Tuesday, September 21, 2010

Mixed ruling on preemption in organic milk case

In re Aurora Dairy Corp. Organic Milk Marketing and Sales Practices Litigation, --- F.3d ----, 2010 WL 3564849 (8th Cir.)

The key issue in this case was whether the Organic Foods Production Act of 1990 (OFPA), 7 U.S.C. § 6501 et seq., preempts state consumer protection law:

The OFPA establishes national standards for the sale and labeling of organically produced agricultural products, and creates a certification program through which agricultural producers may become certified to produce organic products. The OFPA also provides for the accreditation of certification agents, who inspect producers and make recommendations to the United States Department of Agriculture (USDA) regarding certification. Pursuant to the OFPA, the USDA promulgated regulations, known as the National Organic Program (NOP), 7 C.F.R. pt. 205, defining which agricultural products qualify as organic.

One certifying agent, QAI, Inc., certified Aurora Dairy Corporation's dairy farm to produce organic milk. Aurora has never been decertified, though the USDA proposed revoking its certification in 2007 due to willful violations of the OFPA, including multiple cases of using nonorganic cows to produce “organic” milk, failure to produce and handle milk in accordance with regulations, and recordkeeping failures. Aurora and the USDA eventually entered into a consent agreement; Aurora agreed to retire and remove some of its allegedly nonorganic cows, ensure continuous organic management from the last third of gestation in one herd, reduce the size of its herds and ensure daily access to pasture, remove the certification from one of its facilities, address other issues, and submit to further review.

Aurora sold its milk to the retailer defendants. Class plaintiffs sued Aurora, the retailers, and QAI, alleging that the defendants failed to comply with the OFPA and NOP and that Aurora’s milk violated the law claiming to be organic when it wasn’t. In addition, plaintiffs alleged that Aurora and the retailers made other false statements:

several of the cartons featured depictions of pastoral scenes with cows grazing in pastures, and advertised the idyllic conditions under which the dairy cows lived. Aurora advertised, "As producers of organic milk, our motto is 'Cows First,' " and, "We believe that animal welfare and cow comfort are the most important measures in organic dairy." Wal-Mart represented its milk was produced without the use of antibiotics or pesticides, and [that] organic farmers are committed to the humane treatment of animals. Safeway asserted its dairy cows "enjoy a healthy mix of fresh air, plenty of exercise, clean drinking water and a wholesome, 100% certified organic diet." Target declared, "Our milk comes from healthy cows that graze in organic pastures and eat wholesome organic feed."

The plaintiffs also alleged false advertising off the carton, such as Costco’s Costco Connection magazine, which contained an article about Costco’s house brand (for which Aurora was a supplier) claiming that “The cows on the farm have quite the life. They feed on a balanced organic vegan diet and have access to organic pastures for grazing.” The cases around the nation were consolidated, and the district court granted the motion to dismiss.

The court of appeals affirmed the dismissal of all claims against QAI. There was no express preemption, because OFPA’s limited preemption provision was inapplicable (which was a factor in the conflict preemption analysis). The district court found field preemption, because OFPA is so comprehensive, but the court of appeals disagreed. The district court analogized to OSHA, under which the only way a state may regulate an OSHA-regulated issue is pursuant to an approved state plan. The court of appeals found OSHA dissimilar; OSHA requires states to submit plans to the agency if they wish to assume responsibility for development and enforcement of occupational safety and health standards with respect to which a federal standard exists. The OFPA, by contrast, requires states to seek approval from the USDA only if they want to operate their own organic certification programs. And OSHA’s just a lot more comprehensive, seeking to ensure safe working conditions for everyone, whereas OFPA is a certification program designed to create national standards. The states’ traditional consumer protection role was also relevant; preemption of that isn’t found lightly.

There was a conflict preemption problem, however. The district court found that Aurora’s federally valid certifications shouldn’t be subject to challenge under dozens of different state laws. Congress meant to replace the “patchwork” of existing state regulations with a national standard defining organic food, which included the certification scheme under which QAI is an accredited certifying agent. Thus, all claims against QAI are preempted. Aurora’s certification also allows it to sell or label products using the OFPA-regulated terms without penalty. There’s an administrative procedure for appeals of a certification agent’s decisions. “[T]o the extent state law permits outside parties, including consumers, to interfere with or second guess the certification process, the state law is an ‘obstacle to the accomplishment of congressional objectives’ of the OFPA.”

