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California Organic Fertilizers, Inc. v. True Organic Products, Inc.

United States District Court, E.D. California

October 22, 2019

CALIFORNIA ORGANIC FERTILIZERS, INC., Plaintiff
v.
TRUE ORGANIC PRODUCTS, INC., Defendant

          ORDER ON RULE 12(c) AND RULE 56(a) CROSS MOTIONS FOR JUDGMENT (DOC. NOS. 11, 15)

         This is a business and false advertising dispute between Plaintiff California Organic Fertilizers, Inc. (“COFI”) and True Organic Products, Inc. (“TOPI”) involving claims of violations of the Lanham Act and the California Business and Professions Code. Currently before the Court are each parties' Rule 12(c) and Rule 56(a) cross motions for judgment regarding COFI's claims based TOPI's products that contain uncomposted chicken manure.[1] For the reasons that follow, TOPI's motion will be granted and COFI's motion will be denied.

         LEGAL FRAMEWORK

         Rule 12(c) - Judgment on the Pleadings

         Under Federal Rule of Civil Procedure 12(c), “[a]fter the pleadings are closed but within such time as not to delay the trial, any party may move for judgment on the pleadings.” Fed. R. Civ. Pro. 12(c). Because the motions are functionally identical, the same standard of review applicable to a Rule 12(b)(6) motion applies to a Rule 12(c) motion. Dworkin v. Hustler Magazine, Inc., 867 F.2d 1188, 1192 (9th Cir. 1989). The non-moving party's allegations are accepted as true, and all reasonable inferences are drawn in the non-moving party's favor. Hines v. Youseff, 914 F.3d 1218, 1227 (9th Cir. 2019); Living Designs, Inc. v. E.I. DuPont de Nemours & Co., 431 F.3d 353, 360 (9th Cir. 2005). Any allegations made by the moving party that have been denied or contradicted are assumed to be false. See MacDonald v. Grace Church Seattle, 457 F.3d 1079, 1081 (9th Cir. 2006); Hal Roach Studios v. Richard Feiner & Co., Inc., 896 F.2d 1542, 1550 (9th Cir. 1989). Although Rule 12(c) “does not expressly authorize ‘partial' judgments, neither does it bar them; it is common practice to apply Rule 12(c) to individual causes of action.” Mays v. Wal-Mart Stores, Inc., 354 F.Supp.3d 1136, 1141 (C.D. Cal. 2019); Cornejo v. Ocwen Loan Serv'g LLC, 151 F.Supp.3d 1102, 1107 (E.D. Cal. 2015); Howerton v. Griffith Co., 2014 U.S. Dist. LEXIS 3336, *6 (E.D. Cal. Jan. 9, 2014); Carmen v. San Francisco Unified School Dist., 982 F.Supp. 1396, 1401 (N.D. Cal. 1997).

         Rule 56(a) - Partial Summary Judgment

         Under Rule 56(a), a “party may move for summary judgment, identifying each claim or defense - or the part of each claim or defense - on which summary judgment is sought.” Fed.R.Civ.P. 56(a). The same standard applies both to a motion for summary judgment and a motion for partial summary. Valentich v. United States, 194 F.Supp.3d 1033, 1035 (E.D. Cal. 2016); see also California v. Campbell, 138 F.3d 772, 780 (9th Cir. 1998). Summary judgment is appropriate when it is demonstrated that there exists no genuine issue as to any material fact, and that the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c); Adickes v. S.H. Kress & Co., 398 U.S. 144, 157 (1970); Fortyune v. American Multi-Cinema, Inc., 364 F.3d 1075, 1080 (9th Cir. 2004). The party seeking summary judgment bears the initial burden of informing the court of the basis for its motion and of identifying the portions of the declarations (if any), pleadings, and discovery that demonstrate an absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986); Soremekun v. Thrifty Payless, Inc., 509 F.3d 978, 984 (9th Cir. 2007). “The evidence of the nonmovant is to be believed, and all justifiable inferences are to be drawn in his favor.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986); Moldex-Metric, Inc. v. McKeon Prods., 891 F.3d 878, 881 (9th Cir. 2018).

         FACTUAL BACKGROUND[2]

         From COFI's Complaint and the separate statements of fact submitted by the parties, COFI and TOPI produce a variety of organic fertilizers and fertilizer products and compete for business in the organic fertilizer market. TOPI controls, if not a majority, then a significant plurality of the market for organic fertilizers.

