Defendants KIND LLC and KIND Management, Inc. (together, "KIND")
Separately, Plaintiffs move to lift the stay of the "natural" claim. They assert that the Federal Drug Administration's ("FDA") rulemaking process to define the term "natural" has stalled since May 2016 when the agency closed its notice and comment period. Plaintiffs are eager to forge ahead on their "natural" claim in tandem with their "non-GMO" claim, and contend that indefinitely staying the "natural" claim will result in undue delay and prejudice.
For the reasons that follow, KIND's motion to dismiss or stay the "non-GMO" claim is granted in part and denied in part, and Plaintiffs' motion to lift the stay on the "natural" claim is denied without prejudice.
BACKGROUND
I. Relevant Procedural History
A. Motion to Dismiss the Original Complaint
On September 15, 2016, this Court granted in part KIND's motion to dismiss the original complaint. See In re KIND LLC "Healthy and All Natural" Litig.,
B. FDA Rulemaking Process
In November 2015, the FDA "announc[ed] the establishment of a docket to receive information and comments on the use of the term 'natural' in the labeling of human food products, including foods that are genetically engineered or contain ingredients produced through the use of genetic engineering." Use of the Term "Natural" in the Labeling of Human Food Products; Request for Information and Comments,
On December 15, 2016, the parties jointly provided a status report concerning the FDA's rulemaking process. (ECF No. 65.) Despite injecting their letter with competing interpretations of what the FDA might do, the parties acknowledged that the agency had not formally issued any guidance since closing its comment period.
C. Executive Order Regarding Regulatory Rulemaking
On February 24, 2017, the parties supplemented their joint status report (see ECF No. 98.), informing this Court of President Trump's January 30, 2017 executive order titled, " Reducing Regulation and Controlling Regulatory Costs" (the "Executive Order"). Exec. Order No. 13771,
The Executive Order essentially imposes new requirements on agency rulemaking. First, it directs agencies to identify "at least two existing regulations to be repealed" for every new regulation they seek to implement. (Executive Order § 2.) This requirement essentially offsets the cost of a new regulation by eliminating two old ones. Second, the Executive Order establishes an annual budgeting process to control the cumulative costs imposed by each agency's regulations. For 2017, it required the total cost of new regulations to be zero, unless an exception applied. (Executive Order § 2(b).) In 2018, the Executive Order directs each agency to have a budget that accounts for the reduction of costs imposed by their own regulations. (Executive Order § 3.)
II. Allegations of the Amended Complaint
In their Amended Complaint, Plaintiffs re-allege the stayed "natural" claim and seek to cure the deficiencies previously identified in this Court's Opinion and Order underlying their "non-GMO" claim. The Amended Complaint devotes a section to addressing KIND's non-GMO marketing, alleging, among other things, that "[t]esting completed on June 1, 2016 detected the presence of GMOs in at least some of [KIND's] Products ..." and that at least one product tested "positive [for] GMO soy from the ingredient soy protein isolate." (Amended Consolidated Class Action Complaint, ECF No. 84 ("Compl."), ¶ 33.)
In total, Plaintiffs assert nine different claims on behalf of a putative nationwide class and/or various state sub-classes: (1) breach of express warranty; (2) unjust enrichment or common law restitution; (3) negligent misrepresentation; (4) violation of New York General Business Law ("NY GBL") § 349 ; (5) violation of NY GBL § 350 ; (6) violation of California's Consumers Legal Remedies Act ("CLRA"; (7) violation of California's False Advertising Law ("FAL"); (8) violation of California's Unfair Competition Act ("UCL"); and (9) violation of Florida's Deceptive and Unfair Trade Practices Act ("FDUPTA").
