Brown v. Hain Celestial Group, Inc., 2014 WL 556732, No. C 11–03082 (N.D. Cal. Feb. 10, 2014) (magistrate judge)
Plaintiffs sued Hain alleging that it marketed its “Avalon Organics” and “Jason” cosmetic products as organic when they were not made predominately from organic ingredients, in violation of the California Organic Products Act of 2003 (and therefore violating the usual California laws as well).
Hain moved for summary judgment on the ground that the California Department of Health (CDPH), the agency responsible for enforcing COPA, determined in a February 2013 enforcement decision that the Jason and Avalon Organics labels complied with COPA. The magistrate judge disagreed: CDPH’s inquiry was informal, based only on ex parte submissions from Hain, and merely decided not to pursue the matter further.
Plaintiff Brown sued in 2011 as part of several lawsuits filed against manufacturers of personal care products for violations of COPA, at which point a deputy director at the CDPH contacted plaintiffs’ counsel and asked for copies of the lawsuits. Plaintiffs didn’t intend to submit an administrative complaint. Then, the chief of the Food Safety Inspection Unit contacted Hain about its COPA compliance, saying that the CDPH “recently received a complaint alleging that cosmetics sold by your company do not comply with the COPA.” The letter asked for a written response asking for a list of all products sold as “organic” (etc.), labels, formulations, and evidence of organic certification for every ingredient listed as organic.
Hain’s counsel replied with the requested information (basically, though among other things Hain disagreed that its products would be within the scope of COPA or that COPA was unpreempted) about its reformulated products. Hain discontinued certain “organic” products, and contended that the only ones left were made with at least 70% organic materials as of late 2011. Haim then moved to dismiss plaintiffs’ claim as preempted by federal law, but the court rejected that argument.
Nothing happened with CDPH between September 2011 and January 2013, at which point Hain’s counsel asked what was going on. Hain’s counsel sent additional information and made further arguments to the CDPH (including that the Avalon products just used “organic” in its brand name, and that Jason products used “pure, natural, organic” as a tagline, and not to identify the products or to highlight particular ingredients on the principal display panel—um, I’m sure that affected consumer perception a lot).
The CDPH then sent Hain a short “notice of resolution,” saying that the CDPH reviewed the documentation sent in response to its letter. It said “The Avalon Organics® and Earth’s Best and Jason brands were not found to represent the products as ‘organic’, or to use the word ‘organic’ to identify ingredients or modify content on the Principal Display Panel (PDP).” Then it noted Hain’s voluntary actions to change the labels/certifications. “We appreciate the efforts you have taken to address this inquiry and consider the matter resolved.”
Plaintiffs first learned of the inquiry in 2013, when Hain’s counsel provided plaintiffs’ counsel with the CDPH’s February 2013 notice of resolution. At that point, plaintiff’s counsel contacted the CDPH, and included two court orders interpreting COPA as prohibiting any use of the term “organic” (etc.) on the principal display panel of cosmetic products that contain less than 70% organic ingredients. The relevant person at CDPH responded that he was not dealing directly with organic issues and typically did not discuss letters issued to another firm with counsel not representing the firm that received the letter. Plaintiff’s counsel said that if the CDPH was treating the lawsuits as administrative complaints, then it should discuss them with him, since he was the complainant’s attorney. CDPH responded that “CEH opted to file these lawsuits instead of referring the alleged violators to CDPH for investigation.” Later, CDPH said that the “complaint” language in its letters was just standard; that plaintiffs publicized their lawsuits in the media before letting CDPH know and that CDPH had to ask for the complaint; and that “[t]hese facts make it very difficult to argue that you are a complainant.”
COPA gives the CDPH authority to enforce the organic regulations and provides for a complaint procedure. The AG or other state attorneys may also bring suits, and there is also a private right to sue for injunctive relief.
The magistrate judge determined that the February 2013 notice of resolution wasn’t a determination that Hain’s labels didn’t violate COPA. Instead, it was only an informal notice of a decision not to pursue further action, and didn’t preclude plaintiffs’ COPA claim. The inquiry was informal on its face, and the process that followed was also informal. Hain’s initial submission was ex parte, and then nothing happened for 18 months until Hain asked and was able to speak to someone at CDPH and supplement its response. The fact that the agency considered only Hain’s ex parte submissions further indicated its informality. And the CDPH clearly considered only the labels Hain submitted—the reformulated ones, not all the ones at issue in this case, which included products that didn’t contain 70% organic ingredients. Finally, the informality was bolstered by the agency’s post-notice communications to plaintiffs’ attorney that he was not a complainant and was not entitled to know the details of a response made to Hain.
Hain argued that plaintiffs’ inability to present evidence or argument was irrelevant, since members of the public didn’t have a right to participate in things like a DA’s decision not to prosecute or the state bar’s decision not to revoke a lawyer’s license but are still bound by that. (Um, no, they’re not in a subsequent civil suit for violation of the relevant legal duties?) Hain argued that both CDPH and plaintiffs sought to advance the same “primary right” to compliance with COPA, and thus claim preclusion applied. But this wasn’t a formal adjudication, as required for claim preclusion.
Hain argued that the CDPH adjudication didn’t require a trial-like process, since no due process right of plaintiffs was involved, and CDPH is the state agency charged with enforcing COPA, doing the same thing as plaintiffs acting as private AGs. Plaintiffs conceded that certain administrative enforcement proceedings conceivably could preclude private persons acting as private AGs from pursuing a claim in a separate civil action. But here, “the agency process and resulting notice did not have the procedural safeguards and formality of an agency decision.” It didn’t consider any information other than what Hain submitted, and it didn’t involve any independent evaluation of the products or ingredients. Indeed, the notice of resolution made a factual error: its statement that the labels “were not found to use the word ‘organic’ to identify ingredients or modify content on the Principal Display Panel (PDP)” is wrong in that “even Hain’s limited production of labels to CDPH included both labels that explicitly identified organic ingredients and ones that identified some organic content on the PDP. For example, as Hain concedes, a number of labels submitted to CDPH included claims that the products are made with ‘Organic Oils.’” In context, the mistakes bolstered the judge’s conclusion that this wasn’t a true enforcement action but just an informal inquiry. Plaintiffs identified numerous pre-2011 products referring to specific organic ingredients, and also disputed present compliance with COPA’s 70% requirement (and a few other issues).
These were just not the kind of facts justifying claim preclusion. Even cases not involving the removal of benefits (which Hain argued justified more process) still offered opportunities for public participation. Hain analogized to USDA premarket approval of labels—which is preemptive of claims for misleading advertising. “But those cases involve an elaborate statutory and regulatory scheme and regularly-followed administrative procedures. There are no cases construing an administrative inquiry like this—triggered by a ‘complaint’ and involving only an informal ex parte submission of information by the alleged wrongdoer and no apparent investigation—as a binding agency decision.”
Hain also argued that the CDPH’s decision not to refer the case for investigation or prosecution had preclusive effect. But the statute permitted a private right of action for injunctive relief “[n]otwithstanding the provisions of [the provision that allows the California Attorney General or a district attorney to bring an injunctive-relief action].” There were lots of reasons CDPH might not have continued—“Lack of resources, lack of information, and the ongoing lawsuits in state and federal court are a few possible reasons.”
Further, plaintiffs were not judicially estopped from contesting the notice on the ground that they triggered the inquiry. The record didn’t support that argument; CDPH asked for the complaint and didn’t include plaintiffs in its inquiry.