Walker v. Nestle USA, Inc.

[7] 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA [10] 11 MARIE FALCONE, Case No.: 3:19-cv-723-L-DEB 12 Plaintiff, CLASS ACTION 13 v. ORDER DENYING DEFENDANT’S 14 NESTLE USA, INC., MOTION TO DISMISS 15 Defendant. [ECF No. 85] [16] 17 Pending before the Court in this putative consumer class action alleging deceptive 18 product labeling is Defendant’s motion to dismiss for failure to state a claim. (ECF no. 19 85). Plaintiff filed an opposition, and Defendant replied. (ECF Nos. 86 (“Opp’n”), 87 20 (“Reply”).) The Court decides the motion on the briefs without oral argument. See Civ. 21 L. R. 7.1(d)(1). For the reasons stated below, Defendant’s motion is denied. 22 I. BACKGROUND 23 According to the operative complaint (ECF No. 78, Third Am. Class Action 24 Compl. (“Compl.”)), Defendant is the world’s largest food company and is best known 25 for its chocolate products. It purchases approximately 414,000 tons of cocoa annually. 26 Plaintiff regularly purchased Defendant’s products such as semi-sweet morsels 27 (regular and allergen free), mini semi-sweet morsels, dark chocolate morsels, milk 28 chocolate morsels, mini marshmallows hot cocoa, rich milk chocolate hot cocoa, and 1 Nesquik. (Compl. ¶ 8.) Plaintiff claims the statements on product labels are deceptive 2 because they falsely lead consumers to believe that the products were produced in 3 accordance with environmentally and socially responsible standards. This includes such 4 references as, for example, the “NESTLÉ® Cocoa Plan™,” “UTZ Certified,” “Certified 5 through UTZ,” “Sustainably Sourced,” and statements purporting to “Support[] farmers 6 for better chocolate” and “help improve the lives of cocoa farmers.” (Id.) 7 Plaintiff includes photos of three of Defendant’s products (rich milk hot cocoa, 8 mini marshmallows hot cocoa, and Toll House morsels) as examples of the allegedly 9 false statements presented on the packaging. (Compl. ¶¶ 19-20.) The hot cocoa products 10 include the “NESTLÉ® Cocoa Plan™” seal and add immediately below: “Supporting 11 farmers for better chocolate. The NESTLÉ® Cocoa Plan works with UTZ to help 12 improve the lives of cocoa farmers and the quality of their products. 13 www.nestlecocoaplan.com[.]” (¶19.) Both packages state that the products were made 14 with “sustainably-sourced cocoa beans[.]” (Id.) The Toll House mini morsels package 15 states on the front, “Sustainably Sourced Through NESTLÉ® Cocoa Plan™ Certified 16 Through UTZ[.]” (Id. ¶20.) On the back it includes another “NESTLÉ® Cocoa Plan™” 17 seal and adds a similar statement as the hot cocoa products: “Supporting farmers for 18 better chocolate. The NESTLÉ® Cocoa Plan works with UTZ. Certified to help improve 19 the lives of the cocoa farmers and the quality of their products. 20 www.nestlecocoaplan.com[.]” (Id.) 21 According to Plaintiff, the labels are deceptive because Defendant sources its 22 cocoa from West African plantations which rely on child labor and child slave labor, 23 contribute to deforestation, and use other practices harmful to the environment. Plaintiff 24 also claims that, according to Defendant’s own statements, the child labor conditions 25 have worsened rather than improved since the inception of the “NESTLÉ® Cocoa Plan.” 26 Plaintiff claims she purchased Defendant’s chocolate products in reliance on the 27 social and environmental benefits prominently featured on the packaging and would not 28 have purchased them had she known the representations were misleading. (Compl. ¶ 8.) 1 She alleges violations of the California Consumer Legal Remedies Act, Cal. Civ. Code § 2 1750 et seq. (“CLRA”), and the Unfair Competition Law, Cal. Bus. & Prof. Code §§ 3 17200, et seq. (“UCL”), on her own behalf as well as on behalf of a putative nationwide 4 class. She seeks damages, restitution, disgorgement of profits, and injunctive relief. The 5 Court has jurisdiction under the Class Action Fairness Act, 28 U.S.C. § 1332 (d). 6 Defendant moves for dismissal for failure to state a claim pursuant to Federal Rule of 7 Civil Procedure 12(b)(6). 