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Legal/Regulatory Update

PATRICK J. McNAMARA
NAFFS General Counsel
Partner, Scarinci & Hollenbeck

The article contains excerpts from a presentation on legal and regulatory issues given in October 2020 as part of the annual NAFFS Convention by NAFFS General Counsel Patrick McNamara.

FDA Investigating Outbreaks
FDA is investigating a series of outbreaks over the last year about various bacterial outbreaks in the food chain. For example, in June there was an investigation of Fresh Express bagged iceberg lettuce, red cabbage and carrots that were sold in several regions of the United States to an outbreak of cyclosporin. In July, there was an outbreak of salmonella investigated and red onions from Thomson International. In response, on Aug. 1, Thompson recalled all varieties of onions that could have come in contact with potentially contaminated red onions due to the risk of cross contamination.

FDA Issues Proposed Rule on Traceability
FDA recently announced a proposed rule to establish additional traceability record keeping requirements for certain foods. FDA has also published a draft food traceability list, which describes the foods that would be subject to these proposed requirements. The list includes, among other products, leafy greens, fresh cut fruits and vegetables, various types of fish, shell eggs and nut butters. The proposed rules captioned requirements for additional traceability records for certain foods and it's considered a key component of the FDA New Era of Smarter Food Safety blueprint and would implement section 204D of the FDA Food Safety Modernization Act. If finalized, the proposal will establish and standardize the data elements and information firms must establish and maintain and the information they would need to send to the next entity in the supply chain to facilitate rapid and accurate traceability.

USDA Updating Procedures for Inspecting Eggs, Egg Substitutes
On Sept. 9, USDA announced it was modernizing its inspection methods for egg production, for the first time since the Egg Products Inspection Act was adopted nearly 50 years ago. The intent of the rulemaking is to align the egg product inspection regulations to be consistent with requirements in the meat and poultry product inspection process. Under the new rule, testing will continue for salmonella and listeria contamination in egg products. Under this system, plants should be able to tailor a food safety system that best fits their particular facility and manufacturing equipment. The agency announced that the Food Safety and Inspection Service will assume regulatory authority over egg substitutes and freeze-dried egg products, which could pose the same risk as egg products for contamination. They will be inspected in the same manner. The new regulations also govern the importation and inspection of foreign egg products more closely, with the regulations matching up again to foreign meat and poultry products inspected by the agency.

Dietary Supplements
In remarks recently given during the 2020 Dietary Supplements Regulatory Summit, Steven Tate, director of the FDA Office of Dietary Supplements, discussed the problem of what he defined as a regulatory gap between existing regulations and realistic expectations of enforcement. In his remarks, he stated “we can't responsibly ignore the regulatory gap or pretend it's not there. That's not in anyone's interest - consumers, responsible industry members or regulator. All concerned should be demanding a better regulatory dietary supplement market and realize it’s a shared duty to identify and pursue ways to narrow the regulatory gap.” 

Plant-Based Foods
Oklahoma recently adopted what is popularly known as the Oklahoma Meat Consumer Protection Act, scheduled to take effect on Nov. 1. The act, signed into law in May, is designed to restrict various types of labeling on plant-based meat alternatives. Principle sponsor of the law, State Sen. Michael Bertram, said the legislation ensures that clarity and accuracy of labeling meat and plant-based food items gives consumers peace of mind that they are purchasing exactly what they intended. A lawsuit was filed by Upton’s Naturals and the Plant-Based Foods Association challenging the enactment of this law. The law requires the labeling of these products include a disclaimer stating the products are derived from plant-based sources and that the labeling must be in a size of type that is uniform in size and prominence in the name of the product.

Daniel Stockman, founder of Upton’s Naturals claimed that “our labels make it perfectly clear that our food is 100% vegan.” The Institute of Justice, weighing in on the side of the Plant-Based Foods Association, noted that the state of Oklahoma already has laws prohibiting misleading labels on food products. 

HHS Procedure Requires Secretary’s Signature on All Regulations
On Sept. 20, the Health and Human Services Agency issued a memo on agency procedures, which now mandates regulations issued by any agency under the HHS umbrella, including FDA, must carry the personal signature of the Secretary of HHS. Reaction to this has been mixed, some saying it’s only implementing what’s already is law and others saying it’s an over-reach, and is unduly interfering with the functions of issuing regulations. 

Candy Producers Providing Environmental Data
As was recently reported in Confectionary News, a number of manufacturers, including Mars, Wrigley and Barry Callebaut, have released and made available their interactive maps, putting out data on where they source their cocoa. It was reported this ongoing effort in response to government inquiries about the need to preserve certain forest areas from additional farming while trying to balance the need to maintain a sustainable supply of cocoa. 

