Berkman v Robert's Am. Gourmet Food, Inc.

[*1] Berkman v Robert's Am. Gourmet Food, Inc. 2007 NY Slip Op 51261(U) [16 Misc 3d 1104(A)] Decided on June 26, 2007 Supreme Court, New York County Tolub, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. As corrected in part through June 28, 2007; it will not be published in the printed Official Reports.

Decided on June 26, 2007
Supreme Court, New York County

Meredith Berkman, individually and on behalf of all others similarly situated, Plaintiff,

against

Robert's American Gourmet Food, Inc., Defendant.



Victor Klein, et al., individually and on behalf of all others similarly situated, Plaintiff

against

Robert's American Gourmet Food, Inc., et al., Defendant, -and-

Meredith Berkman Objector.

107441/02

Walter B. Tolub, J.

In April of 2002 the Klein Plaintiffs commenced a class action in Nassau Supreme Court alleging fraud and deceptive trade practices. The Defendants, Robert's American Gourmet Foods (hereinafter "Robert's") and Keystone Food Products (hereinafter "Keystone"), were the creators and distributors of the snack foods "Pirates Booty," "Fruity Booty" and "Veggie Booty". The claims, for which there appears to be much substantiation, is that these snack foods contained much higher fat and caloric content than advertised. [*2]

Plaintiffs sought class certification and in November 2002 the parties entered into a proposed "stipulation and agreement of compromise and settlement." Justice Lally, on November 6, 2002, conditionally certified the class for settlement purposes. Justice Lally's order: (1) certified the action as a class action for settlement purposes, (2) approved the Settlement as fair, reasonable, adequate, and in the best interest of the Class members, (3) dismissed the complaint, (4) enjoined the Class members from prosecuting as against the defendants any claims released under the terms of the Settlement, and (5) awarded $790,000 in attorney's fees payable to plaintiff's attorneys and distributed in accordance with the terms of the settlement.

Meredith Berkman, who had previously commenced a similar action in Supreme Court, New York County, sought to intervene in the Nassau County action to challenge the proposed settlement. Ms. Berkman, who previously had opted out of the settlement was found, by order of the Appellate Division, to have standing to object to the settlement (see Klein v. Robert's American Gourmet Food, 28 AD3d 63 [2d Dept 2006]). In that same opinion the Appellate Division reversed and remanded the decision of the lower court, finding that the certification of the nationwide settlement was not warranted concluding:

[. . .] that the record below is inadequate to allow us to determine whether the Supreme Court considered factors necessary to make an informed decision and to exercise its discretion providently when it certified a nationwide settlement-only class, approved the Settlement as fair, reasonable, adequate, and in the best interest of the Class members, and awarded attorney's fees. Moreover, because the record is insufficient to permit an independent review by this court, we must remit the case for further consideration and factual development relating to those issues. We have considered the parties' remaining contentions and find them to be without merit.

(Supra at 76).

By order filed on October 4, 2006, Justice Lally transferred the Klein case now denoted as Klein v. Robert's American (Index No. 404606/06) to New York County to be joined with Berkman v. Robert's American (Index No. 107441/02).

In an effort to address the issues presented by the Appellate Division remittur, this court invited the parties to make additional submissions to supplement the record so as to determine whether a factual hearing was required to resolve the issues raised by the Appellate Division. Based on these submissions it is the court's opinion that certification of a nationwide settlement is not warranted.

The Complaints

Both the Klein and Berkman complaints allege that as a central part of its marketing of Pirate's Booty, Veggie Booty and [*3]Fruity Booty brands snack food, the Defendants employed a deceptive advertising campaign which made false and misleading claims concerning the amount of fat and calories contained in their Products. Specifically, Defendants represented that Pirate's Booty contained only 2.5 grams of fat and 120 calories per one ounce serving. These representations were meant to imply to customers that the Products were superior to competing snack foods available in the marketplace. The Complaints allege that these representations substantially raised both the demand for the Products and the price Defendants were able to charge for them.

The Complaints further allege that Defendants' claims were materially false and misleading in that they knew that the Products contained substantially more fat and calories than they had represented to the consuming public. Specifically, the Complaints allege that Defendants' misleading claims included (a) that the Products contained 2.5 grams of fat per one once serving; and (b) that the Products contained 120 calories per one ounce serving. In fact, Defendants knew or should have known that these representations were false at the time they were made, and knew or should have known that each ounce of their Products contained 8.5 grams of fat and 147 calories. Based upon these allegations, Plaintiffs in their respective actions alleged violations of various statutes (GBL § 349 and GBL §350) proscribing unfair and deceptive consumer practices, breach of warranty, and negligent misrepresentation, all of which are sought to be compromised.

