Understanding Labeling Laws for Food to Reduce Your Risk of a Lawsuit

One of the first successful labeling lawsuits, filed in 2008, involved a large yogurt manufacturer. In that case, the plaintiff alleged that the defendant company manufactured and marketed yogurt products with unproven health claims and sold them at a premium and, in doing so, violated California’s CLRA and UCL. In 2010, the case settled for $45 million. This case surely drew the attention of litigators nationwide and served as a proof of concept for the lucrative mislabeling class action. As is often the case, settlements like this lead to a feeding frenzy of plaintiffs’ attorneys asserting related claims in hopes of capitalizing on the publicity and notoriety of the bellwether case.

In the decade since, there have been dozens—perhaps hundreds—of class action lawsuits filed against companies throughout the food industry. Whatever the number is, it is only the tip of the iceberg. That is because most claims are settled before a lawsuit is filed. Many companies now consider these claims, regardless of merit, as a cost of doing business. Generally, there are two types of labeling lawsuits. The most common arise from unregulated—but allegedly misleading—labeling claims. These include lawsuits arising from claims such as “natural,” or “healthy.” So-called “natural” lawsuits, as the name implies, involve products that claim to be “natural.” In most cases, these lawsuits target products that are advertised as natural but contain artificial preservatives, GMOs, or other synthetic ingredients. Notably, FDA has still not formalized a definition for “natural” foods. Products utilizing claims such as “nutritious,” “healthy,” and “wholesome” have faced similar lawsuits.

The second type of lawsuit involves labeling claims that explicitly violate FDA rules or regulations. These often involve allegations that a label fails to disclose the presence of ingredients in the ingredient statement, makes unauthorized health claims, or makes expressly prohibited health claims. It might seem that these lawsuits would be easier to avoid than those addressing unregulated claims, given that they involve an alleged violation of the regulations, as opposed to the mere allegation that a claim is “misleading,” but that is not necessarily the case. The trouble is that the labeling regulations are so complex that they can often be interpreted in multiple ways. Thus, even where a company has taken great care to comply with all labeling regulations, the cost of successfully defending a class-action lawsuit can substantially exceed the cost of simply settling it.

Plaintiffs’ attorneys and consumer advocacy organizations continue to actively search out any label that could run afoul of labeling regulations. Until the law is amended in such a way that plaintiffs’ lawyers are disincentivized from bringing meritless claims, food companies will continue to face the risk of labeling lawsuits.

How to Avoid Labeling Lawsuits

First, hiring experts and consultants to review your labeling on at least an annual basis can help you avoid labeling issues. Often, avoiding labeling claims means avoiding the scrutiny of plaintiffs’ attorneys. The simple truth is that the costs of responding to a claim tend to far exceed the cost of preventing one. Taking steps to ensure your labels are accurate and compliant with all regulations is the best way to avoid future issues.

Second, well-written supplier agreements that include the requisite guarantees, warranties, and indemnification clauses are critical. Requiring the entities who develop your labels to contractually indemnify you in the event of a claim is a smart, simple, and practical way to reduce your risk.

Third, insure against potential claims. Insurance is the first and best line of defense, but great care is required in selecting policies. More than ever, insurance policies exclude coverage for labeling claims. Have your attorney review any insurance policies and confirm that the policy provides the coverage you expect.