Oral argument: Oct. 6, 2008
Appealed from: United States Court of Appeals, First Circuit (Aug. 31, 2007)
PREEMPTION, FEDERAL TRADE COMMISSION, FEDERAL CIGARETTE LABELING AND ADVERTISING ACT, SUPREMACY CLAUSE
Stephanie Good and other smokers (“Good”) brought a class action suit against Altria Group (“Altria”) and its subsidiary, Philip Morris, for fraudulent misrepresentation under Maine state law. Good and the other plaintiffs claim that the use of descriptors such as “light” and “lower in tar and nicotine” in cigarette advertisements are misrepresentations because Federal Trade Commission mandated testing does not reflect the actual tar and nicotine delivery of “light” cigarettes. Altria argues that state law claims of fraudulent misrepresentation against cigarette companies are preempted by federal law. The First Circuit rejected Altria’s argument, and the Supreme Court will review that decision. Given the diversity of state laws and the widespread use of “light” descriptors, the outcome of this case could expose tobacco companies to different levels of liability based on the content of their advertising. This case may affect other federally regulated industries, potentially subjecting them to state law claims for fraudulent misrepresentation on the ground that federally permissible advertising and testing is misleading under various state laws.
To ensure that interstate commerce is "not impeded by diverse, nonuniform, and confusing cigarette labeling and advertising regulations," Congress has precluded the States from imposing any "requirement or prohibition based on smoking and health . . . with respect to the advertising or promotion of any cigarettes," and has authorized the Federal Trade Commission to regulate "unfair or deceptive acts or practices in the advertising of cigarettes." 15 U.S.C. §§ 1331, 1334, 1336. Based on studies suggesting that cigarettes with comparatively lower tar and nicotine yields may present fewer health risks, the FTC requires tobacco companies to disclose those yields as measured using an FTC-mandated test, and has authorized tobacco companies to advertise cigarettes using "descriptors," such as "light," as shorthand references to the numerical test results. Respondents in this case contend that such descriptors are misleading, in violation of a state deceptive trade practices statute.
The question presented is whether state-law challenges to FTC-authorized statements regarding tar and nicotine yields in cigarette advertising are expressly or impliedly preempted by federal law.
Can smokers sue for misrepresentations in cigarette advertising under state law, or does the Federal Cigarette Labeling and Advertising Act prohibit such state-law claims?
Defendants Altria Group and Philip Morris (Altria’s subsidiary) manufactured and sold two brands of cigarettes, “Marlboro Lights” and “Cambridge Lights.” See Good v. Altria Group, Inc., 501 F.3d 29, 30 (1st Cir. 2007). Altria’s advertising claimed “Marlboro Lights” and “Cambridge Lights” were “light” cigarettes and contained “lowered tar and nicotine.” See id. Stephanie Good and several other smokers instituted a class action against Altria Group and Philip Morris (collectively “Altria”), claiming this advertising was a misrepresentation under the Maine Unfair Trade Practices Act (“MUTPA”). See Good v. Altria Group, Inc., 436 F.Supp.2d 132, 132 (D.M.E. 2006).
FTC Method — How tar and nicotine content is determined
The Federal Trade Commission, (“FTC”) and later the cigarette companies themselves, used a test known as the “FTC Method” to determine the amount of tar and nicotine in a cigarette. See Good, 501 F.3d at 30–32. The FTC Method uses a machine to “smoke” a cigarette. See id. at 30–31. The machine collects residue from the cigarette smoke on a filter pad, which is then tested. See id. Under the FTC Method, “Marlboro Lights” and “Cambridge Lights” contained less tar and nicotine than other, “full-flavored” brands. See id. Based on formal and informal FTC regulation, Altria claims the “light” descriptors were authorized. See Brief for Petitioners at 46–48. However, this point is in dispute. See Brief for Respondents at 45–57.
