seeds of disaster: Syngenta must continue to fight claims based on genetically altered seeds

In re Syngenta AG MIR 162 Corn Litig., Nos. MDL 2591,
14–MD–2591–JWL, 2015 WL 5607600 (D. Kan. Sept. 11, 2015)
 
Corn producers, non-producer corn sellers, and milo
producers sued Syngenta because of its production of genetically altered corn,
which allegedly harmed them in various ways. The court dismissed a number of
claims based on failure to warn; trespass to chattels under all states’ laws
except Louisiana; the corn producers’ claims for private nuisance; Lanham Act false
advertising claims to the extent based on communications that weren’t commercial
advertising; fraud and negligent misrepresentation claims; and some state-law
consumer protection claims, while preserving other claims.  
 
Syngenta developed products called Viptera and Duracade,
intended to make the resulting corn crops more resistant to certain pests, with
traits known as MIR 162 and Event 5307, which isn’t creepy at all. Corn grown
by farmers who did not buy Syngenta’s products gradually became contaminated
with the MIR 162 and Event 5307 traits through cross-pollination from
neighboring fields. Viptera- and Duracade-grown corn was also commingled with
other corn in grain elevators and other storage facilities. Viptera corn
infiltrated the general domestic corn supply.
 
China then began rejecting all corn from the United States
containing the MIR 162 trait, which persisted for over a year. The loss of the
Chinese market for that period caused prices to decrease in the United States,
which in turn caused harm to plaintiffs. 
According to the plaintiffs, Syngenta misrepresented the status,
likelihood, and imminence of Chinese approval and the products’ impact on
export markets, as well as growers’ and others’ ability to avoid infiltration
of Viptera into the entire corn supply (through channeling and otherwise) and
Syngenta’s own steps in that direction. Syngenta’s actions allegedly actually
increased the risk of contamination and commingling of the corn.
 
The producer plaintiffs were corn growers who did not use
Syngenta’s seeds in growing their corn. The non-producer plaintiffs exported,
stored, transported, or sold corn. The milo (sorghum)
plaintiffs alleged that the milo market in the United States was so closely
tied to the corn market that they suffered the same economic damages that corn
producers did.
 
On negligence, the court found that the plaintiffs had
sufficiently alleged that a duty existed to take reasonable care in the
marketing and commercialization of genetically altered corn.  The injuries alleged were not only
foreseeable; they were allegedly foreseen, and Syngenta allegedly
misrepresented the facts to the industry. 
The court rejected Syngenta’s argument that a manufacturer generally has
no duty to control third parties who buy and use its products, absent a special
relationship, and that its corn was no different from guns, cellphones, or meth
precursors.  However, plaintiffs
sufficiently alleged that Syngenta failed to provide assistance (in the form of
channeling and stewardship programs), without which producers and non-producers
could not reasonably avoid contamination and commingling, and that Syngenta
engaged in affirmative conduct that contributed to the harm.  The third parties here didn’t misuse the
products, as with guns, phones, and meth cases; here Syngenta could allegedly
foresee the “misuse” of the product by virtually every customer because they
couldn’t avoid commingling.  Moreover,
the victims weren’t random third parties, but participants in an interconnected
market who Syngenta described as “stakeholders,” thus especially vulnerable to
the allegedly wrongful acts.
 
Syngenta also argued that it shouldn’t be liable because its
products were approved for sale by regulatory agencies, but it didn’t show that
those agencies “necessarily approved (or had the authority to approve) the
commercialization of its products in an unreasonable manner.”  (The court also rejected FIFRA preemption for
the claims as asserted, except any claim based on an alleged failure to warn to
the extent that the claim was based on a lack of warnings in materials
accompanying the products.)
 
For similar reasons, plaintiffs adequately alleged proximate
cause.
 
Syngenta argued that any claims for economic damages for
negligence, negligent misrepresentation, or private nuisance in this case were
barred by the economic loss doctrine, the rule barring a plaintiff from
bringing a claim in negligence to recover solely economic damages, including damages
based on plaintiffs’ theory that corn and milo prices dropped in the market
generally as a result of Syngenta’s actions. 
The court found that, contrary to plaintiffs’ arguments, they hadn’t
alleged physical harm to their property, including contamination of their corn
and harm to their equipment and storage facilities, because their damage theory
was market-based (it wasn’t caused by contamination of any particular corn) and
they didn’t plausibly allege that all
plaintiffs suffered contamination of their corn. 
 
