FDA’s Proposed Regulation of Brewers’ Spent Grains is All Wet

spent brewing grains

spent brewing grains

During his February 5, 2014 appearance at a House Energy and Commerce Committee hearing, Food and Drug Administration (FDA) Deputy Commissioner Michael Taylor stated that “the whole goal of [the Food Safety Modernization Act (FSMA)] is to achieve the food safety goal without imposing regulations, just for the sake of regulation.” Dr. Taylor must have been unaware of his agency’s proposal to require that brewers, distillers, and vintners develop extensive hazard analysis and control plans before selling or donating their spent grains or grape pomace to farmers for livestock feed. This proposal seems to be the epitome of regulating for the sake of regulating.

Farmers have been procuring and feeding their livestock spent brewing grains and grapes for centuries. These livestock “happy hour” arrangements advance environmental sustainability, engender bonds among local businesses, and financially benefit both parties. Farmers get low cost whole grain feed packed with fiber, protein, and, of particular importance to livestock in arid climates, moisture. Alcohol makers save millions by not having to landfill the by-products.

FSMA Section 116 exempts activities at facilities which “relateto the manufacturing, processing, packing, or holding of alcoholic beverages.” In a proposed animal food safety regulation, FDA essentially nullifies this statutory exemption. The agency “tentatively concludes” that when brewers or distillers go through the “mashing” process—soaking grains in hot water—and then offer the by-product to farmers, they suddenly become food producers. The same goes for winemakers and their grape pomace. FDA’s conclusion has sparked a deserved firestorm of opposition from the affected industries as well as members of Congress. Continue reading

Eighth Circuit Creates New Class Action Fairness Act Requirement, Sends Case to State Court

Cruz-Alvarez_FFeatured Expert Contributor – Civil Justice/Class Actions

Frank Cruz-Alvarez, Shook, Hardy & Bacon, L.L.P. (co-authored with Talia Zucker, Shook, Hardy & Bacon, L.L.P.)

On April 4, 2014, the U.S. Court of Appeals for the Eighth Circuit breathed new life into a proposed consumer class action lawsuit that was previously—and properly—dismissed with prejudice by the U.S. District Court for the District of Minnesota.     Instead of affirming the district court’s decision, the Eighth Circuit, in an attempt to save the lawsuit, reversed and remanded Melvin Wallace v. ConAgra Foods, Inc., — F.3d —-, 2014 WL 1356860 (8th Cir. Apr. 4, 2014), to the Minnesota state court where it originated. In doing so, the court’s ruling, either by design or by accident, undermined the framework and legislative purpose of the Class Action Fairness Act (“CAFA”).

The case originated in May of 2012, when a group of consumers purporting to represent a putative class sued ConAgra Foods, alleging that some of the company’s Hebrew National beef products are not 100% kosher, as the label claims. 2014 WL 1356860 at *1.ConAgra manufactures Hebrew National meat products using beef slaughtered by AER Services, Inc. (AER). Id. The slaughtering takes place in the facilities of American Foods Group, LLC (AFG), which sells kosher meat to ConAgra and any remaining meat to third parties. Id. AER employs the religious slaughterers, and a third party kosher certification entity named Triangle K, Inc., monitors whether AER, AFG, and ConAgra comply with the kosher rules. Id.

ConAgra promotes the kosher requirements as a reason to purchase Hebrew National products, which cost more than similar non-kosher products. Id. The consumers claim, however, that manufacturing quotas—not kosher rules—is the deciding factor in whether certain meat is certified as kosher; and with a quota of 70% for kosher meat, the kosher inspection process has become defective and unreliable. Id. at *2. Consequently, the consumers maintain they have been misled into paying an “unjustified premium for Hebrew National’s ostensibly kosher beef.” Id. at *1. Continue reading

Does FTC Glass Settlement Break the Efficiencies Mold?

amurinoFeatured Expert Column – Antitrust/Federal Trade Commission

Andrea Agathoklis Murino,Wilson Sonsini Goodrich & Rosati

(Editors note: The Legal Pulse would like to (belatedly) congratulate Andrea on her promotion to partner, the announcement for which at the end of last year escaped our discovery)

As expected, on April 11, 2014, the Federal Trade Commission (“FTC”) announced the resolution of their investigation and administrative court challenge into the $1.7 billion acquisition of Saint-Gobain Containers, Inc. (“St. Gobain”) by Ardagh Group SA (“Ardagh”). In order to allow the transaction to proceed and resolve the pending administrative trial, Ardagh agreed to sell six of its nine glass container manufacturing plants in the United States to an FTC-approved buyer within six months, including all tangible and intangible assets, and customer contracts. (All pleadings and filings for all parties, including the original complaint, which argued that the acquisition would harm competition in the markets for glass containers used to package beer and spirits, are available online.)

