Peterson v. BASF Corp.

• Citation: 675 N.W.2d 57
• Decision Date: 19 February 2004
• Docket Number: No. C3-02-857.,C3-02-857.
• Parties: Ronald PETERSON, et al., Respondents, v. BASF CORPORATION, a foreign corporation, Appellant.
• Court: Supreme Court of Minnesota (US)

675 N.W.2d 57

Ronald PETERSON, et al., Respondents, v. BASF CORPORATION, a foreign corporation, Appellant.

No. C3-02-857.

Supreme Court of Minnesota.

February 19, 2004.

Winthrop A. Rockwell, James A. O'Neal, John P. Borger, Bruce Jones, Faegre & Benson, L.L.P., Minneapolis, MN, Kenneth F. Johannson, Johannson, Rust, Fagerlund, Yon & Stock, P.A., Crookston, MN, for Appellant.

Hugh V. Plunkett, III, J. Michael Schwartz, Robert K. Shelquist, Yvonne M. Flaherty, Lockridge Grindal Nauen P.L.L.P., Douglas J. Nill, Douglas J. Nill, P.A., Minneapolis, MN, for Respondents.

Lawrence S. Ebner (pro hac vice), McKenna Long & Aldridge L.L.P., Washington, D.C., for Amicus Curiae Croplife America.

Robin S. Conrad, National Chamber Litigation Center, Inc., Evan M. Tager, Richard B. Katskee, Mayer, Brown, Rowe, & Maw, Washington, D.C., for Amicus Curiae Chamber of Commerce of the United States.

Thomas F. Nelson, Robert L. DeMay, Todd A. Noteboom, Leonard, Street & Deinard, Minneapolis, MN, for Amicus Curiae National Association of Independent Insurers.

Susan E. Stokes, David R. Moeller, Farmers' Legal Action Group, Inc., St. Paul, MN, Elizabeth J. Cabraser, Scott P. Nealey, Lieff Cabraser Heimann & Bernstein, San Francisco, CA, for Amicus Curiae Minnesota Farmers Union.

William F. Mohrman, Mohrman & Kaardal, Minneapolis, MN, Daniel J. Popeo, Richard A. Samp, Washington Legal Foundation, Washington, D.C., for Amicus Curiae Washington Legal Foundation.

Jan S. Amundson, General Counsel, Quentin Riegel, Deputy General Association, National Association of Manufacturers, Washington, D.C., Latessa T. Ward, Cassandra K. Ward Brown, Ward & Ward LLC, Minneapolis, MN, David F. Zoll, Donald Evans, American Chemistry Council, Arlington, VA, Robert H. Morse, Washington, D.C., for Amicus Curiae National Association of Manufacturers and the American Chemistry Council.

Wayne D. Struble, Bowman And Brooke, LLP, Minneapolis, MN, Hugh F. Young, Jr., Product Liability Advisory Council, Reston, VA, for Amicus Curiae Product Liability Advisory Council, Inc.

Mike Hatch, Attorney General, State of Minnesota, Prentiss Cox, Assistant Attorney General, Erik Lindseth, Assistant Attorney General, St. Paul, MN, for Amicus Curiae State of Minnesota.

Michael R. Docherty, Rider Bennett, LLP, Minneapolis, MN, Victor Schwartz, Leah Lorber, Shook, Hardy & Bacon, L.L.P., Washington, D.C., for Amicus Curiae American Tort Reform Association.

Bruce M. Kleven, St. Paul, MN, for Amicus Curiae American Sugarbeet Growers Association.

J. Gordon Rudd, Jr., Zimmerman Reed, P.L.L.P., Sharon L. Van Dyck, Minneapolis, MN, for Amicus Curiae Minnesota Trial Lawyers Association.

Heard, considered, and decided by the court en banc.

OPINION

GILBERT, Justice.

This appeal arises out of a nationwide consumer fraud class action in which a group of farmers ("farmers") asserted that BASF Corporation's ("BASF") marketing misled and deceived American farmers into believing that a BASF herbicide, Poast Plus, could not be used on crops such as sugar beets. The farmers claimed that BASF's marketing manipulated them into purchasing Poast, a higher-priced BASF herbicide. BASF appeals the judgment rendered against it for violating the New Jersey Consumer Fraud Act ("NJCFA"), N.J. Stat. Ann. §§ 56:8-1-56:8-116 (West 2002), which the court of appeals affirmed. BASF argues that class certification and the application of New Jersey law to all the claims in the class were inappropriate, federal law preempts the farmers' consumer fraud claims, and the evidence was not sufficient to establish consumer fraud under the NJCFA. We affirm.

BASF is a Delaware corporation with its principal office in New Jersey. In the late 1970s and early 1980s, BASF began developing and testing Poast herbicide for use in controlling grass weeds. Around 1982, BASF registered Poast with the Environmental Protection Agency (EPA) as a post-emergent grass herbicide and began marketing the product for use. Over time, BASF sought approval from the EPA for the use of Poast on more crops and by 1992 Poast was EPA and state registered for use on over 60 crops, including all "major" crops and most "minor" crops.

