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From Health Law Daily, July 30, 2014

Full panel addresses meaty matter, but dissents find majority decision unCOOL

By Harold M. Bishop, JD

In a case that has wide implications regarding mandatory product labels, a full panel of the U.S. Court of Appeals for D.C. Circuit has reinstated the decision of a three-judge panel which had previously denied a request by the American Meat Institute (AMI) to halt enforcement of a 2013 Agricultural Marketing Service (AMS) rule requiring retailers to provide country-of-origin labeling (COOL) on meats sold in their establishments. The majority opinion of the full panel held that the interest served by the disclosure mandate was adequate and that prior Supreme Court precedent allowed the AMS to require labeling disclosures that go beyond preventing consumer deception. This D.C. Circuit precedent will apply to all future cases of federal agencies regulating mandatory product labels (American Meat Institute v U.S. Department of Agriculture, July 29, 2014, Williams, S).

The AMI, a trade association representing livestock producers, feedlot operators, and meat packers, sought a preliminary injunction, challenging the new regulations as overly burdensome and a violation of their First Amendment right to free speech by compelling them to put the country-of-origin information on the package. The district court had found that the 2013 rule was reasonable and that AMI failed to show a likelihood of success on the merits (see Meat industry trade associations lose constitutional argument regarding country-of-origin label requirement). The three-judge panel of the D.C. Circuit affirmed the district court, but the full panel voted to rehear the matter (see Full D.C. Circuit will hear arguments on mandatory country-of origin labeling of meat products).

Background. On May 24, 2013, the AMS, a branch of the U.S. Department of Agriculture (USDA), adopted a rule (78 FR 31367) modifying its prior rule implementing Congress’s requirements of country-of-origin labeling (COOL) (7 U.S.C. sec. 1638a). The COOL statute, adopted in 2008, assigns retailers an obligation to inform consumers of the country of origin of meats sold in their establishment. This obligation can be quite complicated where an animal was born, raised, and slaughtered in more than one country. The 2013 rule requires retailers of “muscle cuts” of meat, i.e., covered meat other than ground meat, to list the countries of origin and production steps—born, raised or slaughtered—occurring in each country. The AMS’ original 2009 rule (74 FR 2658) had merely required a list of the countries of origin preceded by the phrase “Product of.” The 2013 rule also eliminated the 2009 rule’s allowance for commingling—a practice by which cuts from animals of different origins, but processed on the same day, could all bear identical labels.

Three-judge panel ruling. AMI argued on appeal that the COOL statute did not authorize the 2013 rule because: (1) the rule bans commingling, and therefore alters production practices over which the COOL statute gives the Secretary no authority; and (2) production-step labeling is both outside of and contrary to the plain language of the COOL statute. The D.C. Circuit found that AMI’s argument that the rule unlawfully “bans” commingling failed at a key first step—the 2013 rule does not actually ban any element of the production process. It simply requires that meat cuts be accurately labeled with the three phases of production named in the statute—born, raised or slaughtered. The judges further found that the 2013 rule assures flexibility, precluding attribution entirely to the United States in cases where another country has also played a role in the three-step process. As such, the court concluded that AMS’ interpretation of the COOL statute was reasonable and entitled to be upheld.

AMI also argued that compulsion to make the disclosures required by the 2013 rule violates its First Amendment rights. AMI asserted that the court should apply the general test for commercial speech formulated in Central Hudson Gas & Electric Corp. v. Public Service Commission, 447 U.S. 557, 566 (1980), rather than that of Zauderer v. Office of Disciplinary Counsel, 471 U.S. 626, 651 (1985), a standard that applies only to requirements that a commercial actor disclose factual and non-controversial information.

The D.C. Circuit found that the 2013 rule involves commercial speech, it restricts speech only in the sense of requiring a disclosure, and the disclosure is purely factual and non-controversial. In Zauderer, the Supreme Court reasoned that commercial speech warrants protection mainly due to its information-producing function, finding that a commercial actor has only a “minimal” First Amendment interest in not providing purely factual information with which the actor does not disagree. Such mandates, according to the Supreme Court, do not violate First Amendment rights, “as long as disclosure requirements are reasonably related to the State’s interest in preventing deception of consumers.” Adopting Zauderer, the D.C. Circuit affirmed the district court’s ruling that AMI failed to show a likelihood of success on the merits of its First Amendment claims.

Full panel ruling. The full panel of the D.C. Circuit reinstated the decision of the three-judge panel. The majority opinion of the full panel held that the interest served by the disclosure mandate is adequate and that the Zauderer decision actually reaches beyond the mere problem of consumer deception and extends to the specific disclosure mandates contained in the 2013 rule.

According to the majority, the Zauderer decision requires the disclosures to be of “purely factual and uncontroversial information” about the good or service being offered. Since AMI did not contest that country-of-origin labeling qualifies as factual, and the facts conveyed are directly informative of intrinsic characteristics of the product AMI is selling, the factual burden was met.

In addition, as to whether the required disclosures are “controversial,” the majority noted that AMI objected to the word “slaughter” in its reply brief. The court agreed that the word “slaughter,” used on a product of any origin, might convey a certain negative innuendo. But the court nevertheless found that it did not need not address such a concern because the 2013 rule allows retailers to use the term “harvested” instead, and AMI posed no objection to that.

Dissents. According to one dissenting judge, joined by several others, “ by expanding Zauderer beyond deception [of the consumer] the court has now created a standard that is actually even more relaxed than rational basis review; essentially, the new standard for compelled commercial disclosures—or perhaps even all commercial speech restrictions—thus becomes rational basis review minus any legitimate [government] justification.”

The case number is 13-5281.

Attorneys: Jonathan L. Abram (Hogan Lovells US LLP) for American Meat Institute, American Association of Meat Processors, Canadian Cattlemen's Association, National Cattlemen's Beef Association, North American Meat Association. Mark B. Stern, U.S. Department of Justice, for U.S. Department of Agriculture, Agricultural Marketing Service.

Companies: American Meat Institute; American Association of Meat Processors; Canadian Cattlemen's Association; National Cattlemen's Beef Association; North American Meat Association; U.S. Department of Agriculture; Agricultural Marketing Service

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