Not too long ago we researched and posted about how preemption precludes private plaintiffs from second-guessing FDA decisions on the marketing and classification of the products the Agency regulates. Looking through that post again, we note that quite a few of those decisions (although well less than half) involved commercial disputes of one sort or another. See Sandoz Pharmaceuticals Corp. v. Richardson-Vicks, Inc., 902 F.2d 222 (3d Cir. 1990); Hi-Tech Pharmaceuticals, Inc. v. Hodges Consulting, Inc., 230 F. Supp.3d 1323 (N.D. Ga. 2016); JHP Pharmaceuticals, LLC v. Hospira, Inc., 52 F. Supp. 3d 992 (C.D. Cal. 2014); Catheter Connections, Inc. v. Ivera Medical Corp., 2014 WL 3536573 (D. Utah July 17, 2014); Imagenetix, Inc. v. Frutarom USA, Inc., 2013 WL 6419674, at *4 (S.D. Cal. Dec. 9, 2013); Midlothian Laboratories, L.L.C. v. Pamlab, L.L.C., 509 F. Supp.2d 1065 (M.D. Ala. 2007), vacated in part other grounds, 509 F. Supp.2d 1095 (M.D. Ala. 2007); Healthpoint, Ltd. v. Stratus Pharmaceuticals, Inc., 273 F. Supp.2d 769 (W.D. Tex. 2001); Braintree Laboratories, Inc. v. Nephro-Tech, Inc., 1997 WL 94237 (D. Kan. Feb. 26, 1997).
The recent decision Exela Pharma Sciences, LLC v. Sandoz, Inc., ___ F. Supp.3d ___, 2020 WL 5535026 (W.D.N.C. Sept. 15, 2020), is another one along these lines, and it’s a doozy. In the course of dismissing the claims, Exela rules on several issues that also arise in our product liability sandbox.
The facts that created the dispute in Exela were somewhat unusual. The defendant was minding its own business, selling a drug overseas for which it had not sought FDA approval. A drug shortage arose in the United States, which “led the FDA to approach the Defendant about importing and selling its unapproved . . . product in the United States under the FDA’s ‘shortage program’ without requiring the drug to obtain FDA approval.” Id. at *2. The defendant did so under an FDA “memorandum of discretion” (with a fixed end date that the FDA extended several times) that it would not be prosecuted for doing so. Id. at *2-3. One condition of the FDA memorandum (which becomes important) was that the defendant include a “dear healthcare provider” (“DHCP”) letter with each unit of product sold, explaining the situation. Id. at *2.
While defendant was selling its drug under its arrangement with the FDA, the plaintiff developed and obtained FDA approval for a competing product that was arguably better and safer (Exela was decided on a motion to dismiss, so plaintiff’s alleged facts were taken as true). Id. at *3. However, the plaintiff had trouble selling its product with the defendant’s product still on the market, leading it to lobby the FDA to remove the unapproved competitor from the market:
After the FDA approved the Plaintiff’s product, the Plaintiff made numerous efforts to get the Defendant to stop selling its unapproved product. . . . [T]he Plaintiff repeatedly asked the FDA to remove [defendant’s drug] from its drug shortage list and prohibit any further importation and distribution of the Defendant’s unapproved product.
Id. Plaintiff also sent nasty letters to the defendant complaining about “allegedly improper and unethical conduct” and demanding that the FDA-authorized imports stop. Id. Eventually, the FDA did declare an end to the shortage and told defendant to stop importing its product, and defendant “immediately complied.” Id. at *3-4. However, the FDA allowed defendant to sell the rest of its “existing inventory.” Id. During this time, plaintiff still had trouble competing with defendant’s product, allegedly obtaining only 20% market share. Id. at *4.
The lawsuit – brought under state law (primarily North Carolina deceptive trade practices) and the federal Lanham Act − made a variety of claims that second-guessed the FDA’s decision to allow defendant’s product on the market and to keep it there for as long as the Agency did. That led to one of our favorite results: implied preemption under Buckman Co. v. Plaintiffs Legal Committee, 531 U.S. 341 (2001), and its progeny.
Finding all the state-law claims preempted, Exela invoked not only the FDCA’s no-private-right-of-action provision, 21 U.S.C. §337a, which Buckman construed, but also the FDA’s “complete discretion” to decide whether, and when, to “bring an enforcement action under the FDCA.” 2020 WL 5535026, at *5 (quoting in part Heckler v. Chaney, 470 U.S. 821, 835 (1985)). Exela held:
The FDCA’s prohibition on private actions, however, would be thwarted if savvy plaintiffs can label as arising under a state law for which there exists a private enforcement mechanism a claim that in substance seeks to enforce the FDCA. As such, private litigants may not bring a state-law claim against a defendant when the state-law claim is in substance (even if not in form) a claim for violating the FDCA. Likewise, there can be no state law cause of action if a plaintiff’s true goal is to privately enforce alleged violations of the FDCA.
2020 WL 5535026, at *5 (citations and quotation marks omitted).
“The test for determining whether a state law claim is impliedly preempted is whether or not the claim would exist in the absence of the FDCA.” Id. (citation and quotation marks omitted). “[A]ny claim that relies on the FDCA or its implementing regulations as a critical element is barred by §337(a).” Id. (citation and quotation marks omitted). Such “implied preemption applies to claims like breach of warranty, negligence per se, design defect, and failure to warn.” Id. (citations omitted).
Plaintiff’s first claim was that, notwithstanding the FDA’s memorandum of discretion, the defendant was liable under North Carolina law for the “deceptive practice” of marketing an “illegal” product, and that “the FDA acted unlawfully by letting the Defendant import and sell that product.” 2020 WL 5535026, at *6. That claim “challenges the FDA’s decision not to bring enforcement proceedings against the Defendant under the FDCA.” Id. FDA prosecutorial discretion barred those allegations. Once again, the discussion in the Exela opinion is so favorable to preemption that we’ll simply quote it organically, removing the various citations:
The Plaintiff’s [trade practices] claim related to the Defendant’s sale and importation of the . . . product is preempted. The FDCA contains no private right of action and gives the FDA complete discretion to decide whether to bring enforcement proceedings. As such, the FDA has power to determine whether particular drugs require an approved NDA [New Drug Application] in order to be sold to the public. The Plaintiff does not have the authority to stand in the shoes of the FDA to determine whether the Defendant’s sale of the products at issue amounts to the sale of an unapproved drug under the FDCA. This enforcement authority lies exclusively with the FDA. . . . [I]t is the sole responsibility and privilege of the federal government, and not private plaintiffs, to bring a suit to enforce those violations. The crux of the Plaintiff’s [trade practices] claim is a challenge to whether the importation and sale of the Defendant’s [drug] product are lawful under the FDCA. As such, the Plaintiff is preempted from making that claim.
Id. at *7 (citations and quotation marks omitted). As in Buckman, “the FDA engaged in a prolonged effort to balance . . . the risks inherent in a drug shortage with the safety risks of allowing the importation and sale of an unapproved product.” 2020 WL 5535026, at *7. State-law claims attacking the FDA’s actions “would disrupt the delicate and considered balance that the FDA struck.” Id. “For the Plaintiff to now second guess the FDA’s decision in a civil action based on state law would render the FDA’s authority to be a nullity.” Id.
Exela further analogized the claim attacking the defendant’s importation of its product to a “stop-selling” claim of type held preempted in the product liability context.
[T]he FDA issued a Memorandum . . . allowing the Defendant temporary permission to import and sell its [drug] product. Notwithstanding the Defendant’s permission from the FDA, a viable [trade practices] claim related to the import and sale of [that] product would have nonetheless forced the Defendant “to leave the market or accept tort liability.” This is precisely the type of claim that . . . must be preempted.
Id. at *8 (quoting Drager v. PLIVA USA, Inc., 741 F.3d 470, 479 (4th Cir. 2014)). Any claim “assert[ing] that the only way to comply with state law would have been for the Defendant to leave the market” is preempted. Id. Thus Exela illustrates one of the strengths of implied preemption – its principles apply to all cases, and are not limited to the same statutory sections. Such “distinction[s] matter little for preemption purposes.” Id. at *9 (also finding persuasive the stop-selling rationale of Zogenix, Inc. v. Patrick, 2014 WL 1454696 (D. Mass. April 15, 2014)).
Plaintiff’s second claim was that, by seeking renewal of the FDA’s memorandum of discretion, the defendant committed a state-law unfair trade practice. Exela saw through that claim right away. It wasn’t the defendant’s request to the FDA that the plaintiff challenged, but “Plaintiff’s true quarrel is with the FDA granting the . . . request.” Id. at *10. In that respect Exela is akin to the bogus “pre-approval design defect” claims that have sometimes bamboozled courts in product liability cases by purporting to attack a defendant’s FDA submission, when what the plaintiff really seeks to nullify is the FDA’s approval. That claim also failed as a matter of law:
The Plaintiff does not allege that the FDA’s . . . decisions were a result of any false or misleading actions on the part of the Defendant. The Plaintiff only alleges that the Defendant committed an unfair or deceptive act by merely seeking renewal. That is insufficient. . . .
Id. at *11. The FDA was “fully aware” of the defendant’s request, the “approval status and production status” of the plaintiff’s competing product, and the “state of the . . . market” when it allowed these renewals. Id. at *10.
Plaintiff’s third claim is one we see fairly frequently in product liability litigation. Plaintiff alleged that the defendant had an obligation to send another DHCP letter to “update” statements in the original FDA-required DHCP letter with new information – the existence of the plaintiff’s FDA-approved, competing product. That claim raised the issue whether state law can require a defendant to send a DHCP/“Dear Doctor” letter where the FDA has not. Exela answered “no,” to that question.
Only the FDA can require a regulated manufacturer to send out DHCP letters. The FDA “mandate[s] and oversee[s] the distribution of Dear Healthcare Provider letters.” 2020 WL 5535026, at *11. Thus, again, the plaintiff was attacking FDA-imposed requirements:
[T]he Defendant distributed the Dear Healthcare Provider letters at the FDA’s direction and with the FDA’s approval. The distribution of those letters was one of the FDA’s conditions for not exercising its enforcement authority. . . . Under those conditions, the FDA explicitly approved the language contained in the Defendant’s Dear Healthcare Provider letters and any revisions of those letters required FDA approval.
Id. at *12 (citations omitted). Since the FDA would have to review any alterations to the DHCP letter it had previously approved, preemption was also required under what we call the “Mensing independence principle”:
[the FDA] prohibited the Defendant from unilaterally changing the statements contained in the letter, including the statement about which the Plaintiff complains. The Supreme Court has held that “when a party cannot satisfy its state duties without the Federal Government’s special permission and assistance, which is dependent on the exercise of judgment by a federal agency, that party cannot independently satisfy those state duties for pre-emption purposes.” That is because “[t]he only action the [Defendant] could independently take − asking for the FDA’s help − is not a matter of state-law concern.”
Id. (quoting PLIVA, Inc. v. Mensing, 564 U.S. 604, 623-24 (2011)). “[T]he FDA’s scheme for controlling the risks . . . would have been undermined if the Defendant sent other communications to customers contradicting the contents of the FDA-approved [DHCP] letters.” Id.
Plaintiff’s fourth claim is another one we see fairly frequently in product liability litigation – whether state law can force a defendant to include information about other, competing products. Plaintiff alleged that the defendant committed an unfair trade practice “by failing to warn its customers that [defendant’s] product had a higher [allegedly harmful impurity] content than the standard that the FDA required [plaintiff] to meet and by failing to tell its customers about the difference in [impurity] content between the two products.” Again Exela held “no.”
Initially, Exela found that the plaintiff’s purported “FDA standards” were “not standards at all.” The plaintiff exaggerated their import. 2020 WL 5535026, at *13. All plaintiff offered was a “letter” the FDA had sent during the approval process for its competing product. Not good enough. That “letter . . . does not constitute an official agency determination.” Id. “[T]hat the FDA required the Plaintiff’s . . . product to meet a certain . . . level to receive FDA approval did not create a binding limitation on other drugs.” Id. In any event “regulatory letters do not constitute final agency action.” Id. (quoting Dietary Supplemental Coalition, Inc. v. Sullivan, 978 F.2d 560, 563 (9th Cir. 1992)).
Further, Exela could find no state-law duty obligating the defendant to provide customers with derogatory information about how its product compared with the plaintiff’s competing product.
The Plaintiff has cited no authority for the proposition that a merchant’s failure to inform its customers as to how its product compares unfavorably to a competitor’s product constitutes a deceptive trade practice. There is no basis to conclude that the law imposes such obligation.
2020 WL 5535026, at *13. The FDA was free to set different standards for full drug approval, as opposed to temporary importation permission. “The Plaintiff cannot, however, use a state-law claim . . . to countermand the FDA’s determinations and [to] substitute its own requirements.” Id. (citation and quotation marks omitted).
Fifth and Sixth, the plaintiff asserted claims that the defendant had “oversupplied” the market and “misused” its “incumbent status” while selling its product when, and in the amount, the FDA allowed. Id. at *14. Both of these claims met the same preempted fate. The allegations were simply that the defendant sold its product in accordance with FDA requirements. Such claims were preempted “because there is no private right of action in the FDCA and the FDA is the sole entity that can bring enforcement actions to halt the sale and importation of drugs.” Id. (citation and quotation marks omitted).
Seventh, the plaintiff also brought a common-law tort claim for “interference with prospective economic advantage.” That claim likewise had as its “cornerstone” the allegations that “it is illegal to introduce an unapproved drug into interstate commerce.” Id. at *15. Since the tort claim alleged essentially the same thing, it was likewise dismissed.
Plaintiff’s claim is . . . that it is somehow “illegal” for the Defendant to do precisely what the FDA gave the Defendant permission to do. As such, this claim again attempts to enforce the FDCA against the Defendant for importing and selling an illegal drug. The FDA, however, is the only entity that can bring a claim against the Defendant for its alleged introduction of an illegal drug into interstate commerce. The Plaintiff is preempted from bringing [this] claim.
Id. (citation omitted). How many times must this self-evident proposition be repeated? Not that we’re complaining.
Plaintiff also asserted many of the same claims under the guise of Lanham Act violations. As we’ve discussed a number of times before, because the Lanham Act is a federal statute, it is not subject to preemption, per se. However, courts have reached much the same result employing “comity,” “deference,” and similar principles. So it was in Exela. Lanham Act claims are “precluded” if they: (1) “turn on the content of something that has been previously preapproved by the FDA”; (2) “conflict with an affirmative policy judgment by the FDA”; or (3) “involve an issue on which the FDA has taken positive regulatory action.” 2020 WL 5535026, at *16 (citations and quotation marks omitted).
On these bases all of plaintiff’s equivalent Lanham Act claims were precluded. They involved communications preapproved by the FDA, FDA policy judgments, and matters where FDA had taken positive action. Id. at *16-17.
We recommend that our defense-side colleagues take a close look at Exela. It’s chock full of useful preemption nuggets, and draws together citations to many cases from different areas of the law that have prevented private plaintiffs from second-guessing the FDA – product liability, to be sure, but also administrative and commercial litigation.