The Settlement Provisions

As set forth in the Settlement Agreement, the central terms of the Proposed Settlement were as follows:

Discount Coupons

The settlement called upon Robert's to issue and guarantee redemption of $3.5 million worth of discount coupons for the Products (the "Coupon Distribution"). These discount coupons could be redeemed by consumers at the point of purchase and honored by Robert's upon presentation from retailers or their agents, in the following amounts: 1. At least $0.40 for the purchase of a 4 ounce bag of any Robert's snack food product; or2. At least $0.20 for the purchase of a 1 ounce or 1 - 3/8 ounce bag of any Robert's snack food product.3. To the extent that Robert's replaces the size of the above product packages with other sizes, Robert's will offer discount coupons redeemable against such new packaging in an amount calculated in good faith to equal 20% of the average retail selling price.[*4]

Consumers were not required to take any extra steps to utilize the discount coupons. No claim forms were needed to be completed or submitted to Defendants. Moreover, the nature of the Coupon Distribution - a completely "fluid recovery" - meant that consumers did not have to prove that they purchased the Products or were otherwise damaged by Defendants' actions.

Label Monitoring and Product Testing

In order to ensure that Defendants' Products remain properly labeled in the future, the parties agreed as part of the settlement that Class Counsel would retain, at Defendants' expense, R-Tech Laboratories or another accredited testing facility to test the fat and caloric content of Pirate's Booty, Fruity Booty, and Veggie Booty in accordance with 21 C.F.R. 101.9(g) (regulation promulgated by the U.S. Food and Drug Administration prescribing food label testing procedures). The parties agreed that the fat and calorie testing would be carried out monthly for eighteen months beginning on the effective date of the Settlement and quarterly for the next thirty months. The settlement provided that the Court maintained continuing jurisdiction over this matter relating to the compliance with these provisions and the accuracy of the representations as to the fat and caloric content on the Products' labels.

Class Certification

In accordance with the Settlement, the parties agreed that for the purpose of settlement only, the Action was to be conditionally certified as a class action with the named Plaintiffs as class representatives, pursuant to Article 9 of the New York Civil Practice Law and Rules, on behalf of a class ("Class") consisting of all persons in the United States who, between January 1, 1999 and October 1, 2002 (the "Class Period"), purchased at retail, any of the Products. Excluded from the preliminary certified class were Robert's, Keystone and their subsidiaries, divisions, related entities, employees and immediate family members.

Additional Benefits

Pursuant to the Stipulation, Defendants were obligated to pay other costs and expenses ordinarily assumed by the Class and deducted from the Class Settlement funds, in addition to the Discount Coupons and Label Monitoring. These costs and expenses include: 1. Plaintiff's attorneys' fees and expenses in an amount of $790,000.00;2. Class Notice expenses, including the costs associated with preparing, printing, and distributing Discount Coupons and publishing Summary Class Notice in the National editions of the New York Times, The Wall Street Journal, and USA Today, as well as maintaining an internet web page [*5]containing the full Notice of Pendency and Settlement for viewing and downloading; and3. Settlement administration expenses in connection with providing the full Notice of Pendency and Settlement via First Class U.S. Mail to all those requesting it and to all of those for whom Defendants have a postal address.

DISCUSSION

Scope of the Inquiry

At the outset the court notes that although the Berkman objections to the proposed settlement relate to the reasonableness of the settlement and the reasonableness of the attorneys fees, the inquiry directed by the Appellate Division goes to whether a nationwide class or indeed any class should be certified.

The Appellate Division explained, that where a class action is certified for settlement purposes only, the class prerequisites, and particularly those designed to protect absentee class members, must still be met and indeed scrutinized. (Amchem Products, Inc. V. Windsor, 521 US 591, 620 [1997]). With that in mind we are required to examine the issue of class certification.

The Appellate Division stated (Klein, supra 71) that "[o]ur own concerns based on the limited record before us, lie in three areas: the appropriateness of certifying a class action with respect to the class as defined, the reasonableness of the settlement and the award of attorney's fees."

More specifically, the court noted (at 72) "[i]t would seem therefore that there are questions here that are not common to the class (see Hazelhurst v. Brita Products Co., 295 AD2d 240, 241-242 [1st Dept 2002]) such as whether individual class members purchased the product in reliance upon the alleged misrepresentations of fat and caloric content as opposed to other considerations. (See Strauss v. Long Island Sports Inc., 60 AD2d 501, 507 [2d Dept 1978])."

