Crafty Lawyers Feed Off Craft

September 22, 2015Food Processing

In recent years, consumer fraud class actions challenging food and beverage labeling, focusing on claims such as "natural," and "healthy," have flooded courts nationwide. Plaintiffs' lawyers have leveraged ambiguous or non-existent federal labeling standards to claim that consumers were misled and paid a premium for products, which, for example, contained processed ingredients that were not "natural."

Unfortunately, the only real winners in these legal battles have been the plaintiffs' lawyers who collected millions of dollars in legal fees. Consumers who take the time to make a claim against a settlement fund have received payments that are a fraction of the overall amount in the potential fund.

Recently, plaintiffs' lawyers have become even more creative and are now challenging manufacturers' label claims about how products are actually made. Alcoholic beverage companies, including beer, whiskey and vodka manufacturers, are facing lawsuits for claiming that mass-produced products were "craft," "handmade" or "small-batch." Also, plaintiffs' lawyers have challenged major food chains for selling "artisanal" products that are made in alleged assembly line processes.

Any large company that uses this type of terminology exposes itself to legal challenges that it is deceiving the public by suggesting that there is something unique and higher quality about how the company manufactures its goods. In the absence of a formalized legal standard, the use of terminology that "puffs" the quality of a product using debatable adjectives -- even where there are good reasons to differentiate the products -- can expose the company to potential lawsuits. Any lawyer, working with a willing consumer to serve as the "class representative," can drop a costly class action on the doorstep of almost any company.

Every citizen in the United States has benefited from class actions. The class action procedure makes the prosecution of the claims possible by enabling an attorney to pool them together into one large case. Class actions have improved working conditions, cleaned up toxic wastes, and enforced civil rights.

Unlike the usual civil settlements that lawyers negotiate every day behind closed doors, judges must approve a class action settlement to make sure its terms are fair to the entire class. However, after the judge signs off on a class settlement agreement, little information is available about how many class members actually receive compensation and to what extent.

An analysis of the scarce information available on class settlement payouts does not paint a pretty picture. We find cases in which small cash amounts are rewarded to a consumer class that is largely unidentified. In many instances, only a small percentage of settlement awards actually go to consumer class members. While the plaintiffs' lawyers can receive millions of dollars in compensation, only a fraction of the class may take home any compensation.

The class take rate typically depends on several key factors: whether the addresses of consumer class members are known or unknown; the amount of money that can be recovered by a class member filing a claim (that is, is it worth taking the time to fill out the form?); the ease of submitting a claim; and the amount of time allocated for filing claims.

Food cases, in which there are no records of the names and addresses of the consumers, and the individual payments are relatively low, will have the lowest take rates. It is difficult to advise a consumer public who did not register their purchases that a settlement has been reached. Even if the consumer sees the notice in a published advertisement, it is still questionable whether a consumer will make the effort of filling out the claims forms, no matter how convenient the system may be for filing a claim.

So what should be done?

Congress and regulatory agencies should develop clear and precise regulations that spell out the adjectives that companies can use in labeling and advertising, and under what circumstances. Ambiguous or non-existent standards are an invitation for litigation.

In cases involving settlements with monetary benefits, the courts should insist on actual information on claims filed to determine the benefit to class members and should use that information both to place a value on the settlement and to award attorney fees. The courts should be active gate keepers in discouraging legal actions that wind up with millions of dollars for the lawyers, and little or nothing for consumers.

"Crafty" plaintiffs' lawyers should be restrained from their push to declare open season on the food industry by playing off typical promotional claims that may appear on a package.