The fact that this litigation was resolved via a divestiture of brick-and-mortar facilities in an industry like glass manufacturing is not news of note to this FTC observer. What is worthy of pause, however, is that the vote to approve this consent was not unanimous (it was 3-1) and that the efficiencies defense stands front-and-center in the dispute between the majority and minority.

For the majority, Chairwoman Ramirez and Commissioners Brill and Ohlhausen, found that the transaction as originally structured would have resulted in a violation of Section 7 of the Clayton Act. When presented with a carefully crafted remedy, these Commissioners believed that the remedy would “fully replace[ ] the competition that would have been lost in both the beer and spirits glass container markets had the merger proceeded unchallenged.” Thus, they voted to accept the settlement. Continue reading

Federal Workplace Police Have a Tough Week in Court

6th CircuitIf anyone doubts our democracy’s need for an independent judiciary to check the executive and legislative branches, consider two federal court opinions issued last week. Federal workplace police at the Equal Employment Opportunity Commission (EEOC) and the Department of Labor (DOL) each received a thorough (and richly deserved) judicial slapdown for arrogantly flouting the rule of law.

EEOC v. Kaplan Higher Education Corp. The unanimous U.S. Court of Appeals for the Sixth Circuit panel set the tone of this seven-page opinion by declaring, “In this case the EEOC sued the defendant for using the same type of background check that the EEOC itself uses.”

Kaplan implemented vigorous screening of job applicants, including the use of credit checks, in response to several instances of employee theft. Such increased self-policing earned the company an EEOC legal action. The Commission argued that Kaplan’s credit checks had a disparate impact on minorities.

To support its case, EEOC hired a psychologist to perform statistical studies using Kaplan’s applicant data. The “expert” filed numerous reports with the trial judge, most of which were either late or contrary to the judge’s demand that he cease providing reports. The judge found that the psychologists’ reports were unreliable under Federal Rule of Evidence 702 and dismissed EEOC’s case.

The Commission fared just as poorly on appeal. The Sixth Circuit agreed with the lower court’s conclusion that EEOC’s “expert” and his methodology failed every factor that courts utilize to assess expert testimony under the Supreme Court’s Daubert v. Merrell Dow opinion. The judges agreed that a court could neither test the psychologist’s technique, nor could it evaluate the test’s error rate. EEOC argued that its “expert’s” theory did not have to be subject to peer review. The Sixth Circuit found the argument “meritless.” As for the other Daubert factors, EEOC essentially argued that the burden fell on Kaplan to prove they had been met. The court pointedly retorted, “The law says to the contrary.”

The opinion ended as sharply as it began:

We need not belabor the issue further.  The EEOC brought this case on the basis of homemade methodology, crafted by a witness with no particular expertise to craft it, administered by persons with no particular expertise to administer it, tested by no one, and accepted only by the witness himself.

Gate Guard Services v. Perez. Here, the Department of Labor lost more than just a case.  Because of its antics, American taxpayers had to shell out $565,527.61 in attorneys’ fees to the enforcement target.

DOL accused Gate Guard Services (GGS) of misclassifying gate sentries as independent contractors. GGS counter-sued and sought a declaratory judgment. In February 2013, U.S. District Court for the Southern District of Texas Senior Judge John Rainey granted GGS summary judgment and dismissed DOL’s claims against the company. GGS then sought attorneys’ fees under the Equal Access to Justice Act (EAJA).

Under that statute, the government must prove that its position in a lawsuit had a reasonable basis in both fact and law (“substantially justified”) at every stage of the action. Judge Rainey agreed with GGS that DOL’s lead investigator departed from DOL enforcement procedures when he destroyed interview notes and assessed a $6 million fine after he had interviewed only three gate sentries.

“Had the DOL interviewed more than just a handful of GGS’s roughly 400 gate attendants,” Judge Rainey wrote, “it would have known [they] were not employees.” He listed ten different factors that DOL failed to reasonably consider, including “the federal government itself, via the ACE [Army Corps of Engineers] uses the services of gate attendants at federal parks and classifies these individuals as independent contractors.”

The court concluded that DOL’s actions both before and during the suit were not substantially justified and awarded fees to GGS.

