SDNY allows consumer “organic” claims to proceed

Segedie v. Hain Celestial Group, Inc., 2015 WL 2168374, No.
14–cv–5029 (S.D.N.Y. May 7, 2015)
 
Plaintiffs bought Earth’s Best food, body care, and home
care products, and alleged that they were misleadingly labeled as “organic,”
“natural,” or “all natural.”  They
identified 62 food and 12 body care products that contained one or more of 47
ingredients that applicable law allegedly bars in organic products.  They made similar claims about products
labeled “natural” or “all natural” that allegedly contained one or more of 72
artificial or synthetic ingredients.  They
brought claims under NY and California common law, NY GBL §349 claims, and the
usual California statutory claims.
 
Hain argued that the federal OFPA preempted the “organic”
claims.  The OFPA directed the USDA to
establish national standards governing products marketed as “organic,” which
resulted in the National Organic Program (NOP). The NOP regulations govern the
use of “organic” in labeling and marketing agricultural and processed products.
The OFPA and NOP require that any product sold as “organic” has to have been
certified as such by an accredited certifying agent.  The NOP’s program manager and accredited
certifying agents can investigate certified operations suspected of
noncompliance and can suspend or revoke a certification, with associated civil
penalties of up to $10,000 per violation and the possibility of a 5–year
prohibition from re-certification. Adverse actions are appealable.  The law doesn’t provide a private cause of
action or any remedies for consumers harmed by violations.
 
The court disagreed with the Eighth Circuit, In re Aurora
Dairy Corp. Organic Milk Mktg. & Sales Practices Litig., 621 F.3d 781 (8th
Cir. 2010), and found that the OFPA didn’t preempt the plaintiffs’ claims here.  There was clearly no express or field
preemption; the only question was conflict preemption.  Compliance with the OFPA and state law was
physically possible, so the question was whether there was a conflict with
Congress’s purpose.
 
The relevant congressional objections were stated in the law:
“(1) to establish national standards governing the marketing of certain
agricultural products as organically produced products; (2) to assure consumers
that organically produced products meet a consistent standard; and (3) to
facilitate interstate commerce in fresh and processed food that is organically
produced.”  Aurora held that the OFPA does not preempt claims that do not
“interfere with” the certification decision but still depend on facts crucial
to the certification decision—“e.g., claims based sale of the milk as free from
antibiotics and hormones or as produced by humanely treated cows.” But Aurora did find preemption for “claims
directly challenging the certification decision—i.e., claims challenging the
sale of the milk as ‘organic.’” Aurora
reasoned that allowing the latter kind of claim could lead to inconsistencies
and fragmentation of the national standards, and that the OFPA specifically
allows products to be sold as “organic” if they’re produced in accordance with
the OFPA and NOP, without consumer remedies.
 
The court here found Aurora
unpersuasive.  “Obstacle preemption
precludes only those state laws that pose an ‘actual conflict’ with an
overriding federal purpose and objective.” The conflict has to be a sharp one,
especially in an area of traditional state concern.  Allowing the claims here wouldn’t cause such
a sharp conflict.  Allowing “organic”
claims furthers the congressional purpose “to assure consumers that organically
produced products meet a consistent standard.”  
 
Though Congress also sought to establish national standards,
this case didn’t present a big obstacle because the theory of liability didn’t
diverge from the national organic standards. Though different courts might
interpret the same standards differently, Congress “(1) delegated certification
decisions to certifying agents—of which there are ‘[n]early 100’—whose
interpretations of organic standards surely must diverge to some extent, and
(2) expressly assigned U.S. district courts an interpretive role, albeit
through the lens of arbitrary-and-capricious review.” The risk of divergence
was therefore contemplated in some degree. 
Any court adjudicating the kinds of claims brought here “would be
interpreting the same standards, with appropriate deference to published USDA
regulations and interpretations.” There’s no reason to expect so much
divergence as to prevent national standards.
 
