safe harbors under consumer protection law are mostly limited to very specific approvals

Patane v. Nestlé Waters North America, Inc., No. 3:17-cv-01381 (JAM), 2020 WL 4677636, -- F. Supp. 3d – (D. Conn. Aug. 12, 2020) 

This case offers a nice overview of the safe harbor provisions in several consumer protection laws. Short version: defendants want them to work like field preemption, but they are usually (not always) better described as working like conflict preemption. Here, where it was not clear that Nestlé’s state licenses to bottle water authorized it to label that water as “spring” water, the safe harbors mostly did not preempt claims under consumer protection law that the water was in fact groundwater and thus misleadingly labeled. 

Nestlé moved for summary judgment on all of plaintiffs’ claims arising under the laws of Connecticut, Maine, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, and Rhode Island. The court denied the motion except as to plaintiffs’ statutory claims under Rhode Island law. 

Nestlé argued that there was no private right of action for the violation of state “spring water” standard laws and, alternatively, that any right of action was foreclosed by safe harbor exemptions under state law and by doctrines that limit collateral attacks on state-issued permits or licenses. Going state by state, the court concluded that the lack of a specific right of action for the violation of a state law spring water standard didn’t “foreclose the underlying conduct from being actionable under separate state statutes that prohibit unfair and deceptive trade practices or from being actionable to the extent that they amount to fraud and breach of contract.” Note that this is not the broader California rule making violations of other statutes violate the UCL as “unlawful”; rather, the court simply holds that conduct that misleads consumers is generally actionable under state consumer protection law, even if another statute that doesn’t provide a private cause of action also prohibits such conduct. Also, with the exception of Rhode Island, there was at least a genuine issue of fact about whether Nestlé was entitled to the benefit of regulatory safe harbor exemptions/whether plaintiffs’ claims were an impermissible collateral attack on state-issued licenses or permits. 

Generally speaking, Nestlé had licenses that allowed it to bottle water, but it did not appear that the relevant regulatory agencies had specifically evaluated whether its water was “spring water” according to state standards (which generally adopt the federal standard). 

In Connecticut, for example, “a plaintiff may predicate a CUTPA claim on violations of statutes or regulations that themselves do not allow for private enforcement.” But a safe harbor expressly exempts from liability “[t]ransactions or actions otherwise permitted under law as administered by any regulatory board or officer acting under statutory authority of the state or of the United States,” and it places “[t]he burden of proving exemption ... upon the person claiming the exemption.” The court must determine whether the conduct at issue—here, the sale of bottled water as “spring water”—is “expressly authorized and pervasively regulated.” But the licenses it submitted “reflect permission for bottled water in general and without any further reference or approval specific to spring water.” Although correspondence to the Connecticut Department of Consumer Protection stated Nestlé’s intent to sell its water as “spring water,” the relationship of those communications to the approval and issuance of licenses was “unclear.” 

In Maine, similarly, the court found that the safe harbor applied only if Nestlé’s conduct was either required or specifically authorized by law. Although “similar exemption provisions have been interpreted differently by other states, such that entire industries are exempt if regulated under a separate statutory scheme” (citing a Georgia case), the court found such interpretations “in the minority and textually unpersuasive,” because the Maine safe harbor exemption from the unfair/deceptive trade practice law required that conduct be “in compliance with,” not simply “regulated by,” certain other laws. Maine’s statutes didn’t make the grant of a license contingent on approval of how the bottled water was to be labeled or otherwise marketed. Nestlé’s submitted licenses didn’t even refer to “spring water,” just “water.” As for a “hodgepodge of letters it received at various times over the course of two decades from various compliance officers and geologists at the Drinking Water Program of the Maine Department of Health and Human Services,” many appeared to be non-binding “advisory rulings,” rather than binding orders, licenses, permits, or other approval necessary for the safe harbor. The remaining letters did state that certain boreholes “[a]re approved by the DWP as public water supply sources” and that they “[m]eet the U.S. FDA definition of ‘spring water,’” but assuming they qualified Nestlé for the safe harbor, Nestlé didn’t show that the approvals covered all sources of water and the entire time period at issue in this action, and its own declaration was equivocal about that. 

And so on with the other states (detailed discussion that will be useful to other courts omitted). In New Hampshire, the safe harbor exempts only “[t]rade or commerce that is subject to the jurisdiction of the bank commissioner, the director of securities regulation, the insurance commissioner, the public utilities commission, the financial institutions and insurance regulators of other states, or federal banking or securities regulators who possess the authority to regulate unfair or deceptive trade practices.” Bottled water is regulated by the New Hampshire Department of Health and Human Services, not by any of these, so the safe harbor didn’t apply at all. And Pennsylvania’s UTPCPL doesn’t even have a safe harbor exemption. 

Nestlé had more success with the Rhode Island claims. RIDTPA “quite broadly” exempts “actions or transactions permitted under laws administered by the department of business regulation or other regulatory body or officer acting under statutory authority of this state or the United States.” Critically, the Supreme Court of Rhode Island held that “the exemption applie[s] to all activities subject to monitoring by governmental agencies, not simply activities permitted under state or federal law.” Nestlé successfully showed that its general activities of labeling bottled water were “subject to monitoring or regulation” by a government agency. The burden shifted to plaintiffs to show that the “specific acts at issue” were “not covered by the exemption.” But Rhode Island had specific standards of identity for spring water and its labeling. Nestlé could lose its license for violating the standards. Thus, Nestlé qualified for the Rhode Island safe harbor under RIDTPA. 

As for common law fraud and breach of contract claims, Nestlé didn’t explain how its arguments should apply to the common law differently than to the statutory claims. For the seven states as to which the court denied summary judgment as to the statutory unfair trade practice claims, it seemed reasonable that if a legislature wanted consumers to be able to sue under the statute, it would also want the common law to remain available. “Even for Rhode Island . . . , it is a stretch to conclude that the legislature’s enactment of a statute-specific exemption should be extrapolated to bar any common law cause of action for conduct that is subject to government regulation.” Thus, the court denied Nestlé’s motion for summary judgment on the common law claims.