Learn why the FTC sues over Mislabeled Consumer Products resulting in a massive fine for an organic food company.
About the Author:
Peter Madoff graduated from Fordham Law School in1970. He built an extensive career in the financial services industry as a senior executive; serving as a former Vice Chairman of the NASD, Executive board member of Nasdaq, and several NYSE member firms. His industry experiences with both self-regulatory and government agency compliance investigations offer unique insight into the consequences of investigations that lead to violations, fines, or even white-collar criminal actions.
1.To alert companies as to their vulnerability for inappropriate labeling of consumer products by various regulatory agencies.
2. To be aware of their increased vulnerability when offering products through numerous media platforms, either directly or through third parties.
3. To recognize that liability can extend to individuals; officers, employees and others related to the offering and sales of improperly labeled and offered products.
4. Serious financial penalties as well as civil or even criminal actions that may ensue.
Individuals, sole proprietors, corporate officers and employees, third party wholesalers, vendors and media platforms.
“FTC”, “USDA”, “ICC”, “Organic”, “100% Organic”, “Certified Organic” and “USDA NOP”.
There continues to be ongoing failures for many individuals, corporations and others involved in producing, labeling and marketing numerous products and services to consumers. The use of uninformed, inaccurate, incomplete or possibly even intentionally false product labeling and marketing of theirs or others’ products and ingredients is subject to constant scrutiny. Regulatory agencies such as the FTC, USDA and the ICC, as well as many state and consumer advocacy groups, are a constant presence and threat to those unwary participants in trade and interstate commerce.
The growing awareness of consumers regarding the benefits of health and wellness products, and the lifestyle benefits of consumption of organic and vegan products continues to expand rapidly, prompting many manufacturers to meet the very competitive market demand, with hasty or ill conceived efforts to supply their offerings of “organic” and “vegan” labeled products. The expanded and rapid growth of such healthy living products has also engendered an increased scrutiny of those product offerings, prompted by informed consumer and watchdog agency complaints. This will lead to even more regulatory agency scrutiny and compliance demands. There will also be expanded potential for significant financial penalties due to products being offered in interstate commerce.
The FTC in its initial complaint sought a series of actions enjoining Truly Organic Inc. and its CEO from making deceptive claims, including false and unsubstantiated claims, implying that their products either are wholly “organic” or “certified organic” in compliance with the USDA’s National Organic Program (USDA NOP).
The FTC had reason to believe and contended that as early as 2015, the defendants engaged in false and misleading production and marketing of products inappropriately; labeling and marketing their products as either “100% organic or“certified organic”. “Truly Organic Inc.” was implying that all their ingredients were wholly organic. In reality many of the defendants’ products actually contained ingredients that were not organic, with those non organic ingredients included only in lists buried among other less prominent text on product labels and websites. Furthermore many of their products contained no organic ingredients at all. In fact, in addition to the inappropriate or outright false organic claims, many of the supposed organic certified ingredients were not even allowed in USDA NOP product handling. Similar concerns were expressed in regards to products offered as “vegan”.
The defendants often purchased finished products from third party wholesalers who did not even offer organic products. Many of these products were never altered or enhanced with supposed organ ingredients as labeled; just relabeled and offered as the defendants’ organic and USDA “certified” products. In the same vein the defendants’ continued marketing through various websites, third party influencers and retail establishments such as Nordstroms and Ulta websites, along with the aforementioned inappropriate, inaccurate or false marketing materials; even after USDA and FTC warnings.
The USDA began its initial investigations in 2016 and defendants were put on notice as to their inaccurate product labelings and to cease the use of false certifications. Nevertheless the defendants continued to act inappropriately as charged, through 2018. In fact they continued to purchase vast quantities (100s of gallons) of products and ingredients to be relabeled and reoffered; that they knew did not contain “100% organic ingredients”; only adding little if any additional ingredients to increase their visual appeal, while still labeling them as containing 100% organic ingredients.
The defendants eventually were brought to heal by the FTC’s court actions in September 2019. Truly Organic and their CEO Harry Appelbaum settled the actions by agreeing to an order that prohibits the defendants from making false or deceptive claims, including false or unsubstantiated claims; 1) that any goods or service is wholly or partially organic; 2) contains or uses organic ingredients; 3) is certified organic; 4) is vegan; or 5) has been evaluated by any third party, including one associated with the USDA NOP, based on its environmental or health benefits or attributes. Finally, the order imposed an onerous $1.76 million judgement against the defendants. Additionally, the defendants would also be subject to standard recordkeeping, monitoring and compliance provisions. The FTC’s order and final judgement was a 5-0 ruling, and was entered into and filed in the U.S. District Court for the Southern District of Florida.
