safe harbors under consumer protection law are mostly limited to very specific approvals

Patane v. Nestlé Waters North America, Inc., No.
3:17-cv-01381 (JAM), 2020 WL 4677636, — F. Supp. 3d – (D. Conn. Aug. 12, 2020) 

This case offers a nice overview of the safe harbor provisions
in several consumer protection laws. Short version: defendants want them to work
like field preemption, but they are usually (not always) better described as working like
conflict preemption. Here, where it was not clear that Nestlé’s state licenses
to bottle water authorized it to label that water as “spring” water, the safe
harbors mostly did not preempt claims under consumer protection law that the water was
in fact groundwater and thus misleadingly labeled. 

Nestlé moved for summary judgment on all of plaintiffs’
claims arising under the laws of Connecticut, Maine, Massachusetts, New
Hampshire, New Jersey, New York, Pennsylvania, and Rhode Island. The court
denied the motion except as to plaintiffs’ statutory claims under Rhode Island

Nestlé argued that there was no private right of action for
the violation of state “spring water” standard laws and, alternatively, that
any right of action was foreclosed by safe harbor exemptions under state law
and by doctrines that limit collateral attacks on state-issued permits or
licenses. Going state by state, the court concluded that the lack of a specific
right of action for the violation of a state law spring water standard didn’t “foreclose
the underlying conduct from being actionable under separate state statutes that
prohibit unfair and deceptive trade practices or from being actionable to the
extent that they amount to fraud and breach of contract.” Note that this is not
the broader California rule making violations of other statutes violate the UCL
as “unlawful”; rather, the court simply holds that conduct that misleads
consumers is generally actionable under state consumer protection law, even if
another statute that doesn’t provide a private cause of action also prohibits
such conduct. Also, with the exception of Rhode Island, there was at least a
genuine issue of fact about whether Nestlé was entitled to the benefit of regulatory
safe harbor exemptions/whether plaintiffs’ claims were an impermissible
collateral attack on state-issued licenses or permits. 

Generally speaking, Nestlé had licenses that allowed it to
bottle water, but it did not appear that the relevant regulatory agencies had
specifically evaluated whether its water was “spring water” according to state
standards (which generally adopt the federal standard). 

In Connecticut, for example, “a plaintiff may predicate a
CUTPA claim on violations of statutes or regulations that themselves do not
allow for private enforcement.” But a safe harbor expressly exempts from
liability “[t]ransactions or actions otherwise permitted under law as
administered by any regulatory board or officer acting under statutory
authority of the state or of the United States,” and it places “[t]he burden of
proving exemption … upon the person claiming the exemption.” The court must determine
whether the conduct at issue—here, the sale of bottled water as “spring
water”—is “expressly authorized and pervasively regulated.” But the licenses it
submitted “reflect permission for bottled water in general and without any
further reference or approval specific to spring water.” Although
correspondence to the Connecticut Department of Consumer Protection stated
Nestlé’s intent to sell its water as “spring water,” the relationship of those
communications to the approval and issuance of licenses was “unclear.” 

In Maine, similarly, the court found that the safe harbor
applied only if Nestlé’s conduct was either required or specifically authorized
by law. Although “similar exemption provisions have been interpreted
differently by other states, such that entire industries are exempt if
regulated under a separate statutory scheme” (citing a Georgia case), the court
found such interpretations “in the minority and textually unpersuasive,”
because the Maine safe harbor exemption from the unfair/deceptive trade
practice law required that conduct be “in compliance with,” not simply
“regulated by,” certain other laws. Maine’s statutes didn’t make the grant of a
license contingent on approval of how the bottled water was to be labeled or
otherwise marketed. Nestlé’s submitted licenses didn’t even refer to “spring
water,” just “water.” As for a “hodgepodge of letters it received at various
times over the course of two decades from various compliance officers and
geologists at the Drinking Water Program of the Maine Department of Health and
Human Services,” many appeared to be non-binding “advisory rulings,” rather
than binding orders, licenses, permits, or other approval necessary for the
safe harbor. The remaining letters did state that certain boreholes “[a]re
approved by the DWP as public water supply sources” and that they “[m]eet the
U.S. FDA definition of ‘spring water,’” but assuming they qualified Nestlé for
the safe harbor, Nestlé didn’t show that the approvals covered all sources of
water and the entire time period at issue in this action, and its own declaration
was equivocal about that. 

And so on with the other states (detailed discussion that will be useful to other courts omitted). In New Hampshire, the safe
harbor exempts only “[t]rade or commerce that is subject to the jurisdiction of
the bank commissioner, the director of securities regulation, the insurance
commissioner, the public utilities commission, the financial institutions and
insurance regulators of other states, or federal banking or securities
regulators who possess the authority to regulate unfair or deceptive trade
practices.” Bottled water is regulated by the New Hampshire Department of
Health and Human Services, not by any of these, so the safe harbor didn’t apply
at all. And Pennsylvania’s UTPCPL doesn’t even have a safe harbor exemption. 

Nestlé had more success with the Rhode Island claims. RIDTPA
“quite broadly” exempts “actions or transactions permitted under laws
administered by the department of business regulation or other regulatory body
or officer acting under statutory authority of this state or the United
States.” Critically, the Supreme Court of Rhode Island held that “the
exemption applie[s] to all activities subject to monitoring by governmental
agencies, not simply activities permitted under state or federal law.” Nestlé
successfully showed that its general activities of labeling bottled water were “subject
to monitoring or regulation” by a government agency. The burden shifted to
plaintiffs to show that the “specific acts at issue” were “not covered by the
exemption.” But Rhode Island had specific standards of identity for spring
water and its labeling. Nestlé could lose its license for violating the
standards. Thus, Nestlé qualified for the Rhode Island safe harbor under RIDTPA. 

As for common law fraud and breach of contract claims, Nestlé
didn’t explain how its arguments should apply to the common law differently
than to the statutory claims. For the seven states as to which the court denied
summary judgment as to the statutory unfair trade practice claims, it seemed
reasonable that if a legislature wanted consumers to be able to sue under the
statute, it would also want the common law to remain available. “Even for Rhode
Island . . . , it is a stretch to conclude that the legislature’s enactment of
a statute-specific exemption should be extrapolated to bar any common law cause
of action for conduct that is subject to government regulation.” Thus, the
court denied Nestlé’s motion for summary judgment on the common law claims.

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