Organic? Maybe. But is it kosher…?

5-21For those who prefer “organic” products, the Organic Foods Production Act of 1990 (“OFPA”) and the subsequent regulations set forth in the National Organic Program (“NOP”) govern the use of this term and provide a degree of assurance to consumers that foods and cosmetics labeled as such are indeed composed of organic ingredients. The bottom line is that these regulations require products to be certified by an accredited certifying agency and contain no more that 5% in weight of non-organic ingredients. That 5%, however, must be composed solely from ingredients included in the NOP’s National List of acceptable non-organic products, such as vitamins and minerals. What happens when these “organic” products contain ingredients that are not on the National List? We question how any rational consumer could feel aggrieved merely because a de minimis quantity of non-organic ingredients slipped into a product. Nevertheless, aggrieved consumers, or their lawyers, seeking to challenge a particular certification as misleading or deceptive may look to state law to intervene. This is exactly what occurred in Segedie v. The Hain Celestial Group, Inc., 2015 U.S. Dist. LEXIS 60739 (S.D.N.Y. 2015).

The Segedie plaintiffs claimed that some of defendant’s products, certified and labeled “organic.” were deceptive and misleading under California and New York consumer protection laws to the extent they contained ingredients which were neither organic nor approved on the National List. The defendant sought dismissal of the action under the theory that the federal statutes preempted any state law claims. Specifically, the defendant relied heavily on In re Aurora Dairy Corp. Organic Milk Mktg. & Sales Practices Litig., 621 F.3d 781 (8th Cir. 2010), which held that the OFPA impliedly preempted any consumer protection claims founded under state law. Plaintiff countered by citing numerous decisions, including one case involving the defendant (Brown v. Hain Celestial Grp., Inc., 2012 WL 3138013, at *9 (N.D. Cal. 2012)) that held the OFPA did not preempt state law claims. The Hon. Nelson S. Roman (S.D.N.Y.) found the defendant’s argument unpersuasive and concluded that allowing the claim to proceed would not pose a sufficiently “sharp” conflict with federal law to necessitate preemption, in part because e OFPA does not provide an avenue of recourse for aggrieved consumers.

The district court, in arriving at its conclusion, declined to follow Aurora, which was “the first and only circuit court to have addressed the preemptive scope of the OFPA in relation to state consumer protection claims.” Segedie, supra at 9-10. The court noted that, under Second Circuit precedent, obstacle preemption, or preemption based on conflicting laws, precludes state-law based claims only if those laws create an “actual conflict” with the federal law’s objectives. Here, no such conflict existed. The court drew further support from the Supreme Court case Wyeth v. Levine, 555 U.S. 555, 565 (2009). Wyeth involved a failure-to-warn claim alleging that a drug’s label was inadequately labeled, despite the fact that it had been approved by the FDA. Wyeth rejected the idea that allowing the lawsuit to proceed would present an obstacle to federal objectives, and instead found the state-law based action to be appropriate because federal law did not provide a remedy for harmed consumers.

On the other hand, if Segedie had been brought in a California state court, the result may have been more favorable for Hain Celestial.  In Quesada v. Herb Thyme Farms, Inc., 166 Cal. Rptr. 3d 346, 349 (Cal. App. 2d Dist. 2013), the California Court of Appeal held that federal law did indeed impliedly preempt state law. The lasting effects of this ruling are yet to be determined, because the California Supreme Court granted review, and accordingly Quesada may not be cited in California courts..

The trend in plaintiff-friendly decisions may be a siren’s call to the plaintiff bar. But how can manufacturers avoid state law deceptive trade practices and false advertising claims? Indeed, aside from the five-year old ruling in Aurora, which has been crushed under the weight of contrary decisions, and the recent decision in Quesada, which is now subject to review by the California Supreme Court, there may be little hope for manufacturers who are now unable to escape the threat of nuisance litigation on preemption grounds.  More than ever before, manufacturers are facing claims alleging misleading and deceptive practices.

The recent turbulence leaves manufacturers with a valuable lesson. The fact that courts now routinely decline Rule 12(b)(6) motions on preemption grounds may not in and of itself be detrimental to manufacturers; it merely allows litigation to proceed. It is crucial to bear in mind that in Segedie, the defendant was, as the court stressed, certainly not in compliance with the OFPA and NOP regulations because its products contained non-organic ingredients. Manufacturers seeking to avoid litigation should take every measure to ensure that their products are labeled in accordance with the regulations.

Does Preemption Prevent Redress For Homeowners Impacted By Polluters’ Air Emissions?

