July/August 2020 Legal Update

Pooja S. Nair, a partner at Ervin Cohen & Jessup LLP compiles recent legal news affecting the restaurant, food and beverage and hospitality industries for Modern Restaurant Management (MRM) magazine.


California Court Limits Foie Gras Ban: On July 14, a California district court limited the state’s ban on foie gras and interpreted the law to allow out-of-state sellers to sell foie gras to California customers. Judge Stephen Wilson held that the states’ ban was not intended to “create a total ban on foie gras,” but was instead designed to prevent the practice of force-feeding in the state of California.  Under the Court’s ruling, foie gras could be legally sold to California consumers provided that the seller is located outside of California, the foie gras being purchased is not present within California at the time of sale, the transaction is processed outside of California, and payment is received and processed outside of California. Under the ruling, California restaurants may still not serve foie gras to California consumers. California’s foie gras ban went into effect in 2012, and provides that “A product may not be sold in California if it is the result of force feeding a bird for the purpose of enlarging the bird's liver beyond normal size.”  The law has been the subject of significant litigation since it was enacted. To learn more, click here.

DC Circuit Dismisses Trademark Appeal in Pizza Fight: The U.S. Court of Appeals for the District of Columbia dismissed an appeal by the operator of the &pizza restaurant chain in the United States against a copycat restaurant based in Scotland.  The owners of &pizza had sought damages for copyright and trademark infringement from owners of the similarly named @pizza restaurant in Edinburgh, Scotland. The Court held that because the @pizza chain operated only in the United Kingdom, &pizza was unable to show domestic infringement under the Copyright Act or that the activities in the United Kingdom had a plausible effect on U.S. commerce that violated the Lanham Act.  The Court noted that if the UK company had engaged in similar conduct on U.S. soil, there likely would have been a viable claim, but because of the territorial limits of the Copyright Act, the claim was kicked out.

DC Circuit Upholds NLRB Actions Against Tyson Subsidiary: On July 24, the Court of Appeals for the District of Columbia agreed with the National Labor Relations Board that AdvancePierre Foods, Inc, a wholly owned subsidiary of Tyson Foods, committed unfair labor practices regarding the unionization of employees. 

Seventh Circuit Rules that Grubhub Delivery Drivers Must Arbitrate Wage Claims: On August 4, the Court of Appeals for the Seventh Circuit upheld an arbitration clause and held that Grubhub delivery drivers must arbitrate their claims that the company misclassified them as independent contractors.  The drivers had signed a “Delivery Service Provider Agreement” that required them to arbitrate all claims arising out of their relationship with Grubhub. The drivers argued that these contracts with Grubhub were exempt from the Federal Arbitration Act because they were engaged in interstate commerce.  The Court agreed with the district court that the drivers had no involvement in moving goods across state lines, and merely delivering food to customers that came from another state did not meet the burden necessary to qualify for an exemption from the Federal Arbitration Act.

Eighth Circuit Dismisses Drive-By ADA Restaurant Case: On August 5, the Court of Appeals for the Eighth Circuit affirmed a Nebraska District Court’s dismissal of an ADA case involving a restaurant parking lot. In the case, the slope in some parts of the restaurant’s parking lot failed to meet the ADA guidelines, but the plaintiff did not have to cross those areas to enter the restaurant.  Based on the doctrine of standing, the Court found that the plaintiff had not shown any ongoing injury sufficient to establish Article III standing.

Eighth Circuit Dismisses Drive-By ADA Claim: On August 10, the Court of Appeals for the Eighth Circuit affirmed the dismissal of an ADA case in which a plaintiff went to a Domino’s restaurant parking lot, took photos of alleged ADA violations based on parking lot obstructions from his car, and then left before the restaurant opened. The plaintiff claimed that he intended to return to that Domino’s location “some day,” which the Court held was insufficient to show any actual or imminent injury, and that the plaintiff therefore lacked standing.

Eleventh Circuit Rules Against Restaurant on Insurance Coverage Issue: On August 18,, the Court of Appeals for the Eleventh Circuit held that Sparta Insurance Company was not required to provide coverage to a Miami restaurant for losses caused by nearby roadwork, ruling that the restaurant failed to establish that it suffered a direct physical loss that would trigger coverage. The roadwork at issue was two years of construction (from December 2013 to June 2015) which caused dust and debris to migrate into the restaurant and required that the restaurant spend extra time cleaning. The restaurant also replaced its roof and made other improvements to the property as a result of the construction.  However, although customer traffic decreased significantly during the time of construction, the restaurant maintained the ability to serve the same number of customers as it had before the construction began.  The appellate court affirmed a trial court’s decision that the restaurant had failed to prove that it suffered a direct physical loss of or damage to its property during the policy period, and thus the insurance company did not have to provide coverage.


RESTAURANTS Act Gains Momentum: A bi-partisan bill to aid restaurants is gaining momentum, with over 180 co-sponsors and additional endorsements announced in the past few weeks.  The Real Economic Support That Acknowledges Unique Restaurant Assistance Needed To Survive Act of 2020 or RESTAURANTS Act of 2020 would establish $120 billion in forgivable grant funding directed towards independent restaurants.

Administrative Developments

California Requires Quick Service Restaurants to Make Composting Bins Available: On July 1,  a California law,  requiring restaurants, malls and other businesses to make composting and recycling bins accessible to customers officially went into effect. Full-service restaurants are exempt from this law if employees sort organic waste. However, quick or limited-service restaurants and all other businesses that generate organic waste and subscribe to recycling or composting services must make bins accessible to customers.

FDA Resumes Domestic Inspections: On July 10, the U.S. Food and Drug Administration announced that it would restart on-site inspections using a new ratings system.  The agency announced that “for the foreseeable future, prioritized domestic inspections will be pre-announced to FDA-regulated businesses.” The agency stated that having inspections be pre-announced would help assure the safety of the investigator and the firm’s employees during the COVID-19 pandemic. 

Department of Agriculture Proposes Rule to Fight Organic Fraud: On August 5,, the Agricultural Marketing Service of the U.S. Department of Agriculture proposed a rule designed to strengthen the agency’s oversight and enforcement of the production, handling, and sale of organic agricultural products.   

FDA Publishes Final Rule on Gluten-Free Labeling: On August 13,, the FDA published a final rule a final rule to establish requirements for “gluten-free” labeling for fermented, hydrolyzed and distilled food.  The rule will go into effect on October 13, 2020, with a compliance date of August 13, 2021.

USDA Previews 2020-2025 Dietary Guidelines: The U.S. Department of Agriculture and the Department of Health and Human Services is in the process of preparing 2020-2025 Dietary Guidelines for Americans, which are expected to be published in December 2020.  The agencies released an online-only first print of the Scientific Report of the 2020 Dietary Guidelines, which is likely to inform the final guidelines. Among other significant changes, the Scientific Report recommends that limits on alcoholic beverage for both men and women be reduced to one drink per day on days when alcohol is consumed.  The current recommendation is for two drinks per day for men, and one drink per day for women.  

SBA Issues Guidance on PPP Loans: On August 24, the U.S. Small Business Administration issued an interim final rule addressing loan forgiveness issues for the Paycheck Protection Program (“PPP”).  The guidance establishes that owner-employees with less than a five-percent stake in a corporation are exempted from the PPP owner-employee compensation rule for determining the amount of their compensation for loan forgiveness.  Additionally, the guidance states that the amount of loan forgiveness requested for nonpayroll costs may not include any amount attributable to the business operation of a tenant or subtenant of the PPP borrower.