"Major," or high acreage crops, include soybeans, corn, and cotton, which are farmed on millions of acres of land but provide a relatively low financial return per acre. "Minor," or high value crops, include sugar beets, vegetables, grapes, citrus fruits, and sunflowers. These crops are farmed on fewer acres, but yield a much greater profit per acre. When Poast was developed, it was the only post-emergent herbicide available for use on a number of minor crops. According to research funded by the United States Department of Agriculture, the herbicide market for minor crops has little competition because the market potential for a pest control product on specific crops is low, giving agricultural companies little incentive to absorb the cost of developing the data necessary for registration of a herbicide on individual crops, particularly minor crops.¹

The Federal Insecticide, Fungicide, and Rodenticide Act ("FIFRA") is a comprehensive regulatory system that governs herbicide/pesticide marketing and use.² FIFRA provides that a pesticide may only be distributed or used on a particular crop if the EPA has registered it for use on that crop. 7 U.S.C. § 136a(a) (2000). In addition, a state may regulate the sale or use of any federally registered pesticide to the extent the regulation does not permit any sale or use prohibited by federal law. 7 U.S.C. § 136v(a) (2000). The EPA does not, however, regulate marketing decisions on pesticide use. Federal regulations provide that "[a] registrant may distribute or sell a product under labeling bearing any subset of the approved directions for use, * * *." 40 C.F.R. § 152.130(b) (2000). However, if a registrant does not sell a product for use on a crop with labeling bearing approved directions for use, a state may, under section 24(c) of FIFRA, issue a "special local needs" registration for a product for crop uses that the EPA has approved. See 40 C.F.R. §§ 162.150-162.156 (2000).

In addition to registration requirements, federal regulations require distributors of pesticides to comply with packaging and labeling regulations. "Every pesticide product shall bear a label containing the information specified by [FIFRA] and the regulations in this part * * *." 40 C.F.R. § 156.10(a)(1) (2000). Pesticide labels must contain information on content, hazards, instructions for use, restrictions on use, and much more. Id. Use of a pesticide for a purpose or product not specified in the label is referred to as "off-label" use.

In the late 1980s, BASF began developing another agricultural herbicide, Poast Plus. Evidence was presented at trial on the similarities and differences between Poast and Poast Plus. The two products contain the same active ingredient, sethoxydim, which is equivalent between them in amounts distributed per acre.³ Poast Plus, however, also contains a crop oil adjuvant⁴ that, according to its patent, allows the mix, when added to water, to provide "equal or better herbicidal efficiency" than standard herbicide formations when mixed. Poast and Poast Plus are patented separately and the EPA required BASF to register the products separately. See 40 C.F.R. § 152.43(a) (2000).⁵ The EPA registered Poast Plus for use on the same 60 crops for which Poast was registered because registration was based on the same residue data that BASF used for Poast, which the EPA allowed because the two products use the same active ingredient.

However, BASF obtained state registration and labeled Poast Plus for use on only four crops: soybeans, cotton, peanuts, and alfalfa. From 1992-1996, Poast Plus was priced at approximately $4 per acre less than Poast. Evidence was presented at trial that BASF's strategy was to segment the market for the products between major and minor crops. For example, a 1990 BASF marketing plan stated that BASF's goal was to systematically replace Poast sales in soybeans and cotton with Poast Plus while aggressively positioning the higher-priced Poast in the market for minor crops, where there was less competition. The farmers argued that by limiting the number of crops for which Poast Plus was labeled, BASF was able to target the less-expensive Poast Plus in the more competitive major crop market and target Poast for sale in the less competitive minor crop market. According to the farmers, evidence indicated that BASF intended to conceal that Poast Plus was EPA approved for the same 60 crops as Poast.

The farmers presented evidence at trial that BASF advertised Poast as the "only" post-emergent grass herbicide registered for use on minor crops. Poast Plus, according to BASF advertisements, was "registered" for use only on cotton, soybeans, peanuts, and alfalfa, while Poast was "registered" for use on over 60 crops. BASF mailed a letter to food suppliers enclosing a list of BASF products and the crops for which they were registered making these claims. The letter stated that the goal of this list was to "ensure our food supply remains the safest in the world" by "informing producers and processors alike of proper pesticide use." A BASF executive testified that he considered it a material omission to say that Poast Plus was only registered for use on four crops. In the early-to-mid 1990s, sugar beet farmers in North Dakota began to purchase the less expensive Poast Plus and use it off-label on crops not labeled for use by Poast Plus. A BASF sales representative informed the North Dakota Department of Agriculture of the off-label use, which led the department to fine these farmers as well as the wholesale distributors of Poast Plus.⁶ To further inhibit off-label use, BASF's public relations firm submitted an article published in Sugarbeet Grower magazine, which discussed the illegality of off-label use of herbicides and increased enforcement of...