Court Rulings: Damages Apportioned Along Supply Chain in E. Coli Litigation, Taco Bell Cleared of Unauthorized Text Message Claims, “Heart Attack” and “Bypass” Sandwich Dispute Resolved, False Ad Suit over Muscle Milk® to Proceed, Skinny Girl Margarita® “All Natural” Claims Survive Motion to Dismiss, Conditions Imposed on Pesticide Spraying

The Wisconsin Supreme Court has decided which of the parties sued over an E. coli outbreak that sickened dozens of Sizzler Steak House patrons in 2000 and caused the death of a 3-year-old are liable for consequential damages, indemnity and costs under various supply chain and insurance contracts. Kriefall v. Sizzler USA Franchise, Inc., Nos. 2009AP1212 & 2010AP491 (Wis., decided June 29, 2012). Among other matters, the court ruled that Sizzler was entitled to (i) recover consequential damages for the meat supplier’s breach of implied warranties despite limiting language in the continuing guaranty provision of their contract, and (ii) indemnity from the meat supplier for Sizzler’s advance partial payment to the family of the deceased child “because the payment was not voluntary and the jury found that Sizzler was zero percent liable for the E. coli contamination.” The court also ruled that Sizzler could not recover its attorney’s fees despite a jury finding that it was not responsible for the contamination. According to the court, Sizzler did not meet a narrow exception to the American rule which requires each party to pay its own costs and fees.

A federal court in California has dismissed putative class claims alleging that Taco Bell Corp. violated the Telephone Consumer Protection Act when Nachos BellGrande® promotional text messages were sent in 2005 to 17,000 individuals in the Chicago area. Thomas v. Taco Bell Corp., No. 09-cv-01097 (C.D. Cal., decided June 25, 2012). According to the court, to hold the company vicariously liable under the law as the person making a call using an automatic dialing system to a number for which the called party is charged for the call, the plaintiff had to show that the company controlled the manner and means of the text-message campaign. While a company representative knew about the campaign and approved and funded it, Taco Bell did not direct or supervise the text-message campaign which was carried out by a separate local owners’ advertising entity in which the representative had a minority vote, the entity’s advertising agency and the company that actually prepared and sent the text message.

A federal court in New York has determined that a kosher delicatessen has not infringed the trademark of a chain of Heart Attack Grill restaurants, one of which offers patrons the Single Bypass Burger, Double Bypass Burger, Triple Bypass Burger, and Quadruple Bypass Burger. Lebewohl v. Heart Attack Grill LLC, No. 11-3153 (S.D.N.Y., decided July 5, 2012). Further details about the case appear in Issue 394 of this Update. According to the court, the New York City deli’s current use of the Instant Heart Attack Sandwich mark does not violate the defendant’s rights, the deli may “modestly expand its use of that mark,” and it may lawfully use the Triple Bypass Sandwich mark on a limited basis under a concurrent use arrangement agreed to by the parties. So ruling, the court rejected the U.S. Patent and Trademark Office’s determination that the deli’s use of the Instant Heart Attack mark was likely to cause confusion; the court found that the products are not sold in the same locations and the companies pitch to “vastly different consumers.”

Ruling for a second time on the adequacy of a putative class claimant’s pleading that certain Muscle Milk® product representations are false and misleading, a federal court in California has granted in part and denied in part the defendant’s motion to dismiss. Delacruz v. Cytosport, Inc., No. 11-3532 (N.D. Cal., decided June 28, 2012). Additional information about the court’s ruling on the plaintiff’s first amended complaint appears in Issue 436 of this Update. The court found that, by adding to her complaint information about Food and Drug Administration rules regarding what constitute healthy ingredients, the plaintiff provided objective criteria by which the court could assess whether the term “healthy fats” on a product label could constitute deceptive labeling. The court dismissed claims as to misrepresentations based on the company’s “good carbohydrates” statement, an allegation that “0g Trans Fat” on a product label “distracts consumers from the product’s unhealthy fat and saturated fat content,” and the claim that a long-standing advertising campaign misled the public. The court ordered the plaintiff to notice any motion for class certification for hearing on November 8, 2012.

A federal court in New Jersey has determined that New Jersey plaintiffs who allege that Skinny Girl Margarita® products are falsely marketed as “all natural” because they contain a chemical preservative may assert a claim for unjust enrichment under New Jersey law. Stewart v. Beam Global Spirits & Wine, Inc., No. 11-5149 (D.N.J., decided June 29, 2012). The court rejected the defendants’ argument that it is a “‘well-settled’ principle of New Jersey law that a plaintiff who purchases a product from a third-party retailer may not maintain an unjust enrichment claim against the product manufacturer.” Unlike the defendants, the court looked to state-court cases and explained how they differed from a case involving an allegedly falsely marketed product purchased through a retailer. In this regard, the court stated, “This Court is of the view that it would be inequitable to suggest that the Beam defendants can insulate themselves from liability on an unjust enrichment claim simply by asserting that retail sales by liquor stores cut off any relationship between the consumers and the manufacturer. This is particularly true in this case where Plaintiffs cannot seek a remedy directly from the liquor stores based on misrepresentations allegedly made by the Beam Defendants themselves as to the ‘all-natural’ nature of Skinny Girl Margarita.”

A Colorado court has allowed the owner of a small farm to spray his property
with a pesticide containing malathion to kill mosquitoes, but has imposed
stringent conditions so that the spray will not drift onto an adjacent organic
farm property. Macalpine v. Hopper, No. 10CV220 (Colo. Dist. Ct., Delta Cty.,
decided July 5, 2012). One of the organic farm’s owners has leukemia and has
apparently been advised to avoid pesticides that will allegedly further impair
his suppressed immune system, leaving him susceptible to infection. The
pesticide-spraying farmer is married to a woman who contracted West Nile
virus from a mosquito and has been warned to avoid further exposure due to
her severe reaction. The couple cares for a granddaughter whose physical and
behavioral disorders require her to be inside when mosquitoes are inactive
and who finds some relief from outside activity during the evening. Inexpert
initial spraying contaminated the organic farm, so the court required future
spraying to be conducted by properly licensed individuals only, under certain
weather conditions and at specified distances from the organic farm.