Smithfield Challenging OSHA Allegations
Smithfield Foods is challenging the issuance of a citation from OSHA, where the potential penalty is just over $13,000, for alleged violations of safety guidelines at Sioux Falls, S.D. It’s also contesting that OSHA failed to issue an official guideline for the meat-packing industry, leaving companies to determine for themselves how to address COVID-19 issues. Smithfield asserts: “we took extraordinary measures on our own initiative to keep our employees as healthy and safe as possible so that we could fulfill our obligation to the American people and maintain the food supply.” The company claims it has invested more than $350 million during 2020 with regard to implementing various safety measures at its facilities. The North American Meat Institute sided with Smithfield, stating in a press release that when the pandemic hit, “meat and poultry processing companies quickly and diligently took steps to protect their workers.” In sharp contrast, the United Food and Commercial Workers Union, which represents more than 1.3 million workers, in meat-packing plants and other related businesses across the country, attacked the proposed fine as being “completely insufficient in the wake of the company's failure to protect meat-packing workers in the Sioux Falls, S.D., which reported nearly 1,300 COVID-19 infections.”  

Various trade groups have agreed with Smithfield, while health advocacy groups, such as the Center for Science in the Public Interest, said there should be not any type of liability shields from companies who have not taken what they consider proper steps related to COVID-19.  One of the running disputes in the pending legislation for the latest relief package in the House and the Senate has been whether or not there should be liability shields enacted to protect companies that still had workers on the job site who may have been exposed to or actually contracted the COVID virus. The law firm of Littler Mendelson has been keeping track of how much litigation has been brought against certain industries. So far, they have tracked more than 600 lawsuits, including 72 class actions filed against various companies due to alleged labor and employment violations related to the Coronavirus. With the absence of additional federal standards or CDC guidelines, it's going to be up to each state to make its own determination, perhaps even down to the county or municipal level.

FDA Issues Interim Regulation on Hemp
On Aug. 21, FDA issued interim file rules regulating the use of hemp. Issuance of these regulations was mandated under the Agricultural Improvement Act of 2018 – more commonly known as a 2018 Farm Bill – which legalized hemp under federal law. The proposed regulations will have a significant impact on the hemp industry and are likely to be subject to extensive public comment. The DEA is amending its regulations on marijuana under the Controlled Dangerous Substances Act, where hemp is also being removed. The DEA interim final rule does not address the definition of hemp and does not automatically approve any product derived from health plants, regardless of the amount of THC or CBD content of the derivative. In order to meet this definition of hemp and thus qualify to be exempt from schedule one of the regulation and being regulated as a controlled dangerous substance, the derivative must not exceed the 0.3% threshold. 

Lawsuits on Hemp in Pet Products
Several lawsuits have been filed in federal court in Broward County, Fla. alleging PetSmart used false and deceptive advertising for selling hemp products for pets that had not been approved by FDA. Suits were filed by two customers, but the plaintiff's counsel is seeking class-action status. The lawsuits allege customers purchased products from PetSmart that were marketed as intended to treat, mitigate or prevent disease by calming stress and anxiety for dogs. Both lawsuits claim that because FDA has not approved these products, they are considered unsafe and cannot be lawfully sold. The lawsuits are seeking compensatory and punitive damages to be determined the trial and the issuance of an order prohibiting PetSmart from continuing to sell these products. 

Lawsuits Targeting Vanilla Continue 
A proposed class-action suit filed in federal court in California, challenging the labeling of Bear Naked Granola Vanilla products, was thrown out by Judge Roger Benitez. The court said the plaintiffs failed to provide adequate proof to support the allegations. “Plaintiff alleged the product does not contain ‘vanilla flavoring derived exclusively from vanilla beans’ but provides no factual basis for this argument other than the lack of vanilla’s inclusion on the ingredients list,” Benitez opined.

Similar Suit Continues Regarding Wegmans Vanilla Ice Cream
At last year's convention, I mentioned the lawsuit filed in the US District Court in New York in October 2019 against Wegmans, seeking class-action status of food fraud of vanilla ice cream. In a ruling issued in July, the federal judge dismissed the case against Wegmans, saying the alleged deceptive practices did not exist. Judge Lewis Stan dismissed the claims, after determining the analysis provided by the plaintiff may not have been sensitive enough to detect the markers of vanilla and, as such, could not prove the vanilla was not in the product. The judge also questioned whether the labeling was actually deceptive, since neither the label nor ingredients statement says the ice cream uses vanilla bean or vanilla bean extract. The plaintiffs claimed the grocery chain violated New York consumer protection laws by deceiving them into thinking the ice cream was flavored with vanilla beans or extract, even though most of the vanilla flavor came from other types of sources. There’s been a recent spike in these types of lawsuits being filed in New York, to the point where the number of lawsuits related to the flavoring industry is almost matching the number of lawsuits filed annually in California. 

