Freedline v. O Organics LLC ( 2020 )

1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 7 GARY FREEDLINE, Case No. 19-cv-01945-JD 8 Plaintiff, ORDER RE NATIONAL CLASS v. 9 Re: Dkt. No. 32 10 O ORGANICS et al., Defendants. 11 12 13 In this putative class action, plaintiff Gary Freedline alleges that defendants O Organics 14 LLC and Lucerne Foods, Inc., O Organics’ parent company (together, O Organics), misled 15 consumers about the alcohol and sugar content in their kombucha beverage products. Dkt. No. 1. 16 Freedline sued on behalf of a California consumer class and a national consumer class for claims 17 under the California Consumers Legal Remedies Act (CLRA), the Unfair Competition Law 18 (UCL), the False Advertising Law (FAL), breach of express and implied warranties, negligent 19 misrepresentation, common law fraud, and unjust enrichment. Id. The Court dismissed the unjust 20 enrichment claim with prejudice, and all claims for sugar content with leave to amend. Dkt. No. 21 27. Freedline chose not to amend, so the sugar claims are now out of the case. The Court 22 declined to take up O Organics’ challenge to a national class for the California state law claims 23 because the parties’ arguments were underdeveloped. Id at 7. 24 The Court invited supplemental briefs on the national class issue, which the parties filed. 25 Dkt. Nos. 32, 34, 35. The specific question at hand is whether Freedline may bring claims under 26 California state law on behalf of a national class of consumers. The parties’ familiarity with the 27 record is assumed, and the answer is no. 1 O Organics challenges the national class allegations under Federal Rules of Civil 2 Procedure 12(b)(6) and 12(f). Although some courts have accepted Rule 12(f) as a basis for 3 deciding the appropriateness of class action issues, this Court considers it a poor fit for that. See 4 Milan v. Clif Bar & Co., No. 18-CV-02354-JD, 2019 WL 3934918, at *3 (N.D. Cal. Aug. 20, 5 2019). Rule 12(f) is directed to striking “from a pleading an insufficient defense or any redundant, 6 immaterial, impertinent, or scandalous matter.” This plain language does not apply in an obvious 7 way to a technical legal dispute about choice of law for a national consumer class. An allegation 8 that California state law claims might be brought on behalf of a national class is hardly the stuff of 9 scandal or impertinence. 10 Rule 23 proceedings are the optimal basis for deciding this issue. See Milan v. Clif Bar & 11 Co., No. 18-CV-02354-JD, 2020 WL 5760450, at *3 (N.D. Cal. Sept. 28, 2020). Even so, a Rule 12 12(b)(6) motion may also be appropriate for evaluating the adequacy of a national state-law class 13 allegation. The Court has considered similar class allegations in other cases under Rule 12(b)(6), 14 and will do the same for this motion. See, e.g., Van Mourik v. Big Heart Pet Brands, Inc., No. 15 3:17-CV-03889-JD, 2018 WL 1116715, at *2 (N.D. Cal. Mar. 1, 2018); In re Capacitors Antitrust 16 Litig., 106 F. Supp. 3d 1051, 1073-74 (N.D. Cal. 2015). The Court provided the governing 17 standards for Rule 12(b)(6) in the prior dismissal order, see Dkt. No. 27 at 3, and applies them 18 here. 19 Freedline’s national class allegations are straightforward. As detailed in the prior order, 20 the complaint plausibly alleges that the labels on O Organics’ kombucha drinks falsely represented 21 that they had an alcohol content below 0.5 percent. Dkt. No. 27. Because O Organics is a national 22 supplier of kombucha, Dkt. No. 1 ¶ 6, Freedline seeks to bring the California state law claims on 23 behalf of “all persons in the United States who purchased O Organics Kombucha beverages,” id. ¶ 24 32. Freedline himself is a “citizen of California” who purchased these drinks only from “stores 25 within California.” Id. ¶ 5. 26 There is no doubt that Freedline may bring California-law claims on behalf of other 27 California consumers, but the putative class stops at the state border unless he can establish that 1 CV-03343-JD, 2020 WL 1478374, at *3 (N.D. Cal. Mar. 26, 2020). Freedline does not argue 2 otherwise. See Dkt. No. 34 at 3. 3 The national class raises a choice-of-law question. Because this case is before the Court 4 under the Class Action Fairness Act, an offshoot of diversity jurisdiction, the Court may apply 5 California law to nationwide class claims only if that would be consistent with California’s 6 choice-of-law principles. See In re Hyundai & Kia Fuel Econ. Litig., 926 F.3d 539, 561 (9th Cir. 7 2019) (en banc); In re Facebook Biometric Info. Privacy Litig., 185 F. Supp. 3d 1155, 1167-68 8 (N.D. Cal. 2016). These principles require the Court to take into account (1) any material 9 differences between California law and the laws of other states and (2) the degree to which other 10 states would be interested in having their own law apply, so that (3) the Court may apply “the law 11 of the state whose interests would be ‘more impaired’ if its law were not applied.” Washington 12 Mut. Bank, FA v. Superior Court, 24 Cal. 4th 906, 919-20 (Cal. 2001) (citation omitted). 