Good and the other smokers claim the way consumers actually smoke “Marlboro Lights” and “Cambridge Lights” results in more consumption of tar and nicotine than the FTC Method suggests. See Good, 501 F.3d at 30–31. For instance, smokers might unconsciously cover ventilation holes on the sides of the cigarettes, causing a reduction in the amount of air added to the inhalation, resulting in a greater delivery of tar and nicotine. See id. Good claims that, given the differences between the way people smoke and the methodology of the FTC Method, Altria’s advertising containing the terms “light” or “lowered tar and nicotine” is deceptive. See id.
Federal Cigarette Labeling and Advertising Act — Federal law trumps state law
Under the Federal Cigarette Labeling and Advertising Act (“FCLAA”), “[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.” 15 U.S.C. § 1334(b). In other words, the federal government has claimed exclusive control over cigarette advertising concerning smoking and health, and states may not intrude on federal regulation by imposing stronger restrictions. Thus, Altria claims that the FCLAA preempts the plaintiff’s state law claims. See Good, 501 F.3d at 31.
Procedural History of the Case
The District Court for the District of Maine granted summary judgment in favor of Altria. See Good, 436 F. Supp. 2d at 153. The District Court concluded that Good’s claims were “grounded on Philip Morris’s ‘advertising or promotion of . . . cigarettes the packages of which are labeled in conformity with the provisions of’ federal law and regulation.” Id. (quoting 15 U.S.C. § 1334(b)). As such, the District Court held that the FCLAA expressly preempted Good’s state law claims. Id.
On appeal, the United States Court of Appeals for the First Circuit reversed the District Court’s ruling. See Good, 501 F.3d at 58–59. The First Circuit held that the FCLAA only preempts a state law “requirement or prohibition based on smoking and health” and not legal claims “based on smoking and health.” See id. at 38. In other words, the FCLAA does not preempt the Good’s state law claims. See id. at 58–59.
In January of 2008, the Supreme Court granted certiorari to consider whether the FCLAA preempts state law misrepresentation claims under the MUTPA concerning potentially FTC-authorized use of “light” and “lowered tar and nicotine” in cigarette advertising. See Docket No. 07-562.
This case is not about the rights of sick smokers to recover for illness or the legality of cigarettes. Rather, this case concerns the nature and effect of federal regulation, having consequences not just for the tobacco industry and smokers, but potentially any federally regulated industry.
Good argues that Altria’s advertising regarding “light” cigarettes is a fraudulent misrepresentation under the Maine Unfair Trade Practices Act (“MUTPA”) since “compensatory” behaviors by smokers result in higher tar and nicotine than the FTC Method would suggest. See Good v. Altria Group, Inc., 501 F.3d 29, 30–31 (1st Cir. 2007). Good and the other plaintiffs are not claiming damages for health problems. See id.
Altria argues that the Federal Cigarette Labeling and Advertising Act (“FCLAA”) as well as formal and informal Federal Trade Commission (“FTC”) regulation preempts state law claims regarding the use of descriptors such as “light” in cigarette advertising. See id. In other words, Altria claims that federal law, either through the FCLAA or formal and informal regulation by the FTC, prohibits Good from bringing a claim of fraudulent misrepresentation under state law.
Good’s Arguments Could Apply to Other Regulated Industries, Jeopardizing the Legitimacy of Informal Regulation
Informal regulation is an important part of federal regulation and may be one ground for preemption. See, e.g., Brief of Amicus Curiae Former Commissioners and Senior Staff of the Federal Trade Commission (“Former FTC”) in Support of Petitioners at 7–10; Brief of Amicus Curiae National Association of Manufacturers in Support of Petitioner at 5–10. Informal regulation allows government actors, such as the FTC, to control an area without the expensive and time-consuming efforts of formal regulation — essentially ruling with the threat of the hammer, rather than the hammer itself. See, e.g., Brief for Petitioners at 52. Good argues that the informal control exerted by the FTC over the tobacco industry is insufficient to warrant barring their claims. See Brief for Respondents at 44. Thus, Altria claims, a victory for Good could undermine the legitimacy of informal rulemaking. See Brief for Petitioners at 45–57.