DISCUSSION
I. Standard
The allegations in the Amended Complaint are presumed true, with all reasonable inferences drawn in Plaintiffs' favor, for purposes of KIND's motion to dismiss. Rescuecom Corp. v. Google Inc.,
II. Non-GMO Claim
Plaintiffs allege that KIND's "non-GMO" representations are false because KIND's products contain ingredients derived from genetically modified crops. According to Plaintiffs, a genetically modified crop is a crop whose genetic material has been altered by humans using genetic engineering techniques. (Compl. ¶ 2.) Moreover,
Plaintiffs assert that based on testing completed in June 2016, they discovered the presence of GMOs in some KIND products. (Compl. ¶ 33.) They also allege that many other products contain ingredients that were produced using genetically modified crops, such as canola, corn, and soy. Some of these ingredients were so heavily processed that the GMO DNA from their original sources was no longer detectable in the finished products. (Compl. ¶ 34.) The Amended Complaint specifically lists soy lecithin, glucose syrup, vegetable glycerine, canola oil, and ascorbic acid among the "heavily-processed ingredients originating from GMO crops" found in KIND's products. (Compl. ¶ 35.)
A. Preemption
KIND argues that the "non-GMO" claim is expressly preempted by the National Bioengineered Food Disclosure Standard, a federal law that took effect on July 29, 2016 (the "National GMO Standard Law"). This statute directs the U.S. Department of Agriculture ("USDA") to establish "a national mandatory bioengineered food disclosure standard with respect to any bioengineered food" by July 2018. 7 U.S.C. § 1639b(a). Among other things, the USDA must "determine the amounts of a bioengineered substance that may be present in food, as appropriate, in order for the food to be a bioengineered food." 7 U.S.C. § 1639b(b)(2)(B).
The National GMO Standard Law precludes states from establishing state-specific food labeling standards that deviate from the GMO labeling standards codified by the USDA. The statute's preemption clause provides that no state may "directly or indirectly establish ... any requirement relating to the labeling of whether a food ... contains an ingredient that was developed or produced using genetic engineering." 7 U.S.C. § 1639i(b). Despite this express preemption provision, the National GMO Standard Law also provides that "[n]othing in this subchapter ... shall be construed to preempt any remedy created by State or Federal statutory common law right." 7 U.S.C. § 1639j.
The preemption doctrine has its roots in the Supremacy Clause of the Constitution, which provides that the "Constitution, and the Laws of the United States which shall be made in Pursuance thereof ... shall be the supreme Law of the Land ... any Thing in the Constitution or Laws of any State to the Contrary notwithstanding." U.S. Const. art. VI, cl. 2. This clause "invalidates state laws that interfere with, or are contrary to" federal law. Hillsborough Cty. v. Automated Med. Labs., Inc.,
Section 1639i of the National GMO Standard Law preempts state law. 7 U.S.C. § 1639i (titled "Federal preemption"). While that much is clear, this Court must "nonetheless identify the domain expressly pre-empted" by the statute's language. Lohr,
KIND contends that the National GMO Standard Law preempts Plaintiffs' claims because they rely on "state law requirements that are related to the labeling of whether a food contains an ingredient that was developed or produced using genetic engineering." (KIND's Memo. of Law in Support of Motion to Dismiss, ECF No. 101 ("Mot."), at 6 (alterations omitted).) KIND also cites to the voluntary dismissal of a similar case in the District of Vermont, arguing the plaintiffs there "recognized that the preemption provisions applied immediately to the [state] GMO labeling requirements, thereby mooting the lawsuit." (Mot. at 5 (citing Grocery Mfrs. Assoc. v. Sorrell, Case No. 14cv117 (D. Vt.), ECF No. 160).)