         Organic products in the United States are federally regulated by the Organic Foods Production Act of 1990 (“OFPA”) and the National Organic Program (“NOP”). The NOP is administered by the Agricultural Marketing Service (“AMS”), which is an arm of the United States Department of Agriculture (“USDA”). Any agricultural product that is sold or labeled as “100% organic, ” “organic, ” or “made with organic [ingredients or food groups]” must be produced in accordance with the regulations promulgated under the NOP. PSUF 3. Because an agricultural product may not be sold as “organic” if it is not produced in accordance with the NOP, organic farmers and USDA-accredited certifying agents depend on organic fertilizer companies to accurately label their products.

         TOPI claims its products are suitable for use in organic farming and markets them for that purpose. PSUF 4. TOPI's website states that “[a]ll of its fertilizers are carefully formulated for use in organic farming and meet the requirements of the [NOP].” TOPI makes similar, if not identical statements, on its products' packaging and labeling.

         Some of the chicken manure used by TOPI in its organic fertilizer products is uncomposted. PSUF 5. Uncomposted chicken manure has a greater nitrogen content than composted chicken manure, and thus, is more valuable for use as a fertilizer. Chicken manure is sold at a very low cost in comparison to other protein materials that are typically used as organic fertilizers. By using uncomposted chicken manure in some of its fertilizers, TOPI can sell the fertilizers at a lower cost point, in comparison to competing protein-based products (such as those offered by COFI).

         Prior labels for TOPI's products indicate that they were derived from “composted” chicken litter. However, current labels and advertising no longer indicate that the chicken manure or chicken litter used in TOPI's products is “composted.” Now, TOPI's website specifically identifies “heat treatment” as its method of pathogen control. TOPI's heat treatment process complies with NOP guidance documents, including Guidance Document 5006. See DSUF 5; Menes Dec. ¶¶ 4, 5.[3] TOPI's finished organic fertilizer products do not contain raw animal manure. DSUF 2.[4]

         NOP regulates the use of uncomposted manure in organic farming. The AMS has issued regulations on the use of raw animal manure as a fertilizer through formal notice-and-comment rulemaking. However, none of TOPI's advertising materials comply with the applicable NOP/AMS restrictions on the use of raw uncomposted chicken manure. The labels for TOPI's fertilizer products containing chicken manure do not indicate: (1) the fertilizer should be used on crops not intended for human consumption; nor (2) crops treated with the fertilizer must be subjected to mandatory waiting periods between application of the manure and harvest. See PSUF 6.

         PARTIES' CROSS-MOTIONS

         COFI's Arguments

         COFI argues that 7 C.F.R. § 205.203 in part requires that “raw animal manure” must be composted unless it is used on crops that are not intended for human consumption or unless certain waiting periods are followed between the time of application of the manure and the time of harvesting the crop. The regulations further define “manure” as feces, urine, other excrement and bedding produced by livestock that has not been composted. Section 205.203 also sets the standards under which manure must be composted. The regulations mean that uncomposted animal manure is not banned from use in organic crop production, but the manure must be applied on crops not intended for human use or if waiting periods are met.

         Section 205.203 was promulgated through the formal rulemaking process and was finalized in December 2000, following periods for notice and comment. The public submitted thousands of comments on § 205.203, including comments about the definition of “manure.” AMS in part solicited comments regarding the use of raw manure in organic farming because while there are benefits to using raw manure, application of raw manure can be hazardous and threaten pathogenic contamination of food. Because § 205.203 followed applicable rulemaking procedures, it has the force and effect of law. Regulations that have the force and effect of law can only be changed, amended, or repealed through the same formal rulemaking procedures. TOPI admits that it does not use composted manure in its products and does not make any mention of § 205.203 in its labeling. Despite the restrictions of § 205.203, TOPI's products state they are suitable for use in organic farming without limitation. Because no limitations are mentioned, TOPI's labeling is literally false by necessary implication under the Lanham Act.

         COFI argues that reliance on NOP guidance document 5006 (“Guidance 5006) is unavailing. Guidance 5006 states that § 205.203 does not address heat processed animal manure products. Guidance 5006 then states processed manure products can be used on crops intended for human consumption if certain heating procedures (or equivalent heating and drying processes) are followed. Guidance 5006 lacks the force and effect of law, it is nothing more than a statement about what AMS thinks about “heat processed” manure and cannot supersede any requirement of state or federal law. Guidance 5006 can be amended at any time, does not have any legal effect, and cannot amend § 205.203 or change any of its requirements. Moreover, even if NOP sought to enact Guidance 5006 as a legislative rule, the act would be ultra vires because Guidance 5006 falls outside of the relevant authorizing statute, 7 U.S.C. § 6513. That section contemplates organic farming operations will be developed through a plan that is certified by an appropriate certifier. The plan may provide for the application of raw manure, but with respect to crops for human consumption, the crop must be harvested at a reasonable time after application of the raw manure as determined by the “certifying agent, ” but in no event less than 60 days.

