Monday, February 21, 2022

More COOL stories: USDA shield not plausibly misleading of origin, but "Product of USA" might be

Thornton v. Kroger Co., 2022 WL 488932, No. CIV 20-1040 JB/JFR (D.N.M. Feb. 17, 2022)

269 print pages!

Thornton sued over logos that allegedly misrepresented the US origin of meat. She alleged both health and moral concerns about foreign beef, which she alleged was produced under dangerous and environmentally destructive/harmful labor conditions.


examples of challenged labels: USDA Choice, "produced in the USA" over American flag

The court held that federal law did not preempt her claims; she was not seeking to reinstate country-of-origin labeling requirements for beef, but to avoid false advertising, which was consistent with federal law (which specifies that labels can’t be false/misleading). She challenged both use of a “U.S.D.A. CHOICE/Produced in the USA” graphic, as well as use of the official USDA grade shields in red, white and blue. Although Kroger claimed that it was no longer using “ ‘Produced in the USA’ language in connection with any beef advertisements,” the court pointed out that it saw promotional stickers saying that in the store, and thus “understood” Kroger’s statement to mean only that the logos were no longer in mailings or other out-of-store ads.

Likewise, the New Mexico Unfair Practices Act’s safe harbor provision didn’t exempt the defendants’ conduct because it wasn’t “expressly permitted” by USDA. Defendants fundamentally argued that federal law dictated that “labels which indicate that products which only have been processed in the United States can be labeled as a United States product, regardless whether these labels are false or misleading.” The court disagreed.

Part of the problem came from the feds themselves:

It takes a certain amount of mental gymnastics to reconcile the Agricultural Marketing Act’s plain language—as well as the USDA’s public pronouncements—about how the USDA grade shields promote “American beef” and “American agricultural products,” with the thicket of USDA regulations that implicitly undermine those stated goals.

Comment: The feds have long preferred the interests of packers over those of US ranchers. “Although the Defendants’ practice of using USDA grade shields on their labels and in advertisements may be prevalent and customary in the retail industry, and the USDA may even ratify that use to the extent that the shields are used to indicate ‘American agricultural products,’ ‘[n]either inferential pre-conduct agency permission nor post-conduct agency review has even been held to satisfy the requirement of the statute.’” A regulatory “patchwork” that defendants argued gave them permission was not a safe harbor and USDA never approved the conduct at issue here.

Similarly, the dormant commerce clause didn’t preclude the claim. Because advertising beef as “U.S.D.A. CHOICE/Produced in the USA,” or with the USDA official grade shield, is permissive and not mandatory, it was possible for the defendants to comply with state law without affecting international trade agreements. “It is difficult to see how, if the Defendants can no longer advertise imported beef products with promotional stickers or advertising graphics indicating that those products have a geographic origin in the United States, this would upend WTO rulings.”

Core plausibility: It was plausible that the “Produced in the USA” claim was deceptive, but not that the red white and blue USDA official shield was (plaintiffs had argued that defendants should have to use the black and white version). As to the first, it was plausible that consumers would believe that the advertised beef was from cattle born and raised in the United States when it was not. But “on their face, the official USDA grade shield states merely the beef’s grade and implies that it has passed USDA inspection.”

USDA choice shield in red white and blue

It was true that, viewed in conjunction with government statements about the meanings of the grade shields, the shields could be misleading, but Thornton didn’t allege reliance on government statements. The court wouldn’t attribute the government message to defendants. Thornton didn’t plead sufficient facts to show that the public would have relied on the government statements. The court commented that liability would be possible for some third party statements. “If, for example, the USDA or AMS ran television advertisements every night stating that the USDA grade shields are symbols of high quality American beef and that their purchase supports rural America, then Thornton plausibly could allege, and the Court could conclude, that reasonable consumers could be misled by the Defendants’ use of the official USDA grade shields, even though the Defendants’ advertisements are not facially misleading.” But that wasn’t alleged here.

Breach of warranty was plausible for “Produced in the USA,” which was ambiguous as applied to beef products. Thus, the jury should determine its meaning as the ultimate factfinder. [Compare the reasoning here—perfectly good common-law reasoning—with the reasoning on the preliminary injunction motion, which invokes Lanham Act distinctions.]

For the preliminary injunction, Thornton lacked a substantial likelihood of success on the merits because she didn’t show that the general public was aware of or relied on government statements about the official shield grades—which were the only thing she sought preliminary injunctive relief on. Also, and this is something that the court doesn’t seem to know is a total innovation, “because the official USDA grade shields are not inherently misleading, they enjoy First Amendment protection, and Thornton does not demonstrate that a PI is the least restrictive method of vindicating the important State interest in truthful commercial speech.” That is, the court seemingly unites the explicitly misleading/implicitly misleading divide from the Lanham Act with the inherently or actually misleading/potentially misleading divide from an older line of First Amendment cases about direct government regulation. This doesn’t work super well—including because “actually misleading” includes situations where the statement is ambiguous but shown to deceive consumers, so the First Amendment divide encompasses both parts of the Lanham Act categorization system.

