United States: Food And Beverage Law Update: April 2016

Nathan Adams IV is a Partner and Joshua Aubuchon is an Associate in Holland & Knight's Tallahassee office
John Decker is a Partner in Holland & Knight's Atlanta office
Katherine Healy Marques is an Associate in Holland & Knight's New York office

FINANCE

PACA Liens Could Impact Financing Terms

The Perishable Agricultural Commodities Act (PACA) is a federal law enacted in 1930 with the goal of protecting suppliers and sellers of agricultural goods from the effects of nonpayment by certain third parties. PACA requires the establishment of a statutory trust for the benefit of unpaid suppliers or sellers of perishable agricultural commodities, such as fruits and vegetables or products. The statutory trust provides its beneficiaries with superior rights over other creditors, including secured creditors. As such, in lending transactions to purchasers of perishable goods, such as restaurants, secured creditors will try to mitigate the risk of unpaid PACA claims owed by their borrowers. In loan facilities to restaurant companies, secured lenders may require specific covenants in their loan documents requiring restaurant borrowers to provide timely notice of any PACA claims they receive from their suppliers. They also may require the establishment of reserves to cover the costs of any such claims.

The amount of the claim may include the cost of the goods themselves in addition to transaction costs such as shipping fees and taxes. Lenders providing loan facilities secured by real property will routinely require a mortgagee policy of title insurance. Frequently, the title insurer will exclude from coverage liens arising pursuant to PACA. If the lender will not accept an exclusion from coverage, the restaurant borrower may need to obtain a lien waiver from the supplier or a separate indemnity for the benefit of the insurer. Additionally, the lender may require an accounting of the borrower's supply contracts that could potentially result in PACA lien claims, and also require that the borrower establish that any such claims be paid current prior to closing. Such payments may be difficult to ascertain depending on the supplier payment schedule. Lenders and borrowers potentially subject to PACA lien claims should carefully consider the implications for financing structures and consult experienced legal counsel with knowledge of the PACA framework and related case law.

John A. Decker

LABOR AND EMPLOYMENT

Court Finds Employees Legally Protected When Disparaging Employer Products

A recent decision by the U.S. Court of Appeals for the Eighth Circuit in Miklin Enterprises, Inc. v. National Labor Relations Board affirmed the 2014 National Labor Relations Board (NLRB) decision requiring a Jimmy John's franchise owner to, among other things, rehire workers who had posted flyers all around their neighborhood suggesting that Jimmy John's sandwiches were made by sick workers. The flyer said that Jimmy John's workers "don't get paid sick days" and "can't even call in sick," and also stated: "We hope your immune system is ready because you're about the take the sandwich test ... Help Jimmy John's workers win sick days."

The court affirmed the NLRB's decision finding that the workers who posted these flyers were protected under Section 7 of the National Labor Relations Act, which guarantees all employees – whether unionized or not – the right to engage in "concerted activities for ... mutual aid or protection," including campaigning for better working conditions. This decision held that such protection could even extend to the kind of derogatory public statements made by the Jimmy John's workers at issue because the court found that the statements had some element of truth, were not intentionally malicious and were connected to a labor dispute.

This decision continues the trend of judicial enforcement of the NLRB's expansion of Section 7 protection for insubordinate or disparaging employee behavior directed at employers – whether made in person or over social media. In light of this development, employers should carefully consider the federal labor law implications of their employment policies and disciplinary decisions.

Katherine H. Marques

CLASS ACTIONS

Litigating Food and Beverage Labels

An increasing number of consumers demand healthier foods. They are behind an avalanche of lawsuits claiming that labels are deceptive and misleading about the nutritional content and value of food and beverages. Terms such as "all natural," "high in fiber," "fortified," "enriched," "light" or "lite," and "high potency" all have come under scrutiny. In addition, the food and beverage industry has drawn a new battle line relating to the advent of state and local labeling laws stricter than federal law. Federal preemption arguments are not commonly succeeding but challenges to class certification have stymied several lawsuits, leading to ever more creative litigation approaches.

The current federal requirements for "health claims" are contained in the Nutrition Labeling and Education Act (NLEA), 21 U.S.C. §343 et seq. and 21 C.F.R. Part 101 (see §101.14), and for "organic" food labeling in 7 C.F.R. Part 205. A "health claim" is defined, in short, as any claim made on the label or in labeling of a food that characterizes the relationship of any substance to a disease or health-related condition, 21 C.F.R. §101.14(a)(1). Several terms such as "natural" are not defined by the U.S. Food and Drug Administration (FDA) or U.S. Department of Agriculture (USDA). The FDA has adopted a "policy statement" considering "natural" to mean that "nothing artificial or synthetic" is included. Courts have declined to accord it preemptive weight. For example, in Holk v. Snapple Beverage Corp., 575 F. 3d 329 (3d Cir. 2009), the U.S. Court of Appeals for the Third Circuit overruled the district court after it adopted the defendant's preemption argument and dismissed the case for consumer fraud and breach of warranty when the defendant used "all natural" on the label of beverages containing high fructose corn syrup (HFCS).

