YOUR SOURCE ON FOOD LITIGATION AND REGULATION

As our readers are aware, many states have introduced legislation that would mandate genetically modified organism (GMO) labeling requirements. There is much uncertainty surrounding state GMO-labeling initiatives, with Vermont successfully enacting legislation (that is being challenged in court) and several high-profile failures in California and, more recently, in Oregon. Although the Organic Foods Production Act sets a clear non-GMO standard for certified organic food, a lack of a clear federal definition or preemption for conventional foods has contributed to a wave of costly litigation in this area. As a result, industry is left with the threat of state-based initiatives that have the potential to create the same unworkable patchwork of laws that prompted the Nutrition Labeling and Education Act in the 1990s and the recently finalized Menu Labeling Rule, both of which have federal preemptive effect.

Consumers who plan to cheat on their diets on bowling night may need to develop a different plan. Four years after the passage of the Patient Protection and Affordable Care Act of 2010 (ACA), FDA released its final rule to require restaurants and “similar retail food establishments” that (1) sell “restaurant-type food,” (2) are part of a chain of 20 or more locations, (3) do business under the same name or slight variations of each other, and (4) offer for sale substantially the same menu items as the other business locations, to disclose calorie information on menus and menu boards. Vending machines are also covered under a separate final rule that governs the practices of businesses that own or operate 20 or more vending machines. After the withdrawal of the FDA’s Draft Guidance on menu labeling and the submission of more than 1,100 comments to the proposed rule, the final rule has created a storm of controversy within the retail food industry, as broadly defined by FDA.

A new trend in California employment litigation may result in food industry employers being subject to minimum wage claims. We have seen that many food industry employers have employees in California working in truck-driving or sales positions who are paid, in whole or in part, on a commission or a piece-rate basis. These employers should be aware that there is a growing number of lawsuits filed in California claiming that employees were not paid minimum wage for all hours worked under California law when they were paid under such an incentive compensation plan and not separately paid hourly minimum wage for each hour worked.

The growing trend of retroactive recalls for already distributed food products calls into question commonly held beliefs about food safety. Americans expect that the foods they eat are safe, and, when a company becomes aware of a potential health hazard related to its food products, consumers expect that it will recall the products before people eat them. Consumers also expect that the USDA official mark of inspection on a meat or poultry product means the product is safe to eat because it has been certified by USDA’s Food Safety and Inspection Service (FSIS). In other words, the USDA seal is interpreted as a guarantee that the product is safe to eat because an FSIS inspector, who is continuously present in the facility, has verified the company’s compliance with regulations designed to protect the public health. What undermines this assumption, however, is a growing trend of retroactively recalling product after FSIS has inspected it and after the product has entered into commerce. This trend may confuse industry and consumers alike and creates uncertainty regarding the value for consumers of the USDA inspection seal.

Like the broader federal inspection program in which it is housed, the Food Safety and Inspection Service’s (FSIS’s) prior labeling approval system continues to evolve away from its history of extensive command and control. There is evidence now that, at least in some cases, the agency wants regulated companies themselves to clarify their label claims, rather than making those calls itself.

FSIS’s recent finalization and implementation of new rules for the so-called generic approval for labels is perhaps the agency’s final step in transitioning from a system that, some 30 years ago, essentially insisted on the review and approval of every single label and labeling change associated with all products within its inspection jurisdiction to a far more carefully targeted program. The final rule took effect on January 6, 2014.

Vermont’s Office of Attorney General recently released its draft rule detailing how manufacturers and retailers could be required to label genetically modified organism–processed (GMO-processed) food sold in the state. The draft rule is expansive and will affect several sectors of the food industry, including producers, processors, distributors, and retailers. Significantly, Vermont’s GMO rule could serve as a model for future regulation by other states with GMO legislation and even the federal government.

