Cross-posted at WLF’s Forbes.com contributor page

  • “They keep my belly full.”
  • “I like the simple ingredient list.”
  • “It’s offered in many flavors.”
  • “They are very edible.”

Those are all very good reasons why people buy Cheerios. They are not, however, good reasons to file a class action lawsuit against the maker of Cheerios, General Mills, for damages. Thankfully, that’s what a federal district court judge in New Jersey essentially found on September 10 in In re Cheerios Marketing and Sales Practice Litigation. The opinion is marked as “Not for Publication,” but Judge Sheridan’s reasoning on the issue of standing to sue is very instructive for other food and beverage companies facing consumer class actions.

The decision arose from a number of class action lawsuits filed in different federal courts and consolidated in the District of New Jersey. The claims piggybacked off of a 2009 Food & Drug Administration (FDA) warning letter. FDA informed General Mills that the company could not make specific cholesterol reduction claims about Cheerios without submitting the product to the formal drug approval process. General Mills made immediate changes to Cheerios labeling and marketing, but the class action lawyers pounced anyway, arguing that their clients either purchased Cheerios mistakenly relying on the cholesterol claims or paid more for Cheerios than they were worth.

A year ago, Judge Sheridan denied General Mills’s motion to dismiss and ordered limited discovery to determine, in part, what motivated plaintiffs’ purchases of Cheerios. After discovery ended, General Mills moved for summary judgment.

Citing to some of the above statements, which were made by plaintiffs during discovery, Judge Sheridan found that the class action representatives couldn’t prove injury-in-fact, and thus lacked standing to sue. No full refund for the product was due to the plaintiffs because some of them continued to consume Cheerios after learning of the “deception,” while others bought Cheerios for reasons other than its claimed cholesterol-lowering benefits. The plaintiffs also could not receive “benefit of the bargain” damages in part for the same reasons they couldn’t get a full refund (no reliance, kept eating Cheerios), and in part because they offered no estimate of any loss or overpayments.

Finally, the court found plaintiffs could not claim disgorgement of profits. Judge Sheridan stated that disgorgement is only available for acts of conscious wrongdoing. The federal rules for product health claims are uncertain enough that General Mills was legitimately “surprised” that FDA would require drug approval for Cheerios, and thus the company was not a conscious wrongdoer.  The judge added that disgorgement is “often ordered when no other form of relief will compensate for the injury.” Because General Mills addressed its alleged misstatements after FDA complained and were in further talks with FDA, the court said, “the wrong will be remedied in some fashion through regulatory intervention.”

Often, the last thing targets of these types of consumer class actions want is to be subject to discovery. But General Mills succeeded in having the scope of discovery limited, and took advantage of the chance to scrutinize the plaintiffs’ motivation for buying their product. Fortunately, Judge Sheridan properly applied the legal principles of standing to dismiss the claims, an action that hopefully won’t go unnoticed by class action lawyers or other federal judges.