"All natural" case not at all preempted

Holk v. Snapple Beverage Corp., -- F.3d – (3d Cir. Aug. 12, 2009) Holk brought a putative class action against Snapple for misrepresenting its drinks as “all natural” when in fact they contained high fructose corn syrup, made from processed cornstarch. (Snapple has since been reformulated to contain sugar.) Snapple removed under CAFA, and the district court dismissed the complaint on implied preemption grounds. (There were other falsity claims, but “all natural” is the only one left.) The court of appeals reversed. The District Court reasoned that the FDA had issued comprehensive regulations governing the labeling and naming of juice drinks, balancing the various interests. As the FDA has acknowledged, “[t]he word ‘natural’ is often used to convey that a food is composed only of substances that are not manmade and is, therefore, somehow more wholesome.” But the FDA never defined “natural.” Still, the District Court found, the “FDA has in fact contemplated the appropriate use of the term,” as indicated by its definition of “natural flavor” and an informal policy regarding use of the term “natural.” Thus, the FDA so thoroughly occupied the field that Congress couldn’t have intended to leave the states room to act. Moreover, the court deferred to the FDA’s expertise; if the FDA, with all its scientific expertise, hasn’t yet set rules for “natural,” then a court shouldn’t do so. The court of appeals began with a presumption against preemption, since health and safety issues, including food and beverage labeling, are traditionally within the province of state regulation. Snapple argued that a century of federal regulations rebuts the presumption, but the Supreme Court has already rejected that argument.

The court then found that Snapple had waived its express preemption argument with respect to “all natural.” In a footnote, it suggested that the FDA apparently considers high fructose corn syrup a sweetener and not a flavoring, which would mean that the portion of the statute on which Snapple relied would be inapplicable anyway. Moreover, that statute, §343(k), is a disclosure requirement: it establishes what companies must put on a label. Holk was arguing about what marketing messages companies can’t put on labels when they use high fructose corn syrup, which is “an important distinction.”

Snapple next argued field preemption. But NLEA, the main relevant federal labeling law, declares that courts may not find implied preemption based on any of its provisions (though it allows courts to find implied preemption based on other sections of the FDCA). So Snapple argued that the pre-NLEA FDCA “broadly addressed labeling and the misbranding of food and beverage products,” and that the FDA has promulgated “exhaustive” regulations for juice in particular. Finally, Snapple argued, the FDA has addressed high fructose corn syrup and found it to be “natural.”

Holk replied that the issue isn’t juice, but food and beverage labeling, and that the NLEA’s anti-preemption provision would have been purposeless if the FDCA already occupied the field.

The court of appeals agreed: “It does not appear that Congress has regulated so comprehensively in either the food and beverage or juice fields that there is no role for the states.” Indeed, there is a tiny preemptive provision specific to juices, which means that Congress recognized the existence of state laws regulating beverages generally and juice products specifically, but apparently chose not to preempt more broadly. The case for preemption is weaker when Congress has recognized dual schemes but has decided to tolerate whatever tension is created. Moreover, the FDA has stated in the past that it doesn’t intend to occupy the field of food and beverage labeling, or the field of juice product regulation. Finally, the court of appeals was reluctant to find field preemption based solely on the comprehensiveness of federal regulation; the Supreme Court has repeatedly held that the mere existence of a federal scheme, even a comprehensive one, doesn’t itself imply preemption.

Finally, Snapple argued conflict preemption, which occurs when either compliance with both regimes would be impossible or when state law stands as an obstacle to Congress’s purposes. Snapple took the position that the FDA has a policy on the use of the word “natural” and that Holk’s lawsuit undermined that policy by adding additional conditions.

Holk rejoined that there are no federal requirements in place defining “natural,” and that even if she won her claim, Snapple wouldn’t be required to take specific corrective action.

The first question was whether there were any federal requirements regarding “natural.” Not every agency action counts as conflicting “law.” Courts look for a relatively formal administrative procedure, tending to foster the fairness and deliberation that should justify deference. This principle had to be applied to the FDA’s “informal policy,” announced in 1991 when it noted that it was considering defining “natural.” At that time, the FDA stated, “[T]he agency has considered “natural” to mean that nothing artificial or synthetic (including colors regardless of source) is included in, or has been added to, the product that would not normally be expected to be there. For example, the addition of beet juice to lemonade to make it

pink would preclude the product being called ‘natural’” (emphasis added).

The court of appeals concluded that this policy statement was not entitled to preemptive effect. First, the FDA ultimately declined to adopt a formal definition of “natural,” even after soliciting comments about the use of the term and recognizing that it’s an important term for consumers subject to misleading use, “[b]ecause of resource limitations and other agency priorities.” A decision not to regulate is consistent with leaving matters to the states. The FDA declared that it would continue to adhere to its informal policy, but that lacks preemptive weight; the informal policy was not subject to notice and comment and was derived without the benefit of public input.

Nor did the FDA appear to consider all the comments received—one comment suggested that restrictions on “natural” could raise First Amendment concerns, but the FDA considered this issue moot in light of its decision not to proceed with a formal definition. There were still “many facets of the issue that the agency will have to carefully consider if it undertakes a rulemaking to define the term ‘natural.’” Thus, the informal policy lacked the indicia of fairness and deliberation required for judicial deference.

Snapple nonetheless argued that preemption was appropriate because the FDA has enforced the informal policy, telling some manufacturers to remove the term “natural” from certain labels. That’s not enough. “[T]he deficiencies inherent in the process by which the FDA arrived at its policy on the use of the term ‘natural’ are simply too substantial to be overcome by isolated instances of enforcement.

The court also rejected Snapple’s argument that a favorable 2008 letter from an FDA official was entitled to weight—it too was not part of any formal rulemaking or adjudication, but was in response to a question from interested parties. “As a result, there is no conflict in this case because there is no FDA policy with which state law could conflict.”