Furthermore, this case potentially threatens any federally regulated industry with lawsuits claiming that federally permissible advertising and testing is misleading. See Brief of Amicus Curiae Chamber of Commerce of the United States of America (“CoCUS”) in Support of Petitioners at 7–8; Brown v. Brown & Williamson Tobacco Corp., 479 F.3d 383, 392 (5th Cir. 2007). The Chamber of Commerce of the United States of America points out this concern, analogizing Good’s arguments to other industries. See id. For instance, the Food and Drug Administration may allow a company to call a food “Reduced-Fat,” but due to “compensatory” behaviors by consumers, such as eating more, the “Reduced-Fat” claim could be characterized as a misrepresentation. See id. Moreover, some plaintiffs might argue that the federal testing is inadequate and thus constitutes a misrepresentation. See id. Thus, the Chamber of Commerce of the United States argues that if Good prevails, federally regulated industries may be forced to apply confusing, state-specific labeling which is potentially at odds with federal law or face severe liability. See id. On the other hand, if Altria prevails, those industries would be able to use federal regulation as a strong defense, even if that regulation were arguably inadequate.
A Decision against Preemption Costs the Tobacco Industry One Shield to State Law Misrepresentation Claims, but not the War
If Good prevails, tobacco companies would lose a shield against state law fraudulent misrepresentation claims concerning the use of descriptors such as “light.” However, this case would not be an automatic jackpot for plaintiffs across the nation; plaintiffs would still need to succeed on the underlying merits of the case. While some courts have tossed out lawsuits premised on similar misrepresentation claims, tobacco companies would still need to fight it out in diverse state courts. See, e.g., McLaughlin v. American Tobacco Co., 522 F.3d 215, 222–24 (2nd Cir. 2008).
Potential Changes in Cigarette Advertising on the Local Level — “Where’s my brand?”
If Good prevails, states could regulate the tobacco companies by imposing further restrictions on advertising. Putting the power to regulate in fifty state governments instead of the unified federal government could result in a “patchwork” of advertising regulation. See Brief for Petitioners at 29–31. “Light” cigarettes sold in one state might be “full-flavor” in another — consumers of one state seeking his or her favorite cigarette in another state may find that is sold under another name or become confused as to the tar and nicotine content. See Brief of CoCUS at 19.
A more serious, though less likely, possibility is a de facto ban on cigarettes. States might regulate cigarette labeling and advertising in stringent and conflicting ways, such that, as a practical matter, cigarettes cannot be sold. See Brief of Former FTC at 7–10. However, given the FCLAA support for cigarettes, a de facto ban would likely remain academic.
Impact on Consumer Health — Light Cigarettes are not Safe
Smoking is unhealthy. See, e.g., Department of Health and Human Services, The Health Consequences of Smoking — The Changing Cigarette at vi (1981). Some smokers may choose “light” cigarettes because they believe that they are less unhealthy than the “full-flavored” alternatives. See, e.g., Good v. Altria Group, Inc., 501 F.3d 29, 31 (1st Cir. 2007). However, “compensatory” behaviors by consumers may cause the “light” cigarettes to result in the same ill health effects as “full-flavored” cigarettes. See id. If Altria prevails, tobacco companies would likely continue marketing “light” cigarettes and, given a lack of change in the advertising, consumers would likely continue buying “light” cigarettes rather than quitting in the belief that the light cigarettes are less unhealthy. See, e.g., Department of Health and Human Services, The Health Consequences of Smoking — The Changing Cigarette at vi (1981); Brief of Amicus Curiae American Medical Association, et al. in Support of Respondents at 25–26. If Good prevails, tobacco companies may change their advertising to evade state law misrepresentation claims, thus warning the consumer that their “light” cigarette might be just as unhealthy as the “full-flavor” variety. Many smokers would undoubtedly continue to smoke, but they would do so knowing the gravity of their choice.
