How much of a product has to be “Made in the USA” for a company to label it as such, and who gets to decide? Those questions are raised by an ongoing action lawsuit before a federal court in the Southern District of California.

In Paz v. AG Adriano Goldschmied, Inc., plaintiffs allege that Nordstrom and luxury denim manufacturer AG Adriano Goldschmeid (AGAG) violated California law when they sold jeans with foreign made materials labeled “Made in the USA”. Judge Dana M. Sabraw recently declined to dismiss the lawsuit ruling that although following the overlapping federal and California laws regarding “Made in the U.S.A” labels may be difficult it is both not impossible and legally required.

The class action was filed on behalf of all plaintiffs who purchased AGAG jeans over a four year period. The complaint alleges that even in California where the labels read – “Made in the U.S.A. of IMPORTED FABRIC” – the labels were inaccurate because not only fabric but rivets, buttons and other components were made outside of the U.S.  Therefore, the suit claims, consumers who hoped to support American manufacturing or associate quality with American-made products were misled.

Defendants responded that it was impossible for them to follow Federal law and California law in labeling their jeans because the laws were in conflict. Therefore they argued, they were bound to follow relevant Federal statutes and the rules promulgated by the Federal Trade Commission in light of the conflict preemption doctrine.  Conflict preemption, which stems from the U.S. Constitution’s Supremacy Clause, states that when state and federal law conflict in a way that makes it impossible to comply with both federal and state law – federal law trumps. The defendants argued that the FTC Act gives the FTC the authority to regulate claims made in interstate commerce and the jeans’ labels were allowable under FTC regulations.  The defendants also argued that another federal law, the Textile Fiber Products Identification Act (“TFPIA”) requires them to include “Made in the U.S.A.” labels even when the garment includes foreign materials and California law requires them not to.

The Court was unconvinced by the defendant’s rock and a hard place argument. The Court held that while it might be burdensome for manufacturers to follow both Federal and California labeling guidelines, it is not impossible.  The Court further wrote that just because the FTC was given authority to regulate “Made in the USA” labels, doesn’t mean other agencies or states are barred from imposing additional non-contradictory regulations.  Manufacturers can follow both laws by labeling all of their products with California-compliant labels or adding further disclaimers to garments that are to be sold in California. The Court found that both the TFPIA and California law would be satisfied by a label that included an accurate clarification such as, “Made in U.S.A. of imported fabric and components”.

The authors suspect that this ruling may not stand the test of time should it be appealed.  But at least in the meantime, the case should serve as a reminder to manufacturers and sellers that following federal regulations alone may not be enough to avoid liability when it comes to labeling, especially if they are planning to label their product “Made in the USA”.