Aurora was also at
odds with the Supreme Court’s decision in Wyeth,
which found failure-to-warn claims not preempted even though the label of the
drug at issue had been FDA-approved. 
Similarly, a certification agency’s approval of “organic” status is not
necessarily the final word if state law finds the “organic” label false or
misleading (as long as it is using the definition of “organic” used by the
feds).  “[S]tate law causes of action are
not preempted where they merely provide a damages remedy for claims premised on
a violation of federal law that does not itself provide a private right of
action.” There was no reason to think that Congress “intended to eliminate all
remedies for aggrieved purchasers of organic products.”  The express preemption provisions of the OFPA,
governing alternative state certification programs, showed that Congress knew
how to preempt state law when it wanted to.
 
On the merits, plaintiffs pled legally sufficient facts that
the products at issue weren’t “organic.” 
Foods labeled “organic” can have up to 5% by weight of non-organic
ingredients listed on the National List of Allowed and Prohibited Substances. “If
a non-organic ingredient is not on the National List, it cannot appear in an
organic product in any quantity (unless it qualifies for some other exception).”  The National List allows “Nutrient vitamins
and minerals, in accordance with 21 C.F.R. 104.20, [sic ] Nutritional Quality
Guidelines For Foods.”  Hain argued that
this was an open-ended exception that encompassed the challenged ingredients,
but it wasn’t.  The cross-reference
allowed foods to be fortified with 21 specific substances under “certain
limited conditions—e.g., to restore nutrients lost during processing,” plus “as
permitted or required by applicable regulations established elsewhere in this
chapter.” The FDA has explained that this last allowance “extends only to
substances permitted or required to be added to foods pursuant to regulations
pertaining to a common or usual name, a standard of identity, or nutritional
quality guideline.”  Thus, it doesn’t
permit “indiscriminate fortification of foods with, for example, AHA, DHA,
taurine, or inositol simply because the FDA has deemed them ‘Generally
Recognized as Safe.’” The FDA also excluded infant formula from this exception
because it has another specific regulation for infant formula.  This agency interpretation was not plainly
erroneous or inconsistent with the regulation.
 
Hain tried to rely on a contrary interpretation that the NOP
expressed in a since-disavowed April 2007 opinion letter, but the court wouldn’t
let it.  That interpretation wasn’t
entitled to deference, since the NOP didn’t promulgate the regulation at issue,
and anyway it was disavowed/inconsistent over time and therefore entitled to
less deference.  “Congress could not have
been clearer in mandating that the NOP may permit additional nutrients to be
added to organic foods only by amending the National List through
notice-and-comment rulemaking (except in certain emergency situations not
applicable here).” 
 
Finally, even if Hain’s interpretation were correct, it
couldn’t win a motion to dismiss by asserting that the challenged ingredients were
nutrient vitamins or minerals, without providing judicially noticeable evidence
for this.
 
Hain attacked the “natural” claims as implausible and
lacking an objective definition of “natural.”  The court disagreed: the complaint alleged
that plaintiffs understood “natural” to mean that the products were free from
synthetic ingredients, and that wasn’t unreasonable as a matter of law.  Although foods labeled “organic” may lawfully
contain some synthetic ingredients, “[t]here is no rigid hierarchy that makes ‘natural’
a more permissive label than ‘organic’ in all respects as a matter of law.” A
jury might so find, but not a court on a motion to dismiss.  So too with the presence of the ingredients on
the ingredient list (citing the Ninth Circuit’s Williams v. Gerber case). 
 
Plaintiffs’ definition of natural was sufficient in that
they alleged that the term “communicates the absence of synthetic ingredients”;
they didn’t have to define it for all purposes. The FDA and USDA policies on “natural”
were potentially relevant, as was Hain’s own definition in SEC filings, but the
ultimate question was one of reasonableness. “The alleged presence of synthetic
ingredients merely brings the claim of deception into the realm of plausibility,”
and the rest was for a jury.
 
Unsurprisingly, the court also rejected Hain’s primary
jurisdiction argument. Courts can resolve questions of whether labels violate
OFPA regulations and whether violations reasonably misled consumers.  Plus, the USDA can’t retroactively amend the
regulations to make Hain have complied with them.
 
The court did express doubt over plaintiffs’ standing to sue
over products they didn’t purchase, because their own allegations suggest that
the concerns for different products weren’t nearly identical, given the
different products and ingredients.

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