Food & Ag Weekly Round-Up: March 23, 2017

EurekAlert discussed the link between food insecurity and childhood development.

Gadgets360 discussed Amazon’s entry into the grocery market.

Food Safety News reported on delay in produce safety rules.

Reuters discussed potential cuts to USDA funding.

The Denver Business journal reported on ConAgra’s acquisition of Thanasi Foods.

 

March 21: Happy National Ag Day!

NewAgDay_OriginalAs we celebrate National Ag Day, the lawyers and staff at Husch Blackwell are proud to serve our clients whose innovation, dedication and enthusiasm continue to make the U.S. agriculture industry a standard bearer for productivity and technological advancement. From food safety and labeling to sustainable ag practices, our Food & Agribusiness industry group has evolved with the industry itself to provide cutting-edge legal counsel in the very areas that will define the future of agriculture.

We congratulate all those in the ag industry – from family farmers to corporate leaders – whose hard work and tirelessness continue to motivate our own efforts, and we look forward to another year of advising our ag clients on their toughest legal challenges, so they can focus on the vital work of bringing to market products that the rest of us so direly depend upon.

Happy National Ag Day!

Missouri Challenges California Egg Rule

In 2008, California voters approved Proposition 2, which banned the sale of eggs in California unless the laying hens had a minimum amount of space in which to lay their eggs. Regulations that became effective January 1, 2015, required a minimum of 116 square inches for each hen, approximately twice the space that was standard in the industry.  California egg producers generally complied with the regulations by reducing the number of hens in each cage rather than building expensive new cages.  Since their fixed costs remained the same, the net result was a substantial increase in the unit cost per egg.

In 2010, under pressure from California egg growers, the legislature enacted a statute applying Proposition 2 to all eggs sold in the State of California, regardless of where they were laid. Thus, if a Missouri egg grower wanted to sell into the California market, it would have to comply with the minimum cage size requirement.  It could do so either by doubling the number of cages or accepting a 50% reduction in egg production.  Either alternative would impose substantial financial costs on the grower.

The California legislature attempted to justify the statute on the ground that larger cages meant less stress on the hens, thus reducing the likelihood of salmonella infection. It had to acknowledge, however, that there is little scientific evidence supporting a link between stress and salmonella.  Other parts of the legislative history suggested that the real purpose of the statute was to avoid placing California egg growers at a competitive disadvantage.

About one third of the eggs laid in Missouri are sold in California, making up about 13% of the latter state’s total consumption. Fluctuations in supply and demand during the course of the year make it impossible for growers to set up one operation for California and another operation for everywhere else.  Missouri growers therefore had a choice:  become California compliant by incurring considerable costs which would make their eggs uncompetitive elsewhere; or abandon the California market. Continue Reading

Food & Ag Weekly Round-Up: March 2, 2017

Food Engineering reported on USDA revisions of nutrition facts label.

The Conversation discussed the impact of climate change on agriculture.

The USDA discussed U.S. drought conditions.

The New York Times reported on an executive order to roll back water regulations.

Salon reported on efforts by celebrity chefs to use food waste to fight hunger.

 

Food & Ag Weekly Round-Up: February 23, 2017

The Los Angeles Times reported on potential changes to expiration dates on food packaging.

USAgNet discussed Unilever rejection of Kraft Heinz bid.

SF Gate discussed Wisconsin efforts to regulate powdered alcohol.

Food Safety News reported on USDA guidance for retail shops to control listeria.

AgWeb discussed the return of some animal welfare data to the USDA website.

FSMA Whistleblower Case Filed

The Food Safety Modernization Act (FSMA) provides broad protection to whistleblowers. Section 402 of the statute applies to any person or entity engaged in manufacturing, processing, packing, transporting, distribution, reception, holding or importation of food, but it is not clear whether the provision applies to farms, at least until the food has been harvested.

The FSMA prohibits discharging or otherwise discriminating against an employee who engages in the following kinds of whistleblowing:

Providing or planning to provide information to the employer, the federal government, or a state Attorney General about a violation of the FMSA, or any   order, rule, regulation, standard or ban under it.

Testifying or preparing to testify in a proceeding concerning such violation.

Assisting, participating, or planning to do so in any such proceeding.

Objecting to or refusing to participate in any activity that violates the FSMA.

The whistleblowing need not be the sole cause of the adverse employment action, merely a “contributing factor.” The whistleblower need not be correct about the violation.  It is enough that s/he subjectively believed that action to be a violation of the FMSA and such belief was reasonable.  The regulations borrow from the whistleblowing provisions of Sarbanes-Oxley.

The FMSA allows an employer an affirmative defense: regardless of the retaliation, the employer would have taken the same adverse action.  The employer must prove that defense with clear and convincing evidence.

The statute has a rather cumbersome administrative procedure for enforcement. An employee who claims retaliation for whistleblowing may file a complaint within 180 days of the violation.  The Secretary of Labor has delegated its responsibilities to the Occupational Safety and Health Administration (OSHA).  OSHA has 60 days from the date of the complaint to issue preliminary findings.

