The California First District Court of Appeal released its decision yesterday in the case of Hill v. Roll International Corporation. The case was brought by an alleged consumer of Fiji brand bottled water, San Francisco resident Ayana Hill, who asserted that a picture of a green water drop on the label (shown above) led her to believe that Fiji water was environmentally superior and endorsed by an independent environmental organization, when in fact it is not. Her suit claimed that Fiji Water Company LLC and Roll International Corporation (an unrelated company owned by the owners of Fiji Water, Stewart and Lynda Resnick) violated the California Unfair Competition Law, False Advertising Law and Consumers Legal Remedies Act, as well as common law fraud and unjust enrichment doctrines. Ms. Hill sought certification of the suit as a class action.

Ms. Hill asserted in her complaint that Fiji is guilty of “greenwashing” its product, as the practice of making false or misleading claims to environmental benefits has come to be known. Such accusations are commonplace against a wide range of companies by environmental activists, as more and more companies have started making statements about their environmental practices (itself largely in response to the same environmental activists). Most greenwashing complaints are made in the same realm as the original corporate statements, i.e., the public forum, and few result in litigation; for example, in 2008 Treehugger blog posted a critique of the same Fiji label at issue in the Hill litigation. There are, however, legal restrictions on general advertising and environmental claims that can be used as the basis for legal action.

The California Environmental Marketing Claims Act (EMCA), which Ms. Hill did not make a cause of action but cited, provides that “[i]t is unlawful for any person to make any untruthful, deceptive, or misleading environmental marketing claim, whether explicit or implied.” Cal. Business & Professions Code § 17580.5(a). An environmental marketing claim includes advertising or labeling that a consumer good “is not harmful to, or is beneficial to, the natural environment,” through use of environmental or “green” language. Cal. Business & Professions Code § 17580(a). The EMCA incorporates the standards contained in the Federal Trade Commission’s Guides for the Use of Environmental Marketing Claims into California state law, although as a matter of federal law the Guides themselves are only administrative interpretations and not enforceable regulations. The Guides contain rules regarding general and specific types of environmental marketing claims, as well as a number of examples. The basic requirement is that a company not make deceptive claims of general environmental benefits and provide appropriate substantiation or qualification of any claims that are made.

General environmental benefit claims are interpreted according to a “reasonable consumer” standard, 16 C.F.R. § 260.7(a), and that is where Ms. Hill’s lawsuit ran into trouble according to the Court of Appeal. The Court asked and answered the question simply: “Does the green drop on Fiji water bottles convey to a reasonable consumer in the circumstances that the product is endorsed for environmental superiority by a third party organization? No.” The Court reached this conclusion because the drop does not contain the name or recognized logo of any organization, does not include any stylistic elements common to certification seals, such as a check mark or other sign of approval, and is accompanied on the back of the label by a reference to the website fijigreen.com, which a consumer can clearly tell is operated by Fiji rather than an independent third party organization. Because a reasonable consumer would not understand the green water drop to make false, misleading or deceptive claims regarding endorsement by an independent environmental organization, and Ms. Hill did not explain how she could amend her complaint to allege such claims, the Court dismissed the case without leave to amend.

Even though the Court ultimately held that Fiji water did not violate state laws regarding environmental marketing claims, the Hill case draws attention to the care that companies must take when marketing their products. Accusations of greenwashing are almost certain to grow in future, whether deserved or not, and companies should be aware that overreaching claims may result in litigation. Violation of the EMCA can result in a misdemeanor conviction, imprisonment up to six months and a $2,500 fine. The Hill case is also interesting in that Fiji water and Mr. and Mrs. Resnick have become favorite targets of environmental and anti-private water activists in the past year or two, although such targeting has rarely included litigation. Any company that finds itself being attacked by environmental activists may also be served with an EMCA complaint.

[Note: Companies should be aware that there are also legal implications related to corporate reporting of environmental practices to the investment community, including potential liability for false or misleading statements under the securities laws. That different set of requirements was not addressed in the Hill case or this blog post.]