But the state consumer protection statutes on which Plaintiffs' claims rest do not impose a GMO standard or requirement. Those statutes only provide remedies for representations that are untrue and misleading. Indeed, the only agency-level guidance on GMO labeling corroborates that view: "Food manufacturers may voluntarily label their foods with information about whether the foods were not produced using bioengineering, as long as such information is truthful and not misleading." U.S. Food & Drug Administration: GUIDANCE FOR INDUSTRY: VOLUNTARY LABELING INDICATING WHETHER FOODS HAVE OR HAVE NOT BEEN DERIVED FROM GENETICALLY ENGINEERED PLANTS (July 1, 2016), https://www.fda.gov/RegulatoryInformation/Guidances/ucm059098.htm. "The fact that Plaintiffs' claims are consistent with the current [agency] guidance supports the Court's conclusion that allowing Plaintiffs to pursue their state-law claims would not frustrate Congressional intent in enacting the express preemption provision." Kao,
Although the Sorrell plaintiffs in the District of Vermont voluntarily dismissed their non-GMO claim, they did so for very different reasons. The non-GMO claim in Sorrell arose from Vermont's Act 120, which directly regulates and imposes labeling requirements on foods containing GMO. See
Unlike Vermont's preempted labeling statute, however, Plaintiffs here do not seek to impose new standards or requirements in connection with their consumer protection claims. They simply want to ensure that KIND's labels are truthful. Accordingly, Plaintiffs' claims are not preempted by the National GMO Standard Law.
B. Primary Jurisdiction
KIND seeks, in the alternative, to stay the non-GMO claim under the doctrine of primary jurisdiction. "Recourse to the doctrine of primary jurisdiction is appropriate whenever enforcement of the claim requires the resolution of issues which, under a regulatory scheme, have been placed within the special competence of an administrative body." In re KIND,
Like the "all natural" claim, KIND contends that the non-GMO claim, in view of the National GMO Standard Law, should be stayed pending the USDA's determination of a GMO standard. (Mot. at 7.) As it did in its previous Opinion and Order, this Court considers the application of the primary jurisdiction doctrine under four factors: (1) whether the issue is within the conventional experience of judges or involves technical or policy considerations within the agency's field of expertise; (2) whether the issue is within the agency's discretion; (3) whether there is a substantial danger of inconsistent rulings; and (4) whether a prior application regarding this issue has been made to the agency. Ellis v. Tribune Television Co.,
i. Conventional Experience of Judges
In its previous Opinion & Order, this Court noted the judicial divide on whether courts can properly adjudicate food labeling disputes, but ultimately expressed its "reluctan[ce] to declare that issues of alleged consumer deception are necessarily outside the conventional wisdom of judges (or even juries)." In re KIND,
KIND urges this Court to stay the "non-GMO" claim on the ground that the National GMO Standard Law expressly directs the USDA to formulate a GMO standard by July 2018. But even if the USDA timely develops a standard, that determination will not have a dispositive effect on Plaintiffs' claims. Courts have routinely held that cases involving the mislabeling of food products are "far less about science than [they are] about whether a label is misleading, and the reasonable-consumer inquiry upon which some of the claims in [these] case[s] depend[ ] is one to which courts are eminently well suited, even well versed" to handle. In re Frito-Lay N. Am., Inc. All Natural Litig.,
There is no doubt that a national GMO standard will be relevant to many of the underlying issues in this action. If the USDA successfully formulates that standard by July 2018, the parties may likely rely on it to strengthen their claims or
B. Agency's Discretion
There is no dispute that whether genetically engineered foods may be labeled as "non-GMO" is within the USDA's discretion. See 7 U.S.C. §§ 1639b(b)(2)(A)-(C) ; 1639c(c); 1639b(f); & 6524. Accordingly, this factor weighs in favor of a stay.
C. Substantial Danger of Inconsistent Rulings
KIND contends that allowing the "non-GMO" claim to proceed just months before the USDA is expected to formulate a national standard will result in inconsistent rulings among various courts. (Mot. at 8 ("Courts addressing GMO labeling claims under a patchwork of state consumer protection laws inevitably will reach different conclusions.").) While KIND is "correct that different judges may rule differently, the Court understands this factor to be concerned with inconsistent rulings between courts and agencies, not between different courts." Hasemann,
Nevertheless, as this Court has previously noted, agency "guidance could explain whether ingredients" derived from genetically modified crops could be considered "non-GMO." In re KIND,
D. Prior Application to Agency
The parties have not formally made applications to the USDA on this issue, but the agency's work is underway pursuant to the National GMO Standard Law. Thus, this factor supports a stay until the USDA has concluded its work.
