Overview

There has been a recent groundswell of public attacks on environmentally conscious product labeling. A recent New York Times article characterized labels such as “naturally derived” and ”nontoxic” as just “marketing terms”. Meanwhile, on January 31, 2023, and at the request of several interested parties, the FTC announced that it was extending its public comment period on updates to its Guides for the Use of Environmental Marketing Claims (the “Green Guides”), which were last updated in 2012.

In this environment, Federal courts in California and other jurisdictions have seen an uptick in class action lawsuits challenging environmentally conscious labeling. State unfair competition laws have been weaponized to assert claims brought by plaintiffs with not even of a modicum of standing. This article describes this latest trend.

Background

Environmental marketing regulation at both the federal and state level is increasing. The FTC first issued its Green Guides in 1992 and revised them in 1996, 1998 and 2012. While they are only “guidelines,” they have been characterized as “the standard” by many plaintiffs and their counsel when relying upon the Green Guides in class action litigation.

The Green Guides provide guidance on how to properly substantiate environmental marketing claims in light of how consumers are likely to interpret those claims. At their core, the Green Guides caution marketers not to make general “environmental benefit” claims, insisting that all environmental claims be properly qualified to avoid inevitable consumer confusion and also be properly substantiated like all marketing claims. Conspicuously absent from the 2012 Green Guides was guidance as to how to address oft-litigated claims like “natural” and “organic.”

By way of its current review of the Green Guides, the FTC seeks comments on, for example, the necessary substantiation for unqualified recyclable and recycled-content claims. The FTC also questions whether additional guidance is necessary regarding claims such as “compostable,” “degradable,” “ozone-friendly,” “organic” and “sustainable,” as well as claims regarding energy use and energy efficiency. There is value to additional guidance in light of an active plaintiffs’ bar.

The FTC is not alone in promulgating environmental marketing regulations, causing some Green Guide commenters to request more stringent regulation for national consistency purposes. For example, California is at the forefront of enforcing “green” guidelines at the state level. Specifically, on October 5, 2021, California signed SB 343 “Truth in Labeling for Recyclable Materials” into law, amending the state’s law relating to environmental advertising.

The result is a California law that is stricter than the FTC’s current Green Guides. In addition to significantly narrowing the categories and types of items that may be labeled as recyclable (and limiting use of the ever-popular mobius loop), the law includes substantiation and record-keeping requirements. This includes making certain information available to any member of the public upon request.

As an example of its comprehensive regime, California’s SB 270 grants to a private citizen the right to object to the certification of a reusable grocery bag producer and authorizes local and state government authorities to seek civil penalties for violations. The California Attorney General is leading this charge. On November 2, 2022, he published a press release promoting efforts to hold manufacturers of plastic bags accountable for their claims that the bags are recyclable.

Restrictions on Environmental Marketing

The past year-and-a-half has seen a rise of consumer class actions against environmentally conscious labeling. The legal theory for these claims generally is that the consumer would not have purchased the product but for the labeling of the product as “recyclable,” “biodegradable,” “eco-friendly,” etc. These lawsuits typically employ state unfair competition laws (sometimes referred to as “UDAPs”) modeled upon the Federal Trade Commission Act, and specifically Section 5, pertaining to unfair or deceptive acts or practices. They also may include claims for breach of warranty. 

These challenges have been costly to manufacturers. A lawsuit in California federal court has led to a settlement of $10 million for claims that the manufacturer’s labeling of coffee pods as recyclable was “false and misleading”. Smith v. Keurig Green Mountain, Inc., No. 18-CV-06690-HSG, 2022 WL 2644105 (N.D. Cal. July 8, 2022).

The FTC has also joined the fray. In 2022, the U.S. Department of Justice (“DOJ”), on behalf of the FTC, sued Kohl’s and Walmart, in part for claiming that “bamboo” textiles were made using ecofriendly processes. The DOJ claimed that converting bamboo into rayon requires the use of toxic chemicals and results in hazardous pollutants. The settlement requires the companies to stop making deceptive green claims or using other misleading advertising, and pay penalties of $2.5 million and $3 million, respectively. These are the largest penalties in this area to date and we will likely see more of them.

