Despite Ninth Circuit’s Pom Wonderful Decision, District Court Denies Motion to Dismiss Deceptive Labeling Claims

By Isabella C. Lacayo
Published on May 15, 2013

We have previously posted about lawsuits seeking injunctive relief and damages arising from food manufacturers’ use of terms like “natural” on labels and in advertising (see, for example, here and here).  These cases are usually putative class actions that allege particular food products have been misbranded by the manufacturers.  Even though such claims would appear to be preempted by the Federal Food, Drug and Cosmetic Act (“FDCA”), which regulates food safety and labeling and prohibits private enforcement, plaintiffs have been able to bring their claims by alleging violations of state laws that parallel the FDCA requirements.

Plaintiffs have had the most success in California where the state Unfair Competition Law permits causes of action for false, or deceptive, labeling and the courts have been fairly receptive to putative classes.  Indeed, the Ninth Circuit previously noted that, as a general matter, deceptive labeling claims should not be decided at the motion to dismiss stage.  See Williams v. Gerber Products, 552 F.3d 934 (9th Cir. 2009).  But the Ninth Circuit’s decision in Pom Wonderful LLC v. Coca–Cola Co., 679 F.3d 1170 (2012), made California less friendly to would-be plaintiffs.

In Pom Wonderful, plaintiff Pom Wonderful had alleged that its competitor, defendant Coca-Cola Co., had violated California state law as well as the Lanham Act by using the word “pomegranate” and a picture of a pomegranate on the label of a beverage that contained less than 1% pomegranate juice.  The district court granted summary judgment in favor of Coca-Cola Co. and the Ninth Circuit affirmed.  The Ninth Circuit held that Pom Wonderful’s claims were preempted because the FDCA comprehensively regulates food and beverage labeling and the FDA could act if it determined that Coca-Cola Co.’s labeling did not comply with its regulations.  Thus, the Ninth Circuit deferred to the FDA’s decision whether to act or not with respect to the label in question.

Not surprisingly, though, plaintiffs have not given up and are trying to keep their cases alive in California.  And they recently made some headway steering away from Pom Wonderful in Janney v. General Mills, No. C 12-3919 (N.D. Cal. 2013).  The plaintiffs in Janney are a putative consumer class alleging that General Mills’ Nature Valley brand food products’ “natural” labels are deceptive because the products contain high fructose corn syrup and other processed sweeteners.  The plaintiffs’ complaint includes various counts of California law violations as well as unjust enrichment.  According to the plaintiffs, “natural” labels should only be applied to products that contain no artificial or synthetic ingredients and consist of ingredients that are only minimally processed.

The district court recently issued an opinion denying General Mills’ motion to dismiss based on the primary jurisdiction doctrine.   Under this doctrine, courts may determine that certain decisions should be made by the relevant federal agency (as opposed to the courts).  General Mills argued that the FDA should determine the meaning and proper use of the label “natural.”  Although finding that the “question is a close one,” the court disagreed.  The court concluded that the deceptive labeling claims should not be dismissed because “the FDA has signaled a relative lack of interest” with respect to the use of “natural” in food and beverage labels.  According to the opinion, the FDA’s failure to define “natural” in any regulation or formal policy statement is telling.  The FDA has only issued “informal” guidance stating that “natural” means that “nothing artificial or synthetic [ ] has been included in, or has been added to, a food that would not normally be expected to be in the food.”  Although the FDA has issued numerous warning letters to food and beverage manufacturers for uses in contravention of this definition, the court determined that the FDA “has taken little action against companies who have used the term ‘natural’ in labels for food products that contain various preservatives.”

The court’s decision is surprising given that it “agree[d] that the Syntek factors [for the primary jurisdiction doctrine] favor the resolution of this issue by the FDA.”  Moreover, the court’s decision is inconsistent with the Ninth Circuit’s Pom Wonderful decision.  The district court itself acknowledged that the Ninth Circuit in Pom Wonderful had “found that when a plaintiff’s cause of action requires a court to decide an issue committed to the FDA’s expertise, dismissal in deference to that agency is the proper result – even if no formal regulation has been adopted.” (emphasis added).  Nevertheless, the court did not follow the Ninth Circuit’s lead and found “little reason to stay or dismiss the case to allow the FDA the opportunity to take action.”

The issue will likely eventually be before the Ninth Circuit, but in the meantime plaintiffs will surely rely on the district court’s opinion in Janney v. General Mills in an effort to sidestep Pom Wonderful and support their false labeling claims.

Posted in Class Action Law Suits, Consumer Fraud - False Advertising, Food and Beverage, Preemption, Product Labeling Liability

Generic Drug Manufacturer Ranbaxy Pleads Guilty and Agrees to $500 Million Settlement

By Meghan A. McCaffrey
Published on May 14, 2013

As we’ve been following since January 2012, the DOJ announced yesterday the final settlement with generic drug manufacturer Ranbaxy, bringing to a close the DOJ’s investigation of claims that the company introduced certain batches of adulterated drugs into the U.S. marketplace years ago.  Ranbaxy is probably best known for the sale of the generic version of the blockbuster drug Lipitor.  The $500 million settlement is being touted as the “largest drug safety settlement to date.”