E. Potential Delay
In addition to the four Ellis factors, this Court may "balance the advantages of applying the doctrine against the potential costs resulting from complications and delay in the administrative proceedings." Ellis,
Accordingly, the "non-GMO" claim is stayed until August 15, 2018 to allow the parties to review any agency action taken by July 29, 2018 and provide a status update informing this Court of relevant developments. If the USDA has not taken any action by that date, or publicly provided any updates regarding its progress, Plaintiffs are free to file a motion to lift the stay.
III. Sufficiency of Claims
Aside from its preemption and primary jurisdiction arguments, KIND contends that the Amended Complaint is insufficiently pled. In its prior Opinion & Order, this Court held that "allegations that consumers were deceived by misleading 'non-GMO' labels are potentially cognizable," but dismissed the non-GMO claim without prejudice because Plaintiffs failed to specify which of them had "read and relied on the 'non-GMO' labeling statement prior to purchasing the products," or which of the products contained GMOs. In re KIND,
The state consumer protection claims at issue here require Plaintiffs to plausibly allege that they were deceived by KIND's advertising and that they suffered actual injury to money or property. Exxonmobil Inter-America, Inc. v. Advanced Info. Eng'g Servs., Inc.,
As an initial matter, KIND argues that Plaintiffs' allegations rest on an improper syllogism-that is, Plaintiffs rely on a general statistic that "approximately 90% of canola, 89% of corn, and 94% of soybeans grown in the United States are genetically modified" to improperly infer that the soy, corn, and canola-based ingredients found in KIND products are derived from such crops. (Mot. at 11.) But that is not all Plaintiffs do. They allege that "[i]ndependent testing [ ] confirmed the presence of GMOs in at least some of the [KIND] Products." (Compl. ¶ 48.) Moreover, although Plaintiffs cannot specifically tie each ingredient found in every KIND product to a domestic GMO crop, they are not required to do so at this stage. Rather, their allegations, taken together, sufficiently establish a basis for their claims.
Indeed, Plaintiffs take a general, but overwhelming, statistic about genetically modified crops in the United States and plausibly connect it to the relevant ingredients found in KIND's products. Put another way, they identify the KIND products carrying particular GMO ingredients that are likely to have been derived from the vast majority of GMO crops in the United States. This is not an implausible inference to make on a motion to dismiss. Ault,
Additionally, KIND asserts that the Amended Complaint fails to specify the type or level of GMOs that a product must contain to make the label "non-GMO" misleading. But this issue is more appropriately addressed in discovery and on summary judgment. "It is not unreasonable as a matter of law to expect that a product labeled ['non-GMO'] contains only natural ingredients ... [t]his is true even though foods labeled 'non-GMO' may lawfully contain some [genetically modified] ingredients." Segedie v. Hain Celestial Grp., Inc.,
The more critical question on this motion to dismiss is whether the allegations sufficiently posit a theory of liability under which a reasonable consumer would have been deceived by KIND products bearing the "non-GMO" label. The Amended Complaint sets forth the genetically modified makeup of KIND's products, alleges that this composite belies the "non-GMO" label, and concludes that if KIND's products contain genetically modified ingredients then a "non-GMO" tag may be false or misleading to a reasonable consumer. (See e.g., Compl. ¶¶ 7, 17, 56, 93.) Of course, the "truth of this theory remains to be litigated, but it cannot be dismissed on the pleadings." Parker,
Accordingly, although the "non-GMO" claim is stayed pending the completion of the USDA's work on establishing a national GMO standard, KIND's motion to dismiss for failure to state a claim is denied.