This rule will place significant burdens on retailers and manufacturers to understand the composition of source ingredients. Vermont’s Act 120 defines “genetic engineering” as a process by which food is produced from organisms that are changed through the application of in vitro acid or hybridization techniques that do not occur by natural manipulation. Food products manufactured through “genetic engineering” and/or that contain GMO components must be labeled as such. The proposed rule is intended to clarify this mandate and provides that products produced with GMOs must be labeled by retailers and manufacturers as “Produced with Genetic Engineering.” In certain instances, retailers and manufacturers may label products as “Partially Produced with Genetic Engineering” (when the item is composed of less than 75% GMO material) or “May be Produced with Genetic Engineering” (when the seller does not know whether the food itself is genetically modified or contains items produced with GMOs). No label is required when 0.9% of the product’s total weight consists of items produced with GMOs.

POM Wonderful is no longer just spilling over into new product areas; it is now also spilling over into other legal claims. In a recent post, we examined how the U.S. Supreme Court’s POM Wonderful decision about food and beverage labeling has already leaked into other product areas, including textile labeling. In that landmark case, the Court ruled that the Federal Food, Drug, and Cosmetics Act (FDCA) does not preclude claims brought under similar provisions of the Lanham Act. According to the Court, even though both acts “touch on” food and beverage labeling, they complement—rather than supplant—each other. The Lanham Act protects commercial interests, while the FDCA protects public health and safety (the Court apparently disregarded the economic adulteration components of the FDCA, despite the fact that labels and labeling are core components to how the FDCA regulates foods). A recent decision in the U.S. District Court for the Northern District of Illinois has broadened POM Wonderful’s reach even further, beyond the Lanham Act and into state consumer protection laws.

What recourse do businesses have when their products are incorrectly identified as the source of a foodborne illness outbreak? For the time being, it appears that the answer to that question is “very little.” In a recently dismissed lawsuit concerning FDA’s 2008 warnings linking tomatoes to a Salmonella outbreak in New Mexico and Texas, which proved to be wrong, a federal court held that the government’s error did not constitute a regulatory “taking” under the Fifth Amendment, even though the warnings had significant financial impact on the marketplace. Despite the court’s decision, and its impact on prospective regulatory takings claims, a compensation provision under the Food Safety Modernization Act (FSMA) provides a potential avenue of recourse for farmers, and it is likely that litigants will test this compensation theory in the future.

The U.S. District Court for the Southern District of Ohio granted preliminary approval for another class action settlement related to beverage label claims on September 25—this time involving the Coca-Cola Company. The settlement involves label claims related to Coca-Cola’s Vitaminwater and arises from four putative class actions filed in Ohio, Florida, Illinois, and the Virgin Islands. The cases alleged that Vitaminwater's product name, description, slogans, and flavor names misled consumers by causing them to believe that the product would provide various health benefits whose validity was brought into question by the plaintiffs.

A landmark U.S. Supreme Court decision on the ultimate source of pomegranate juice has already leaked into other product lines—including textiles—and its reach is likely to extend even further. It’s been three months since the U.S. Supreme Court’s decision in POM Wonderful LLC v. Coca-Cola Co.—and the decision’s effects are already being felt in the area of source identification. The High Court’s holding allowed POM Wonderful to sue Coca-Cola under the Lanham Act’s unfair competition provision for an allegedly false and misleading label on Coca-Cola’s Minute Maid pomegranate-blueberry juice blend. According to POM Wonderful, Coca-Cola’s juice blend prominently displayed the words “pomegranate juice” when, in reality, the product contained only 0.3% pomegranate juice. The Court rejected Coca-Cola’s objection that the Lanham Act claim should be precluded because the Minute Maid labeling complied with FDA regulations. (For a deeper analysis, see our prior LawFlash.) In June 2014, the decision was heralded by POM Wonderful as “a real victory for consumers” that will “translate into higher assurance for consumers that the labels on beverage and food are accurate.” Although time will tell, plaintiffs and courts have started to use POM Wonderful in some creative ways in the arena of source identification, and these claims may be a harbinger of things to come.