Clark v. Citizens of Humanity, LLC, No. 14–CV–1404, 2015 WL
1600679 (S.D. Cal. Apr. 8, 2015)
Plaintiffs bought Citizens of Humanity jeans marked with “Made
in the USA,” but alleged that the products contained component parts made
outside the US, including the fabric, thread, buttons, subcomponents of the
zipper assembly, and/or rivets.
Plaintiffs alleged that the jeans therefore were “of inferior quality”
and “less reliable” than jeans actually made entirely in the United States and
that they overpaid in reliance on the claims. They brought the usual California
claims.
Defendants argued that California’s Made in the USA law was conflict
preempted by virtue of the FTC’s Made in the USA regulations and that it
violated the dormant commerce clause; the court disagreed.
Preemption: California law provides:
It is unlawful for any person,
firm, corporation, or association to sell or offer for sale in this State any
merchandise on which merchandise or on its container there appears the words
‘Made in the 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
substantially made, manufactured, or produced outside of the United States.
Cal. Bus. & Prof.Code § 17533.7. California courts have
interpreted this section strictly: “if the merchandise consists of separate,
identifiable components, section 17533.7 requires ‘any article, unit, or part’
of the merchandise to be ‘entirely or substantially made, manufactured, or
produced domestically to qualify for use of a ‘Made in U.S.A.’ or similar
label.” So, “a product, like [the aircraft carrier] the U.S.S. Ronald Reagan,
can be overwhelmingly and substantially ‘made in the United States’ but could
not be claimed to have been ‘made in the United States’ unless is contained
absolutely 100 percent American parts, down to the last screw.”
The FTCA says:
To the extent any person
introduces, delivers for introduction, sells, advertises, or offers for sale in
commerce a product with a ‘Made in the U.S.A.’ or ‘Made in America’ label, or
the equivalent thereof, in order to represent that such product was in whole or
substantial part of domestic origin, such label shall be consistent with
decisions and orders of the Federal Trade Commission issued pursuant to section
45 of this title.
15 U.S.C. § 45a. The FTC’s standard, as adopted, is that “manufacturers
shall be permitted to use the ‘Made in the U.S.A.’ label on products that are
‘all or virtually all’ made in the United States.” There is no bright line, but
if foreign-made component parts comprise a “negligible portion of the product’s
total manufacturing costs and are insignificant parts of the final product,”
then the item will be considered to have been made in the United States.
Defendants argued that this regulation had two purposes:
preventing consumer deception and encouraging manufacture in the US by allowing
manufacturers to use the powerful “Made in the USA” label. California’s law conflicted with the latter. The FTCA, however, says that “[n]othing in
this section shall preclude the application of other provisions of law relating
to labeling.” §45(a). Nor is compliance
with both laws impossible. Also,
plaintiffs argued that the second alleged purpose wasn’t actually a purpose,
and that the goal of consumer protection was served by California’s more
vigorous law.
The court found that it wasn’t impossible to comply with
both laws; they could use the “Made in the USA” label only to items entirely
made in this country, or by using a distinct label for clothing sold in
California. In addition, the court agreed that both laws were aimed at
preventing consumer deception. And even if promoting US manufacture was a
secondary objective, “it cannot be said that § 17533.7 stands as an obstacle to
promoting it because surely § 17533.7 encourages some manufacturers to complete
all of their manufacturing in the United States.” (I’ve written about this
problem before with respect to “organic.”
The trouble is figuring out the balance between manufacturers who find
it worthwhile to meet the purity standard because of the greater payoff, and
those who would be willing to invest extra in a lesser standard but just give
up and go fully conventional/foreign if they can’t use the label.)
In addition, the regulation doesn’t bar use of “Made in the
USA,” only the use of an unqualified label in California unless the product is
100 percent made in the United States. Manufacturers can still use the
unqualified label in other states.
Separately, the Federal Textile Fiber Products
Identification Act (TFPIA) requires that any garment that is “processed or
manufactured” in the United States include a “Made in the U.S.A.” label,
regardless of whether component parts are manufactured outside of the United
States. Such labels may be accompanied by additional language such as “of
imported fabric.” Defendants argued that the TFPIA required what California law
barred, and that California law didn’t allow qualified labels. Plaintiffs argued that California law would
allow qualified claims such as “Made in USA of globally sourced component
parts.” The court agreed: “using detailed labels that indicate which component
parts are foreign and which are domestic allow a manufacturer or retailer to
comply with both state and federal law.”
The law’s goal, after all, was accurate labeling to protect and inform
consumers, and qualified labels promoted that objective. Manufacturers who chose to employ a qualified
label nationwide “would not be able to avail themselves of the lower standard
required by the FTC regulation as the labels would have to comply with the
stricter California standard,” but they could use different labels in
California. Compliance with both standards might be inconvenient, but wasn’t
impossible.
As for the dormant commerce clause, evenhanded regulation
with indirect effects on interstate commerce is okay if the state’s interest is
legitimate and the burden on interstate commerce does not clearly exceeds the
local benefits. For a court to find that a facially neutral statute violates
the dormant commerce clause, “the burdens of the statute must so outweigh the
putative benefits as to make the statute unreasonable or irrational.”
Defendants argued that the California law had no public
benefit, given that, according to the FTC’s findings, a significant portion of
consumers around the country are willing to accept that products labeled “Made
in the USA” may contain component parts made in foreign countries. Plus, the California
law might encourage manufacturers to give up and move everything overseas,
harming the public. The burden on interstate commerce was significant because
manufacturers had to choose among (1) not selling in California, (2) labeling
all their products for sale to California, thus losing the benefits of the “Made
in the USA” label, or (3) labeling separately for California.
Plaintiffs responded that there was a fourth alternative:
qualified “Made in the USA” labels. That alternative put a minimal burden on
interstate commerce.
The court first found that there was a legitimate state
interest in combating deceptive advertising. Defendants’ disagreement with the
California legislature over whether consumers were protected by limiting the
use of unqualified “Made in the USA” labels was insufficient.
“[T]he California legislature decided that there is an
important difference between items completely or substantially made in this
country.”
Once qualified labels were allowed, there was no undue
burden on interstate commerce. Manufacturers could use a qualified label
nationwide, or a different label for products sold in California.
No comments:
Post a Comment