IV. Natural Claims
Plaintiffs' "natural" claim has been stayed since September 2016. Despite deferring to the FDA's work on formulating a "natural" definition, this Court held that it would "reconsider the appropriateness of continuing the stay as the FDA's process unfolds." In re KIND,
Almost a year and a half has elapsed since the stay. In the interim, the FDA has exhibited little discernible activity. When this Court stayed the "natural" claim, it did so on the basis that "the issue of whether the particular ingredients referenced in the Complaint rendered the 'all natural' label misleading seems to be particularly within the FDA's discretion." In re KIND,
But that was then, and this is now. Since the stay was entered, very little has happened, at least on the agency front. Undeterred, plaintiffs across the country have continued to file consumer-related claims concerning the misleading and deceptive use of the "natural" label. See, e.g., Stanton v. Sarenton Foods, Inc., No. 17cv2881 (N.D. Cal. 2017); Rhinesmith v. Tradewinds Beverage Co., No. 17cv0408 (C.D. Cal. 2017); Madrigal v. HINT, Inc., No. BC646991 (Cal. Super. Ct. 2017); Yamini v. Eden Creamery, LLC, No. BC684736 (Cal. Super. Ct. 2017); Organic Consumers Assoc. v. R.C. Bigelow, Inc., No. 17CA8375 (D.C. Super. Ct. 2017). Other plaintiffs, whose cases were stayed under circumstances similar to Plaintiffs, have moved to lift the stays in their cases.
The parties contend there are two intervening developments that should inform this Court's decision to lift or continue the stay. First, President Trump's Executive Order directs all agencies to evaluate their existing regulations and make recommendations regarding their appeal, replacement, or modification. While the Executive Order extends to all agencies-not just the FDA or USDA-Plaintiffs fear that the FDA's work on "natural" food labeling will slow to a crawl, delaying any conclusive decision on the term for years. Second, despite the FDA's relative silence on its progress, Congress has signaled its expectation for the FDA to make headway in promulgating a uniform standard on "natural." In a July 2017 report accompanying the 2018 Agriculture, Rural Development, Food and Drug Administration, and Related Agencies Appropriations Bill ("2018 FDA Bill"), the House Committee on Appropriations remarked:
The Committee commends the FDA for taking the first step towards defining the term "natural" and regulating its use on food labeling by requesting public comment on a number of relevant questions in a November 2015 Federal Register notice. The Committee directsFDA to provide a report within 60 days of enactment of this Act on the actions and timeframe for defining "natural" so that there is a uniform national standard for the labeling claims and consumers and food producers have certainty about the meaning of the term.
H.R. Rep. No. 115-232, at 72 (2017) (emphasis added). KIND therefore contends that a stay of this action should remain in place because the FDA's promulgation of a "natural" definition appears imminent.
Courts have issued mixed rulings on whether to impose or lift a stay in "natural" labeling litigation, in view of the glacial pace of agency action. Some have cited the "congressional interest reflected in th[e] [House Report]" that "makes it likely that the FDA will address, in a relatively short amount of time, the use of the term 'natural' on food labels." Rosillo v. Annie's Homegrown Inc.,
The House Report does not fully address the question of when the FDA must establish a "natural" standard. Because enactment of the 2018 FDA Bill triggers the 60-day period in which the FDA must provide an action plan and time frame on defining "natural," the House Report's mandate depends on Congress's ability to pass the appropriations bill. Although the House Report was issued in July 2017, Congress has not enacted the bill into law. Without that critical step, the FDA-related mandate in the House Report becomes toothless. At present, the 2018 FDA Bill has been approved at the subcommittee and committee level in both the House of Representatives and Senate. See United States Congress, Appropriations for Fiscal Year 2018, Regular Appropriations, https://www.congress.gov/resources/display/content/Appropriations+for+Fiscal+Year+2018 (last visited Feb. 22, 2018). However, the bill remains under review for initial and final passage by both chambers, and must subsequently be approved by the President.
