Monday, February 11, 2019

Neighboring farmers have Lanham Act standing where false ads allegedly prompted pesticide use

In re Dicamba Herbicides Litig., MDL No. 2820, 2019 WL 460500 (E.D. Mo. Feb. 6, 2019)

Plaintiffs, twenty-one soybean farmers from eight states (Arkansas, Illinois, Kansas, Mississippi, Missouri, Nebraska, South Dakota, and Tennessee), alleged that their soybean crops were damaged by the herbicide dicamba when neighboring farmers planted genetically modified dicamba-resistant seeds and sprayed that crop with dicamba. USDA permitted the sale of the dicamba-resistant seeds in January 2015, but the plaintiffs argue that commercial sale was wrongful because the EPA hadn’t yet approved a dicamba herbicide for use over the top of crops grown from those seeds. (The seeds could allegedly tolerate other herbicides, like Monsanto’s Roundup.)  Allegedly, the amount of dispersal of an herbicide varies and there are other herbicides that wouldn’t have drifted in the same way; dicamba had previously been a problem because of its volatility and propensity to drift, sometimes taking other herbicides with it. In 2017, the EPA approved new low-volality dicamba herbicides for over-the-top crop use during the growing season, XtendiMax and Engenia.

However, the plaintiffs alleged that the new herbicides are “unsuitable for in-crop use because they too, like the earlier versions of dicamba, are volatile and prone to move off-target and damage nearby, sensitive crops.” This is allegedly a further win for defendants insofar as it induces farmers to defensively purchase dicamba-resistant seed to avoid damages.

I’m here for the Lanham Act claim, though the other claims are also interesting. On causation, Monsanto argued that it wasn’t the source of the old, pre-2017 herbicide, but the causation theory was that “Monsanto marketed and sold its dicamba-resistant seed to third-party farmers knowing that they would spray dicamba that may harm nearby, non-resistant crops.” The only reason to buy and plant the seeds, the plaintiffs alleged, was to use it with dicamba herbicides, whether new or old.  The manufacturer of the herbicide wasn’t the key to causation.

Defendants challenged plaintiffs’ Lanham Act standing. The alleged false advertising was that the Xtend seeds could be safely employed utilizing over-the-top application of dicamba herbicides and that the dicamba would not drift.  Lexmark requires a plaintiff to plead: (1) an injury within the “zone-of-interest,” that is, “to a commercial interest in sales or business reputation,” (2) that was “proximately caused by the defendant’s misrepresentations.” Plaintiffs need not be defendants’ competitors to state a claim. The plaintiff must be a commercial actor suffering commercial injuries instead of being a “consumer who is hoodwinked into purchasing a disappointing product.” That was sufficiently pled here: the plaintiffs were commercial actors, not consumers of defendants’ products, and thus they fell within the Lanham Act’s zone of interest.

Monsanto argued that there was no standing for 2016 claims because it was illegal for third party farmers to use dicamba herbicides with its Xtend seeds in 2016, so the intervening criminal conduct severed the causal chain connecting Monsanto’s misrepresentations to any wrongdoing. That is not an automatic Article III rule; standing was sufficiently alleged.

Proximate cause: Monsanto argued that the plaintiffs were at best indirect victims of the allegedly false advertising. But consumer deception is always an intervening step before the harm materializes in a false advertising case (and in a Lanham Act case it materializes to a third party, usually the competitor who’s lost a sale as a result, even if it also materializes as harm to the consumer). Monsanto argued that there had to be harm to a consumer for there to be proximate cause, but the court recognized that this made no sense.  (The Lanham Act should be triggered where there is false advertising that changes consumer behavior—if the plaintiff’s product was exactly the same as the defendant’s and exactly the same price and there was nothing better on the market, a misrepresentation of superiority that diverted purchasers to the defendant wouldn’t necessarily harm those purchasers in a tangible way, setting aside the moral disrespect of fraud, but it distorts the competitive environment and harms other market actors, who are the targets of the Lanham Act’s solicitude per Lexmark.)  Even if the direct victims of Monsanto’s fraud ended up with crops that were fine, plaintiffs still alleged commercial injury because Monsanto’s misrepresentations caused third parties to use dicamba that destroyed plaintiffs’ crop, so plaintiffs had no soybeans to sell.

Interestingly, the fact that plaintiffs successfully pled a Lanham Act claim seemed to comfort the court in concluding that they couldn’t bring tort claims based on ultrahazardous activity—that concept usually involves only the actual use of the product in question, not promotion of its use.  “Ultimately, plaintiffs’ claim is that “lying” about the safety of an ultrahazardous activity—the spraying of dicamba—is itself an ultrahazardous activity. That claim is certainly actionable, but not under the ultrahazardous activity doctrine.” 