Congress enacted the Federal Cigarette Labeling and Advertising Act (“FCLAA”) in 1965 with the purpose of requiring cigarette companies to inform the public of the dangers of smoking and to prevent “diverse, nonuniform, and confusing cigarette labeling and advertising regulations with respect to any relationship between smoking and health.” 15 U.S.C. § 1331. In order to inform the public of the health risks associated with smoking cigarettes, the FCLAA requires all cigarette packaging and advertising to bear health warnings in accordance with its detailed specifications. See 15 U.S.C. § 1333. State laws establishing additional requirements or prohibitions in relation to the advertising or promotion of cigarettes are expressly preempted by the FCLAA. See 15 U.S.C. § 1334(b).
Respondent (“Good”), a group of cigarette smokers, sued petitioner (“Altria”), a cigarette manufacturer, in the United States District Court for the District of Maine. See Good v. Altria Group, Inc., 436 F. Supp. 2d 132 (D.M.E. 2006). Good argues that Altria’s use of the descriptors “light” and “lowered tar and nicotine” in advertisements promoting its cigarettes violates the Maine Unfair Trade Practices Act. See Brief for Respondents at 8–9. Good further asserted that according to the decision articulated by a plurality of the United States Supreme Court in Cipollone v. Liggett Group, 505 U.S. 504 (1992), state-law claims based on fraudulent misrepresentation in relation to cigarette advertisements are not preempted by federal law. See id. at 17. Altria maintains that Good’s claims are expressly preempted by the language of the FCLAA and impliedly preempted by the Federal Trade Commission’s regulatory activity. See Brief for Petitioner at 22, 45.
Cipollone and Express Preemption
Fraudulent Misrepresentation and Warning Neutralization
Under Cipollone, claims of fraudulent misrepresentation against cigarette companies may not be preempted if they are predicated on the general duty not to deceive rather than a duty specifically related to smoking and health. See Good, 436 F. Supp. 2d at 143. The District Court applied the framework established in Cipollone to Good’s claims and found they were expressly preempted by the FCLAA. See id. The FCLAA expressly prohibits state law from establishing requirements or prohibitions related to cigarette advertising or labeling with respect to any relationship between smoking and health. See 15 U.S.C. § 1334.The District Court found that Altria had not made any affirmative misstatements because use of the descriptors “light” and “lower in tar and nicotine” was supported by the results of testing according to the FTC Method. See Good, 436 F. Supp. 2d at 152.
Another type of fraudulent misrepresentation claim, known as a “warning neutralization” claim, is preempted under Cipollone. See id. Warning neutralization claims are claims based on a state-law prohibiting statements in cigarette advertising that tend to minimize the health hazards associated with smoking. See id. at 151. These claims are preempted because they are based on the premise that a cigarette advertisement should have included additional warnings or stated the warnings more clearly. See id. at 143. The District Court determined that Good’s objection to Altria’s use of the descriptors amounted to a question of what Altria should have said about its cigarettes and as such it was preempted by the FCLAA. See id. at 153.
According to the United States Court of Appeals for the First Circuit, because the state-law duty not to deceive is a general obligation broader in scope than a duty based on smoking and health, it falls within the Cipollone exception from preemption for claims based on allegedly false statements of material fact made in advertisements. See Good v. Altria Group, Inc., 501 F.3d 29 at 38 (1st Cir. 2007). Taking this view, it follows that a claim alleging a cigarette manufacturer has perpetrated fraud, by claiming that its light brand is lower in tar and nicotine than its full-strength brand, is not preempted by the FCLAA. See id. at 40. Thus, the First Circuit found that because Good’s claim is not that use of the descriptors diluted the required warnings, but that the descriptors deceived consumers into purchasing Altria’s products, it is not preempted by the FCLAA. See id. at 43–44.