As part of the settlement, Ranbaxy pled guilty to three felony Food, Drug and Cosmetic Act counts and four felony counts of knowingly making material false statements to the FDA, according to the DOJ press release.  According to Rod J. Rosenstein, U.S. Attorney for the District of Maryland, “This is the largest false claims case ever prosecuted in the District of Maryland, and the nation’s largest financial penalty paid by a generic pharmaceutical company for FDCA violations.”  As we highlighted in our previous post, the international component of this investigation — all manufacturing facilities at issue were located in India — seem particularly noteworthy and suggest a more aggressive international stance on the part of the FDA.  As acting assistant attorney general for the DOJ Civil Division, Stuart F. Delery, stated, “We will continue to work with our law-enforcement partners to ensure that all manufacturers of drugs approved by the FDA for sale in the United States, both domestic and foreign, follow the FDA guidelines that protect all of us.” 

Ranbaxy will pay a criminal fine and forfeiture totaling $150 million and civil settlement of $350 million, $231.8 million of which will go to the federal government, $118.2 million to the participating states, and approximately $48.6 to the qui tam whistleblower, a former Ranbaxy executive.  Whether the Ranbaxy settlement indicates a growing trend in broad-reaching international enforcement of FDA violations remains to be seen, but it is likely that the DOJ and FDA will continue to work together if these are the results they can achieve.  Companies thus should be ever more vigilant in their risk management assessments and consider proactive measures to eliminate, or at least reduce, their exposure to aggressive government FCA actions.

Posted in False Claims Act, Uncategorized

Third Circuit Holds That “No Trans Fats” Doesn’t Have To Mean No Trans Fats

By Keith Gibson
Published on May 10, 2013

For anyone who checks labels when buying food products, the statement “No Trans Fats” does not always mean no trans fats, and that is not misleading according to the Third Circuit.  On May 9, the Third Circuit affirmed the dismissal of a putative class action against Johnson & Johnson (J&J) alleging that the labeling on the company’s Benecol brand of butter and margarine substitutes was false and misleading due to its claims of cholesterol-lowering capabilities and the absence of any trans fats.  On April 19, 2012, Judge Joel Pisano of the District Court for the District of New Jersey dismissed the putative class action, holding that J&J had been up front about the presence of partially hydrogenated oils (which constitute trans fats) and that the plaintiff’s claims were preempted by the Nutrition Labeling and Education Act (NLEA).  The Third Circuit affirmed Judge Pisano’s ruling, holding that NLEA preempted the plaintiff’s state law claims, which sought to impose standards stricter than those included in the federal regulations.

In his putative class action complaint, the named plaintiff, Thomas Young, argued that J&J falsely advertised its Benecol line of spreads as containing “no trans fats” even though they contained small amounts of partially hydrogenated oils.  The plaintiff also argued that his claims were not preempted because U.S. Food & Drug Administration guidelines prohibit false claims outside the nutritional box on the product.  Judge Pisano held that J&J had been up front about the presence of partially hydrogenated oils in its Benecol spreads because they were listed on the ingredient list and Benecol’s packaging included a disclaimer stating that the product included a small amount of partially hydrogenated oil.  Judge Pisano also held that the plaintiff’s claims were preempted by the NLEA, which allows for products containing fewer than 0.5 grams of trans fat per serving to be labeled as having 0 grams of trans fat.  Judge Pisano ruled that the “[p]laintiff’s complaint amounts to no more than subjective allegations that the presence of any amount of trans fat and partially hydrogenated oils renders defendant’s health claims misleading and Benecol unhealthy.  Such allegations, however, are insufficient to establish injury-in-fact.”

On appeal, the attorney for the plaintiff argued that it was misleading for the defendant to advertise its product as containing “no trans fat” even if it contained 0 grams per serving under NLEA guidelines.  He further argued that J&J’s claim that Benecol was “proven to reduce cholesterol” was untrue given that trans fats are known to actually raise cholesterol.  The Third Circuit disagreed, however, choosing not to accept a distinction between a claim that a product contains zero grams of trans fat per serving and “no trans fats.”  Because anything less than 0.5 grams of trans fat per serving is considered to be insignificant under the NLEA and FDA guidelines, the statement that the product contained “no trans fats” was not misleading.  This was particularly true, the Court noted, where the product packaging included information identifying small amounts of trans fats in the form of partially hydrogenated oils.  With respect to the choloesterol-reducing claim, the Court held that the claims were authorized based on the presence of plant stanol ester in Benecol.  According to FDA regulations, a food product that contains at least 1.7 grams of plant stanol esters – which Benecol did – can make a health claim such as the one included by J&J.  As a result, the Third Circuit held that the plaintiff’s claims were preempted by the NLEA.