         In reply, COFI argues in part that no regulation having the force and effect of law suggests that “heat processed manure” is permissible for use in organic farming without restriction. The language, structure and regulatory history of § 205.203 make clear that the term “raw manure” refers to uncomposted manure. The definition of “manure” is animal excrement “that has not been composted.” Thus, “raw manure” refers to manure that is uncomposted. The structure of § 205.203 shows that the only characteristics contemplated are whether the materials are composted or uncomposted and whether they are comprised of plant and animal materials. “Heat processed manure” is not mentioned. Further, as part of the March 2000 Rulemaking, the USDA noted that “raw animal manure” must be composted or comport with waiting periods or used on crops not grown for human consumption. A number of comments were received regarding the use of raw manure. The USDA also noted that its original proposal permitted the use of any uncomposted plant or animal wastes. Also, the initial definition of “compost” juxtaposed “compost” and “raw materials, ” noting that compost must use methods to raise the temperature of the raw materials to kill pathogens but stabilize nutrients. Nowhere in the proposed Rulemaking was the topic of “heat processed” manures discussed. The Final Rulemaking in December 2000 unequivocally confirms that “raw” animal manure refers to “uncomposted” animal manure. The USDA explained its decision to not require composting in accordance with practices set by the Natural Resource Conservation Service. The USDA stated that the OFPA contains significant restrictions on “raw manure, ” that the restrictions pertain to raw manure, but do not apply once fresh animal materials are transformed into a composted material. An organic producer using composted material must follow nutrient and soil cycling standards, but need not follow the restrictions that apply to raw manure. The sole distinction the USDA sought to draw in the Final Rulemaking is between raw/uncomposted manure and composted manure. Because “heat processed manure” is not part of § 205.203 or its history, TOPI's marketing does not conform to § 205.203.

         TOPI's Arguments

         TOPI argues that COFI's motion is based on the false notion that under § 205.203, any uncomposted chicken manure must be considered raw manure. This interpretation of § 205.203 is inconsistent with the plan language of § 205.203 and longstanding NOP guidance statements.

         The terms “raw” and “raw manure” are not defined § 205.203. The common dictionary definition of “raw” means being in a natural condition, not refined or processed. Other parts of NOP regulations recognize a distinction between “raw” and “processed.” For example, the definition of “agricultural product” is “[a]ny agricultural commodity or product, whether raw or processed . . . that is marketed in the United States for human or livestock consumption.” Because the chicken manure in the products at issue is heat treated/processed, it is not “raw” for purposes of § 205.203. Thus, additional statements on product labels regarding § 205.203(c)(1)'s restrictions are unnecessary.

         Guidance 5006 references § 205.203 and provides that processed manure may be used as a soil supplement without regard to any interval between application and harvest. The treatment process, involving heat processing, is identified. Guidance 5006 is also consistent with Guidance 5034, and specifically a table entry at Guidance 5034-1. The table identifies materials that are not prohibited under the USDA organic regulation. Included on Guidance 5034-1 is manure, including raw manure, composted manure, and processed manure/heat processed manure. TOPI argues that its heat processing conforms with the requirements of Guidance 5006. Although Guidance 5006 does not have the force of law, that does not mean that it should be ignored. Guidances are intended to instruct certifiers and producers and to ensure a uniform roadmap for enforcing NOP regulations. The NOP handbook explains that the guidances set forth interpretations of NOP regulations and explain how the regulations will apply to certain regulated activities. NOP's interpretation of § 205.203 as set out in the guidances is entitled to deference.

         In reply, TOPI reiterates that the plain language of § 205.203 does not apply to its products because its products do not contain raw chicken manure. Dictionary definitions of “raw” confirm that its heat processed manures are not “raw.” COFI's arguments essentially read the term “raw” out of § 205.203. Moreover, since all manure is uncomposted by definition, the term “raw manure” must mean something other than just uncomposted manure. Additionally, the regulatory history does not show that the counterpoint to raw is composted manure. The regulatory history shows that the USDA was struggling with standards for application of raw manure, the focus was not on what constitutes raw manure. If anything, the ...


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