On April 23, 2012, residents of rural Muscatine, Iowa filed a class action lawsuit titled, Laurie Freeman et al. v. Grain Processing Corporation (case no. LACV 021232), in the Iowa District Court for Muscatine County. The defendant, Grain Processing Corporation, is an Iowa manufacturer of corn syrup, starches and alcohols. Plaintiffs sought compensation for property damage and adverse health effects on behalf of all putative class members (some 17,000 people) residing within three miles of the facility.

Plaintiffs alleged that Grain Processing’s industrial production caused the release of polluting chemicals and particles from the facility on to nearby homes, schools and churches. As a result, particulate matter, in the form of soot or smoke, was alleged to have been visibly left on, and in, these structures, and the yards and grounds around these structures.

Plaintiffs asserted claims pursuant to statutory and common law nuisance, trespass and negligence. Plaintiffs specifically denied that they were bringing their claims under the federal or state Clean Air Acts. Plaintiffs sought damages to remediate their properties, compensation for the loss of use and enjoyment of their properties, punitive damages and possible injunctive relief.

On December 21, 2012, Grain Processing filed a motion for summary judgment centered on preemption of plaintiffs’ claims by existing federal and state regulations. On March 27, 2013, District Court Judge Mark J. Smith granted defendant’s motion and dismissed the case. The matter is now on appeal to the Iowa Supreme Court.

On summary judgment, Grain Processing argued that plaintiffs’ common law claims should be dismissed because they were preempted by the Clean Air Act and accompanying state laws. The defendant argued implied preemption by field and conflict preemption, rather than express preemption, barred plaintiffs’ claims. In large part, the trial court relied upon the United States Supreme Court’s decision in American Electric Power Co., Inc. v. Connecticut, 131 S.Ct. 2527 (2011), which held that the Clean Air Act displaced any federal common law right to seek abatement of carbon dioxide emissions from fossil fuel-fired power plants. There, the Supreme Court remarked that EPA is surely better equipped to do the job that individual district judges issuing ad hoc, case-by-case injunctions because federal judges lacked the expertise and means to make such decisions.

The Iowa trial court also heavily relied on Bell v. Cheswick Generating Station, 2:12-cv-929, 2012 WL 4857796 (W.D. Pa. Oct. 12, 2012). In that case, plaintiffs brought a class action lawsuit against a coal-fired power plant, which they claimed deposited air emissions on nearby property. The Bell court dismissed plaintiffs’ claims because “to conclude otherwise would require an imperceptible determination regarding the reasonableness of an otherwise government regulated activity.”

The summary judgment record includes plaintiffs’ allegation that Grain Processing had violated the federal Clean Air Act in all twelve of the most recent twelve quarters and had been designated by EPA as a “High Priority Violator.” Plaintiffs’ expert also determined that Grain Processing’s record of environmental compliance had been poor. During a plant inspection, the expert observed leaking valves, pumps and unions that “are sources of volatile, odorous and corrosive, fugitive emissions which exposed both workers and the community.” He reported “horrible neglect” of dryer units, “antiquated” control rooms and “a complete breakdown of environmental awareness and safety” in management operations.

Judge Smith remarked that if half of the expert findings were true, there had been a blatant disregard for both the environment and the community of Muscatine. Deficiencies had become so bad by 2012 that the Iowa Department of Natural Resources (“DNR”) commenced a civil action against the company. In 2009, a DNR inspector sent an email to an agency lawyer citing an "obvious blue haze generated by the plant and drifting over Muscatine neighborhoods."

Judge Smith grappled with the issue of whether plaintiffs’ common law action would interfere with or contravene DNR’s remedies for these very issues if plaintiffs were successful in obtaining an injunction specifying what Grain Processing must do to remedy these problems. Judge Smith granted the motion to dismiss the action, although he conceded that the action taken by the regulatory agency would not remedy the harm each individual plaintiff or class member had incurred as a result of the polluter’s actions or inactions. Nevertheless, Judge Smith feared that to do otherwise would allow the same regulatory patchwork proscribed by the U.S. Supreme Court.

On the appeal, a well-reasoned amici curiae brief has been filed on behalf of the National Association of Manufacturers, and other interested industry groups, in support of Grain Processing. The brief was submitted by Richard O. Faulk of Hollingsworth LLP and Sarah E. Crane of the Davis Brown Law Firm.

