A recent decision from the Southern District of California highlights two challenges with obtaining preliminary approval of nationwide food misbranding class action settlements. On December 16, 2015, in Peterson v. CJ America, Inc. d.b.a. CJ Foods Inc., Case No. 3:14-cv-02570, U.S. District Judge Dana M. Sabraw denied preliminary approval of the proposed class action settlement because of two defects: (1) Plaintiff failed to show that California law should apply to the non-California class members, as required to satisfy the predominance requirement; and (2) the cy pres recipients did not satisfy the Ninth Circuit’s standards.
Peterson is a false advertising case about the “NO MSG ADDED” label on certain Annie Chun soup products, which Plaintiff claims contain ingredients that have MSG. Plaintiff brought claims under California’s Consumers Legal Remedies Act (CLRA), False Advertising Law (FAL), and Unfair Competition Law (UCL), as well as a breach of express warranty claim. After Plaintiff survived a motion to dismiss, the parties filed a notice of settlement for a nationwide class that included: a $1.5 million settlement fund that covered attorneys’ fees and expenses, an incentive award to Plaintiff, settlement administration expenses, and cash awards to class members; a provision that remaining funds would be converted to a cy pres award and distributed evenly to the National Farm to School Network, the Mayo Clinic, and Action for Healthy Kids; and an agreement that CJ Foods would not include the phrase “NO MSG ADDED” on its labels, or market or advertise its products as having “NO MSG ADDED” for a period of three years.
Plaintiff then filed an unopposed motion for preliminary approval. The court determined that Plaintiff had satisfied Rule 23(a) but not Rule 23(b)’s predominance requirement, because he had not demonstrated that California had significant contacts that created state interests such that applying California law to non-California class members was neither arbitrary nor fundamentally unfair. Although CJ Foods’ products were sold in California and it had a California office, the company was headquartered in South Korea and the record did not show where the marketing or labeling decisions for the products at issue were made.
In making its preliminary fairness determination, the court took issue only with the settlement’s cy pres beneficiaries, concluding that they did not meet the Ninth Circuit’s requirement of having a driving nexus with the class because the underlying statutes in this case focused on fair business competition and protecting consumers from unfair and deceptive business practices. The court noted that Plaintiff had not provided specific evidence to support his assertion that the selected beneficiaries helped consumers understand food labels. Accordingly, the proper cy pres recipients in this case would be organizations protecting consumers from false advertising, not charities devoted to helping needy, underserved populations.