Readers may recall our dissection of the ridiculous application of offensive, non-mutual collateral estoppel in Freeman v. Ethicon, Inc., 2022 WL 3147194 (C.D. Cal. 2022).  Ultimately, the thumb that Freeman put on the scale didn’t matter, because the defendant won at trial despite that handicap.

We described the prior adverse decision that formed the ground for the collateral estoppel claim as “factual findings entered by a state-court judge after a bench trial in earlier false-advertising and unfair-competition litigation.”  That description doesn’t really do the prior decision (in)justice.  That decision, People v. Johnson & Johnson, 2020 WL 603964 (Cal. Super. Jan. 30, 2020), decided an action filed by the California attorney general that had essentially converted the allegations that product liability plaintiffs had been making against the defendants’ pelvic mesh into the basis for a statewide civil action under certain California consumer protection statutes.  Here is the result of that decision, in a nutshell:

The Court concludes that the People of the State of California (“Plaintiff”) have proven by a preponderance of the evidence that Defendants deceptively marketed their pelvic mesh products in the state of California and that their marketing was likely to deceive reasonable doctors and reasonable lay consumers, including potential patients and their friends and family, about the risks and dangers of these products. The Court therefore finds in favor for Plaintiff and awards civil penalties in the amount of $343,993,750.

2020 WL 603964, at *1.

That decision was affirmed – all but $40 million of it – by the 4th District California Court of Appeal in a dismal opinion.  People v. Johnson & Johnson, 292 Cal. Rptr. 3d 424 (Cal. App. 2022), review denied (Cal. July 13, 2022).  The Court of Appeal held:

• The superior court applied correct materiality standard to Attorney General’s false advertising claims, id. at 450;
• Sufficient evidence supported the superior court’s conclusions that physicians generally reviewed and relied on the defendant’s written instructions for use and were “likely” to be deceived, id. at 451-52;
• The evidence failed to establish the contents of the defendants’ oral marketing communications, and thereby failed to show those communications met the “likely” to deceive standard, id. at 460-61;
• Sufficient evidence supported the superior court’s conclusion that the defendants’ communications were likely to deceive patients, disregarding the learned intermediary rule, id. at 462-63;
• FDA §510(k) clearance of the defendants’ instructions for use did not “actually bar” or “clearly permit” the IFU statements so as to create a safe harbor that precluded the Attorney General’s claims, id. at 464-65;
• The superior court did not abuse its discretion in calculating either the number of violations, based on the total circulation of the defendant’s IFUs, or the penalty per violation, id. at 471-73; and
• The result of those calculations – a total penalty of some $302 million, did not violate constitutional due process or excessive fine prohibitions.  Id. at 473-76.

The final bullet point, concerning due process is the focus of the defendants’ petition for certiorari with the United States Supreme Court, filed on November 10, 2022, and currently pending at Johnson & Johnson v State of California, No. 22-447.

J&J v. California is hardly the first time states, or plaintiffs purporting to exercise state enforcement powers, have brought statistically based “UDAP” (unfair and deceptive acts and practices) consumer protection suits that, in practice, seek what amounts to judicially-imposed excise taxes on the targeted products.  The Blog examined the excesses of such litigation here, here, and here, among other posts.  Defendants faced with similarly massive statutory penalties generated by statewide calculation of thousands or millions of aggregated statistical proof have been trying for decades to get the Supreme Court to examine the Due Process implications of such penalties.  We hope that, at long last, the Supreme Court will take the opportunity to apply Due Process limits to such litigation, as it did late last century to punitive damages.

The linchpin of J&J’s Due Process arguments is the concept of “fair notice.”  “A fundamental principle in our legal system is that laws which regulate persons or entities must give fair notice of conduct that is forbidden or required.”  FCC v. Fox Television Stations, Inc., 567 U.S. 239, 253 (2012) (which the Blog discussed here). Before the advent of this sort of aggregated enforcement actions, businesses defending against product related inadequate warning claims could assert basic, well-understood common-law defenses.  Plaintiffs asserting common-law tort claims must offer individualized proof of causation – under the learned intermediary rule in prescription medical product liability litigation − and actual injury.  Not so in state-instigated UDAP litigation, where numerous states have largely removed these traditional protections through statutes that broadly and vaguely prohibit “unfair” and/or “deceptive” actions.  In J&J v. California, several surgeons testified that the risks of surgery with the defendant’s products were well-known and addressed by the defendant’s instructions.  Petition at 12.  “[O]ver 70 physicians” wrote a letter “lauding defendants’ mesh products and stating their grounds for supporting the right to access [to] them.”  Id. at 15.