8 II. DISCUSSION 9 A motion under Rule 12(b)(6) tests the sufficiency of the complaint. Navarro v. 10 Block, 250 F.3d 729, 732 (9th Cir. 2001).1 Dismissal is warranted where the complaint 11 lacks a cognizable legal theory. Shroyer v. New Cingular Wireless Serv., Inc., 622 F.3d 12 1035, 1041 (9th Cir. 2010). Alternatively, a complaint may be dismissed if it presents a 13 cognizable legal theory yet fails to plead essential facts under that theory. Robertson v. 14 Dean Witter Reynolds, Inc., 749 F.2d 530, 534 (9th Cir. 1984). Generally, a plaintiff 15 must allege only “a short and plain statement of the claim showing that the pleader is 16 entitled to relief.” Fed. R. Civ. Proc. 8(a)(2); see also Bell Atlantic Corp. v. Twombly, [17] 550 U.S. 544, 555 (2007). Plaintiff’s allegations must provide “fair notice” of the claim 18 being asserted and the “grounds upon which it rests.” Bell Atl. Corp., 550 U.S. at 555 . 19 In reviewing a Rule 12(b)(6) motion, the Court must assume the truth of all factual 20 allegations and construe them most favorably to the nonmoving party. Huynh v. Chase 21 Manhattan Bank, 465 F.3d 992, 997 , 999 n.3 (9th Cir. 2006). However, legal 22 conclusions need not be taken as true merely because they are couched as factual 23 allegations. Bell Atl. Corp., 550 U.S. at 555 . Similarly, “conclusory allegations of law 24 and unwarranted inferences are not sufficient to defeat a motion to dismiss.” Pareto v. 25 Fed. Deposit Ins. Corp., 139 F.3d 696, 699 (9th Cir. 1998). [27] 1 Unless otherwise noted, internal quotation marks, citations, ellipses, brackets, and [28] 1 Defendant moves to dismiss the Complaint arguing that as a matter of law its 2 labeling is not deceptive. As a federal court sitting in diversity over Plaintiff’s California 3 state law claims, the Court applies substantive law of California, as interpreted by the 4 California Supreme Court. Moore v. Mars Petcare US, Inc., 966 F.3d 1007, 1016 (9th 5 Cir. 2020). 6 The California consumer protection laws “prohibit not only advertising which is 7 false, but also advertising which, although true, is either actually misleading or which has 8 a capacity, likelihood or tendency to deceive or confuse the public.” Kasky v. Nike, Inc., [9] 27 Cal.4th 939, 951 (2002). Whether a business practice is deceptive or misleading 10 under the CLRA or UCL is governed by the reasonable consumer test. Moore, 966 F.3d 11 at 1017 (applying Cal. law). In this regard, a plaintiff 12 must show that members of the public are likely to be deceived. This requires more than a mere possibility that [the defendant’s] label might [13] conceivably be misunderstood by some few consumers viewing it in an 14 unreasonable manner. Rather, the reasonable consumer standard requires a probability that a significant portion of the general consuming public or of [15] targeted consumers, acting reasonably in the circumstances, could be misled. [17] Id. 18 Although “the primary evidence in a false advertising case is the advertising 19 itself[,]” Brockey v. Moore, 107 Cal.App.4th 86, 100 (2003), “whether a business practice 20 is deceptive will usually be a question of fact not appropriate for decision at the pleading 21 stage.” Williams v. Gerber Prods. Co., 552 F.3d 934, 938-39 (2008); Comm’te on 22 Children’s Television, Inc. v. Gen. Foods Corp., 35 Cal.3d 197, 211-15 (1983), 23 superseded by statute on other grounds, see Branick v. Downey Sav. & Loan Ass’n., 39 24 Cal.4th 235 (2006); Linear Technol. Corp. v. Applied Materials, Inc., 152 Cal. App. 4th 25 115, 134-35 (2007). 26 Plaintiff claims Defendant’s advertising statements, read in context, are deceptive 27 in part because they suggest that the cocoa in Defendant’s products was sourced in a way 28 that supports and helps improve the lives of farmers, when it was sourced with child 1 labor, including child slavery and hazardous child labor. (Compl. ¶¶ 11-16.) Plaintiff 2 alleges that incidence of child labor increased between 2009 and 2014 (id. ¶¶ 14-15) and 3 since the inception of the “NESTLÉ® Cocoa Plan” (id. ¶ 13).2 In support of the latter 4 contention, Plaintiff included a chart from Defendant’s website. (Id.) 5 Defendant requests the Court to consider the chart in the context of Defendant’s 6 website as it relates to the “NESTLÉ® Cocoa Plan.” (ECF No. 85-1 (“Mot.”) at 5; ECF 7 85-4 (Def’s Ex. A).) On a Rule 12(b)(6) motion courts generally may not consider 8 material outside the complaint without converting the motion to a motion for summary 9 judgment. Khoja v. Orexigen Therapeutics, Inc., 899 F.3d 988, 998 (9th Cir. 2018). An 10 exception to this rule are materials incorporated by reference into the complaint. Id. 11 Defendant claims that parts of its website are incorporated by inclusion of the chart. 