Wednesday, May 13, 2015

SDNY allows consumer "organic" claims to proceed

Segedie v. Hain Celestial Group, Inc., 2015 WL 2168374, No. 14–cv–5029 (S.D.N.Y. May 7, 2015)
Plaintiffs bought Earth’s Best food, body care, and home care products, and alleged that they were misleadingly labeled as “organic,” “natural,” or “all natural.”  They identified 62 food and 12 body care products that contained one or more of 47 ingredients that applicable law allegedly bars in organic products.  They made similar claims about products labeled “natural” or “all natural” that allegedly contained one or more of 72 artificial or synthetic ingredients.  They brought claims under NY and California common law, NY GBL §349 claims, and the usual California statutory claims.
Hain argued that the federal OFPA preempted the “organic” claims.  The OFPA directed the USDA to establish national standards governing products marketed as “organic,” which resulted in the National Organic Program (NOP). The NOP regulations govern the use of “organic” in labeling and marketing agricultural and processed products. The OFPA and NOP require that any product sold as “organic” has to have been certified as such by an accredited certifying agent.  The NOP’s program manager and accredited certifying agents can investigate certified operations suspected of noncompliance and can suspend or revoke a certification, with associated civil penalties of up to $10,000 per violation and the possibility of a 5–year prohibition from re-certification. Adverse actions are appealable.  The law doesn’t provide a private cause of action or any remedies for consumers harmed by violations.
The court disagreed with the Eighth Circuit, In re Aurora Dairy Corp. Organic Milk Mktg. & Sales Practices Litig., 621 F.3d 781 (8th Cir. 2010), and found that the OFPA didn’t preempt the plaintiffs’ claims here.  There was clearly no express or field preemption; the only question was conflict preemption.  Compliance with the OFPA and state law was physically possible, so the question was whether there was a conflict with Congress’s purpose.
The relevant congressional objections were stated in the law: “(1) to establish national standards governing the marketing of certain agricultural products as organically produced products; (2) to assure consumers that organically produced products meet a consistent standard; and (3) to facilitate interstate commerce in fresh and processed food that is organically produced.”  Aurora held that the OFPA does not preempt claims that do not “interfere with” the certification decision but still depend on facts crucial to the certification decision—“e.g., claims based sale of the milk as free from antibiotics and hormones or as produced by humanely treated cows.” But Aurora did find preemption for “claims directly challenging the certification decision—i.e., claims challenging the sale of the milk as ‘organic.’” Aurora reasoned that allowing the latter kind of claim could lead to inconsistencies and fragmentation of the national standards, and that the OFPA specifically allows products to be sold as “organic” if they’re produced in accordance with the OFPA and NOP, without consumer remedies.
The court here found Aurora unpersuasive.  “Obstacle preemption precludes only those state laws that pose an ‘actual conflict’ with an overriding federal purpose and objective.” The conflict has to be a sharp one, especially in an area of traditional state concern.  Allowing the claims here wouldn’t cause such a sharp conflict.  Allowing “organic” claims furthers the congressional purpose “to assure consumers that organically produced products meet a consistent standard.”  
Though Congress also sought to establish national standards, this case didn’t present a big obstacle because the theory of liability didn’t diverge from the national organic standards. Though different courts might interpret the same standards differently, Congress “(1) delegated certification decisions to certifying agents—of which there are ‘[n]early 100’—whose interpretations of organic standards surely must diverge to some extent, and (2) expressly assigned U.S. district courts an interpretive role, albeit through the lens of arbitrary-and-capricious review.” The risk of divergence was therefore contemplated in some degree.  Any court adjudicating the kinds of claims brought here “would be interpreting the same standards, with appropriate deference to published USDA regulations and interpretations.” There’s no reason to expect so much divergence as to prevent national standards.