UDAP-based litigation expands what had been ordinary product liability claims into massive quasi-class actions – with none of the protections that accompany the class action device − that dispense with individualized proof of injury or causation.  The Superior Court here “credited testimony from doctors who never implanted mesh, or who did so outside the state of California.”  Petition at 13.  Taking advantage of capaciously phrased UDAP statutes, states now routinely seek, and in this case succeeded, to extract hundreds of millions of dollars per case from businesses charged, in hindsight, with such practices.  This hindsight litigation, combined with the complete absence of traditional common law protections, makes it impossible for targeted entities to predict or prevent such exposure.

In J&J v. California, California, based on its notorious UCL and FAL statutes, claimed that certain statements that the defendants made about pelvic mesh were “likely to deceive” consumers and physicians – without ever having to prove that anybody was actually deceived. The trial court imposed statutorily-calculated “civil penalties” for over 200,000 “violations” without proof of actual deception, or even that the “violative” statements were ever seen by consumers, leading to the aforementioned verdict of over $300 million.  Petition at 14-15.

In our books, that’s not a fine, but rather a judicially imposed tax.

Constitutionally, the petitioning defendants argue lack of “fair notice” of the severity of this type of ex post facto penalty.  Like most UDAP statutes, the California UCL does not define what can be a separate “violation” for purposes of calculating statutory penalties.  Petition at 13 (quoting trial court holding that it is “up to the [c]ourt to determine what constitutes a violation”).  In default of any statutory guidance, California courts define “violation” in an ad hoc, case-by-case basis, with no consistency from one case to the next.  This leaves product manufacturers (and other businesses) that are potentially future defendants without any idea what conduct, or what communications, might later be targeted as a UDAP “violation.”  The bounds of statutory compliance are created entirely after the fact.

According to the petition, even in California, some courts used to mitigate this problem to some extent by limiting “violations” to marketing materials that consumers actually received.  That limitation at least bore some resemblance to reality, and to the traditional common law.  Only communications that consumers actually received were “likely to deceive” them.  But even that limited application of common sense fell by the wayside in J&J v. California.  See Petition at 25-26 (describing evolution of California UCL/FAL precedent). 

Now, the individual UDAP violations − already untethered from basic tort law protections of per-violation reliance and harm − are not even tied to theoretical harm to consumers: communications not proven to have reached consumers are not even “likely to deceive” them.

Petition at 28.  “Untethered from individualized proof of harm and causation, each company’s potential exposure is extremely unpredictable.”  Id. at 35.

The state imposed penalties for “violations” in this case on each and every piece of written marketing materials “estimated” to have ever entered California.  Petition at 13.  In this “extrapolation” from a single sales representative’s ordering patterns, id. at 14, it did not matter whether such materials were actually received by doctors or consumers, whether they were thrown away before reaching them, or whether they remained on the shelf in some warehouse or office.  Id. at 27 (testimony that “large” amount of material had to be “recycl[ed]”).  These defendants could not have predicted such a radical departure from common-law concepts of deception, causation, and injury.

A “person of ordinary intelligence” would have no “fair notice” that it could violate California’s UDAP statutes every time it shipped a marketing brochure to California − without any finding that this brochure reached a consumer. . . .  The resulting penalty count was unpredictable and resulted in arbitrary enforcement.

Petition at 24.  Given California’s ad hoc definition of “violation,” similar departures cannot be predicted by other defendants in future cases.

States, which in many cases (although not here) farm this type of litigation out to private, contingent fee counsel, now routinely seek – and sometimes receive − large verdicts in UDAP cases.  Id. at 35.  The Supreme Court has never addressed statutory notice questions in this context:

[T]his Court has not yet ruled on what due process strictures apply to state statutes that, like California’s UDAP statutes, give state attorneys general vast discretion to seek hundreds of millions of dollars in civil penalties related to commercial speech − and which may involve criminal penalties.  Clarity regarding the applicable standards is very much needed.

State courts have repeatedly held that UDAP statutes are entitled to only weak vagueness scrutiny. . . .

Petition at 19.  Further, as the Petition points out, “[m]assive UDAP penalties are all the more problematic because they risk chilling [First Amendment] protected commercial speech.”  Id. at 20.

This problem is serious and getting worse.  Petition at 30-33.  We agree that it is high time for the Supreme Court to grant review in such a case and delineate the applicable constitutional Due Process limits.