So too with trespass and nuisance—Monsanto’s extensive seed licensing agreement with farmers did not allow it to terminate the agreement for misuse of dicamba, so they didn’t control whether the dicamba particles migrated to plaintiffs’ land. There was no “ongoing” promotion, aiding, abetting, assisting, or contributing to the trespass/nuisance, and no need to hybridize a cause of action using trespass/nuisance plus misrepresentation theories. 

Failure to warn claims/consumer fraud act claims under the laws of Illinois and Nebraska: Monsanto argued that FIFRA preempted these claims.  Plaintiffs argued that FIFRA preempts labeling-based claims, but that their claims were based in part on non-labeling material, such as in-person discussion and websites (Facebook, Twitter, Instagram, YouTube, Snapchat, Pinterest, and Linked In).  (Today I learned that Monsanto or its agents allegedly use Snapchat.)  Though a few cases hold otherwise, the court approved a more literal reading of the preemption statute, limiting its reach to labeling and packaging.

Second, plaintiffs argued that they weren’t seeking requirements that are “in addition to or different from” FIFRA, as required for preemption. FIFRA bars “misbranding,” which occurs if a label contains a “false or misleading” statement or if it “does not contain adequate instructions for use, or if its label omits necessary warnings or cautionary statements.” Although FIFRA doesn’t provide a private cause of action for misbranding, states are allowed to do so.  The state law requirement need only be substantively identical; it need not be phrased in the identical language.  To the extent that plaintiffs alleged that the labels failed to contain instructions that would, if followed “prevent harm to the environment,” that did go beyond FIFRA, which only requires instructions that will, if followed, prevent “unreasonable harm,” so their claim was preempted to a tiny extent, but there was still room for their failure to warn claims.

The court reached a similar result on Nebraska Consumer Protection Act and Illinois Consumer Fraud Act claims. However, the court dismissed the Nebraska statutory claim because of its regulatory state harbor. Both states’ laws have safe harbors; Illinois says: “Nothing in this Act shall apply to any of the following: (1) Actions or transactions specifically authorized by laws administered by any regulatory body or officer acting under statutory authority of this State or the United States.”  Although Monsanto’s advertising claims were submitted to the EPA as part of EPA registration procedures, “exemption is not available for statements that manage to be in technical compliance with federal regulations, but which are so misleading or deceptive in context that federal law itself might not regard them as adequate.”

However, Nebraska’s exemption was broader: “the Consumer Protection Act shall not apply to actions or transactions otherwise permitted, prohibited, or regulated under laws administered by the Director of Insurance, the Public Service Commission, the Federal Energy Regulatory Commission, or any other regulatory body or officer acting under statutory authority of this state or the United States.”  Being “regulated” is enough, rather than being “specifically authorized.” Thus plaintiffs’ statutory claim failed. I think this reading doesn’t make much sense, insofar as the FTCA and other federal statutes regulate pretty much any commerce you can think of; in this interpretation, the only commercial transactions covered by Nebraska’s consumer protection law would be those that did not arise “in commerce” for purposes of allowing the federal government to exercise its Commerce Clause authority—what is likely a null set even after the ACA case.  I have my doubts that Nebraska could have meant to negate its law entirely in this way.  But since EPA regulates pesticide ads under FIFRA, Monsanto’s conduct was within the safe harbor.  [What about seed ads? I thought those were the real problem.]

The Illinois Consumer Fraud Act protects “any person who suffers actual damages as a result of a violation of the Act.” Non-consumers “may sue under the ICFA if they allege (and ultimately prove) the nexus between the objectionable conduct and the consumer injury or harm.” A non-consumer has standing to sue under the ICFA where the “conduct involves trade practices addressed to the market generally or otherwise implicates consumer protection concerns.” The allegedly unfair and deceptive conduct—the publishing of false information to cause farmers to defensively buy dicamba-resistant seed—sufficiently implicated consumer protection concerns.  The complaint also satisfied Rule 9(b), whether or not that was required for all ICFA claims.

Breach of warranty claims met varying fates depending on the state. In Kansas, a non-purchasing, non-using third party can only recover for breach if they’re (1) “expected to use, consume or be affected by the goods,” and (2) “injured in person by breach of the warranty.” That didn’t happen here.  Arkansas, South Dakota, and Tennessee gave effect to defendants’ prominent disclaimers of implied warranties of fitness and merchantability, even though plaintiffs, as nonpurchasers, couldn’t have read those disclaimers. “[T]o give the non-purchasing plaintiffs more rights than purchasers themselves would have is an untenable result.”

The Magnuson-Moss Warranty Act prohibits disclaimers of implied warranties when an express warranty is provided, but only applies to consumer products, not agricultural products.

Also, Missouri has a law protecting crops, who knew?  It is unlawful for anyone intentionally to cause the loss of any crop. Further, “any person or entity who knowingly damages or destroys any field crop product that is grown for personal or commercial purposes…shall be liable for double damages.” A claim under this law was properly alleged, as was a design defect claim.

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