Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—Cal. Sup. Ct.: Deceptive organic labeling claims not preempted by Organic Foods Production Act, (Dec 3, 2015)

By Jody Coultas, J.D.

California consumer protection law claims that Herb Thyme Farms, Inc.’s produce was intentionally mislabeled as organic was not preempted by the federal Organic Foods Production Act and U.S. Department of Agriculture regulations, according to the California Supreme Court (Quesada v. Herb Thyme Farms, Inc., December 3, 2015, Werdegar, K.).

Herb Farms uses conventional growing methods at most of its farms, except one that uses organic processes. However, Herb Thyme processes its conventionally grown and organic herbs together, and sends blended conventional and organic herbs out under the same “Fresh Organic” label and packaging. A consumer alleged that the labeling violated the California Unfair Competition Law, False Advertising Law, and Consumers Legal Remedies Act.

A trial court agreed with Herb Farms’ express and implied preemption arguments and entered a defense judgment. An appellate court disagreed with the trial court‘s finding of express preemption, reasoning that the express preemption provisions in the Organic Foods Act did not foreclose state false advertising suits. However, it agreed such suits were a potential obstacle to Congress’ purposes and objectives of establishing uniform national standards for organic production and labeling, and were thus impliedly preempted.

The Organic Foods Act directs the establishment of national baseline standards for the production, labeling, and sale of organic products. The Act does not define organic production, nor does it establish certification procedures. The USDA’s final rule sets out the procedure for states to draft their own organic regulatory programs and submit them for USDA approval. Other portions of the final rule spell out the details of producer certification.

Express preemption. The appellate court correctly concluded that the Organic Foods Act’s express preemption did not cover the California consumer protection claims at issue, according to the state supreme court. The Organic Foods Act explicitly displaced existing state standards defining “organically produced” and federalized organic certification. There is no preemption language governing sanctions for misuse of an organic label, suggesting that federal remedies were intended to displace state law remedies. Courts have generally concluded that the Organic Foods Act did not expressly preempt state consumer protection lawsuits, finding that an opposite holding would deprive consumers of protections against deceptive or fraudulent labeling based on the use of the term organic. Herb Farms’ argument that the only remedies for mislabeling were provided by the Act was rejected.

Obstacle preemption. Obstacle preemption permits courts to strike state law that stands as “an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.” The Organic Foods Act states that Congress intended (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. The USDA rules have emphasized that federal organic certification standards were designed to supplement and enhance, rather than foreclose, state law consumer remedies for deception.

Consumer protection law actions would further the stated Congressional goals related to the Organics Food Act, according to the court. Lawsuits based on companies intentionally marketing products as organic that have been grown conventionally, whether by public prosecutors or individual consumers, would only serve to deter mislabeling, enhance consumer confidence, and enable fair competition. Because the Organic Foods Act also contains no private right of action, implied preemption would render organic labeling uniquely immune from suits for deception.

An Eighth Circuit decision found that state consumer protection law claims were preempted where they conflicted with the exclusive role of federally certified agents in certifying a producer’s methods as organic, but not preempted where the claims merely challenged the truth of facts relating to certification. Herb Thyme’s reliance on this ruling to argue for implied preemption of the claims at issue was misplaced because the claims here accepted as valid Herb Thyme’s certification and compliance with federal regulations on its certified organic farm.

The consumer complaint in this case was not impliedly preempted, according to the court. The consumer alleged that Herb Thyme intentionally labeled conventionally grown herbs as organic. The deliberate mislabeling of conventional produce as organic was a goal of the Organics Food Act, and the court could not interpret the Act as a shield from such suits. Nothing in the Act suggested that Congress intended the USDA to serve as the exclusive enforcer of compliance with national standards. Granting immunity against claims of intentional commingling and fraudulent substitution of conventional for organic produce might cause consumers to avoid paying organic premiums. Also, certification through the USDA could not insulate companies from intentional fraud suits of the sort alleged here. Herb Thyme’s argument that the claims would interfere with its federally established entitlement to label and sell its herbs as organic and conflict with federal control over who may use the USDA Organic label, was rejected. Certification is not a grant of a right to use an organic label on all one’s products, according to the court. Further, neither certified nor uncertified growers are permitted to label as organic that which has not been produced in accordance with an approved organic plan.

The case is No. S216305.

Attorneys: Raymond P. Boucher for Michelle Quesada. Mark D. Kemple (Greenberg Traurig, LLP) for Herb Thyme Farms, Inc.

Companies: Herb Thyme Farms, Inc.

Cases: StateUnfairTradePractices Advertising CaliforniaNews