Checked and Balanced. But for an independent judiciary, the executive branch would be free to engage in the type of hypocrisy and disrespect for rules that were on display in these two cases. It might routinely label employers’ credit checks discriminatory while utilizing the very same screening method, or it could categorize a company’s gate sentries “employees” while other federal agencies consider similarly situation workers “independent contractors.” Agencies would prosecute businesses for destroying internal documents while permitting federal investigators to freely do the same.

We should all be grateful that our federal courts did not tolerate such behavior from EEOC and DOL, and instead reminded them of principles most of us learned in kindergarten: play by the rules and live by the same rules you expect others to abide by.

Also posted at WLF’s Forbes.com contributor page

WLF Briefing Discusses FDA’s “Plaintiffs’ Bar Over Patients” Generic Drug Labeling Proposal

FDA’s Generic Drug Labeling Proposal: Unauthorized and Counterproductive Disturbance of the Hatch-Waxman Balance

Our Panelists

  • Ralph G. Neas, The Generic Pharmaceutical Association
  • Alex Brill, American Enterprise Institute
  • Richard A. Samp, Washington Legal Foundation

Accompanying Materials

 

Consumer Product “Plain Packaging” Boomerangs in Australia

boomerangIn publications, formal comments, and here at The Legal Pulse, Washington Legal Foundation has consistently questioned the wisdom and legality of requiring “plain packaging” for disfavored consumer products. We wrote in a December 2011 post that plain packaging laws like the one Australia formally adopted in 2012 will “boomerang  . . . by creating a vigorous black market in cigarettes and forcing tobacco prices down as new and cheaper cigarettes enter the marketplace.”

Recent sales data and studies on the tobacco market in Australia show how that nation’s plain packaging law has, in fact, boomeranged as we predicted it would.

First, a late-2013 study by KPMG revealed that counterfeit tobacco sales in Australia had risen since the passage of the plain packaging law to almost 14% of the Australian market. Illicit sales not only deprive Australia of hundreds of millions in lost tax revenue, they also increase law enforcement costs in reaction to greater criminal black market activity. Australian press accounts demonstrate how the illicit sales are funding larger criminal enterprises, such as gangs. In addition, counterfeit sales have harmed Australia’s small retailers, as a study by an Australian market research firm has demonstrated.

Second, much to the shock of plain-packaging devotees, tobacco sales are increasing Down Under. Reports last month indicate that deliveries to tobacco retailers rose in 2013 for the first time in five years. This news should not be a surprise to anyone who understands basic economics and consumer behavior. Tobacco producers who are no longer able to differentiate their cigarettes from rivals through package branding and imaging, are forced to lower their prices to maintain or expand market share. Lower prices, of course, routinely lead to increased sales. Such a reaction is especially true when generic, lower-cost cigarette companies enter the market, as they have in Australia. WLF explained this effect in its 2010 comments to the Australian Parliament, emphasizing the success generic tobacco brands have had in the U.S.

Other nations such as Britain looking to sweep away trademark and speech rights with plain packaging laws should pay heed to these developments in Australia. Regulators who proceed in the face of such demonstrated economic hazards will be doing so more for ideological, rather than public health, reasons.

Also available at WLF’s Forbes.com contributor page

EPA and the Army Corps’ “Waters of the U.S.” Proposal: Will it Initiate Regulatory Overflow?

sboxermanFeatured Expert Column – Environmental Law and Policy

by Samuel B. Boxerman, Sidley Austin LLP with Lisa Jones, Sidley Austin LLP

On March 25, 2014, the Environmental Protection Agency (EPA) and the United States Army Corps of Engineers (Corps) (“the Agencies”), released a long-awaited Proposed Rule defining the scope of “waters of the United States” governed by the Clean Water Act (CWA or Act). Since its release, the proposal has been praised by some, questioned by many others, and already was the subject of hearings on Capitol Hill. If finalized, the proposal will most likely end up in court—and if it were allowed to stand as is, would most certainly cause significant impacts across multiple sectors of our economy, from agriculture to housing to energy.

Decades in the making, the Proposed Rule would supersede existing agency guidance, and replaces the Obama Administration’s previous effort to issue its own “waters of the United States” guidance. The 370-page notice proposes to define “waters of the United States” by regulation, after allowing agency guidance documents and various Supreme Court decisions* to define the phrase on a case-by-case basis since 1975. The definition is critical, because the scope of the “waters of the United States” is the cornerstone of the Clean Water Act; it sets the parameters of the jurisdiction Congress established in the Act. Thus, the breadth of this definition will determine when EPA and the Corps may regulate all manner of development under the Act. Continue reading