A new opinion in a case over the marketing of products as “100% Recyclable” could have some interesting implications for the fashion industry. A New York federal court sided with Niagara Bottling, granting the California-based company’s motion to dismiss the lawsuit that Edalia Duchimaza filed against it over its allegedly “false and misleading” marketing of its water bottles as entirely recyclable when parts of the bottles are not capable of being recycled. According to the complaint that she filed in July 2021, Duchimaza alleged that Niagara ran afoul of New York state law for advertising its Kirkland water bottles as recyclable when certain components – namely, the labels and some bottle caps – are not made of recyclable material, and “low recycling capacity” in New York state makes the other components “effectively non-recyclable.”
In furtherance of her claims of false advertising (under New York’s General Business Law), fraud, breach of express warranty, and unjust enrichment, Duchimaza asserted that Niagara knows that its products are “made of unrecyclable materials or end up in landfills and yet, continues to market its products as ‘100% Recyclable,’” making the representation purely “to capitalize on [consumer] demand for environmentally friendly products.” Against that background, she claimed that Niagara “intends for reasonable consumers to believe – and reasonable consumers do believe – that the products [can] be recycled if disposed of in a recycling bin,” prompting consumers to pay a “price premium” for its products.
In the motion to dismiss that it lodged in November 2021, Niagara argued that the court should toss out the case on the basis that Duchimaza lacks standing. Specifically, the defendant claimed that Duchimaza failed to adequately plead: (1) injury-in-fact sufficient to support her damages claims;” (2) a risk of future injury sufficient to support her claims for injunction relief; and (3) standing as to her class claims.
Reflecting on Niagara’s arguments in its motion to dismiss, Judge Paul A. Engelmayer of the U.S. District Court for the Southern District of New York primarily determined that Duchimaza’s allegation that she “paid a price premium for the products because Niagara’s allegedly false and misleading ‘100% Recyclable’ claim drove up the sales price of the products” is sufficient to plead injury in fact. Citing precedent from the Second Circuit, Judge Engelmayer stated that “substantial economic harm is plainly the type of injury for which parties may seek redress in federal court,” noting that Duchimaza “plausibly alleges that she bought products – bottled Niagara water – whose price was inflated.”
Duchimaza is less successful when it comes to pleading risk of future injury that is sufficient to support her claims for injunction relief. “Critically,” the Judge states that she does not plead that she intends to repurchase the bottles; instead, in the amended complaint, Duchimaza only alleges that has “the desire to purchase water bottles from Niagara that are, in fact, 100% recyclable, but cannot rely on Niagara’s representation’s regarding recyclability.” These allegations, “although rectifiable, do not plead an injury-in-fact to support injunctive relief,” according to Judge Engelmayer, who states that as other courts in this Circuit have held, “allegations that the plaintiff would purchase a product if re-engineered or re-marketed does not plead real or immediate threat of future injury.” As such, the Judge held that she lacks standing to seeking injunctive relief.
The FTC’s Green Guides
Additionally, Niagara moves to dismiss Duchimaza damages claims, which stem from its alleged false advertising, fraud, breach of express warranty, and unjust enrichment. Niagara contends that Duchimaza fails to allege that the “100% Recyclable” claim is false or likely to mislead a reasonable consumer. Niagara “relatedly” argues, according to Judge Engelmayer, that its statements “comply with the Federal Trade Commission’s Green Guides, which the New York General Business Law incorporates, and that this shields it from liability.”
The Judge notes that the parties agree that the term “recyclable” is a term of art and that the Green Guides inform its meaning. The Guides state, “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 … Marketers should clearly and prominently qualify recyclable claims to the extent necessary to avoid deception about the availability of recycling programs and collection sites to consumers.”
At the same time, the court states that the Green Guides contains exceptions, including one that enables marketers to “make unqualified recyclable claims provided that ‘recycling facilities are available to a substantial majority of consumers or communities where the item is sold,’” (with the FTC defining substantial majority as “at least 60%”), and another that enables marketers to “make unqualified claims where ‘the entire product or package, excluding minor incidental components, is recyclable.’”
