United States: Just In Thyme For The Holidays – An Organically Grown Preemption Debacle

On December 3, 2015, the California Supreme Court issued a ruling that expands the ability of private claimant to file lawsuits in California alleging intentional organic mislabeling. In Quesada v Herb Thyme Farms, a purported class action, the Court stated that

"[u]nderlying each cause of action is the allegation that Herb Thyme not only sells its organic herbs under an organic label, but also knowingly and intentionally sells some conventional herbs under an organic label and at an organic premium price. Thus, according to the operative complaint, Herb Thyme sometimes intentionally mixes its conventional herbs in with organic herbs. On other occasions, it fills orders for organic herbs entirely with conventional herbs."

Herb Thyme is one of the nation's largest herb producers with numerous farms throughout California. Quesada is a consumer who purchased Herb Thyme herbs labelled "100% organic" allegedly believing the product was 100% organic as labeled.

Quesada's lawsuit challenges the sale of the alleged falsely labeled herb product as violations of state false advertising and unfair competition laws. The Court of Appeals barred the lawsuit on federal preemption grounds, but the case was reinstated after the California Supreme Court's ruling overturned the Court of Appeals' decision.

The trial court initially entered a defense judgment in favor of Herb Thyme, agreeing with Herb Thyme's express and implied preemption arguments. The Court of Appeals affirmed the trial court's ruling in Herb Thyme's favor, but disagreed with the trial court's finding of express preemption. On appeal, the California Supreme Court directly addressed the preemption arguments asserted by Herb Thyme in the lower courts.

The Supremacy Clause of the United States Constitution establishes that when state law conflicts with federal law, federal law preempts state law. Federal laws for the purposes of preemption include laws that come from legislatures, courts, administrative agencies, or constitutions. Federal law may expressly preempt state law through an explicit preemption clause or courts may imply preemption. Herb Thyme raised both express preemption and implied preemption arguments to bar Quesada's lawsuit.

To advance its express preemption argument, Herb Thyme referenced the Organic Foods Act passed by Congress in 1990, which directs the establishment of national baseline standards for the production, labeling, and sale of organic products. As contemplated by the Organic Foods Act, the United States Department of Agriculture (USDA) released a final rule in 2000 that regulates organic labeling, including establishing the precise compositional requirements for products labeled "100 percent," "organic," and "organic, and made with organic... ingredients." The Organic Foods Act l imposes civil penalties for violation of the regulations.

To address Herb Thyme's express preemption argument, the California Supreme Court turned to the statutory text of the Organic Foods Act to explore Congress's preemptive intent and found that no language of exclusivity in the provisions of the Organic Foods Act governing sanctions for misuse of the organic label.

To advance its implied preemption argument, Herb Thyme referenced the obstacle preemption doctrine, which permits courts to strike state law that stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress. Herb Thyme argued the state law claims advanced in the lawsuit interfere with the congressional goals and should be barred.

In response to Herb Thyme Farm's implied preemption argument, the court found that the lawsuit was consistent with the central purpose behind the federal regulation adopting a clear national definition of organic product: "to permit consumers to rely on organic labels and curtail fraud."

Herb Thyme also sought to defer action at the trial court level under primary jurisdiction principles unless and until an administrative complaint had been pursued through the USDA. The doctrine of primary jurisdiction would first allow the USDA to address the claim before it was taken up by a court for consideration. The California Supreme Court chose not to address Herb Thyme's primary jurisdiction argument similar to the trial court, which declined to rule formally on this argument and the Court of Appeals, which did not address the argument. Herb Thyme may pursue this argument at the lower court level.

While the Court began its opinion stating "labels matter," it may be the underlying facts concerning manufacturing practices that undid Herb Thyme. The Court found that allowing plaintiffs' fraud and misrepresentation claims based on Herb Thyme's allegedly commingling organic and conventionally grown products and labeling conventionally grown products as organic, was consistent with the intent of Congress and not preempted. Significantly, the Court's ruling was not limited to the manufacturing practices of Herb Thyme or the facts of this case and will have implications in California and elsewhere involving private enforcement of alleged violations of federal labeling rules.

As the preemption pendulum continues its swing from not permitting private enforcement of federal law governing the labeling of food, drugs and medical devices, to permitting such claims, the industry should remain mindful that good law cannot cure bad facts, but bad facts can make bad law. Nonetheless, federal preemption remains a powerful defense for USDA and FDA-regulated industry when the underlying facts concern conduct compliant with federal law and regulations. The California Supreme Court decision may have far-reaching effects beyond the state of California and could be instructive to other state courts where claims for organic mislabeling are brought under state false advertising and unfair competition laws. Whether Herb Thyme seeks review at the US Supreme Court remains to be seen but, if it does, this case could be a vehicle for the US Supreme Court to reconsider the presumption against preemption and that may be a welcome result for industry.

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