DC Circuit is COOL with COOL under Zauderer Standard

By Riëtte van Laack —

On July 29, 2014, the D.C. Circuit decided that USDA’s Country of Origin Labeling (COOL) regulation passed constitutional muster. Our previous posts regarding this case provide details on the background.  Congress required COOL on many foods, including some meat products, and passed a law defining “country of origin” for meat to be based on where the animal had been born, raised, and slaughtered (or “harvested”).  After a WTO panel found that the first USDA regulations violated the U.S. international obligations, USDA issued an amended regulation requiring more precise information on the location of each production step, and eliminating the option of labeling commingled animals.

Previously, the lower court and the Court of Appeals panel found that USDA’s regulation did not violate free speech protections.  However, the Court of Appeals noted (in a footnote) that the full court hear the case en banc (i.e., all active judges on the court decide the case instead of just three judges) to provide a clear ruling on the issue regarding the reach of Zauderer; i.e., is it limited to mandatory disclosure of purely factual and uncontroversial information appropriate to prevent deception (as AMI argued) or does it also apply to purely factual and uncontroversial disclosures serving other government interests?  

The en banc majority first determined that the issue was mandatory disclosure rather than a ban on certain speech.  Thus, Zauderer rather than Central Hudson provided the appropriate standard.  It next determined that Zauderer was not limited to mandatory disclosures that would prevent deception.  To the extent that other D.C. Circuit decisions might be read as limiting Zauderer to cases in which the governmental interest is preventing deception, these decisions are now overruled. 

Thus, the remaining question was whether the government had a substantial interest in promulgating its COOL regulation.  Referring to USDA statements in the rulemaking process, AMI had characterized the interest at stake as merely satisfying consumers’ “idle curiosity.”  However, the Court did not limit the search for the governmental interest to review of USDA’s statements.  The interests served by the rule were also those advanced by Congress when it adopted the statute, even if USDA failed to assert those interests.  According to the Court, it would be improper to allow “perfectly adequate legislative interests properly stated by congressional proponents” to be “doomed by agency fumbling (whether deliberate or accidental),” because that rule would “allow the executive to torpedo otherwise valid legislation simply by failing to cite . . . the interests on which Congress relied.”  Congress identified the purpose of the statute as “enabling customers to make informed choices based on characteristics of the products they wished to purchase, including United States supervision of the entire production process for health and hygiene.”  The Court also pointed to “the ‘time-tested consensus’ that consumers want to know the geographical origin of potential purchases has material weight in and of itself.”  It concluded that “[t]he context and long history of country-of-origin disclosures to enable consumers to choose American-made products; the demonstrated consumer interest in extending country-of-origin labeling to food products; and the individual health concerns and market impacts that can arise in the event of a food-borne illness outbreak” combined created a substantial interest.

The Court held that the disclosures were “purely factual and uncontroversial information” about the good or service being offered, COOL does not require corporations to carry messages biased against or expressly contrary to the corporation’s views, and the mandatory disclosures do not rule out ordinary advertising methods.  Thus, the government’s interests were sufficient to sustain COOL under the Zauderer standard.

The decision was not unanimous.  Judges Rogers and Kavenaugh wrote concurring opinions and Judges LeCraft Henderson and Brown dissented.  Judge Brown’s dissent (in which Judge LeCraft Henderson joined) is notable in its wording.  She asserted that the decision by the majority looks to “disembowel” court precedent and put “crony capitalism or ideological arm-twisting” ahead of first amendment rights.

Whether COOL requirements for meat will survive, however, ultimately will depend on the WTO decision.  The rumor is that the WTO has ruled on the fair trade challenge filed against COOL by Mexico and Canada and that it does not bode well for USDA.  Moreover, AMI has the option of seeking redress from the U.S. Supreme Court.