If the preliminary findings are in favor of the employee, OSHA must include a preliminary order prescribing relief, which may include reinstatement. Any aggrieved party has 30 days to seek a hearing before an administrative law judge (ALJ).  The hearing would be de novo and on the record.  After the ALJ issues an order, within 14 days, any aggrieved party may appeal to the Administrative Review Board (ARB), which has discretion on whether to accept the appeal.  If the ARB declines to hear the appeal, the administrative process is complete and the ALJ’s order is final.  An aggrieved party then has 60 days to seek review in the court of appeals for the circuit in which the violation occurs.

Unless the administrative process proceeds with unusual celerity, however, the employee has an alternative route to federal district court. The employee may file an action in federal district court if there is no final ruling within 210 days of filing the complaint, or within 90 days of the date of the preliminary order.  Review is de novo and any party may demand a jury.

On February 9, 2017, the delightfully-named Linda O’Risky filed a whistleblower lawsuit against Mead Johnson Nutrition Co. Ms. O’Risky was formerly a global compliance director for Mead Johnson.  In early 2015, she learned of a defective seal on 8-ounce bottles of Mead Johnson baby formula.  She alleged that she made repeated unsuccessful efforts to induce Mead Johnson to fix the problem and to report it to the FDA.  She also alleged that Mead Johnson terminated her services in retaliation for her efforts and falsely claimed her position was eliminated as a result of a reduction in force.

Ms. O’Risky filed her administrative complaint on March 28, 2016. OSHA did not complete the administrative process within the required 210 days, thus enabling her to sue in district court.

FSMA whistleblower cases will likely be both expensive and difficult to defend. A discharged former employee is always a sympathetic plaintiff and proof that retaliation played at least some role in the termination is not hard to find.  At best, the employer may find itself facing a red-light swearing match featuring the plaintiff’s testimony against that of his or her manager.

The best way to avoid whistleblower claims is strict compliance with the FSMA. An employer will never get summary judgment on the subjective issue of whether the plaintiff actually believed there was a violation.  Whether that belief was reasonable, however, is an objective standard that can support summary judgment.  If the employer can prove that it was in compliance with FSMA, plaintiff’s belief to the contrary is likely to be unreasonable.

UPDATE: States Challenge New Endangered Species Act Regulations

On February 13, 2017, by an eight to six vote, the Fifth Circuit denied en banc review of the panel opinion in Markle Interests, LLC v. U.S. Fish & Wildlife Service.  The case dealt with the predecessor to the new regulations effective March 2016, but it is highly significant in determining the extent of Fish & Wildlife’s authority to designate land as critical habitat.

The case concerns the dusky gopher frog, an endangered species that now resides exclusively in Mississippi.  At one time, the frog inhabited land in St. Tammany Parish in Louisiana but has not been seen there for more than 50 years.  Nonetheless, Fish & Wildlife designated some 1500 acres of land in Louisiana as unoccupied critical habitat.

The rationale was that the Louisiana property had one essential condition for conservation of the frog:  five ephemeral ponds.  An ephemeral pond is one that periodically dries up and hence cannot support fish.  The frog uses the pond to lay its eggs safe from predatory fish.

The problem is that the Louisiana property is not currently habitable by the frog.  Approximately 90% of the property is covered with closed-canopy loblolly pine trees, which would have to be removed and replaced with another variety to make the area habitable for the frog.  Fish & Wildlife has no authority to compel private landowners to undertake these changes and there is no evidence that they will.

The opportunity cost to the landowners may be more than $30 million.  We expect a cert. petition.

Food & Ag Weekly Round-Up: February 16, 2017

Plant Engineering discussed automation in the food and packaging industry.

Food Safety News reported on a public meeting called by the USDA to discuss food allergens.

Agriculture.com discussed potential Mexican legislation to limit U.S. corn imports.

The Los Angeles Times discussed drought and labor issues in California’s central valley.

Agriculture.com discussed the ethanol industry outlook.

 

States Challenge New Endangered Species Act Regulations

The State of Missouri recently joined 19 other states (7 of which are in Husch Blackwell’s geographic footprint) in challenging recently-enacted regulations extending the scope of the Endangered Species Act (ESA). State of Alabama ex rel. Strange v. Nat’l Marine Fisheries Service, No.16-cv-00593 (S.D. Ala.).  The National Marine Fisheries Service and the Fish & Wildlife Service (the Services) published the final regulations in February 2016 and they became effective in March 2016.

The ESA requires federal agencies to assure that their actions do not result in the “destruction or adverse modification” of habitat critical to the conservation of threatened or endangered species. Thus, a federal agency may not authorize or fund activities that adversely affect critical habitat.  The new regulations change the method for designating habitat as critical and the meaning of adverse modification.

The ESA distinguishes between “occupied” and “unoccupied” habitat. For the former, the Services must establish that the site has physical or biological features that are essential to the conservation of a species and may require special management considerations or protection.  For the latter, the Services must establish that habitat limited to its current range would be inadequate to ensure conservation of the species.  The statute explicitly states that critical habitat may not include the entire geographical area that can be occupied by the species.