The Benecol suit is another example of plaintiffs trying to gain some traction in the space of false or misleading labeling claims.  Thus far companies have largely been able to stave off these claims, both in the courtroom and in the political and regulatory arena.  However, we will continue to monitor the efforts of the plaintiffs’ bar and report on any significant developments.

Posted in Consumer Fraud - False Advertising, Food and Beverage

The Alien Tort Statute After Kiobel

By Lisa Sokolowski
Published on May 8, 2013

Though the Supreme Court’s April 17, 2013 decision in Kiobel v. Royal Dutch Petroleum, 2013 WL 1628935, is just three weeks old (for a full discussion of the case, see here), the judicial universe has already applied it to cases brought under the Alien Tort Statute (“ATS”). 

In fact, just two days after the Supreme Court decided Kiobel, the Southern District of Texas dismissed a case brought under the ATS, the Torture Victim Protection Act (“TVPA”), and other legal theories, that involved alleged actions taken by the Honduran army.  Murillo v. Bain, 2013 WL 1718915 (S.D. Tex. Apr. 19, 2013).  In holding that “American Laws like the [ATS and TVPA] are presumed not [to] apply beyond the borders of the United States,” the District Court naturally cited to Kiobel.

In other district courts, litigants are avidly briefing the issue of Kiobel’s application.  In one such case in the District of Massachusetts, the plaintiff, who resides in the Republic of Moldova, brought suit against the defendant, a United States resident, under the ATS and the Optional Protocol to the Convention on the Rights of the Child on the Sale of Children, Prostitution, and Child Pornography of the United Nations General Assembly.  V.D. v. Nikolayev (No. 10673).  On May 1, 2013, the defendant filed a motion to dismiss, based almost entirely on the premise that, per the Supreme Court’s decision in Kiobel, the District Court lacks jurisdiction under the ATS.   

Indeed, the Supreme Court itself has addressed the impact of Kiobel in two cases.  In the first—Rio Tinto PLC, et al. v. Sarei, et al. (No. 11-649), also a corporate ATS case—the Supreme Court on April 22, 2013, granted the petition, vacated the judgment, and remanded the case to the Ninth Circuit for further consideration in light of Kiobel.  In the second, also decided on April 22, 2013, the Supreme Court granted certiorari in yet another corporate ATS case involving claims brought by Argentinian residents against a German Corporation for alleged human rights abuses by the corporation’s Argentinian subsidiary.  DaimlerChrysler Corp. v. Bauman (No. 11-965).  The Supreme Court granted certiorari to decide whether it violates due process for a court to exercise general personal jurisdiction over a foreign corporation based solely on the fact that an indirect corporate subsidiary performs services on behalf of the defendant in the forum state.  Interestingly, the case could allow the Supreme Court to further clarify one of the key issues it left open in Kiobel—that is, the exact extent to which claims brought under the ATS must “touch and concern” the United States in order to displace the presumption against extraterritoriality.

We will continue to keep an eye on these cases, as well as any future cases further clarifying the new reach of the ATS after Kiobel.

Posted in Alien Tort Statute, Supreme Court

FDA Flexing its Muscle with Compounding Pharmacies

By Christopher D. Barraza
Published on May 7, 2013

Last week, my colleague wrote about proposed legislation in the Senate that would increase FDA oversight of compounding pharmacies.  As the bill works its way through the legislative process, we thought it might be helpful to talk more about how FDA has been conducting oversight of compounding pharmacies within the existing regulatory framework.  The short answer is that in the wake of New England Compounding Company meningitis outbreak last fall, FDA has brought a record number of enforcement actions.

Consider this statistic: FDA has pursued more enforcement actions in the first four months of 2013 than in the previous five years combined.  Thus far this year, FDA has issued almost four dozen inspectional observations, which are often referred to as “Form 483s”  or “483s,” compared with approximately two dozen 483s and warning letters from 2008 through 2012.   FDA is authorized to perform inspections of compounding pharmacies under the Federal Food, Drug, and Cosmetic Act, SEC. 704 (21 USC §374) and uses 483s to document and communicate concerns discovered during these inspections.  Although Form 483s are not a final agency determination, they are often a precursor to regulatory action, which can include a formal warning letter, withholding of product approval, or plant shut down.  And 483s yield results: FDA’s stepped up oversight has lead to six voluntary recalls by compounders so far in 2013. 

There are questions about how long FDA can sustain its recent enforcement action pace, since focusing on compound pharmacies requires FDA to shift resources from other areas.  What is clear, though, is that regardless of pace, FDA is now very much engaged on the issue of regulatory oversight of compounding pharmacies and will continue to pay particular attention to this issue.  Whether that will result in more litigation remains to be seen but FDA tighter regulation often brings more private lawsuits in its wake.  We will continue to monitor developments in this area.

Posted in Legislation, News, Pharmaceutical Law