stricter California rule on Made in USA claims not preempted

Paz v. AG Adriano Goldschmeid, Inc., No. 14cv1372, 2014 WL 5561024 (S.D. Cal. Oct. 27, 2014)

Paz sued AG, alleging that its “The Protégé” brand jeans were misleadingly marked with a “Made in the U.S.A.” label; he allegedly relied on the label in the belief that he was “supporting U.S. jobs and the U.S. economy.” However, the jeans allegedly “actually contain[ ] component parts made outside of the United States”: fabric, thread, buttons, rivets, and/or certain subcomponents of the zipper assembly.  He alleged violation of the CLRA, UCL, and California Business and Professions Code § 17533.7, which makes it unlawful to sell “any merchandise on which merchandise or on its container there appears the words ‘Made in U.S.A.,’ ‘Made in America,’ ‘U.S.A.,’ or similar words when the merchandise or any article, unit, or part thereof, has been entirely or substantial) made manufactured, or produced outside of the United States.”

Here, the court denied AG’s motion to dismiss on the ground that the FTCA and the Textile Fiber Products Identification Act (TFPIA) preempted the claims.  AG relied on conflict preemption.  There’s a presumption against preemption where the states have traditionally regulated in an area (like consumer protection).

The FTCA, in 15 U.S.C. § 45a, says that “Made in the U.S.A.” or equivalent claims have to be consistent with FTC decisions and orders, and that “[n]othing in this section shall preclude the application of other provisions of law relating to labeling.”  The FTC duly issued an Enforcement Policy Statement “to give general guidance on making and substantiating U.S. origin claims.”  The FTC articulated a standard that requires that a product so labeled be “all or virtually all” made in the US, which means that all significant parts and processing that go into the product are of U.S. origin.  The FTC will consider “whether the final assembly or processing of the product took place in the United States; the portion of the total manufacturing cost of the product that is attributable to U.S. parts and processing; and how far removed from the finished product any foreign content is.”

The FTCA therefore allows for the use of a “Made in U.S.A.” label even if the product includes or contains material from a foreign country, but § 17533.7 requires that all parts of a product be “entirely or substantially made, manufactured, or produced” in the United States. These are different standards, but that doesn’t require conflict preemption. It would be possible to comply with both laws. “Outside California, Defendants could use the ‘Made in U.S.A.’ labels, but inside California, they could not. This may be burdensome for Defendants, but it is not impossible for them to do so.”

AG argued that California law created an obstacle to the accomplishment and execution of the FTCA, and that the FTCA was intended to give the FTC authority to determine when use of “Made in U.S.A.” would be misleading or not misleading.  But (1) there was no indication that field preemption was appropriate, and (2) both statutes had the same purpose, to allow consumersto know whether their purchases “support fellow Americans” or “harm the American manufacturing base.”  (Quoting the Federal Register—interesting that the recent country of origin labeling case involved a government far less willing to articulate this obvious fact.)  Given the California law’s purpose “to protect consumers from being misled when they purchase products in the belief that they are advancing the interests of the United States and its industries and workers,” compliance with one wouldn’t impede the other.  (This seems to finesse the question of whether high standards for “Made in the U.S.A.” encourage producers just to give up and go entirely offshore, whereas they could stay onshore if they could import zippers and still use the label to generate additional profits.)  Delegating authority to the FTC to regulate “Made in the U.S.A.” isn’t the same as preventing states from exercising that same authority; after all, the FTCA also delegates to the FTC the power to go after unfair methods of competition, while allowing the states to do likewise.

The court turned to the TFPIA, which provides that a textile fiber product will be misbranded if it lacks a label indicating origin; if it’s “processed or manufactured in the United States,” it has to be so identified.  AG argued that the TFPIA requires them to use a “Made in U.S.A.” label even if the garment includes foreign-made materials, but California law prohibited that unless the entire garment is made entirely or substantially in the U.S.A. Only the second part of that last sentence was true. Nothing in the TFPIA requires an unqualified “Made in the U.S.A.” label; the TFPIA actually requires that labels disclose, e.g., “Made in USA of imported fabric.” To comply with both laws, AG must merely accurately describe where the parts of the product and the product as a whole were sourced and made.

AG argued that California law prohibited even qualified “Made in U.S.A.” claims, and the law could be read that way.  (The court didn’t understand Paz to be challenging properly qualified claims, only unqualified or underqualified claims such as “Made in U.S.A. of imported fabric” when the products included parts, other than just the fabric, that were sourced or manufactured overseas.)  On its face, the statute outlawed “Made in U.S.A.” whenever parts were entirely or substantially made outside the US, and was silent on qualified labels.  But the lack of precedent didn’t preclude the court from using common sense.  The relevant provision was part of the FAL, governing false and misleading advertising in general.  A properly qualified label lacks falsity or misrepresentation and so wouldn’t violate the California law. Thus there was no preemption.