A recent U.S. Supreme Court decision may weaken one line of defense against state unfair trade practices claims: federal pre-emption. In Altria Group, Inc. v. Good, 129 S. Ct. 538 (Dec. 15, 2008), a five-justice majority ruled that a claim alleging that cigarette manufacturers had violated the Maine Unfair Trade Practice Act (“MUTPA”) in their advertising of “light” cigarettes was not pre-empted by the Federal Cigarette Labeling and Advertising Act (“Labeling Act”).
The Supreme Court has long recognized that state laws that conflict with federal law are “without effect.” Id. at 543. The Labeling Act requires that every package of cigarettes sold in the United States contain a conspicuous, prescribed warning. The Labeling Act also contains two express pre-emption provisions. The first protects cigarette manufacturers from inconsistent state labeling laws by prohibiting the requirement of additional statements relating to smoking and health on cigarette packages. The second provision, Section 5(b) of the Act, which was at issue in Altria Group, provides that “[n]o requirement or prohibition based on smoking and health shall be imposed under State law with respect to the advertising or promotion of any cigarettes the packages of which are labeled in conformity with the provisions of this chapter.” Id. at 544 (citing 15 U.S.C. § 1334(b)) (emphasis added). “Together, the labeling requirement and pre-emption provisions express Congress’ determination that the prescribed federal warnings are both necessary and sufficient to achieve its purpose of informing the public of the health consequences of smoking.” Id.
The plaintiffs in Altria Group were Maine residents and longtime smokers of “light” cigarettes. They alleged that the defendant cigarette manufacturers deliberately deceived them about the harmful nature of “light” cigarettes in violation of MUTPA. The District Court and the Court of Appeals for the First Circuit characterized the claim differently. Thinking that the plaintiffs had asserted a failure-to-warn or warning neutralization claim, the District Court ruled that such a claim rested on a state-law requirement “based on smoking and health” of precisely the kind that Section 5(b) pre-empts, and granted summary judgment for the defendants. The Court of Appeals reversed, finding that the claim was in substance a fraud claim: “[t]he fact that [the] alleged misrepresentations were unaccompanied by additional statements in the nature of a warning does not transform the claimed fraud into a failure to warn” or warning neutralization claim, which the Labeling Act would pre-empt. Id. at 542. The Supreme Court granted certiorari to resolve a conflict with the Fifth Circuit, which had ruled that the Labeling Act pre-empted challenges to the use of “light” descriptors.
In affirming the First Circuit’s ruling, the Supreme Court agreed that the MUTPA claim was in substance a fraud claim. The Court rejected the cigarette manufacturers’ argument that Congress could not have intended to permit the enforcement of state fraud rules because doing so would defeat the Labeling Act’s purpose of preventing nonuniform state warning requirements. Rather, the Court perceived no lack of uniformity because “fraud claims rely only on a single, uniform standard: falsity.” Id. at 545. The Court also held that “the presence of the federally mandated warnings may bear on the materiality of [the manufacturers’] allegedly fraudulent statements, but that possibility does not change [the plaintiffs’] case from one about the statements into one about the warnings.” Id. at 546.
The Supreme Court also held that the Labeling Act did not pre-empt the MUTPA claim because the Act pre-empts only rules that are based on smoking and health, and MUTPA says nothing about either “smoking” or “health,” but instead creates a general duty not to deceive. Id. at 547. The Court also stressed Congress’ use of the phrase “based on smoking and health,” as opposed to “relating to smoking and health,” in Section 5(b) of the Act. The Court held that the phrase “based on” is narrower and describes a more direct relationship than “relating to.” The narrower phrase “based on smoking and health” did not encompass the general duty not to make fraudulent statements. Id. at 548-49.
The ruling in Altria Group is likely to be cited by plaintiffs for the broad proposition that the duty not to deceive underpinning most state unfair trade practices statutes does not conflict with federal law.