All too often the charges brought to bear on defendants are the result of uninformed or incomplete knowledge related to their product offerings and marketing. The reality of many, often overlapping regulatory agencies; their rules, regulations and guidance memorandums are oftentimes not always clear, precise and readily understandable. Furthermore, there may well be an inherent reluctance to engage and enquire as to the precise or recommended interpretations or actions by such agencies. There is an old legal axiom that one should never ask a question or seek guidance for an answer that you actually may not want to hear, yet alone not be pleased with. This was likely the case here. The defendants should have been more willing to be proactive, since their product offerings and marketing were so heavily dependent on terms such as “Organic” and several variants of the term. The FTC and USDA’s investigations and subsequent notice, established the defendants’ awareness of their failures to comply.
Webster’s defines “organic” as “involving, producing, or dealing in foods produced without plants without the use of laboratory-made fertilizers, growth stimulants, antibiotics, or pesticides”. The USDA, established by Congress, and its companion “public/private” National Organic Program (USDA NOP) has endeavored to provide guidance and ongoing standards for “certification” by providing for USDA NOP “Certifying Agents”, whose approval provides for and allows the use of documented certification for labeling (USDA/ORGANIC) to be available for promoting those approved products.
The defendants’ failure to either cease or correct inappropriate, incomplete and deceptive labeling and accompanying use of inappropriate USDA Certification labeling, was clearly violative of both the FTC and the USDA’s regulatory requirements. They were given adequate notice to help avoid punitive actions that not only harmed consumers, but also some who might have purchased the products for health reasons. Truly Organic’s failures could possibly have led to charges being brought against employees, remarketers and other third party vendors of Truly Organics’ product, who may have had knowledge of the inadequate or wrongful labeling, and were complicit in the production and marketing of Truly Organics’ products.
The defendant CEO’s statement that “our goal has always and will always be to create healthy, vegan, clean products that are high performing and offer a luxury experience”; demonstrates the use of language that is fraught with vague assertions as it relates to both USDA and FTC regulatory requirements and guidance. Statements that are brimming with buzzwords such as “clean”, “organic” or “cruelty free” entice consumers to pay more for brands that make these and similar claims. How do those assertions by Truly Organic match up with “100% organic” or comply with USDA NOP labeling standards? Applebaum, in response to the FTC and USDA actions, said his company’s first priority is affordability, and that the brand strives to make products that are “as organic as possible while being as effective as possible”. Those assertions of affordability are not relevant to, or match up with “100% organic”. Merely “striving” to comply with USDA NOP labeling requirements is not enough.
It is incumbent upon any entity offering products to the consumer, to be fully cognizant of related regulatory agencies and their compliance requirements. Lack of “awareness” or claims of “striving” or “best efforts” will not suffice, yet alone excuse the need and demand for formal compliance. Financial and human capital commitments are necessary and prudent, to seek out the appropriate knowledge to comply, so as to avoid punitive repercussions. It is money and effort well spent.
The punitive repercussions are further magnified when the marketing and sales efforts involve interstate commerce. In today’s economic environment, the extension of marketing efforts through and across the many available media platforms, oftentimes are specifically chosen to reach across state and even global boundaries. The likelyhood of further significant penalties from inappropriate conduct are inherent in these marketing choices.
There is also the potential for “class actions”, even when the claims of aggrieved consumers may individually be small. Consumers have many avenues to assert their grievances, not the least of which are direct complaints to regulatory agencies.These investigations can consume a great deal of time and financial resources to respond in efforts to counter the accusations. In this particular situation, both Truly Organic and their CEO were under investigation and formal complaints for almost three years, before agreeing to a significant financial settlement and injunctive requirements that would potentially be even more costly in its effect on reputation and sales. These penalties were in addition to the significant legal costs expended in their defense.The fact that they avoided criminal actions was indeed fortunate, but was certainly a real possibility. Hopefully their compliance and oversight requirements stated in the settlement order by the courts will be dutifully complied with, not only because it was ordered by the courts, but also for the long term benefits to themselves and their future customers. They certainly will be costly. Our Compliance Mitigation Team is well versed in these compliance requirements and can provide the necessary and appropriate guidance to achieve responsive and cost effective ongoing compliance.