Violating a labeling regulation isn't equivalent to falsity

OMS Investments, Inc. v. TerraCycle, Inc., 2007 WL 2362597 (D.N.J.)

The PR war over the lawsuit between worm poop company TerraCycle and Scotts, the leading maker of chemical fertilizer for home gardeners, has produced its first opinion, dismissing two of TerraCycle’s false advertising counterclaims without prejudice.

TerraCycle alleged that several of Scotts’ claims were “per se” misleading because they violated California and Washington state regulations on product labeling. The court agreed with plaintiffs that alleging violation of a state or agency regulation on labeling was insufficient to state a Lanham Act claim (though it can, for example, constitute an unfair trade practice under California state law). This rule is consistent with the policy that agencies should interpret their own ambiguous regulations in the first instance. Thus, TerraCycle did not adequately plead falsity. Citing an earlier D.N.J. case, the court also held that the state-law unfair competition claim was inadequately pleaded because New Jersey state law was the “statutory equivalent of §43(a).”