Given that these lawsuits usually rely upon a perceived failure to label products as “recyclable”, etc. in line with FTC Green Guides and similar state regulations, it is important to maintain proactive compliance efforts. A California federal court has held that the term “recyclable” has been determined to include the ability to be recycled via “established” means per the Green Guides. Bargetto v. Walgreen Co., No. 22-CV-02639-TLT, 2022 WL 18539360, at *2 (N.D. Cal. Dec. 19, 2022). In that case, the plaintiff asserted that Walgreens misrepresented the recyclability of its reusable bags. Walgreens argued that the issue was not that the reusable bags could not be recycled, but that most recyclers were not inclined to do so, at least not in high volumes. However, the Bargetto court held that the plaintiff stated a misrepresentation claim because the Green Guides defined recyclable as follows:

“A product or package should not be marketed as recyclable unless it can be collected, separated, or otherwise recovered from the waste stream through an established recycling program for reuse or use in manufacturing or assembling another item.” 16 C.F.R. § 260.12(a). Therefore, because the Green Guides’ definition of recyclable contemplated ability to be recycled via “established” means, the motion to dismiss was denied.  Ensuring that labels such as “recyclable” are in line with the reality of the manufactured product is an important part of a legal compliance effort to help prevent lawsuits.

For manufacturers who are not able to avoid litigation, class action lawsuits for allegedly deceptive environmental marketing are often brought in federal court. One strategy is to test whether the lead plaintiff has standing for their claims. Again, California federal courts have been at the forefront of such challenges. Allegations that a consumer would not have bought tuna but for alleged misrepresentations of “sustainability” and being “dolphin safe” were held to establish injury-in-fact in a recent class action under California’s unfair competition laws. Henriquez v. ALDI Inc., No. 222CV06060JLSJEM, 2023 WL 2559200, at *5 (C.D. Cal. Feb. 7, 2023). In the same manner, the California federal court in Keurig, supra, held that the plaintiff sufficiently alleged an injury-in-fact because she alleged if she had known that the product was not recyclable, she would have sought other products that were “otherwise compostable, recyclable or reusable.” Keurig was cited with approval in a recent decision denying a motion to dismiss on standing grounds on similar allegations. Curtis v. 7-Eleven, Inc., No. 21-CV-6079, 2022 WL 4182384, at *6 (N.D. Ill. Sept. 13, 2022).

In contrast, a federal court in New Jersey granted a motion to dismiss for lack of standing where the plaintiff merely claimed that, but for the products’ representations that they were “100% Recyclable,” she would not have purchased the products at their premium price and did not allege that there were alternative cheaper products she would have purchased. Haggerty v. Bluetriton Brands, Inc., No. CV2113904ZNQDEA, 2022 WL 17733677, at *4 (D.N.J. Dec. 16, 2022). The court in Haggerty held that mere “but for” allegations were insufficient to establish standing for “premium price” economic injury in that district. Therefore, jurisdiction may be crucial to a standing challenge.

Another strategy is to assert that the plaintiff fails to state a claim that the labeling was truly deceptive. However, while they are only “guidelines,” the Green Guides may be relied upon – with varying degrees of success – to bolster a false and misleading claim. The California federal district court in Bargetto held that the plaintiff stated a claim based on the Green Guides tying recyclability to “established means.”  In contrast, the Illinois federal district court in Curtis, supra, rejected this argument in granting a motion to dismiss in part for failure to state a claim. 2022 WL 4182384, at *16.  The Curtis court held that the Green Guides are not dispositive, stating “People buying red party cups at 7-Eleven are more likely to be thinking about beer pong than the FTC's consumer guidelines.” Id. at *16 & n.4. 

These class actions are challenging in that they not only seek damages, but often seek injunctive relief barring the current labeling, even with respect to products not purchased. The costs of compliance can be challenging to a company.

What’s an Environmentally Friendly Producer to Do?

Seek legal review of your marketing claims (including green claims), in advance of publishing those claims. Dentons is at the forefront of the FTC’s possible changes to its Green Guides. The plaintiffs’ bar will likely rely on these regulations to assert a recyclability label was false or misleading. Dentons’ compliance team has experience with these environmental marketing claims and is well positioned to provide guidance.

If a plaintiff files a class action in federal court claiming a would-be environmentally friendly label is deceptive, challenging a plaintiff’s standing in federal court can help limit or eliminate exposure. Challenges to choice of law in a national class action based on state unfair competition laws may also be a strategy.

If you would like more information about environmental marketing challenges and how it may impact your products and operations, Dentons’ lawyers can assist you with review of product labeling and marketing claims, and provide guidance on compliance efforts. We also have deep experience and bench strength to handle your litigation needs in this area.