Inherently False Statements and Potentially Misleading Statements
In addition to the distinction between fraudulent misrepresentation claims and warning neutralization claims, Altria describes Cipollone as distinguishing between claims challenging inherently false statements and potentially misleading statements. See Brief for Petitioner at 39. Altria’s use of tar and nicotine descriptors would fall under the category of potentially misleading information because there is no dispute that they accurately communicate the results of tests conducted according to the current FTC Method for testing cigarettes. See id. at 40. While inherently false statements may be prohibited entirely, the preferred method for handling potentially misleading statements is rehabilitation through disclaimers or explanations. See id. Because the FCLAA expressly preempts any additional requirements or prohibitions in relation to cigarette advertising and promotion, a claim arising from a potentially misleading statement in cigarette advertising or packaging is preempted. See id.
Good argues that the descriptors “light” and “lower tar and nicotine” were intentionally false, not potentially misleading. See Brief for Respondents at 22–23. Good asserts that the question of whether the descriptors convey the results of testing under the FTC Method or a false message regarding the health benefits of certain cigarettes is a question of fact. See id. at 24. Whether consumers understood the descriptors as shorthand for FTC Method test results or as an indication that certain cigarettes were less harmful or safer than others is an empirical question that can only be answered by careful research. See id. Although Good’s claims are health-related fraud claims, she maintains that they are not warning neutralization claims because they are not related to the federally mandated warning labels. See id. Rather, she characterizes them as fraudulent misrepresentation claims based on a state-law duty not to make false statements. See id.
Reexamining the Cipollone Framework
Altria argues that if the Supreme Court does not find Good’s claims are expressly preempted under the Cipollone framework, the Court should reexamine that framework. See Brief for Petitioners at 43. Under Cipollone, claims based on the premise that certain language should be included in or omitted from cigarette advertising are preempted, while claims challenging the scientific legitimacy of claims made in cigarette advertising are not. See id. Altria asserts that the FTC has communicated to the public that cigarettes with lower tar and nicotine yields under the FTC Method of testing have fewer health risks than regular cigarettes. See id. Because the FCLAA authorizes the FTC to regulate smoking and health related claims in cigarette advertising as part of its comprehensive federal regulatory scheme, Altria argues that a dispute relating to the health risks posed by “light” cigarettes is governed by federal law. See id.
Good argues that Altria has not justified its request for a reexamination of Cipollone and that a reexamination would support a finding that the FCLAA does not preempt state-law fraud claims. See Brief for Respondents at 28. She maintains that there is a difference between a state-law prohibition or requirement related to false advertising and a state-law requirement or prohibition related to smoking and health. See id. at 29. A claim of fraudulent misrepresentation may be related to smoking and health without being a claim predicated on smoking and health. See id. According to Good, courts may occasionally differ on how to apply the Cipollone framework, but these differences do not approach a level of inconsistency or confusion warranting a reexamination of that decision. See id. at 27.
FTC Regulation and Implied Preemption
FTC Regulation of Cigarette Companies
It is well established that even if a state-law claim is not expressly preempted by the language of a federal statute, it may be preempted to the extent that it actually conflicts with federal law and makes compliance with both federal and state law impossible, or to the extent that the state law stands as an obstacle to the accomplishment and execution of the full purposes of Congress. See Good, 501 F.3d 29 at 49. According to Altria, the FTC’s authority to regulate smoking and health claims in cigarette advertising is part of the uniform regulatory framework established by Congress under the FCLAA. See Brief for Petitioners at 45. A finding that Good’s claims are not preempted would impede the FTC’s objective of encouraging competition among cigarette manufacturers to develop lower tar cigarettes. See id.
