Recently, a California federal court denied Nordstrom, Inc.’s and designer jean manufacturer, AG Adriano Goldschmeid’s request for an interlocutory review of the district court’s denial of their motion to dismiss the Plaintiff’s class action complaint alleging consumer fraud related to their use of “Made in USA” labels.

Background

Plaintiff’s class action complaint alleged that defendants misleadingly marked their product with a Made in the USA label, when several component parts of the jeans, such as the fabric, thread, buttons, and rivets were manufactured outside the United States. Plaintiff contend that defendants’ conduct violates various California statutes, including, California’s Consumer Legal Remedies Act, California Civil Code § 1750, and California’s Unfair Business Practices Act, California Business Professional Code § 17200 and § 17533.7.

Defendants moved to dismiss on the ground that plaintiff’s claims were preempted by the Federal Trade Commission Act (“FTCA”) and Textile Fiber products Identification Act (“TFPIA”), both of which contain provisions concerning Made in USA labels on products. Defendants argue that the California statutes are preempted because they contain stricter standards than the federal acts.

The California Business Professional Code states that “it is unlawful for any person, firm, corporation or association to sell or offer for sale in this State any merchandise or on its container there appears the words Made in USA Made in America, USA or similar words when the merchandise or any article, unit or part thereof, has been entirely or substantially made, manufactured, or produced outside the United States.” (emphasis added). However, the FTCA guidelines state that a product may be labeled “Made in USA” if “all or virtually all of a specific product is made domestically.” “All or virtually all” means that the product is one in which all significant parts and processing that go into the product are of U.S. origin, i.e., where there is only a de minimus, or negligible, amount of foreign content. Accordingly, the FTCA allows for use of a Made in the USA label even if a product includes or contains material from a foreign country, whereas the California statutes do not allow use of the label unless all parts of the product were either entirely or substantial manufactured in the United States.

Decision

The Court agreed that the type of products at issue in the litigation were prohibited by the California statute but not the federal acts. However, it found that the California statutes were not preempted because “although the laws set out different standards for the use of ‘Made in USA” labels, it would not be impossible for the defendants to comply with both laws.” Consequently, the court denied defendants’ motion to dismiss.

Nordstrom is not the first, and likely not the last, retailer to be hauled into court on such allegations of mislabeling. See, e.g., Clark v. Citizens of Humanity, Macy’s et al., case no. 3:14-cv-01404 (S.D. Cal.) (allege that the foreign components include fabric, thread, buttons, rivets and other subcomponents of the zipper assembly); Colgan v. Leatherman Tool Group, case no. B176953 (Cal. Ct. App.) (alleging that tool products with significant working parts that were “investment cast, fineblanked, formed, hardened, cut, forged, polished, or machined in various foreign countries” constituted a violation of California statutes when they had representations on the products, packaging and advertising that they were made in the USA); Oxina v. Lands’ End, 3:14-cv-02577 (S.D. Cal.) (alleging neckties labeled made in USA that contained parts made in other countries violated of California statutes).

Implications

As is evident from the court’s preemption decision in the Nordstrom case, retailers should take great care to ensure that their labels comply not only with federal laws but also any relevant state statutes. Retailers may also consider making qualifying statements when products are not entirely made in the USA, such as “Made in US with foreign parts” or “Produced in USA with imported raw materials,” to avoid allegations of misrepresentation.