12 [I]ncorporation-by-reference is a judicially created doctrine that treats certain documents as though they are part of the complaint itself. The [13] doctrine prevents plaintiffs from selecting only portions of documents that 14 support their claims, while omitting portions of those very documents that weaken—or doom—their claims. [¶] Although the incorporation-by15 reference doctrine is designed to prevent artful pleading by plaintiffs, the 16 doctrine is not a tool for defendants to short-circuit the resolution of a wellpleaded claim. [¶] For this same reason, what inferences a court may draw [17] from an incorporated document should also be approached with caution. ... 18 [Moreover,] it is improper to assume the truth of an incorporated document if such assumptions only serve to dispute facts stated in a well-pleaded [19] complaint. This admonition is, of course, consistent with the prohibition 20 against resolving factual disputes at the pleading stage. [21] 22 Khoja, 899 F.3d at 1002-03 . Defendant argues that its Exhibit A contradicts Plaintiff’s 23 contention that the child labor problem had grown more severe and instead shows that 24 Defendant improved the lives of cocoa farmers, thus negating Plaintiff’s claim of 25 misleading advertising. Plaintiff does not object consideration of Exhibit A, but disputes [27] 2 The “NESTLÉ® Cocoa Plan” has been in operation at least since 2009. (See ECF [28] 1 Defendant’s argument and objects resolving disputed factual issues at the pleading stage. 2 (See Opp’n at 23-25.) Accordingly, the Court refers to Defendant’s exhibit to provide 3 context for Plaintiff’s allegations but does not assume the truth of the representations 4 made therein to dispute factual allegations. 5 The exhibit states that the “NESTLÉ® Cocoa Plan” was created in 2009 “to make 6 cocoa farming more sustainable [and] improve the lives of farmers[.]” (Def.’s Ex. A at 7 3.) At the same time, it admits that Defendant’s cocoa is sourced through child labor, 8 including “hazardous work.” (Id.) It does not mention child slavery. (See id. at 1-16.) 9 Defendant’s effort consists of trying to track the number of children working on the 10 cocoa farms, educating families “what children are not allowed to do and why[,]” 11 providing “help as appropriate[,]” tracking “if the child has stopped doing hazardous 12 work[,]” and “measur[ing] effectiveness, i.e., how many children have been prevented 13 from entering child labor or stopped doing hazardous work.” (Id. at 8-10 (emphases 14 added).) The chart referenced in the Complaint and included in the exhibit shows that the 15 “child labor rate” increased from 17% in 2017 to 23% in 2019. (Id. at 6.) 16 Defendant’s exhibit does not support dismissal of the complaint. First, in addition 17 to depicting Defendant’s chart (Compl. ¶ 13), the Complaint includes specific allegations 18 regarding child labor, including child slavery and hazardous child work, and cites third 19 party sources in support of the contention that the incidence of child labor increased since 20 2009 (id. ¶¶ 11-12, 14-16). These specific allegations alone are sufficient to support 21 Plaintiff’s claim that Defendant’s advertising message of sustainable cocoa production 22 and support for cocoa farmers was misleading. 23 Second, even viewed in the context of Defendant’s Exhibit A, Defendant’s chart 24 cited in the Complaint (Compl. ¶ 13) does not contradict Plaintiff’s claim. Consistent 25 / / / / / [28] 1 || with Plaintiff’s other allegations, the chart states that the child labor rate increased. 2 || Defendant’s exhibit does not contradict this expressly or implicitly. 3 In light of the foregoing, Plaintiff has plausibly alleged that the challenged 4 ||statements were deceptive. 5 CONCLUSION 6 Defendant’s motion to dismiss is denied. [7] 8 IT IS SO ORDERED. 9 ||Dated: July 13, 2023 pee ep? 11 H . James Lorenz, 1D United States District Judge [25] 27 13 Even if Defendant’s exhibit had cast doubt on the veracity or accuracy of 28 Plaintiff's allegations, it would merely have highlighted a disputed issue of fact not suitable for resolution at the pleading stage.