However, the economic loss doctrine is not always applied
when the parties are strangers, rather than related by the purchase of a
product or by a contract.  Only in seven
of the 22 states under whose laws plaintiffs sued had even arguably applied the
economic loss doctrine in a stranger case, and almost all were lack-of-access
or public nuisance cases, where almost anyone could in theory be a
plaintiff.  The court predicted that the
presence of interconnected relationships and markets made this case inapposite
for the application of the stranger economic loss doctrine in all 22 states.
 
Trespass to chattels: Louisiana doesn’t recognize the
common-law tort of trespass to chattels, but instead recognizes a statutory
cause of action for damage to movables; Syngenta didn’t make any arguments
about that, so the court didn’t dismiss the Louisiana claim.  As to the common law claim, the court found
that Syngenta wasn’t responsible for trespass just because it sold a product
knowing that the product would end up interfering with the property of
non-purchasers.  Plaintiffs didn’t
plausibly allege that Viptera grown specifically by Syngenta intermeddled with
their corn, although they could amend to identify specific plaintiffs where
that theory was plausible, since Syngenta did conduct field tests in almost all
the relevant states.  Moreover, the
plaintiffs didn’t even plausibly plead that each producer plaintiff suffered
contamination of its own corn in the fields or in grain elevators, or damage
caused specifically by that contamination (as opposed to harm to the market for
all US corn).
 
Private nuisance: Again, the general rule is that a seller
of a product is not liable for a private nuisance caused by the use of that
product after it has left the seller’s control, a rule that has been applied in
asbestos cases, “even though that hazard exists even with the intended use of the
asbestos-containing product.”  Likewise,
the damages theory wasn’t based on any invasion of plaintiffs’ land.
 
Tortious interference with business expectancy by corn and
milo producers: these claims, somewhat surprisingly, survived.  Plaintiffs didn’t have to identify specific
third parties with whom they had expectancies, given the allegation of an
identifiable class—purchasers of corn, a
commodity that is sold in a defined market. Nor did they
need to allege that Syngenta intended to induce corn purchasers to stop doing
business with plaintiffs, as long as they plausibly alleged that Syngenta had been
substantially certain that interference would occur from its conduct. “One
could reasonably infer from the facts alleged in the complaints that defendants
knew that Viptera had not been approved in a key export market, that
contamination of plaintiffs’ corn would occur after commercialization of
Viptera without certain safeguards, and thus that interference with plaintiffs’
sales would be substantially certain to occur.” 
Although Syngenta argued that it had no plausible motive to disrupt US
corn sales, it could plausibly have wished to maximize its own sales regardless
of whether corn prices were depressed generally.  Nor did regulatory approval of Viptera
matter—it didn’t immunize Syngenta from liability for wrongful conduct in
selling Viptera.
 
Lanham Act false advertising: Syngenta argued that its
alleged misrepresentations couldn’t have proximately caused plaintiffs’
injuries under Lexmark.  The court found that plaintiffs plausibly
alleged that Syngenta’s false and misleading statements caused sales of Viptera
and Duracade, which in turn caused contamination. As for the “zone of
interests” of the Lanham Act, Syngenta argued that plaintiffs weren’t
competitors or in any sort of competitive relationship to Syngenta.  But Lexmark
didn’t require such a relationship.  Lexmark is most reasonably read as
merely requiring that the plaintiff be a commercial actor, suffering commercial
injuries (lost sales or reputational injury), instead of being a mere consumer
who is “hoodwinked” into purchasing a disappointing product.”  The producer plaintiffs weren’t consumers of
Syngenta seeds or even Viptera corn. 
Their claimed injury, lost sales, was commercial, and they fell into the
zone of interests protected by the Lanham Act. 
This worked even for the milo producers, because of the allegations that
the milo market was so closely tied to the corn market.

As for non-producer plaintiffs, they bought Viptera-contaminated corn. But they
were alleging injuries not as buyers of such corn (consumers disappointed in
the product) but as sellers in the market (as commercial parties).  Nor did they buy the allegedly falsely
advertised seeds.  “[A]lthough they were
arguably injured by getting different corn than they anticipated (because it
contained Viptera), they were not trying to get corn made from Syngenta’s seeds
(and thus were not an indirect consumer of the seeds).”
 