Even if the 2018 FDA Bill is enacted, the House Report's directive for the FDA to act with deliberate speed is somewhat constrained by a number of other factors. First, the FDA is only required to report "the actions and timeframe for defining 'natural' " within 60 days. Therefore, the FDA may, after 60 days, simply provide a time frame setting forth a period of many more months, or years, to fully define "natural." If that happens, this case will
Further, although the broad sentiment behind the Executive Order is rooted in cutting regulatory costs, this Court cannot discern a specific impact to the FDA's rulemaking work on defining "natural." Rather, as of October 2017-more than nine months after the Executive Order was issued-it was unclear whether the FDA had suspended its work on formulating food-labeling rules or whether the agency would plow ahead on implementing rules that were under consideration long before the Executive Order.
The pace of the FDA's process is still unclear. There is no indication whether the FDA is earnestly working toward a uniform "natural" standard, or whether it has shelved that effort. See Heather Haddon, FDA Commissioner Wants Closer Look at Health Claims on Packaging, Wall St. J., Oct. 10, 2017, https://www.wsj.com/articles/fda-commissioner-wants-closer-look-at-health-claims-on-packaging-1507673335 (reporting that while FDA Commissioner said the agency is "looking at how to define 'healthy' and 'natural' more uniformly," he has postponed other food labeling rules); Julie Creswell, Is it "Natural"? Consumers, and Lawyers, Want to Know, N.Y. Times, Feb. 16, 2018, https://www.nytimes.com/2018/02/16/business/natural-food-products.html (quoting the FDA Commissioner, " 'Consumers have called upon the FDA to help define the term 'natural' and we take the responsibility to provide this clarity seriously. We will have more to say on the issue soon.' "). Neither the House Report nor the Executive Order provide much clarity, instead inviting each party to take what little there is to hypothesize about what the FDA may be doing. See In re Gen. Mills, Inc. Kix Cereal Litig., No. 12-249, slip op. at 1 (D.N.J. Apr. 21, 2017) (The Executive Order is "very far from an indication that the FDA intends to abandon its regulatory efforts as to the kind of 'natural' labeling claims involved in this action, or that the need for regulatory expertise has abated.").
In view of these observations, this Court believes it prudent to continue staying the "natural" claim, but will limit its duration through the date on which the USDA is expected to define and promulgate the "non-GMO" standard. As the parties both acknowledge, the "non-GMO" and "natural" claims should not be litigated in piecemeal fashion since it would make little sense as a matter of judicial economy for one set of claims to advance to resolution while the other lags behind. (Mot. at 14; Plaintiffs' Memo. of Law in Opp. to Mot. to Dismiss, ECF No. 105, at 23; KIND's Reply in Supp. of Mot. to Dismiss, ECF No. 106, at 9.) Though the pace of regulatory work is always subject to change, Congress has fixed, by statute, a concrete deadline by which the USDA must complete its work on the "non-GMO" claim. 7 U.S.C. § 1639b(a). There is no telling when the FDA will complete its work on the term "natural," much less provide any public guidance on its progress. However, in the interest of litigating the "natural" and "non-GMO" claims concurrently, this Court believes the August 15, 2018 deadline is a sensible benchmark from which it can re-assess whether a stay over both claims is proper. Therefore, like the "non-GMO" claim, the "all natural" claim shall be stayed until August 15, 2018.
While Ellis observed that "considerations of judicial economy should not be considered because the Supreme Court has consistently held that there are only two purposes to consider in determining whether to apply the primary jurisdiction doctrine-uniformity and expertise," it also held that the primary jurisdiction doctrine "relies on the timely and good-faith efforts of regulatory agencies in addressing
CONCLUSION
For the foregoing reasons, KIND's motion to dismiss the "non-GMO" claim is denied. Prosecution of the "non-GMO" claim is stayed until August 15, 2018. Additionally, Plaintiffs' motion to lift the stay of their "all natural" claim is denied without prejudice to renew after August 15, 2018. The Clerk of Court is directed to terminate the motions pending at ECF Nos. 100 and 108.
SO ORDERED.