This was an invited confusion, since defendants insisted that the court should use the Lanham Act explicit/implicit distinction to evaluate the case, requiring “evidence (usually in the form of market research or consumer surveys) showing how the statements are perceived by those who are exposed to them.” The court, in adopting this view, cited a lot of Lanham Act cases—including a quote saying “Lanham Act”—without explaining why this standard was also the standard for consumer protection cases: “While it is true that the issue whether an advertisement is misleading is a factual question to which individual jurors would bring their own opinions, perceptions, and experience—and would ultimately determine, were this case to go to trial—the Court determines that, in the absence of consumer surveys, market research, or expert testimony to the contrary, a reasonable jury would not consider the USDA grade shields to be misleading facially.” The USDA grade shields “do not assert facially anything about the beef’s origin, but assert only the meat’s grade and that it passes USDA inspection standards.” Although the court was “reluctant … to require consumer surveys for implicit falsehood claims at the PI stage,” it still found the distinction between explicit and implicit falsehood “worth considering when determining whether Thornton meets her burden of production.”

[For such a comprehensive opinion pursuing almost every thought down multiple possible pathways, it is surprising that the court spends no time distinguishing the Lanham Act from consumer protection law. The plaintiff here doesn’t even have Lanham Act standing; applying the implicit/explicit distinction—which stems not from the text of the Lanham Act but from judicial interpretation of it in part to deal with worries about anticompetitive suits brought by competitors to suppress competition—would seem to require more justification.]

The red, white and blue scheme was potentially misleading—the court rejected defendants’ arguments that it could not indicate geographic origin as a matter of law. Unlike the words “American Girl” as a trademark for shoes, the terms here were “literal descriptors of the products on sale, and denote the beef’s quality and character.” Milso Indus. Corp. v. Nazzaro, 2012 U.S. Dist. LEXIS 123999 (D. Conn.), also held that the defendant’s company name, “Liberty Casket,” and the iconography of the Statue of Liberty and the American flag “evoke clear associations with the United States of America,” but were “too general to evoke any specific geographical associations or to support an inference that there is an implied claim of domestic manufacture.” But plaintiff’s survey didn’t test the right question—it asked about omission of a made in China label, not what messages were conveyed by the US iconography. The court read it only to require that “pertinent and targeted consumer surveys must support adequately any such allegations, particularly at the summary judgment stage.”

Defendants argued that “no reasonable consumer would believe that these USDA grading shields imply anything about the origin of beef,” because the “USDA grading criteria [are] publicly available on the USDA’s website,” and also in USDA consumer guides, “none of [which] suggest that these shields have anything to do with where the cow was born.” 

defendants' partial reproduction of USDA website not referencing geographic origin for meaning of grades

They showed the court part of the blog post, but two paragraphs above that, the USDA said:

The USDA grade shields are highly regarded as symbols of safe, high-quality American beef. Quality grades are widely used as a “language” within the beef industry, making business transactions easier and providing a vital link to support rural America. Consumers, as well as those involved in the marketing of agricultural products, benefit from the greater efficiency permitted by the availability and application of grade standards.

The other website said basically the same thing. Thornton’s belief that the shield signified US origin “is not unreasonable in light of the USDA and AMS’ statements that the grading shields are ‘symbols of high-quality American beef’ and which provide a ‘vital link to support rural America.’”  Still, Thornton didn’t plead that either she or the general public was aware of or relied upon the government websites’ statements about the official USDA grade shields when they purchase beef products.

The court was somewhat less sympathetic to defendants’ arguments that Thornton couldn’t prove that she bought non-US-raised beef because they commingle all the meat in processing. “[T]he regulatory scheme currently in place permits the obfuscation of beef products’ origins. … Federal guidance allows imported beef to be indistinguishable from domestic beef.” As the White House has noted, “[M]ost grass-fed beef labeled ‘Product of USA’ is actually imported. That makes it hard or impossible for consumers to know where their food comes from and to choose to support American farmers and ranchers.” The President has issued an Executive Order directing the Secretary of Agriculture

to ensure consumers have accurate, transparent labels that enable them to choose products made in the United States, consider initiating a rulemaking to define the conditions under which the labeling of meat products can bear voluntary statements indicating that the product is of United States origin, such as “Product of USA.”

Thus, Thornton had a substantial likelihood of proving that some of the beef that the Defendants sell and which they advertise using the official USDA grade shields originates, in fact, from foreign countries. But that was immaterial without misleadingness.

Next move: even assuming misleadingness, Thornton didn’t show likely success on the merits because she didn’t show that enjoining use of official USDA grade shields on beef would be the least restrictive method of regulating potentially misleading speech. [I don’t understand why her proposal—make them use black and white shields—wouldn’t allow all the truthful benefits without the misleading aspects, which sure sounds like the least restrictive alternative.]

black and white version of shield

When commercial speech is only potentially misleading, that is, when “the information also may be presented in a way that is not deceptive,” then it may not be banned outright. In contrast, inherently misleading speech is “incapable of being presented in a way that is not deceptive.” But because the official grade shields are not inherently misleading, as concluded above [where the court concluded that they were at best implicitly misleading—here’s the equation of inherent with implicit], they were protected by Central Hudson. “Thornton does not demonstrate that enjoining the Defendants’ use of the official USDA grade shields is the least restrictive means of ensuring that consumers are not misled about the beef products’ origin.”

Thornton also couldn’t show irreparable injury. She argued that this wasn’t just about her health, but also about “extreme degradation practices” such as “deforestation” and the use of slave labor in countries such as Brazil and Argentina. But she didn’t show that this injured her, or how the proposed injunction would remedy those ills.

There was also an important public interest in using the shields: to indicate the beef’s grade to retailers or consumers.


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