As another example, in Grocery Mfrs. Ass'n v. Sorrell, 102 F. Supp. 3d 583 (D. Vt. 2015), the court disagreed with the industry that a Vermont statute was preempted, requiring certain manufacturers and retailers to state whether raw and processed food sold in Vermont was produced through genetic engineering, rather than "natural." However, the court did find that the industry stated a viable First Amendment and void for vagueness challenge. Likewise, in Garcia v. Kashi Co., 43 F. Supp. 3d 1359 (S.D. Fla. 2014), the court ruled that FDA regulations and policy allegedly permitting "natural" foods to contain synthetic ingredients and processing aids as long as they are normally expected in the food did not preempt the plaintiff's deceptive trade practice claim that a reasonable consumer would not expect pyridoxine hydrochloride, alpha-tocopherol acetate, hexane-processed soy ingredients or calcium pantothenate in "all natural" labeled food.

Vermont-styled regulations regarding genetically modfied organisms (GNOs) are spreading to other states, such as Connecticut and Maine. Meanwhile, Grocery Mfrs. is fully briefed and argued on appeal.

The food and beverage industry has had more success defending against the requirements for class certification in label cases. For example, "ascertainabilty" requires plaintiffs to demonstrate that members of a proposed class are readily identifiable by objective criteria and that it is administratively feasible to determine whether a particular person is a member of the class. But consumers rarely retain receipts of their food purchases and the labels on the products they buy change. Thus, in Kosta v. Del Monte Foods, Inc., 308 F.R.D. 217 (N.D. Cal. 2015), the court agreed with the defendant that requiring a potential class member to pass a "memory test" to identify which product, flavor and label variation he or she purchased weighed against class certification. Labeling variability also defeated "commonality," or the requirement of common questions of fact and law, for lack of evidence that all of the class members confronted the same objectionable messages.

Variation also may create standing problems for plaintiffs. For example, in Jones v. ConAgra Foods, Inc., No. C 12-01633, 2014 WL 2702726 (N.D. Cal. June 13, 2014), the plaintiff admitted that he purchased just two of the many products that he challenged, and equivocated on whether the "100% natural" label was critical to even those purchases of Hunt's products. With respect to "predominance," another requirement for class certification, the court observed that there is a lack of cohesion among class members when they are exposed to label statements that vary not only objectively by variety and time period, but also subjectively according to consumers' understanding of those representations.

Variety also impacts the damages analysis. In Brazil v. Dole Packaged Foods, LLC, No. 12-CV-01831-LHK, 2014 WL 5794873 (N.D. Cal. Nov. 6, 2014), the court decertified the damages class under the predominance requirement because the expert's regression model failed sufficiently to isolate the price impact of the defendant's use of the "All Natural Fruit" labeling statement from other variables, such as brand, consumers' disposable income, defendant's advertising expenditures, prices of competing and complementary products and population. The plaintiff had promised the court a before-and-after regression to demonstrate the effect of the label on sales, but settled on a hedonic regression analysis to show the effect on price. Although this court and others (see Randolph v. J.M. Smucker Co., 303 F.R.D. 679 (S.D. Fla. 2014)) did not reject the regression model per se, the plaintiff could not sustain class certification after failing to measure only those damage attributable to the defendant's conduct. The same problem plagued Jones' far more simple comparison of the challenged products with a single generic comparator.

Jones has been appealed and briefed. Naturally, the appellate court's ruling could have an important impact on the food and beverage industry and its efforts to keep class actions relating to labeling at bay.

Nathan A. Adams IV

BEVERAGES

Franchise Laws and Craft Breweries

Unknown to most outside the beer industry, the "franchise laws" refer to the statutory restrictions that govern the relationships between brewers and distributors, and limit or restrict the ability of a brewer to change their distributor. Following the end of Prohibition, the number of breweries dwindled through consolidation until the market was dominated by just a few national players. This prompted the push for state franchise laws, which were enacted during the 1980s as a way to protect distributors from dependence on their single brewing partner. These laws made it extremely difficult for a distributor and brewer to part ways without significant litigation.

These laws have not kept up with the explosive growth of craft breweries in the United States, now at a historical high of 4,269 at the end of 2015. With so many options available, distributors no longer need to be beholden to one of the two multinational brewing conglomerates. This rise in craft beer productivity also has increased competition for shelf space, making the ability of a brewery to fairly choose their distributor even more critical. The lack of real choice in options for these craft brewers has illustrated the great need for franchise reform to create more accountability between brewers and their distributors.

Joshua D. Aubuchon

REGULATION AND LEGISLATION

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions