Monday, September 28, 2015

seeds of disaster: Syngenta must continue to fight claims based on genetically altered seeds

In re Syngenta AG MIR 162 Corn Litig., Nos. MDL 2591, 14–MD–2591–JWL, 2015 WL 5607600 (D. Kan. Sept. 11, 2015)
Corn producers, non-producer corn sellers, and milo producers sued Syngenta because of its production of genetically altered corn, which allegedly harmed them in various ways. The court dismissed a number of claims based on failure to warn; trespass to chattels under all states’ laws except Louisiana; the corn producers’ claims for private nuisance; Lanham Act false advertising claims to the extent based on communications that weren’t commercial advertising; fraud and negligent misrepresentation claims; and some state-law consumer protection claims, while preserving other claims.  
Syngenta developed products called Viptera and Duracade, intended to make the resulting corn crops more resistant to certain pests, with traits known as MIR 162 and Event 5307, which isn’t creepy at all. Corn grown by farmers who did not buy Syngenta’s products gradually became contaminated with the MIR 162 and Event 5307 traits through cross-pollination from neighboring fields. Viptera- and Duracade-grown corn was also commingled with other corn in grain elevators and other storage facilities. Viptera corn infiltrated the general domestic corn supply.
China then began rejecting all corn from the United States containing the MIR 162 trait, which persisted for over a year. The loss of the Chinese market for that period caused prices to decrease in the United States, which in turn caused harm to plaintiffs.  According to the plaintiffs, Syngenta misrepresented the status, likelihood, and imminence of Chinese approval and the products’ impact on export markets, as well as growers’ and others’ ability to avoid infiltration of Viptera into the entire corn supply (through channeling and otherwise) and Syngenta’s own steps in that direction. Syngenta’s actions allegedly actually increased the risk of contamination and commingling of the corn.
The producer plaintiffs were corn growers who did not use Syngenta’s seeds in growing their corn. The non-producer plaintiffs exported, stored, transported, or sold corn. The milo (sorghum) plaintiffs alleged that the milo market in the United States was so closely tied to the corn market that they suffered the same economic damages that corn producers did.
On negligence, the court found that the plaintiffs had sufficiently alleged that a duty existed to take reasonable care in the marketing and commercialization of genetically altered corn.  The injuries alleged were not only foreseeable; they were allegedly foreseen, and Syngenta allegedly misrepresented the facts to the industry.  The court rejected Syngenta’s argument that a manufacturer generally has no duty to control third parties who buy and use its products, absent a special relationship, and that its corn was no different from guns, cellphones, or meth precursors.  However, plaintiffs sufficiently alleged that Syngenta failed to provide assistance (in the form of channeling and stewardship programs), without which producers and non-producers could not reasonably avoid contamination and commingling, and that Syngenta engaged in affirmative conduct that contributed to the harm.  The third parties here didn’t misuse the products, as with guns, phones, and meth cases; here Syngenta could allegedly foresee the “misuse” of the product by virtually every customer because they couldn’t avoid commingling.  Moreover, the victims weren’t random third parties, but participants in an interconnected market who Syngenta described as “stakeholders,” thus especially vulnerable to the allegedly wrongful acts.
Syngenta also argued that it shouldn’t be liable because its products were approved for sale by regulatory agencies, but it didn’t show that those agencies “necessarily approved (or had the authority to approve) the commercialization of its products in an unreasonable manner.”  (The court also rejected FIFRA preemption for the claims as asserted, except any claim based on an alleged failure to warn to the extent that the claim was based on a lack of warnings in materials accompanying the products.)
For similar reasons, plaintiffs adequately alleged proximate cause.
Syngenta argued that any claims for economic damages for negligence, negligent misrepresentation, or private nuisance in this case were barred by the economic loss doctrine, the rule barring a plaintiff from bringing a claim in negligence to recover solely economic damages, including damages based on plaintiffs’ theory that corn and milo prices dropped in the market generally as a result of Syngenta’s actions.  The court found that, contrary to plaintiffs’ arguments, they hadn’t alleged physical harm to their property, including contamination of their corn and harm to their equipment and storage facilities, because their damage theory was market-based (it wasn’t caused by contamination of any particular corn) and they didn’t plausibly allege that all plaintiffs suffered contamination of their corn. 
However, the economic loss doctrine is not always applied when the parties are strangers, rather than related by the purchase of a product or by a contract.  Only in seven of the 22 states under whose laws plaintiffs sued had even arguably applied the economic loss doctrine in a stranger case, and almost all were lack-of-access or public nuisance cases, where almost anyone could in theory be a plaintiff.  The court predicted that the presence of interconnected relationships and markets made this case inapposite for the application of the stranger economic loss doctrine in all 22 states.
Trespass to chattels: Louisiana doesn’t recognize the common-law tort of trespass to chattels, but instead recognizes a statutory cause of action for damage to movables; Syngenta didn’t make any arguments about that, so the court didn’t dismiss the Louisiana claim.  As to the common law claim, the court found that Syngenta wasn’t responsible for trespass just because it sold a product knowing that the product would end up interfering with the property of non-purchasers.  Plaintiffs didn’t plausibly allege that Viptera grown specifically by Syngenta intermeddled with their corn, although they could amend to identify specific plaintiffs where that theory was plausible, since Syngenta did conduct field tests in almost all the relevant states.  Moreover, the plaintiffs didn’t even plausibly plead that each producer plaintiff suffered contamination of its own corn in the fields or in grain elevators, or damage caused specifically by that contamination (as opposed to harm to the market for all US corn).
Private nuisance: Again, the general rule is that a seller of a product is not liable for a private nuisance caused by the use of that product after it has left the seller’s control, a rule that has been applied in asbestos cases, “even though that hazard exists even with the intended use of the asbestos-containing product.”  Likewise, the damages theory wasn’t based on any invasion of plaintiffs’ land.
Tortious interference with business expectancy by corn and milo producers: these claims, somewhat surprisingly, survived.  Plaintiffs didn’t have to identify specific third parties with whom they had expectancies, given the allegation of an identifiable class—purchasers of corn, a
commodity that is sold in a defined market. Nor did they need to allege that Syngenta intended to induce corn purchasers to stop doing business with plaintiffs, as long as they plausibly alleged that Syngenta had been substantially certain that interference would occur from its conduct. “One could reasonably infer from the facts alleged in the complaints that defendants knew that Viptera had not been approved in a key export market, that contamination of plaintiffs’ corn would occur after commercialization of Viptera without certain safeguards, and thus that interference with plaintiffs’ sales would be substantially certain to occur.”  Although Syngenta argued that it had no plausible motive to disrupt US corn sales, it could plausibly have wished to maximize its own sales regardless of whether corn prices were depressed generally.  Nor did regulatory approval of Viptera matter—it didn’t immunize Syngenta from liability for wrongful conduct in selling Viptera.
Lanham Act false advertising: Syngenta argued that its alleged misrepresentations couldn’t have proximately caused plaintiffs’ injuries under Lexmark.  The court found that plaintiffs plausibly alleged that Syngenta’s false and misleading statements caused sales of Viptera and Duracade, which in turn caused contamination. As for the “zone of interests” of the Lanham Act, Syngenta argued that plaintiffs weren’t competitors or in any sort of competitive relationship to Syngenta.  But Lexmark didn’t require such a relationship.  Lexmark is most reasonably read as merely requiring that the plaintiff be a commercial actor, suffering commercial injuries (lost sales or reputational injury), instead of being a mere consumer who is “hoodwinked” into purchasing a disappointing product.”  The producer plaintiffs weren’t consumers of Syngenta seeds or even Viptera corn.  Their claimed injury, lost sales, was commercial, and they fell into the zone of interests protected by the Lanham Act.  This worked even for the milo producers, because of the allegations that the milo market was so closely tied to the corn market.

As for non-producer plaintiffs, they bought Viptera-contaminated corn. But they were alleging injuries not as buyers of such corn (consumers disappointed in the product) but as sellers in the market (as commercial parties).  Nor did they buy the allegedly falsely advertised seeds.  “[A]lthough they were arguably injured by getting different corn than they anticipated (because it contained Viptera), they were not trying to get corn made from Syngenta’s seeds (and thus were not an indirect consumer of the seeds).”
Commercial advertising or promotion provided more of a barrier as to many of the alleged misrepresentations.  The identified misrepresentations were in five places: (1) in Syngenta’s deregulation petition to the USDA; (2) in statements by Syngenta’s Michael Mack in an earnings conference call; (3) in a request form for Bio–Safety Certificates; (4) in a “Plant with Confidence Fact Sheet;” and (5) in a letter by Syngenta’s Chuck Lee.  Syngenta didn’t challenge that the fact sheet was commercial advertising or promotion.
Under Proctor & Gamble Co. v. Haugen, 222 F.3d 1262 (10th Cir. 2000), actionable the representations must be “for the purpose of influencing customers to buy defendant’s good or services.” “While the representations need not be made in a ‘classic advertising campaign,” but may consist instead of more informal types of ‘promotion,’ the representations ... must be disseminated sufficiently to the relevant purchasing public to constitute ‘advertising’ or ‘promotion’ within that industry.” The deregulation petition, as a petition to the government, was not obviously commercial advertising or promotion.  Though statements in government petitions could be made more for PR purposes/reaching consumers than for truly addressing the government’s requirements, plaintiffs didn’t plead sufficient facts supporting the inference that the challenged representations (about the financial effects of approval on the market for corn) were of that nature.
Syngenta also argued that the statements in the petition weren’t sufficiently disseminated to constitute promotion.  Plaintiffs alleged that online availability of the petition, and availability to any consumer who wished to review it, were sufficient, but without additional facts it wasn’t plausible to infer that “statements in a regulatory petition that is available—but not necessarily affirmatively distributed to anyone—were sufficiently disseminated to constitute promotion or advertising.”
Similarly, the earnings conference call was directed at investors and analysts, not consumers, and “[o]ne would not ordinarily expect a quarterly earnings call to be made for the purpose of influencing customers.” Again, without more, this wasn’t plausibly commercial promotion, nor was it plausibly sufficiently disseminated.  Mere availability on the internet didn’t equate with dissemination to the public.  “Plaintiffs have not pleaded that Mr. Mack’s statement actually reached some significant portion of the relevant public (customers of Syngenta).”  (I’m worried about this statement in other contexts—when advertising is directed at consumers, then the fact that we’re not sure how many consumers read it shouldn’t be dispositive, especially on a motion to dismiss; exactly how should a plaintiff plausibly prove that lots of consumers saw material on the defendant’s website, a matter within the defendant’s knowledge?)
Syngenta also allegedly distributed a request form for Bio–Safety Certificates issued by the Chinese government, knowing that it was useless in the absence of Chinese approval, in order to mislead farmers. But the certificates were provided to grain exporters and resellers, and weren’t pled to be used by Syngenta’s customers to influence sales.
Perhaps more used to securities law litigation, Syngenta argued that its statements were non-actionable forward-looking predictions and opinions. The court found that statements of Syngenta’s present expectations could constitute misrepresentations of fact.
Then came various state-law consumer protection claims.  Plaintiffs brought their Minnesota Unfair Trade Practices Act and Minnesota Consumer Fraud Act claims under the state’s Private Attorney General statute, only allows a private right of action if the plaintiff’s claim benefits the public. Since plaintiffs were seeking only damages and not an injunction, and since clarifying the nature of legal duties wasn’t itself enough to provide a public benefit (or any old case would qualify), the court dismissed the Private AG claims; there were no independent claims under the MUTPA (probably because only the Private AG statute offered the prospect of attorneys’ fees).  MUTPA doesn’t apply to merchants, but there was a fact question about whether these plaintiffs were sophisticated merchants in the relevant area.  (Wait, shouldn’t it be the actual purchasers from Syngenta whose sophistication is assessed, since it’s their purchases that allegedly provided the causal link between Syngenta’s conduct and the market collapse?)
Although Syngenta Seeds is a Minnesota corporation, the court concluded that Minnesota’s consumer protection statutes didn’t apply to non-Minnesota resident plaintiffs.
Claims, or parts of claims, under other states’ consumer protection laws survived: Colorado, Illinois, Nebraska, and North Carolina.  The court rejected various arguments that some of those states didn’t allow non-consumer plaintiffs.  North Dakota consumer protection claims were treated like the Lanham Act claims because North Dakota law prohibits the use of deceptive practices “with the intent that others rely thereon in connection with the sale or advertisement of any merchandise.”

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