Keeping Tabs on the Ninth Circuit
June 11, 2021 - This Week at the Ninth

This Week at the Ninth: Poultry Preemption and ERISA Estoppel

This Week at the Ninth: Poultry Preemption and ERISA Estoppel

This week, we take a look at a decision examining the preemptive effect of the Poultry Products Inspection Act, and another considering the interaction between the Employee Retirement Income Security Act and principles of equitable estoppel.

The Court holds that state-law misrepresentation claims targeting retained-water labels on Trader Joe’s poultry products are preempted by federal law.

Panel: Judges Paez, VanDyke, and Korman (E.D.N.Y.), with Judge VanDyke writing the opinion.

Key Highlight: “Trader Joe’s label—including its retained water statement—was approved by federal regulators. And Webb has not alleged, nor can she allege, that her data collection protocol is the same as the process Trader Joe’s made available for federal government review. So requiring labeling in conformance with Webb’s testing protocol would necessarily impose requirements beyond those required by federal law.”

Background: Christina Webb bought “All Natural Boneless Chicken Breasts,” “All Natural Chicken Thighs,” and “All Natural Chicken Wings,” from various Trader Joe’s stores in San Francisco. Each product was labeled as containing “[u]p to 5% retained water,”  “no antibiotics ever,” “no added hormones,” and poultry that was “all vegetarian fed.” Webb took the products to a food testing lab, which concluded that they contained more than 5% retained water. She then filed a putative class action, alleging Trader Joe’s labeling violated various California consumer laws. The district court dismissed Webb’s claims, concluding they were expressly preempted by the Poultry Products Inspection Act.

Result: The Ninth Circuit affirmed. As the Court explained, poultry labels are federally regulated under the PPIA. To produce poultry products containing any amount of retained water, a poultry producer like Trader Joe’s must “maintain on file and make available to [the Food Safety and Inspection Service] its written data-collection protocol” for how the company arrived at the claimed retained water percentage. FSIS validates that “the protocols are scientifically valid, that the data collected under them will reflect water-retention amounts that are unavoidable, and that the data support the water-retention statements on product labeling.” Not all such labels have to be submitted to the agency for review, but FSIS “spot checks” to ensure accuracy. And certain “special statements,” including “health claims, ingredient and processing method claims,” must be submitted for FSIS review. The PPIA expressly preempts state laws that impose requirements “in addition to, or different than those” described in the federal statute.

The Court concluded that Webb’s claims were preempted for two reasons.  First, Webb’s claims would require Trader Joe’s to conform to a different water retention data collection process than the FSIS protocol. “The federal regulatory process here allows for review of a company’s water retention data collection protocol before their poultry products enter commerce, and FSIS’s decision not to object or otherwise require changes operates as federal approval of that protocol,” the Court explained. “Because the retained water data supporting the claims made on the Products’ labels were validated by federal regulators according to the federally prescribed method,” the Court said, “Webb’s claims that Trader Joe’s Products’ labels are in fact invalid and misbranded are federally preempted.”

Second, Webb’s claims were preempted because the FSIS reviewed and approved Trader Joe’s labels in their entirety given that they contained special statements. “FSIS inspected both the generic retained water claims and the special statements regarding the health and animal raising claims” as part of its review of Trader Joe’s labels. For that reason, “[a]ny additional label requirements Webb seeks to place on Trader Joe’s through the application of her retained water data would necessarily be ‘different than’ those required by the PPIA.”

Finally, the Court concluded that the district court did not abuse its discretion in dismissing Webb’s claims with prejudice. Webb was unable to show that her independent testing used the same protocol as Trader Joe’s.  The Court could not “condone the use of discovery to engage in fishing expeditions where, like here, it is obvious that Webb has no basis other than gross speculation to claim that Trader Joe’s is misrepresenting the data provided by its testing protocol.”

The Court holds that equitable estoppel cannot be applied, even defensively, against the trustee of an ERISA plan when doing so would contradict the terms of the ERISA plan.

Panel:  Judges Bennett, Friedland, and Block (E.D.N.Y.), with Judge Bennett writing the opinion.

Key Highlight:  “While our circuit has yet to decide whether a defense of equitable estoppel is barred in an ERISA case brought by the ERISA plan, the same reasons for prohibiting equitable estoppel apply to both the affirmative use and the ‘defensive’ use. Regardless of whether it is a plaintiff or a defendant who seeks to estop a trustee from enforcing an ESOP’s terms, such estoppel would come at the expense of plan participants, who have relied on the plan terms and who are not responsible for the conduct that gave rise to the claimed estoppel.”

Background:  Defendant Flynn-Kerper’s late husband was the former trustee of the Anaplex Corporation Stock Ownership plan.  He sold shares of Anaplex stock he owned to the Plan for a roughly $1 million promissory note.  An independent appraiser had approved the fairness of this transaction. 

The subsequent trustee of the Plan, plaintiff Wong, believed that this conflicted transaction had been unfair.  Wong contended that the appraiser’s assessment had been premised on misleading information, as he was unaware of both an uncollectible debt held by Anaplex and a pending EPA action against it.  Invoking ERISA section 502(a)(3), Wong brought suit on behalf of the Plan.  He sought an adjustment of the Plan’s purchase price on the ground that the Plan had overpaid. 

Flynn-Kerper moved to dismiss on the ground that Wong was equitably estopped from bringing this claim based on a settlement agreement (called the “NRA”) entered in a prior lawsuit.  The district court agreed and dismissed the action.

Result:  The Ninth Circuit reversed.  First, it observed that equitable estoppel is an inherently factbound defense, and that here it would require resolving questions about Wong’s “knowledge and intent when entering the NRA, and Flynn-Kerper’s knowledge when entering the NRA and reliance on the NRA in dismissing her claims in the state action.”  For that reason alone, the Court concluded, the district court had erred in granting judgment to Flynn-Kerper.

But in any event, the Court continued, the district court’s decision contravened ERISA.  Equitable estoppel, the Court explained, may not be applied against an ERISA trustee “where recovery on the claim would contradict written plan provisions.”  As the Sixth Circuit had previously explained, “[i]f the effective terms of the plan may be altered by transactions between officers of the plan and individual plan participants . . . , the rights and legitimate expectations of third parties to retirement income may be prejudiced.”  And here the terms of the Anaplex Corporation Stock Ownership plan required that any stock purchases be made at fair market value.  Thus, the Court concluded, if Wong was correct that the Anaplex shares had been overvalued, applying equitable estoppel would contradict the terms of the plan by requiring Wong to pay Flynn-Kerper more than the shares had in fact been worth.  The Court rejected Flynn-Kerper’s argument that ERISA precluded use of equitable estoppel only as an “offensive tool,” finding no relevant difference between “offensive” and “defensive” estoppel where ERISA was concerned.  The Court further observed that the issue could have also arisen offensively had Wong simply refused to pay Flynn-Kerper the full amount of the promissory note, which would have prompted a breach-of-contract action by Flynn-Kerper.