In particular, the amici emphasize the application of the “political question” doctrine, and focus in  on the second test stated in Baker v. Carr, 369 U.S. 186 (1962), namely whether the courts lack “judicially discoverable and manageable standards” for resolving nuisance cases involving regulated pollutants.

Such cases, amici argue, raise quintessential “political questions” because they would require courts to make policy judgments instead of abiding by the requirement that judicial action be governed “by standard, by rule.” The amici contend that the trial court does not have the investigative resources and technical and scientific expertise necessary to create the standards and rules needed to resolve the controversy justly. According to the amici, such inquiries go to the very heart of the political question doctrine.

The appeal raises important questions that will no doubt be challenging for the Iowa Supreme Court to resolve. On the one hand, the court will not want to permit the plaintiffs to supplant the role or the authority of the DNR. On the other hand, the court will be under pressure to provide some form of redress for Muscatine residents that have suffered nuisance and property damage as a result of the alleged environmental violations of their industrial neighbor.

Ideally, Grain Processing should provide homeowners in Muscatine a Value Assurance Plan to protect homeowners’  investment in their homes.  If, as Grain Processing contends, a proposed upgrade of plant pollution control equipment, will address air emission concerns to the satisfaction of residents, the Value Assurance Plan would likely cost Grain Processing little, but provide enormous piece of mind to the company’s neighbors.    

Adding Primary Jurisdiction To The Defense Lawyer’s Toolbox

When the preemption defense is not available, it may still be possible to effectively dismiss a plaintiff’s claim by arguing that the court should consider primary jurisdiction. Primary jurisdiction is a judicially created doctrine that addresses the proper relationship between court and administrative agencies. 

Raising primary jurisdiction may be particularly helpful to food and cosmetics manufacturers where a plaintiff’s particular deceptive trade practice allegations may not be specifically addressed by FDA (or Nutrition Labeling and Education Act , "NLEA" ) regulation. A case in point is Astiana v. Hain Celestial Group, Inc., a putative class action in which plaintiffs alleged that the defendant’s claims of "all natural" and "pure, natural & organic" were false and misleading under California law.  In dismissing the case, the California court agreed that the FDA, rather than the court, should evaluate plaintiffs’ claims in an administrative setting in light of the complexity of the issues presented and the agency’s expertise in the subject matter. 

An excellent explanation of primary jurisdiction is found in a decision by U.S. District Court Judge Susan R. Nelson in Taradejna v. General Mills, Inc., 909 F.Supp.2d 1128 (D.Minn. 2012):

Primary jurisdiction is a common-law doctrine that is utilized to coordinate judicial and administrative decision making. Although there is no fixed formula for deciding whether to apply the doctrine, the doctrine applies where a claim is originally cognizable in the courts, and comes into play whenever enforcement of the claim requires the resolution of issues which, under a regulatory scheme, have been placed within the special competence of an administrative body. Agency expertise is the most common reason that courts apply the doctrine of primary jurisdiction. In addition, courts apply the doctrine to promote uniformity and consistency within the particular field of regulation. . . . When the primary jurisdiction doctrine applies, the district court has discretion either to stay the case and retain jurisdiction or, if the parties would not be unfairly disadvantaged, to dismiss the case without prejudice. Id. at 1134

In Taradejna, the Minnesota court applied primary jurisdiction to dismiss a plaintiff’s case relating to the advertising and selling of "Yoplait Greek" yogurt.  As discussed in the Product Liability Monitor, Lisa Sokolowski of Weil, Gotshal & Manges LLP concludes her thoughtful discussion of the decision commenting that "Judge Nelson ultimately found that the ambiguity and murky regulatory history surrounding the FDA’s “standard of identity” for yogurt meant that the U.S. Food and Drug Administration (“FDA”) should decide whether defendants’ actions violated the law."

In addition to Ms. Sokolowski, some astute commentators have weighed in on the preemption/primary jurisdiction distinction in recent months.  James A. Becker of Reed Smith authored a well-written discussion in Drug and Device Law (11/28/12) titled "Primary Jurisdiction: A Natural Alternative to Preemption".  Glenn Pogust and Michael Gruver at Kaye Scholer authored an article titled "Preemption and Jurisdiction Defenses in Caffeine Litigation", which appeared in the New York Law Journal on July 11, 2013.  Reading these authors should provide defense counsel with a road map concerning the kinds of cases in which primary jurisdiction arguments may succeed.

