Federal Court in NY Cites Obstacle Preemption in Dismissing State-Law Fraud Suit Against Organic Producer

Cruz-Alvarez_FFeatured Expert Contributor — Civil Justice/Class Actions

Frank Cruz-Alvarez, a Partner in the Miami, FL office of  Shook, Hardy & Bacon L.L.P. with Ravika Rameshwar, an Associate with the firm.

On August 23. 2016, the US District Court for the Eastern District of New York dismissed a class-action suit that alleged the makers of Similac® Advance® Organic Infant Formulas fraudulently misrepresented the products as “organic,” holding that the state claims are preempted by federal law—specifically, the Organic Foods Production Act of 1990.  Marentette et. al. v. Abbott Laboratories, Inc., 2016 WL 4444787 (E.D.N.Y Aug. 23, 2016).  The court stated that Congress designed the OFPA to create a national standard for organic labeling that would be “disrupted, if not thwarted,” by inconsistent state and federal court decisions.  Marentette, 2016 WL 4444787, at *8.

Plaintiffs brought state-law claims, under both California and New York law, alleging Abbott Laboratories misled Similac® consumers by falsely labeling the products as “organic” when the formulas contained ingredients that the United States Department of Agriculture (“USDA”) prohibits in organic products.  Id. at *1.  Plaintiffs further contended that they would not have purchased the products had they known it contained ingredients that the USDA prohibits in organic products.   Plaintiffs and Abbott Laboratories agree that the products were certified as “organic” under the accrediting standards laid out under the OFPA.  Abbott Laboratories moved to dismiss, arguing that the state claims could pose liability on producers for a label that was authorized by the OFPA’s regulations, creating a form of conflict preemption known as obstacle preemption.  Abbott Laboratories contends that allowing the state claims to proceed would create an obstacle in OFPA establishing a national “organic” standard.

Congress passed the OFPA with three main purposes: 1) create a national standard for marketing organic products, 2) assure consumers that organic products have consistent standards, and 3) facilitate interstate commerce for organic food.  Id. at *3.  The OFPA gives the Secretary of Agriculture the power to establish organic certification programs.  Under the OFPA and National Organic Program, adopted by the USDA, a product can only be labeled as “organic” if a USDA-accredited agency certifies it as organic.  The court found Congress intended to create a uniform, national organic labeling standard by looking to Congress’ purpose for creating the OFPA and the OFPA’s “thorough-going regulatory scheme” and enforcement mechanism.  Id. at *6–8.

While rejecting district court decisions that addressed similar issues, the court found a US Court of Appeals for the Eighth Circuit case to be persuasive and adopted its reasoning.  Id. at *4–5; see also In re Aurora Dairy Corp. Organic Milk Marketing and Sales Practices Litigation, 621 F3d 781 (8th Cir. 2010).  In Aurora, plaintiffs alleged that milk was misleadingly labeled as organic.  The Eighth Circuit Court held that 1) the OFPA preempted milk consumers’ claim that the milk was not organic and 2) if state law challenges the certification determination itself, it is preempted; however, if it challenges the underlying facts of certification, it is not preempted.  Marentette, 2016 WL 4444787, at *4 (citing back to Aurora, 621 F3d at 795) (emphasis added).  In Marentette, the court found that Plaintiffs’ claims challenged the federal certification determination itself, and therefore found the claims to be preempted.

Additionally, the court distinguished Marentette from the 2009 Supreme Court case Wyeth v. Levine, which held that failure-to-warn claims are not preempted by the Food Drug and Cosmetic Act.  The New York federal court reasoned that Congress enacted the FDCA to create a minimum standard for drug labeling, but did not intend to insulate manufacturers from liability, whereas Congress did not intend to set out a minimum standard for organic labeling when enacting the OFPA—it, instead, created the standard.  Id. at *8.  Unlike with the FDCA, where an inadequate warning label claim attacks the manufacturer’s representation, a claim challenging a product being “organic” is a challenge to the USDA-approved certifying agent’s decision.  The court noted that the only way a State can change the OFPA’s standard on what constituted “organic” is with federal government approval.

Judge Pamela K. Chen dismissed Plaintiff’s First Amended Complaint, but allowed Plaintiff to amend by September 23, 2016.  Id. at *9.  Given the nature of the claims brought by Plaintiffs, it will be interesting to see if they can plead a cause of action that withstands a subsequent motion to dismiss.

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