13 Differences are material when they “spell the difference between the success and failure of a 14 claim.” Mazza v. Am. Honda Motor Co., 666 F.3d 581, 591 (9th Cir. 2012). O Organics is calling 15 for the application of other states’ laws, and does not argue that applying California law to the 16 nationwide class would be unconstitutional, so it bears the burden of showing that California law 17 should not apply. See id. at 589-90. 18 The first inquiry in the choice-of-law analysis is satisfied here. O Organics has identified 19 significant differences in reliance and scienter requirements, and remedies, between the California 20 consumer protection statutes in the complaint and corresponding statutes in other states -- 21 differences that the Ninth Circuit has already held to be material for choice-of-law purposes. See 22 Dkt. No. 32 at 6; Mazza, 666 F.3d at 591. For the common-law claims in the complaint, “It is 23 well-established that these common law actions vary materially among the states.” Van Mourik, 24 2018 WL 1116715, at *2. 25 The second inquiry also weighs against using California law nationally. Every state has a 26 “strong interest” in applying its consumer protection laws to transactions within its borders that 27 affect its residents. Mazza, 666 F.3d at 592. This is because it is a “principle of federalism that 1 its borders,” and set its own “baseline of corporate liability for consumer harm” so as to balance 2 consumer protection with a favorable business environment. Id. at 591-92 (internal citation and 3 quotations omitted). 4 Consequently, California law may be used for the national class only if “the interests of 5 other states are not found to outweigh California’s interest in having its law applied.” Washington 6 Mut. Bank, 24 Cal. 4th at 921. Freedline says this factor tilts in his favor because O Organics 7 “brews and bottles its O Organics Kombucha beverages in California,” is headquartered there, and 8 does a “substantial” amount of its “advertising, labelling, manufacturing, and testing of O 9 Organics Kombucha” in California, Dkt. No. 1 ¶¶ 6-8, and because O Organics’ “misleading 10 marketing” activities “emanated from” its California headquarters, id. ¶ 9. 11 Even so, that is not enough to overcome other states’ interests in having their own 12 consumer protection laws applied to their residents. See Mazza, 666 F.3d at 590, 594 (California 13 law inapplicable to nonresidents’ UCL, CLRA, and FAL claims against California corporation); 14 Van Mourik, 2018 WL 1116715, at *2 (Texas law applied to Texan’s consumer protection claims 15 despite allegation that marketing and advertising of defendant’s products “emanates” from its 16 “business headquarters in San Francisco, California”). California “recognizes that with respect to 17 regulating or affecting conduct within its borders, the place of the wrong has the predominant 18 interest. California considers the place of the wrong to be the state where the last event necessary 19 to make the actor liable occurred.” Mazza, 666 F.3d at 593 (internal citations and quotations 20 omitted). Here, that is “where the allegedly fraudulent advertisements were seen rather than where 21 they were created,” Van Mourik, 2018 WL 1116715, at *3, because “the last events necessary for 22 liability as to the foreign class members -- communication of the advertisements to the claimants” 23 and their “reliance” on them in purchasing kombucha -- “took place in the various foreign states, 24 not in California,” Mazza, 666 F.3d at 594. Consequently, California’s “interest in applying its 25 own laws on behalf of non-residents is ‘attenuated’” compared to the interests of other states. Van 26 Mourik, 2018 WL 1116715, at *3 (quoting Mazza, 666 F.3d at 594). This conclusion is bolstered 27 by a strong presumption against applying the UCL and CLRA to transactions outside the state. 1 CONCLUSION 2 The nationwide class claims are dismissed without prejudice. Freedline may join new 3 || named plaintiffs, create different subclasses “for materially different bodies of state law,” Mazza, 4 666 F.3d at 594, or otherwise amend his complaint in a manner consistent with this Order. If he 5 chooses to amend, he must file an amended complaint by November 23, 2020. 6 IT IS SO ORDERED. 7 Dated: October 27, 2020 8 JAMES PONATO 9 United States District Judge 10 11 a 12 2B 15 16 = 17 Z 18 19 20 21 22 23 24 25 26 27 28