Aurora was also at odds with the Supreme Court’s decision in Wyeth, which found failure-to-warn claims not preempted even though the label of the drug at issue had been FDA-approved.  Similarly, a certification agency’s approval of “organic” status is not necessarily the final word if state law finds the “organic” label false or misleading (as long as it is using the definition of “organic” used by the feds).  “[S]tate law causes of action are not preempted where they merely provide a damages remedy for claims premised on a violation of federal law that does not itself provide a private right of action.” There was no reason to think that Congress “intended to eliminate all remedies for aggrieved purchasers of organic products.”  The express preemption provisions of the OFPA, governing alternative state certification programs, showed that Congress knew how to preempt state law when it wanted to.
On the merits, plaintiffs pled legally sufficient facts that the products at issue weren’t “organic.”  Foods labeled “organic” can have up to 5% by weight of non-organic ingredients listed on the National List of Allowed and Prohibited Substances. “If a non-organic ingredient is not on the National List, it cannot appear in an organic product in any quantity (unless it qualifies for some other exception).”  The National List allows “Nutrient vitamins and minerals, in accordance with 21 C.F.R. 104.20, [sic ] Nutritional Quality Guidelines For Foods.”  Hain argued that this was an open-ended exception that encompassed the challenged ingredients, but it wasn’t.  The cross-reference allowed foods to be fortified with 21 specific substances under “certain limited conditions—e.g., to restore nutrients lost during processing,” plus “as permitted or required by applicable regulations established elsewhere in this chapter.” The FDA has explained that this last allowance “extends only to substances permitted or required to be added to foods pursuant to regulations pertaining to a common or usual name, a standard of identity, or nutritional quality guideline.”  Thus, it doesn’t permit “indiscriminate fortification of foods with, for example, AHA, DHA, taurine, or inositol simply because the FDA has deemed them ‘Generally Recognized as Safe.’” The FDA also excluded infant formula from this exception because it has another specific regulation for infant formula.  This agency interpretation was not plainly erroneous or inconsistent with the regulation.
Hain tried to rely on a contrary interpretation that the NOP expressed in a since-disavowed April 2007 opinion letter, but the court wouldn’t let it.  That interpretation wasn’t entitled to deference, since the NOP didn’t promulgate the regulation at issue, and anyway it was disavowed/inconsistent over time and therefore entitled to less deference.  “Congress could not have been clearer in mandating that the NOP may permit additional nutrients to be added to organic foods only by amending the National List through notice-and-comment rulemaking (except in certain emergency situations not applicable here).” 
Finally, even if Hain’s interpretation were correct, it couldn’t win a motion to dismiss by asserting that the challenged ingredients were nutrient vitamins or minerals, without providing judicially noticeable evidence for this.
Hain attacked the “natural” claims as implausible and lacking an objective definition of “natural.”  The court disagreed: the complaint alleged that plaintiffs understood “natural” to mean that the products were free from synthetic ingredients, and that wasn’t unreasonable as a matter of law.  Although foods labeled “organic” may lawfully contain some synthetic ingredients, “[t]here is no rigid hierarchy that makes ‘natural’ a more permissive label than ‘organic’ in all respects as a matter of law.” A jury might so find, but not a court on a motion to dismiss.  So too with the presence of the ingredients on the ingredient list (citing the Ninth Circuit’s Williams v. Gerber case). 
Plaintiffs’ definition of natural was sufficient in that they alleged that the term “communicates the absence of synthetic ingredients”; they didn’t have to define it for all purposes. The FDA and USDA policies on “natural” were potentially relevant, as was Hain’s own definition in SEC filings, but the ultimate question was one of reasonableness. “The alleged presence of synthetic ingredients merely brings the claim of deception into the realm of plausibility,” and the rest was for a jury.
Unsurprisingly, the court also rejected Hain’s primary jurisdiction argument. Courts can resolve questions of whether labels violate OFPA regulations and whether violations reasonably misled consumers.  Plus, the USDA can’t retroactively amend the regulations to make Hain have complied with them.
The court did express doubt over plaintiffs’ standing to sue over products they didn’t purchase, because their own allegations suggest that the concerns for different products weren’t nearly identical, given the different products and ingredients.

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