Good argues that the FTC has “never made a regulatory decision to authorize or encourage the use of light descriptors and has never required cigarette companies to use the [FTC] Method or to disclose tar and nicotine yields.” See Brief for Respondents at 44. Good further asserts that because the FTC did not have industry-wide rulemaking authority at the time the FCLAA was enacted, Congress could not have intended to invest the FTC with exclusive authority to police fraud in cigarette advertising. See id. at 34. Good states that Congress could not have intended to exempt cigarette companies from prosecution under state law for fraudulent business practices. See id. at 30. She argues that if Congress had intended to create such an exemption, it would have expressed that intent clearly. See id.
Altria rejects the view that FTC regulation of the cigarette industry is not compulsory because it has not involved formal rulemaking actions. See Brief for Petitioners at 52. According to Altria, from the time the FCLAA was enacted, the FTC has regulated the cigarette industry’s smoking and health related claims through litigation, industry agreements, advisory opinions, policy statements, and consent decrees. See id. Both Altria and former Commissioners and senior staff of the FTC, as amici curiae, argue that the FTC has consistently exercised comprehensive oversight regarding the claims cigarette companies make about the tar and nicotine yields of their products. See, e.g., Brief for Petitioners at 4; Brief of Former Commissioners and Senior Staff of the Federal Trade Commission as Amici Curiae in Support of Petitioners (FTC Amici Curiae) at 4. It is well-established law that regulations promulgated by a federal agency by means other than formal rulemaking procedures may have preemptive effect when they reflect a considered policy judgment. See Brief for Petitioners at 52.
Claims Preserved by the FTCA
The First Circuit found that § 57b(e) of the Federal Trade Commission Act (“FTCA”) presents an additional hurdle to the success of Altria’s implied preemption argument. See Good, 501 F.3d 29 at 52. This provision states, “[r]emedies provided in this section are in addition to, and not in lieu of, any other remedy or right of action provided by State or Federal law. Nothing in this section shall be construed to affect any authority of the Commission under any other provision of law.” See 15 U.S.C. § 57b(e). According to the First Circuit, this subsection does not permit compliance with federal standards as a defense to a state-law claim. See Good, 501 F.3d 29 at 52. Under this view, the FTC cannot preempt state-law actions arising out of particular practices simply by entering into a consent order allowing them to continue. See id.
The First Circuit found that § 57b(e) permits further relief from unfair or deceptive trade practices under state law even where the FTC has already challenged those practices through litigation under the FTCA. See id. at 52–53. Although this finding does not diminish the FTC’s power to preempt state law through other assertions of its authority, it does permit claims under state law regarding issues that the FTC has informally regulated, or even litigated. See id. The court found that even if informal rulemaking could implicitly preempt state law, it would only preempt state regulation in some cases. See id. The court held that informal rulemaking would not preempt state-law claims that do not present an obstacle to federal regulatory objectives. See id.
Altria argues that the First Circuit’s reading of § 57b(e) is flawed. See Brief for Petitioners at 54. A reading of the plain language of the statute shows that it does nothing more than preserve the availability of state-law remedies when the FTC has determined that particular conduct violates the FTCA. See id. Altria concedes that Congress did not intend to eliminate all state-law claims predicated on unfair or deceptive trade practices, but argues that only claims that are consistent with the federal regulatory framework are preserved. See id. at 56. In Altria’s view, even though § 57b(e) preserves some state-law claims, it does not overrule established principles of conflict preemption. See id. at 55. Altria argues that because the descriptors “light” and “lower in tar and nicotine” were used in compliance with FTC regulations, Good’s claims are in conflict with the comprehensive federal regulatory scheme established by the FTC and the FCLAA and thus impliedly preempted. See id.
The Supreme Court’s decision in Altria Group will determine the scope of federal preemption of state law claims regarding deceptive advertising in cigarettes. A decision for Altria would likely provide a shield to state law claims regarding deceptive advertising, generally maintaining the status quo. A decision for Good may result in a “patchwork” of state law regulations regarding cigarette advertising. Furthermore, a decision for Good might compromise the authority of federal regulation, potentially subjecting any federally regulated industry to similar state law claims of fraudulent misrepresentation.
Edited by: Joe Hashmall