Plaintiffs’ claims were essentially that QAI should have revoked Aurora’s certifications. This was preempted because QAI couldn’t both comply with the OFPA and its regulations detailing the process for revoking certifications and with any additional state law duty to revoke certifications. Plaintiffs argued that QAI mislead the public when it allowed its “mark of excellence” seal to be affixed to Aurora’s milk, but that’s the mark identifying QAI as the certification agent, as required by the regulations.

For the same reasons, claims attacking Aurora’s certification were preempted. Class plaintiffs argued that defendants must be both certified and compliant with the underlying requirements to comply with the OFPA, but in light of the statute’s structure and purpose, compliance and certification couldn’t be viewed separately. The goal of establishing national standards would be undermined by an inevitable divergence in application by numerous court systems. Not only different legal interpretations, but also “different enforcement strategies and priorities” could fragment uniformity. (Note the difference in this analysis from other courts which find that state enforcement of a federal scheme does not conflict with the scheme, just increases the incentives to comply.) The only statutory penalty for noncompliance with the OPFA is a civil penalty of up to $10,000. “[A]ny attempt to hold Aurora or the retailers liable under state law based upon its products supposedly not being organic directly conflicts with the role of the certifying agent ….” Thus, claims based on Aurora’s and the retailers’ selling milk as organic when it was not are preempted.

Other claims, however, remained. State law challenges to the certification determination are preempted, but not state law challenges to the “facts underlying certification.” The defendants argued that, if OFPA certification is to mean anything, it must mean the certified products have met all the statutory and regulatory requirements. The court found this argument only superficially attractive. The court’s task was not to determine what certification means, but rather whether Congress intended preemption when the claims rely on proof of facts that, if found by the certification agent, would preclude certification.

Put this way, the answer was no. Certification requires, among other things, preventive livestock health care practices, including sufficiently nutritional feed. Congress, the court felt confident, didn’t intend thereby to prevent states from enforcing animal cruelty laws if a producer was neglecting its animals, especially given the states’ historic roles in the area of consumer protection, fraud, and tort claims. Notably, “[c]ertification relies upon inspection and observation of only a portion of a producer's operations, and thus, the evidence which supported certification could, and very likely would, be different from the evidence which supports a state cause of action.” Also, the NOP allows alternative ways to satisfy many of its requirements, which suggests that Congress lacked intent to give preclusive effect to any particular determination.

Preempting state law claims unrelated to certification and certification compliance doesn’t advance the purpose of establishing national standards for organic foods. Nor does preemption of claims relating to facts underlying certification advance the cause of assuring consumers that organics meet a consistent standard. In fact, preemption of consumer protection law might diminish consumer confidence were consumers to become aware that the certifying agent didn’t suspend certification in spite of clear facts to the contrary and that there wasn’t anything that anyone else could do. Furthermore, “although broad factual preemption may increase organic production in the short term, consumers may well elect to avoid paying the premium for organic products upon realizing preemption grants organic producers a de facto license to violate state fraud, consumer protection, and false advertising laws with relative impunity ….”

(The court noted that preemption should not be broader for the retailers than for Aurora. Retailers are specifically exempt from the OPFA; it’s Aurora’s responsibility to maintain conditions supporting certification, and the retailers may have had a right to rely on the certification, and no duty to investigate Aurora’s compliance. But these are facts related to the retailers’ degree of fault. “Because the class plaintiffs' claims do not arise under the OFPA, the extent to which the retailers have fewer duties than Aurora under the statute suggests federal preemption is less, not more, applicable to the retailers than to Aurora.”)

The district court would need to decide which claims interfere with certification, and other issues with the consolidated complaint. Except for QAI, at least one claim against each defendant could survive preemption. Other than the “you said it was organic when it wasn’t” claims, claims based on representations made in marketing the milk fall outside the scope of preemption. Thus, Aurora allegedly “misrepresented the manner in which its dairy cows were raised and fed," and ommitted “material facts regarding the production of its 'organic' milk or milk products, specifically that ... the dairy cows were not raised at pasture." Likewise, the retailers allegedly misrepresented the manner in which the dairy cows were raised and fed, and Wal-Mart also allegedly advertised the milk as antibiotic- and hormone-free, while organic cows at Aurora were put in herds with ordinary cows and potentially subjected to injections of antibiotics and hormones. At this stage, there was enough pled to go forward.

No comments: