Aug. 13 (Bloomberg) -- Dr Pepper Snapple Group Inc., the beverage company spun off by Cadbury Plc last year, must face a lawsuit alleging its Snapple iced tea was deceptively promoted as “all natural,” a federal appeals court ruled.

The U.S. Court of Appeals in Philadelphia yesterday revived a New Jersey woman’s consumer-fraud suit, thrown out in 2008, after finding it wasn’t barred by U.S. Food and Drug Administration regulations covering food labeling. The suit contends the drink uses an artificial sweetener.

The three-judge panel concluded “neither Congress nor the FDA intended to occupy the field of food and beverage labeling and juice products” in a way that would preempt state-court suits challenging the accuracy of product labels, according to the court’s ruling.

“We believe Snapple is all-natural and we’re confident we’ll ultimately prevail,” Greg Artkop, a company spokesman, said in an e-mailed statement.

Dr Pepper Snapple, based in Plano, Texas, today reported second-quarter profit that beat analyst estimates and raised its 2009 forecast. Net income for the quarter rose 46 percent to $158 million, or 62 cents a share, from $108 million, or 42 cents, a year earlier. That beat the 50-cent average of analysts’ estimates.

Rising Earnings

The stock gained after the company said in a statement that earnings will rise to as much as $1.96 a share this year. Dr Pepper Snapple predicted earnings of as much as $1.78 a share in May.

Stacy Holk originally sued in state court in New Jersey alleging Dr Pepper Snapple officials violated consumer-fraud laws by marketing Snapple as “All Natural” when the drink contained an artificial sweetener. The case, which sought class- action status, was shifted to federal court in 2007, according to court filings.

In June 2008, a federal judge in New Jersey threw out the case, finding the suit was preempted by FDA regulations that outline what companies can put on food labels. The same year, the company replaced the artificial sweetener with sugar, according to court filings.

Under the preemption argument, federal regulations governing food or prescription drugs mean state-court suits over those products are barred since there’s no regulatory role for state officials to play.

Supreme Court Ruling

In March, the U.S. Supreme Court rejected such preemption arguments in upholding a $7 million product-liability award to a musician who lost her arm after getting a drug injection. Wyeth, the drug’s maker, argued the award was barred by the FDA’s finding that the product was safe.

In the Snapple case, the appellate panel concluded Congress hadn’t intended to completely dominate the regulatory scheme for the food-labeling industry and state-court suits over label claims weren’t barred.

“It does not appear that Congress has regulated so comprehensively in either the food and beverage or juice fields that there is no role for the states,” the judges noted.

Dr Pepper Snapple rose $1.20, or 5 percent, to $24.72 at 1:42 p.m. in New York Stock Market composite trading. The shares have risen 52 percent this year.

The case is Stacy Holk v. Snapple Beverage Corp, 08-3060, 3rd U.S. Circuit Court of Appeals (Philadelphia).

To contact the reporter on this story: Jef Feeley in Wilmington, Delaware, at jfeeley@bloomberg.net.

Last Updated: August 13, 2009 13:48 EDT