Class Certification

Consumers, as a general rule, have not always fared well in their attempts to vindicate their perceived wrongs utilizing the class action provisions of Article 9 of the CPLR. Class certification has been denied as to; Brita Filters (Hazelhurst v. Brita Products Co., 295 AD2d 240 [1st Dept 2002]); subscribers to DSL servers (Solomon v. Bell Atlantic Corp., 9 AD3d 49 [1st Dept 2004]); life insurance contracts (Rabouin v. Metropolitan Life Insurance Co., 25 AD3d 349 [1st Dept 2006]); cigarettes (Small v. [*6]Lorillard Tobacco Co., 252 AD2d 1[1st Dept 1998];affirmed 94 NY2d 43 denied leave to appeal, dismissed 96 NY2d 754; Geiger v. American Tobacco, 277 AD2d 420 [2nd Dept 2000]); frozen deserts (Brandt v. Cremalita Management, LLC, 6/9/2006 NYLJ 29 (col. 1) [Sup. Ct. NY Co.]); and diet programs (Gentile v. Stay Slim Inc., 4/17/2006 NYLJ 10 (col. 3) [Sup. Ct. Queens Co.]).

The chief stumbling block to class certification of most consumer class actions appears to be the issue of commonality. Which is to say whether there has been an adequate showing that "There are questions of law or fact common to the class which predominate over any questions affecting only individual members." (CPLR §901 (2)).

The allegations of the complaint fall into two categories. The allegations of common law fraud (GBL §350) and the allegations involving false advertising (GBL § 349).

Plaintiffs' allegations sounding in common law fraud, codified in GBL § 350, require proof of reliance. (Scott v. Bell, 282 AD2d 180 [1st Dept 2000]; McGill v. General Motors Corp., 231 AD2d 449 [1st Dept 1996]). The need for particularized proof of reliance and injury precludes certification since individual issues, not common issues of the class, predominate. (See Generally, Barr Altman Lipshie Gerstman, New York Civil Practice Before Trial, §14.703 [James Publishing 2006]). The purported common issue of fact advanced by the Plaintiffs is the common reliance on the false representations of the fat and caloric content of the Defendants' products. Such reliance cannot be presumed and, clearly purchasers could have varied and diverse reasons for their purchases, including taste, convenience, substantial value or even simple impulse buying at the check out counter. Therefore it cannot be said that reliance on the claimed false representations induced the purchaser of the product, and class certification, to the extent that it relies on GBL § 350, must be denied. (See Hazelhurst v. Brita Products Co., 295 AD2d 240, 241-242 [1st Dept 2002]).

With respect to the causes of action predicated on GBL § 349, which do not require reliance, a nationwide class certification is inappropriate. Both General Business Law § 349 and §350 have territorial limitations, and their application is strictly limited to transactions in New York State. (Goshen v. Mutual Life Insurance of NY, 98 NY2d 314 [2002]).

The Goshen case is particularly instructive. Goshen was a consolidated proceeding which involved an appeal of a pre-certification class action suit entitled Scott v. Bell Atlantic Corp., (Index No.600591/2000).

In Scott, plaintiffs were residents of New York, Maryland and the District of Columbia who sought class action certification to hold Bell Atlantic liable for allegedly [*7]misrepresenting the quality of their service. They framed their complaint alleging, inter alia, violations of the GBL §§ 349 and 350. Justice Cahn, by order entered October 16, 2000, denied a motion to dismiss and granted a motion to amend to include an action for fraudulent inducement. The Appellate Division reversed (282 AD2d 180), holding, inter alia, that GBL §§ 349 and 350 are territorial in nature and further held that the Plaintiffs allegations did "not allege the requisite false or deceptive conduct." (282 AD2d 180).

The Court of Appeals modified, (Goshen v. Mutual Life Insurance, 98 NY2d 314 [2002]), and reinstated the claims as to the New York Plaintiffs. (Id. at 327). The court emphasized the territorial limitations of the statutes stating that "[i]t was not intended to police the out-of-state transactions of New York companies, nor was it intended to function as a per se ban to out of state Plaintiffs claims of deceptive acts leading to transactions within the state." (Id.at 325).

Therefore, to the extent that the proposed settlement seeks to include purchasers nationwide, the class cannot be sustained. It may, however, be sustainable to the extent that the class is limited to those transactions in the state of New York.

Accordingly, and for these reasons, the court is forced to conclude that class certification on a nationwide basis is not warranted.

In light of this courts conclusion, and because the issue of the reasonableness of the terms of the settlement and the attorneys fees are so inextricably intertwined with nationwide class action certification, the court does not reach those issues.

The application for class certification is denied.

Settle Order.

Dated:

____________________________

HON. WALTER B. TOLUB, J.S.C.