Commercial advertising or promotion provided more of a
barrier as to many of the alleged misrepresentations.  The identified misrepresentations were in
five places: (1) in Syngenta’s deregulation petition to the USDA; (2) in
statements by Syngenta’s Michael Mack in an earnings conference call; (3) in a
request form for Bio–Safety Certificates; (4) in a “Plant with Confidence Fact
Sheet;” and (5) in a letter by Syngenta’s Chuck Lee.  Syngenta didn’t challenge that the fact sheet
was commercial advertising or promotion.
 
Under Proctor & Gamble Co. v. Haugen, 222 F.3d 1262
(10th Cir. 2000), actionable the representations must be “for the purpose of
influencing customers to buy defendant’s good or services.” “While the
representations need not be made in a ‘classic advertising campaign,” but may
consist instead of more informal types of ‘promotion,’ the representations …
must be disseminated sufficiently to the relevant purchasing public to
constitute ‘advertising’ or ‘promotion’ within that industry.” The deregulation
petition, as a petition to the government, was not obviously commercial
advertising or promotion.  Though
statements in government petitions could be made more for PR purposes/reaching
consumers than for truly addressing the government’s requirements, plaintiffs
didn’t plead sufficient facts supporting the inference that the challenged representations
(about the financial effects of approval on the market for corn) were of that
nature.
 
Syngenta also argued that the statements in the petition
weren’t sufficiently disseminated to constitute promotion.  Plaintiffs alleged that online availability
of the petition, and availability to any consumer who wished to review it, were
sufficient, but without additional facts it wasn’t plausible to infer that “statements
in a regulatory petition that is available—but not necessarily affirmatively
distributed to anyone—were sufficiently disseminated to constitute promotion or
advertising.”
 
Similarly, the earnings conference call was directed at
investors and analysts, not consumers, and “[o]ne would not ordinarily expect a
quarterly earnings call to be made for the purpose of influencing customers.”
Again, without more, this wasn’t plausibly commercial promotion, nor was it
plausibly sufficiently disseminated. 
Mere availability on the internet didn’t equate with dissemination to
the public.  “Plaintiffs have not pleaded
that Mr. Mack’s statement actually reached some significant portion of the
relevant public (customers of Syngenta).” 
(I’m worried about this statement in other contexts—when advertising is directed at consumers, then the fact
that we’re not sure how many consumers read it shouldn’t be dispositive,
especially on a motion to dismiss; exactly how should a plaintiff plausibly
prove that lots of consumers saw material on the defendant’s website, a matter
within the defendant’s knowledge?)
 
Syngenta also allegedly distributed a request form for
Bio–Safety Certificates issued by the Chinese government, knowing that it was
useless in the absence of Chinese approval, in order to mislead farmers. But
the certificates were provided to grain exporters and resellers, and weren’t
pled to be used by Syngenta’s customers to influence sales.
 
Perhaps more used to securities law litigation, Syngenta
argued that its statements were non-actionable forward-looking predictions and
opinions. The court found that statements of Syngenta’s present expectations
could constitute misrepresentations of fact.
 
Then came various state-law consumer protection claims.  Plaintiffs brought their Minnesota Unfair
Trade Practices Act and Minnesota Consumer Fraud Act claims under the state’s
Private Attorney General statute, only allows a private right of action if the
plaintiff’s claim benefits the public. Since plaintiffs were seeking only
damages and not an injunction, and since clarifying the nature of legal duties
wasn’t itself enough to provide a public benefit (or any old case would
qualify), the court dismissed the Private AG claims; there were no independent
claims under the MUTPA (probably because only the Private AG statute offered
the prospect of attorneys’ fees).  MUTPA
doesn’t apply to merchants, but there was a fact question about whether these
plaintiffs were sophisticated merchants in the relevant area.  (Wait, shouldn’t it be the actual purchasers
from Syngenta whose sophistication is assessed, since it’s their purchases that
allegedly provided the causal link between Syngenta’s conduct and the market
collapse?)
 
Although Syngenta Seeds is a Minnesota corporation, the
court concluded that Minnesota’s consumer protection statutes didn’t apply to
non-Minnesota resident plaintiffs.
 
Claims, or parts of claims, under other states’ consumer
protection laws survived: Colorado, Illinois, Nebraska, and North Carolina.  The court rejected various arguments that
some of those states didn’t allow non-consumer plaintiffs.  North Dakota consumer protection claims were
treated like the Lanham Act claims because North Dakota law prohibits the use
of deceptive practices “with the intent that others rely thereon in connection
with the sale or advertisement of any merchandise.”
 

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