a product as labeled and the product as received,” not the full purchase price or all profits. “There is no reason to go beyond the price premium, and doing so would result in a windfall to plaintiff.”

Trazo, No. 5:12-CV-02272-PSG (citations omitted).

Judge Orrick reached the same conclusion in Khasin v. R.C. Bigelow, Case No. 12-cv-02204-WHO. In Khasin, Judge Orrick rejected the plaintiff’s demand for discovery on the defendant’s profits and costs to support a claim for unjust enrichment. Unjust enrichment, Judge Orrick held, does not entitle the plaintiff to a nonrestitutionary disgorgement remedy. As the court explained, “[t]he law is clear in this District that ‘[t]he proper measure of restitution in a mislabeling case is the amount necessary to compensate the purchaser for the difference between a product as labeled and the product as received, not the full purchase price or all profits.’”

Relying on Judge Grewal’s orders in the Nestlé mislabeling cases, Judge Orrick held that, because the plaintiff was not entitled to nonrestitutionary disgorgement of profits, he was not entitled to discovery on this issue.

Judges Grewal and Orrick’s decisions confirm what many mislabeling courts have already held: the proper measure of damages in a mislabeling class action is limited to price premium. This is true regardless of the claim or theory of recovery. Plaintiffs’ attempt to bypass the careful calculations required to prove price premium under Comcast have thus far failed to gain traction.