According to the lawsuit, the new regulations exceed the Services’ powers under the ESA in four respects. First, they permit the Services to designate unoccupied land as critical habitat, even if unnecessary to recovery of the species.  Second, they permit the Services to designate areas as occupied critical habitat, even when neither occupied nor containing features necessary to conservation of the species.  Third, they allow the Services to designate uninhabited areas as critical habitat even if incapable of supporting the species.  Fourth, they allow the Services to declare broad, general swaths of land or water as critical habitat without requiring specificity. Continue Reading

False Advertising Issues Impacting the Alcohol Beverage Industry

three glasses of beer with barley and hops

In the last few years, there has been an influx of false advertising and labeling claims targeting food and beverage producers, principally though consumer class actions. The lawsuits seem to be an outgrowth of consumers’ growing interest in foods and beverages that are artisanal and locally grown or made.  The beverage alcohol industry has not been spared from these suits, seemingly bearing a disproportionate load of claims including those alleging false “country of origin”, and those alleging misleading statements pertaining to methods of manufacturing.  Fortunately for the industry, courts have recently shown a willingness to dispose of these cases early in the lawsuit, principally by way of motion to dismiss for failure to state a claim.

Late last year, the Southern District of California dismissed a case brought against the makers of Red Stripe beer for using an allegedly misleading label regarding the beer’s purported country of origin.  The allegations focused on labeling statements such as “The Taste of Jamaica” and further suggestions in advertising that the beer was a “Jamaican Style Lager.”  While long produced in Jamaica, production of Red Stripe beer moved to the United States in 2012.

In its order dismissing the case, the court, using a “rational consumer” test, determined “no reasonable consumer would be misled into thinking that Red Stripe [was actually] made in Jamaica with Jamaican ingredients based on the wording of the packaging and labeling.”  Red Stripe’s labels were compared to that of a “Swiss Army Knife” where “Swiss” modifies “Army” as “Jamaican” modifies “Style” rather than suggesting the true country of origin for the finished product.  The court also noted that even if consumers believe it was once brewed in Jamaica, no legal authority places a duty on its maker and distributors to refute any pre-conceived notions consumers may have as to the product’s country of origin. Red Stripe’s label clearly states, consistent with TTB regulations, that the beer is brewed and bottled in Latrobe, Pennsylvania.

Beverage alcohol products touted as “craft” have also faced a number of suits over the past few years.  Perhaps most notable was the matter involving MillerCoors’ Belgian witbier Blue Moon.  A class action was instituted in California contending that use of the term “Artfully Crafted” was misleading to consumers as it connoted the beer was a craft beer where in reality the product was brewed in MillerCoors’ Golden Colorado mega-brewery.  The complaint also alleged that Blue Moon was sold at a premium price, that MillerCoors directs retailers to place Blue Moon alongside other craft beers, and that it instructed retailers to refer to Blue Moon as a “craft beer.”  The case was dismissed with the court concluding that a premium price does not amount to a representation about the product and MillerCoors was not responsible for any misrepresentations by retailers when it does not have “unbridled control” over them.

The complaint against Blue Moon cited to the definition of a “craft beer” proposed by the Brewers Association guidelines, which provides that entities making “craft beers” produce less than 6 million barrels annually, are less than 25% owned or controlled by a non-craft brewer, and make beer using only “traditional or innovative brewing ingredients.”  The Brewers Association, however, admits that its definition of “craft beer” has no legal force.  The court generally ignored this putative definition in dismissing the class claims.

The phrases “handmade” and “handcrafted” have also been the subject of much class action litigation in the United States.  Several suits have been dismissed against Maker’s Mark, a whiskey-making subsidiary of Beam Suntory.  Using the same “rational consumer” test noted above, the judge in Salters v. Beam Suntory found that “no reasonable person would understand ‘handmade’ in this context to mean literally by hand” and that no national consumer would believe that whiskey was made without substantial equipment.

Similar claims were made in no less than five suits brought against the makers of Tito’s Handmade Vodka.  In general, the various class plaintiffs claimed that “handmade” had to mean “made by hand, not by machine, and typically, therefore of superior quality,” a dictionary-based definition. Tito’s, the lawsuits explained, uses “mechanized and/or automated machinery and processes to manufacture and bottle its vodka, rather than human hands.” Several of these matters were similarly dismissed in the early stages of litigation, again based on findings that reasonable consumers were not being misled by the brand name or by marketing that focused on the brand’s modest beginnings.  One of those cases, however, survived a similar motion to dismiss, with that judge finding reasonable consumers could be misled by the statements.  Shortly before trial in that case, the parties apparently resolved their disputes.

What This Means to You

Beverage alcohol manufacturers should exercise care in selecting brand names, as well as coining label slogans and advertisements for their products.  Ambiguous or potentially misleading terms and claims regarding the product’s place of origin, ingredients used, or methods of manufacture can bring about costly litigation in the form of class action lawsuits.  Even though many courts have ruled early in the litigation against the class plaintiffs, brewers, distillers, winemakers, and other alcohol beverage brand owners should consider the arguments made by the class plaintiffs when selecting brand names and developing advertising and labels.

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