Supreme Court’s Bartlett Decision Could Strengthen FIFRA Preemption

The U.S. Supreme Court’s decision in Mutual Pharmaceutical Co., Inc. v. Bartlett, No. 12-142, decided June 24, 2013, may assist defense counsel in defending product liability cases involving FIFRA-regulated products such as herbicides and pesticides. Although Bartlett involved design defect claims against manufacturers of generic drugs, which are regulated by FDA, the principles enunciated in Bartlett potentially have much greater application.

In Bartlett, the court held that the Federal Food, Drug and Cosmetic Act preempts state-law design defect claims against manufacturers of generic drugs. The court rejected outright plaintiff’s contention that under the so-called “stop-selling” theory, a generic manufacturer could comply with both federal and state law merely by removing its drug from the market.

In rejecting that argument, Justice Samuel Alito, writing for the majority, held that “the incoherence of the stop-selling theory becomes plain when viewed through the lens of our previous cases. In every instance in which the court has found impossibility pre-emption, the ‘direct conflict’ between federal and state law duties could easily have been avoided if the regulated actor had simply ceased acting.”

Thus, in reversing the First Circuit decision, the court slammed the door on plaintiffs hoping to circumvent the preemption defense by contending that a manufacturer might merely stop selling the product.

In an article in Law360 titled, “Bartlett’s Benefits Will Extend Beyond Generic Drug Makers,” 6/28/13, commentators offer the view that pesticide manufacturers may now be protected from plaintiff alleging a stop-selling theory of liability.  If the case’s holding is so extended, plaintiffs should no longer be able to allege that an herbicide manufacturer should not have placed a pesticide into commerce in the first instance. In essence, this is a variation of the often espoused argument that a product should not be marketed because its risks outweigh any potential benefits.  After all, the whole point of federal regulation is the underlying assumption you are going to market the product.

No FIFRA Preemption, No Problem!

In Gresser v. Dow Chemical Co., Ind. Ct. App., No 79A02-1111-CT-1014, 4/30/13, the plaintiffs in this toxic tort case alleged that their children developed a variety of illnesses after a purported exposure to Dursban TC in their home following a pesticide application by the co-defendant pesticide applicator.

Plaintiffs alleged that defendants Dow Chemical Company and Dow Agrosciences (collectively, “Dow”) failed to use reasonable care to instruct about the use of the product; warn about its danger; and appropriately test the design of the product. Following discovery, both plaintiffs and Dow filed motions for summary judgment.

On April 13, 2013, the Indiana Court of Appeals reversed a trial court order granting Dow summary judgment on FIFRA preemption grounds, but granted Dow summary judgment on the basis of the rebuttable presumption in Indiana’s product liability statute (the “IPLA”) that a product is not defective if it complies with federal or Indiana standards or regulations. Thus, Dow obtained from the IPLA presumption relief that it could not obtain by preemption.

Ind. Code § 34-20-5-1  provides a rebuttable presumption that a product which caused physical harm is not defective, and the manufacturer or seller of the product is not negligent, if before the sale by the manufacturer, the product “complied with applicable codes, standards, regulations, or specifications established, promulgated, or approved by the United States or by Indiana, or by an agency of the United States or Indiana.”

In determining that Dow was entitled to the statutory presumption, the court held that Dursban TC’s compliance with both FIFRA and Indiana law had a significant impact under IPLA’s consumer expectation-based product liability regime because the risk of harm had been evaluated by agencies with the duty of monitoring the effects of Dursban TC. Furthermore, Dursban TC’s labeling and warnings had been approved by experts.

On the basis of this ruling, the appellate court determined that the trial court correctly granted Dow summary judgment motion on plaintiffs’ failure to warn claims

This decision is significant because Dow was able to obtain through the use of the statutory presumption the same end result that it would have obtained had the appellate court found that the plaintiff’s claims were subject to preemption. Other states, including New Jersey, have similar provisions in their statutes in varying contexts.  In New Jersey, the New Jersey Product Liability Act, N.J.S.A. 2A:58C-1 et seq., specifically provides an evidentiary presumption in the favor of drug manufacturers against failure-to-warn claims:

"If the warning or instruction given in connection with a drug or device or food additive has been approved or prescribed by the federal Food and Drug Administration under the Federal Food, Drug and Cosmetic Act, 52 Stat. 1040, 21 U.S.C. Sec. 301 et seq., … rebuttable presumption shall arise that the warning or instruction is adequate."

Thus, product liability practitioners, in both the FDA and FIFRA contexts, should be mindful of the importance of developing evidence in discovery and at trial concerning the regulatory approval process and the  evaluations performed by the agency of the appropriateness of the product warnings, directions for use, and of the product’s safety and efficacy.