REFILE-Wal-Mart, retailers must face organic milk lawsuit

(Changes court location)

* Court reinstates class-action lawsuit

* Costco, Safeway, Target, Wal-Mart, Wild Oats sued

* Consumers allegedly misled by marketing claims

By Jonathan Stempel

NEW YORK, Sept 15 (Reuters) - A federal appeals court reinstated a nationwide lawsuit accusing Wal-Mart Stores Inc (WMT.N), Target Corp (TGT.N) and other major retailers of misleading consumers in the marketing of organic milk.

Wednesday's ruling by the U.S. Eighth Circuit Court of Appeals in St. Louis partially reversed the June 2009 dismissal of a lawsuit that had consolidated 19 separate class-action complaints.

Costco Wholesale Corp (COST.O), Safeway Inc (SWY.N) and Wild Oats Markets Inc, now owned by Whole Foods Market Inc WFMI.O, are also defendants, as is Colorado milk producer Aurora Organic Dairy. The Eighth Circuit returned the case to the federal district court in St. Louis.

Organic milk typically costs more, and was priced at about $3.79 per half gallon in 2009, according to data from the U.S. Department of Agriculture. About 836 million pounds of organic milk were sold domestically between January and June 2010, accounting for 3.1 percent of all milk sales, the data show.

In dismissing the complaint, the lower court judge concluded that the federal Organic Foods Production Act, intended to create a national standard defining organic food, preempted state consumer protection laws.

The Eighth Circuit agreed that state laws attacking the organic certification process were preempted, but found that state laws governing marketing were not.

"Preemption of state consumer protection law may actually diminish consumer confidence that organic products meet consistent standards," Chief Judge William Riley wrote for a three-judge panel.

"Consumers may well elect to avoid paying the premium for organic products upon realizing preemption grants organic producers a de facto license to violate state fraud, consumer protection, and false advertising laws with relative impunity," he wrote. "We do not believe the Organic Foods Production Act's purpose is advanced by extending preemption this far."

The plaintiffs had alleged that the milk cartons of Aurora's "High Meadow" brand, Costco's "Kirkland" brand, Safeway's "O Organics" brand, Target's "Archer Farms" brand, Wal-Mart's "Great Value" brand and Wild Oats' store brand marketed their contents as organic when they were not.

According to the opinion, the defendants were also accused of misrepresenting how their cows were raised and fed. One claim, for example, questioned Costco touting that its cows that "have quite the life," feeding on a balanced organic vegan diet and able to graze in organic pastures.

Aurora spokeswoman Sonja Tuitele declined to comment on the ruling. Jay Connolly, a lawyer for Wild Oats, said he was pleased that parts of the case were dismissed. Lawyers for the other retailers were not immediately available for comment.

The case is In re: Aurora Dairy Corp Organic Milk Marketing and Sales Practices Litigation, U.S. Eighth Circuit Court of Appeals, No. 09-2762. (Reporting by Jonathan Stempel. Editing by Robert MacMillan)