A federal court in California has determined that some putative class claims can proceed against a company that allegedly makes false and misleading statements about its guacamole and spicy bean dip products. Henderson v. Gruma Corp., No. 10-04173 (U.S. Dist. Ct., C.D. Cal., decided April 11, 2011). The plaintiffs’ first amended complaint alleged five causes of action for violations of the state’s unfair competition and false advertising laws and the Consumer Legal Remedies Act. They claimed that the statements “0 g transfat,” “with garden vegetables,” made in “the authentic tradition,” “0 g cholesterol,” and “all natural,” as to either or both products were false and misleading.

The court first determined that the named plaintiffs, including a woman who recently brought and voluntarily dismissed similar claims against Hostess Brands, Inc., adequately alleged injury-in-fact to establish standing under Proposition 64. They alleged that they (i) “paid more for Mission Guacamole and Mission Bean Dip, and would have paid less for the products, if they had not been misled by the allegedly false and misleading labeling”; (ii) “would not have purchased the two products at the price they paid absent the advertisements with the alleged misstatements”; (iii) “instead of receiving products that were free of artificial trans fat, or receiving authentic guacamole, they purchased artificial substances containing artificial trans fats that could ‘raise[] their cholesterol and damage[] the cells in their heart and arteries’”; and (iv) “‘lost money as a result of Gruma’s deception in that Plaintiffs did not receive what they paid for.’”

The court also found that the plaintiffs had sufficiently alleged actual reliance because they allegedly read and relied on the purportedly misleading labels in making their purchases, believing they had the qualities the plaintiffs sought and for which they were willing to pay more. Thus, the court determined that the plaintiffs had met the causation requirement for Article III standing. The court rejected the defendant’s claims that the plaintiffs could not seek injunctive relief given that they are now aware of the FDA requirements for label disclosures and the products’ ingredients and have said that they will not purchase the products in the future. According to the court, if it were to construe standing so narrowly, “federal courts would be precluded from enjoining false advertising under California consumer protection laws because a plaintiff who had been injured would always be deemed to avoid the cause of injury thereafter (‘once bitten, twice shy’) and would never have Article III standing.”

The court struck the plaintiffs’ prayer for disgorgement under the false advertising law because this would include non-restitutionary sums that are unavailable under the law. And the court granted the defendant’s motion to dismiss claims based on its use of “Authentic Tradition” (found to be nonactionable puffery) and “With Garden Vegetables” (found to be a truthful statement) on its labels. According to the court, the guacamole contains avocado powder, dehydrated onion, garlic powder, and bell pepper, ingredients that “can be grown in a garden.”

The court denied the defendant’s motion to dismiss as to the plaintiffs’ claims based on the company’s use of the phrase “All Natural,” because the products allegedly contain artificial trans fats. The court also said that the plaintiffs can pursue claims that use of the word “Guacamole” on the product label could be misleading because the word appears in a font two sizes larger than the smaller “flavored dip,” and the reasonable consumer “could interpret Defendant’s statements and label to imply that the product is indeed guacamole, which it is not, as it allegedly contains less than 2% avocado powder.” The court dismissed as preempted those parts of the complaint based on the company’s use of “0 g transfat” or “0 g cholesterol” because these phrases are regulated and permitted under federal law.