Nolan v. Ocean Spray Verdict: The PACA Angle
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Jim Prevor, the author of the Perishable Pundit blog and a man who has probably forgotten more about the produce industry and its practices than many will learn in a lifetime, has been blogging constantly about the lawsuit brought by Theresa Nolan, her company The Nolan Network and her late husband Jim against Ocean Spray Cranberries, Inc. On May 30, he reported that a jury in Plymouth, Massachusetts, home of Ocean Spray, had brought in a $1 million verdict against Ocean Spray and in favor of the Nolans.
The lawsuit involved marketing practices with fresh cranberries, a minor part of Ocean Spray's business compared to, say, cranberry juice cocktail. The background to the case is discussed at length in an article by Bill Martin in Jim Prevor's other publication, Produce Business. As far as I can tell from the news reports, the actual allegation in the lawsuit was a violation of Chapter 93A of the Massachusetts General Laws, This broadly prohibits unfair or deceptive acts or practices in trade or commerce. I'm not a Massachusetts lawyer, but I did a stint as a law clerk for the Massachusetts Appeals Court and my recollection is that Chapter 93A was considerably stronger in application and interpretation than many other states' mini-FTC Acts, particularly since a private right of action is included essentially without limit.
The core of the allegations related to alleged differential pricing afforded by Ocean Spray to Costco and H.E. Butt in 2000 and 2002, respectively. How this eventually led to the Nolans' claim is too complicated to discuss here. I am more interested, however, in a suggestion Jim Prevor makes in some of his columns on the case, that the alleged differential pricing and the way it was dealt with might have violated PACA, the Perishable Agricultural Commodities Act,.
A key allegation is that C&S Wholesale Grocers, which supplied fresh cranberries to BJ's Wholesale Club, a competitor of Costco, was told by Ocean Spray, upon complaining about the price advantage allegedly given Costco, "to claim some cranberries it would receive from Ocean Spray were of poor quality and to take a discount from the Ocean Spray invoice."
If true, there are ways that such treatment could violate PACA or violate the duties that Ocean Spray owed to its growers.
PACA is best-known for creating a statutory trust in favor of unpaid growers of perishable agricultural commodities. It also, however, requires people who deal in those commodities to account accurately for all transactions in those commodities. Thus, the allegation that a buyer was told, in essence, to make a claim that certain cranberries were of lesser quality than they actually were raises the issue of whether some of Ocean Spray's growers were provided reports on their cranberries that inaccurately represented their quality (if not, one wonders how the auditors would have missed it, since they would have presumably had to match the returns from the pools that included the sales to C&S against the payments from C&S). It's a reasonable question, though nothing that has occurred to date appears to have answered it.
It is conceivable, of course, that the matter was settled internally without publicity, or that the growers involved considered the issue too small to litigate. Anyone handling fruit or vegetables within PACA's ambit, though, must be aware that any form of inaccurate reporting can violate the statute.
Court Rules That Retailers Have No Duty to Investigate Suppliers Compliance with Organic Regulations
An important ruling was issued last week dismissing claims that milk produced by an organically certified dairy and labeled as organic was not really organic. Plaintiffs in the action asserted violations of various states’ laws because they claimed that they paid more for the milk because it was labeled as "organic.”
A federal judge in the Eastern District of Missouri granted a Rule 12(b)(6) motion to dismiss on a multitude of cases pending against the dairy, various retailers selling the dairy products and others (originally these suits were filed in various federal courts around the country but were consolidated for pretrial purposes by the United States Judicial Panel on Multi-District Litigation or MDL).
The judge ruled that claims against the dairy were preempted because a “conflict exists between federal and state law” (otherwise known as “conflict preemption”). As explained in the opinion, conflict preemption exists where “a party’s compliance with both federal and state law would be impossible or where state law would pose an obstacle to the accomplishment of congressional objectives.” Here, the court found that for “plaintiff’s claims to succeed, the Court would have to invalidate the regulatory scheme established under the OFPA [Organic Foods Production Act] and NOP [National Organic Program].” The court concluded that if plaintiffs were to prevail “producers would be liable even where fully certified and authorized to use these terms and seals.”
For the retailer defendants, the judge ruled that because plaintiffs’ claims against the dairy are preempted, “the retailer Defendants cannot be liable.” But the court went further and dealt explicitly with the plaintiffs’ claims that the retailers “should have investigated” the dairy’s activities to ensure compliance with the OFPA and NOP. The court rejected these arguments:
The Retailer Defendants did not have any duty to inspect [the dairy’s] facilities, or the facilities of any of their other organic producers. Imposing such a requirement “would place an undue burden on the distributor who is least likely to have access to such information.”
This should be good news for organic retailers. Hopefully, this decision will reduce their legal exposure to consumer labeling claims going forward.