More Lawsuit Filings Targeting Food
On Aug. 9, a class-action lawsuit was filed against Hostess Brands, alleging the company deceptively marketed its products as Carrot Cake Donettes, when the product contained no real carrots. The lawsuit was filed in the U.S. District Court for the Southern District of New York by the law firm of Spencer Sheen, which has a history of supporting this type of litigation. The complaint alleges the representations by Hostess “are misleading because the product contains less carrots than consumers expect and contains no real carrots.” The complaint also alleges the marketing used by Hostess is in violation of the New York General Business Law and other statutes. In addition to seeking class-action certification, they demand an order by way of injunctive relief directing the defendant to correct all these allegedly abusive advertising practices and awarding not only compensatory and punitive damages but legal fees as well.

In another class action lawsuit, Ocean Spray agreed to pay $5.4 million to resolve claims in a class-action case that some of its juices were falsely advertised as containing, “no artificial flavors”. The settlement group benefits people who may have purchased certain Ocean Spray products between Jan. 1, 2011 and Jan. 31 of 2020. 

Tobacco Industry Fighting Ordinances About Flavored Products
Industry groups filed a series of lawsuits seeking to overturn ordinances adopted in the cities such as Los Angeles, Edmond, Minn. and Philadelphia, which tried to prohibit the sale of menthol cigarettes, flavored smokeless tobacco, flavored cigars, pipe tobacco and flavored e cigarette products. lawsuits were venued in federal court in each of these states. Lawsuits centered in California claim the federal Family Smoking Prevention Tobacco Control Act prohibited state and local government from adopting these types of ordinances. Claims asserted in the lawsuit filed in Minnesota made the same basic assertions as in those filed in California. Subsequently, a federal district judge in the Central District of California dismissed the lawsuit against the ordinance. In a ruling issued Aug. 7, Judge Dale Fisher ruled the ban did not interfere or violate the federal act and that the ban enabled in the ordinance was consistent with federal law regarding the regulation of tobacco products. It will be interesting now to see how much precedential value this case will be given in the other lawsuits pending in Minnesota and Pennsylvania and whether more ordinances of this nature are going to be drafted and approved by various municipalities. The lawsuit filed with Philadelphia, in addition to making the same claim regarding federal law, also argued that state law prohibited such ordinances by local governments to regulate the sale of tobacco products. 

Youth Tobacco Usage Declining
On Sept. 9, FDA, in partnership with the CDC, released new data from a national youth tobacco survey. It showed approximately 1.8 million fewer U.S. youth are using e-cigarettes compared to the 2019. This was taken as good news following two years of significant increases in such uses among youth. The report was tempered with the acknowledgement that more than 3.5 million youth are currently using e-cigarettes, which the agency described as “a public health crisis affecting children, families, schools and communities.”

FDA Action
On Sept. 15, FDA announced that Fortune Food Products of Illinois, the processor of sprouts and soy products, agreed to cease production until it undertook general remediation action to comply with the Food, Drug and Cosmetic Act. The actions are the first consent decree against a grower for violating public safety standards under the produce safety rules enacted under the Food Safety Modernization Act of 2011. This action was taken after several inspections conducted by FDA, who found the company failed to comply with Produce Safety and good manufacturing practice regulations. This action follows a prior warning notice sent in July 2018 by FDA outlining a series of food safety violations. The consent decree prohibits the company from growing, harvesting, packing and holding sprouts and soy products at or from their facility or any other facility they operate until certain requirements are met in terms of various corrective actions. The FDA must be notified before any operations resume at the facility. 

GNC Files for Bankruptcy
In June, GNC filed for bankruptcy protection under Chapter 11, the federal bankruptcy laws. Since the filing, Harbin Pharmaceutical Group was serving as the proverbial stalking horse, looking to bid for acquisition of the company since they'd already invested over $3 million into GNC prior to the bankruptcy filing. On Aug. 7, GNC said the proposed bid from Harbin had been accepted by the debtors committee; it was approved by the bankruptcy court on Aug. 19. The notice of auction cancellation was then filed with the bankruptcy court on Sept.14. 

Patrick J. McNamara, Esq. has served since 1994 as general counsel to NAFFS. Copies of the various reports and documents referenced in his speech can be obtained from NAFFS or directly from him. Please contact him at pmcnamara@scarincihollenbeck.com or call his office at 201-896-4100.

This presentation provides general information only and does not constitute legal advice. No attorney-client relationship has been created. If legal advice or other expert assistance is required, the services of a competent professional should be sought. We recommend that you consult with an attorney familiar with your specific situation before taking any action.

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