Judge Engelmayer sides with Niagara here, finding that Duchimaza does not allege in her amended complaint that recycling facilities are not available in New York or are available to fewer than 60 percent of consumers. As for the bottle caps and labels, the issue, according to the Judge, is whether these qualify as “minor incidental components.” (Niagara argues that they are, and thus, its “100% Recyclable” statement need not be qualified.) While the determination regarding the caps is straightforward, as the FTC’s Guides specifically state that bottle caps are an example of a “minor, incidental component,” the labels are less obvious, but, nonetheless, still a “minor, incidental component.”
Granting the motion in full, Judge Engelmayer states that while Duchimaza’s false advertising claims are dismissed with prejudice given that the representation that the Niagara bottles are “100% recyclable” is not plausibly pled to be false or misleading. He similarly determined that the fraud, breach of express warranty, and unjust enrichment should be dismissed. However, Duchimaza’s breach of express warranty claim was dismissed without prejudice “because, on its first motion to dismiss, Niagara did not attack the original complaint on t he ground on which the Court dismissed that claim, and, given the nature of its defect, that claim may be capable of successful repleading.”
A Couple of Takeaways
In light of the rising number of companies, including fashion brands, that are looking to attract consumers by way of sustainability credentials and claims about “recyclable” products (including ones that they cannot substantiate), and the advertising-centric lawsuits that are being filed as a result, the case provides some potential takeaways for brands across industries. Among other things, the case is striking from a standing perspective, with the court finding that the plaintiff adequately pled standing for damages even without alleging that the particular water bottles that she purchased and placed in a recycling bin were not actually recycled. This is because she centered her false advertising claim on the fact that she paid a “price premium” based on the misrepresentation that the water bottles were “100% Recyclable.”
The Judge’s determination that such an allegation is sufficient to plead standing for damages is in line with a federal district court in Illinois’ decision earlier this year in a separate “sustainability” marketing case. In a false advertising and state consumer protection statute lawsuit against ALDI, plaintiff Jessica Rawson argued that the supermarket chain “advertised its [salmon] product as having a unique quality – sustainability – that [she] paid more for.” It is enough, the court found, that Rawson alleged that she paid a premium for what she believed was a sustainably sourced product, which enables her to “go beyond merely alleging that she would not have bought the product absent the allegedly deceptive practice.”
The courts’ findings in both cases are noteworthy given that a growing number of plaintiffs have already made similar “pricing premium” arguments against brands in other sustainability marketing-focused lawsuits, and the district courts’ determinations could serve to embolden new plaintiffs to file suit on similar grounds.
Beyond that, the court’s reliance in the case at hand on the FTC’s Green Guides – which it refers to “regulations … promulgated by the FTC” that “establish commercial practices regarding recyclability claims” – is worth paying attention to. While she is “not sure that the Guides are ‘rules’ or ‘regulations’ in the ordinary sense, given that they cannot be relied on directly by the FTC to impose liability but merely indicate what the agency considers to be false or misleading,” Harvard Law School Rebecca Tushnet states that it is “not clear that anybody in this case pressed that question.”
Either way, the court’s willingness to defer to the Guides when it comes to defining “recyclable” (and determining when marketers can avoid making qualified claims) is intriguing in light of the overarching lack of uniform definitions for many of the terms that are being tossed around by brands in eco-focused ad campaigns. To date, the FTC has opted not to define increasingly-widely-used terms like “sustainable” or even “net-zero” by way of its Green Guides, which were first issued in 1992 to help businesses avoid violations of the FTC Act based on misleading environmental claims. However, the Guides are slated to get a review by the government regulator this year, and ultimately, may prove to be more helpful for advertisers scrambling to add “eco” elements to their marketing, with the FTC expected to give “special consideration to [advertisers’] reliance on certifications,” according to Crowell & Moring LLP’s Roy Abernathy, Raija Horstman, Dalton Hughes, Emily Kappers, and Amy Pauli, as well as to “recyclability guidelines.”
The case is Duchimaza v. Niagara Bottling, LLC, 1:21-cv-06434 (SDNY).
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