CA Made in U.S.A. Law: Despite Amendment, Litigation Targets Cosmetic, Food, Beverage Industries

More than 200 litigation notices were sent in recent months to cosmetic, food and beverage companies claiming products violated California’s statute governing products labeled “Made in U.S.A.," despite an amendment to the law.

California-based Kazerouni Law Group, APC sent notices, threatening class-action lawsuits against companies selling products in California labeled “Made in U.S.A.," “Made in America," “U.S.A.,"  or similarly labeled if products contained one or more ingredients grown or sourced from outside of the United States.  

Prior to 2016, products sold in California were subject to a 100 percent domestic requirement, where U.S.A. claims were considered unqualified if any portion of the product was made outside of the United States. This stringent requirement—the only of its kind—conflicted with the standards set by FTC, which advise products with U.S.A. claims must meet the “all or virtually all" standard where “all significant parts, processing and labor" that go into a product must be of U.S. origin.

The high standards set by the California legislation left companies in compliance with FTC’s standard in troubled waters—either taking their chances with litigation by making “Made in U.S.A. claims even if a small portion of their products were sourced outside the country, or playing it safe and maintaining separate California inventories to be in strict compliance with the state law.

Fortunately for such companies, Senate Bill No. 633, an amendment to California’s “Made in U.S.A." law (Business and Professions Code section 17533.7), was signed into law Sept. 1, 2015. The new law—effective Jan. 1, 2016—allows products sold in California made with foreign components to make U.S.A. claims contingent on certain conditions. Those conditions allow for 5 percent of a product’s wholesale value to be of foreign content. If materials or ingredients are not available domestically, the new law allows for 10 percent of a product’s wholesale value to be of foreign content.

Despite the amendment, litigation efforts by Kazerouni Law Group continue—and with steep demands. Among demands, the plaintiffs are seeking a full recall of products touting a U.S.A. claim in the last four years, a full refund of the purchase price to consumers, substantial attorney fees and requires the company to conduct an advertising campaign.

Kraft Heinz Food Company, Rockstar Inc. and EO Products—manufacturer of essential oils and personal care products—are among companies facing the litigation.

According to Angela Diesch, Esq., Gilbert, Kelly, Crowley & Jennett LLP, who represents multiple cosmetic companies facing the litigation threats, her clients meet the requirements of the new and former version of the law. However, she said, the plaintiffs continue the lawsuits on the theory that having even a single foreign-sourced ingredient in a cosmetic product causes the companies to not be in compliance with the pre-2016 version of the law.

Diesch referred to the lawsuits as “frivolous," adding that the demands are “outrageously unreasonable" and “would cause nearly any business to have to close its doors."

Some companies, such as Kraft Heinz and EO Products, are holding their ground.

In response to the complaint filed against Kraft Heinz on Dec. 31, 2015, the company in February asked a California federal judge to dismiss “each and every cause of action" brought by plaintiff Suzanne Alaei.

According to court filings, Alaei—who also filed the complaint against Rockstar—purchased a bottle of Heinz 57 sauce in November 2015 in Fallbrook, California, based on the product’s “MFD. In U.S.A." designation, and believed “she was purchasing a superior quality product, supporting U.S. jobs and the U.S. economy, and also supporting ethical working conditions."

Alaei contended Kraft Heinz products are falsely represented as “MFD. In U.S.A." because some contain turmeric, tamarind extract and jalapenos, which are not from the United States, and she sought to represent a class of California consumers who purchased  “any Heinz products that are substantially similar, as in consumable consumer packaged goods, to the product purchased by Plaintiff and labeled as ‘MFD. In U.S.A.’"

According to court filings, Kraft Heinz said Alaei provided no evidence to support her claim that the ingredients are not from the United States.

Further, Alaei lacks standing to assert claims for the products she didn’t purchase and failed to establish that the product she purchased is “substantially similar" to those she didn’t purchase, according to Kraft Heinz. The litigation is ongoing.

To offer a solution to companies facing the litigation, EO Products organized a roundtable session with other U.S.-based manufacturers, held March 22, to discuss new legislation that would allow manufacturers an opportunity to voluntarily address alleged minor labeling discrepancies for “Made in California" and “Made in U.S.A." labels prior to civil action.  

AB 2827, introduced by California Assembly Member Marc Levine, would allow a company 33 days to “cure" an allegation of violating the “Made in U.S.A." or “Made in California" labeling requirements.

The proposed legislation has won the support of the Personal Care Products Counsel, the California Chamber of Commerce and many California-based cosmetics companies, though it also faces opposition.

In an opposition submitted by Consumer Attorneys of California (COAC), COAC wrote, “Labeling is a very important consumer issue right now. If this bill passes, then surely other companies that mislabel their products (organic, approved, natural, cage free, etc.) will ask for the same special protection. It is a slippery slope that should not be embarked upon."

In an email requesting support for the AB 2827, Diesch wrote, “This legislation may not stop frivolous lawsuits entirely, but it will help at least to curtail some."