August 2016

The Lawyers Have Arrived; Breaking down FDA legal challenges

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By J. JACKSON WASTE

Two companies, Nicopure Labs, LLC and Lost Art Liquids, LLC, have filed lawsuits in federal court challenging the validity of the FDA’s new “Deeming Rule.” Both lawsuits seek a determination that the Deeming Rule is an “arbitrary and capricious” regulatory action that violates the Administrative Procedures Act.

Nicopure Action:

The Nicopure complaint was filed on May 10, 2016 in the United States District Court for the District of Columbia. The complaint begins with a bit of background, noting that the 2009 Tobacco Control Act (the “Act”) is a statute designed to address the public health problems created by widespread tobacco use, that the Act creates a number of barriers for participants in the tobacco market (including a rigorous premarket approval procedure similar to that used for drugs), and that the Act applies – as we have all now seen – to “cigarettes, cigarette tobacco, roll-your-own tobacco, and smokeless tobacco and to any other tobacco products that the Secretary [of HHS] by regulation deems to be subject” to that law.

The complaint goes on to note the inherent absurdity in the fact that the Deeming Rule concludes that vaping devices (and their parts) are “tobacco products” subject to the act, notwithstanding the fact that they are pieces of electronic equipment clearly not intended for human consumption.

Any would-be litigant seeking to adjudicate a dispute in federal court must show that he has “standing.” This usually means, among other things, showing that the plaintiff has suffered a real injury of the sort for which the federal courts can provide redress. Often where a litigant comes to court trying to prevent a future injury from happening, the courts will refuse to hear the case on the grounds that the controversy is not yet “ripe.” The Nicopure complaint attempts to preemptively address such concerns by describing in detail the harmful effect that the Deeming Rule will have on Nicopure’s business when it goes into effect on August 8, 2016.

It notes that literally hundreds of Nicopure’s products will be subject to the premarket approval, reporting, recordkeeping, inspection, labeling, manufacturing, and testing requirements previously reserved only for tobacco products. These requirements will force Nicopure to discontinue certain product lines and refrain from introducing new ones. The complaint also asserts that Nicopure has suffered “immediate and irreparable consequences of being subject to unlawful regulation, including the unlawful deprivation of [its] constitutional rights.”[1]

The complaint states four claims for relief, all for different violations of the Administrative Procedures Act (“APA”).[2] The statute under which Nicopure is proceeding allows litigants to seek judicial review of the decisions of administrative agencies (such as the FDA) and, under some circumstances, set aside actions taken by those agencies. Specifically, the operative statute allows courts to set aside agency actions, findings, and conclusions upon a finding that those actions, findings, or conclusions were, among other things, (i.) arbitrary, capricious, an abuse of discretion, or unlawful, (ii.) offensive to a constitutional right, or (iii.) without observance of some legally required procedure.

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First, Nicopure alleges that the Deeming Rule violates the APA because it relies upon an insanely broad definition of the term “tobacco product” that would be foreclosed by an accurate and reasonable interpretation of the Act. Second, Nicopure alleges that the FDA’s propagation of the Deeming Rule is an “arbitrary and capricious agency action” subject to judicial undoing under the APA. Specifically, Nicopure asserts that the Deeming Rule is unlawful because the FDA failed to articulate a rational connection between the facts found and the choice made, failed to consider an important aspect of the problem, or offer an explanation for its decision that runs counter to the evidence. In support of this claim, Nicopure alleges that the FDA failed to adequately consider the massive burden that the premarket approval process will place on its business.

Nicopure further contends that the Deeming Rule is arbitrary and capricious because its in effect – a de facto moratorioum on the introduction of new vapor products into the consumer market – would actually undercut the stated goal of the Act, which was to reduce smoking and curb its intended health consequences, by forcing consumers away from vapor and back to analog.

Nicopure’s third APA claim asserts that the FDA engaged in an unlawfully flawed cost-benefit analysis prior to propagating the Deeming Rule. The FDA, Nicopure charges, “understate[d] the Rule’s tremendous costs, and erroneously conclude[d] that the benefits outweigh its costs.”[3] As evidence of the FDA’s flawed analysis, Nicopure points out that the Deeming Rule estimates that a total of 750 premarket tobacco applications (“PMTAs”) will need to be filed in the first year industry-wide, but this can’t possibly be accurate because Nicopure alone will need to file several hundred.

Nicopure’s fourth claim relies on a provision in the APA which allows a reviewing court to set aside agency actions that offend a constitutional right. The Deeming Rule, Nicopure argues, infringes upon its First Amendment right to make “truthful and nonmisleading statements regarding vaping devices, e-liquids, and related products.”[4]

Lost Art Action:

The Lost Art Liquids, LLC action was filed on May 19, 2016 in the United States District Court for the Central District of California.

The first claim made by Lost Art is that the Deeming Rule constitutes a violation of the Regulatory Flexibility Act (“RFA”).[5] The RFA is federal law designed to ease the burden of regulations on small businesses. In brief, the law requires regulatory agencies to consider whether a proposed regulation would have a significant deleterious impact on a substantial number of small business entities and, if so, to seek out a less restrictive alternative after soliciting the input of affected businesses.

The Lost Art complaint alleges that the FDA failed to perform this analysis prior to issuing the Deeming Rule. It notes that the FDA received over 70,000 public comments about the Deeming Rule before its enactment, many of them proposing less restrictive alternatives, all of which were apparently disregarded.

The second claim is an allegation that the FDA engaged in an unlawful cost-benefit analysis prior to promulgating the Deeming Rule. In language that tracks the Nicopure complaint, the Lost Art Liquids complaint notes that the FDA’s 750-PMTA estimate is badly flawed because Lost Art Liquids alone will need to file over 200 if it intends to keep its products on the market. Lost Art Liquids also notes that the cost-benefit analysis should, if done properly, consider the effect that removing vapor products from the marketplace will have (i.e., consider the fact that many who are addicted to nicotine will be forced back into smoking).

The third claim alleges that the FDA violated Lost Art’s First and Fifth Amendment rights. As to the First Amendment, Lost Art claims, among other things, that its right to engage in free speech is impeded by the Tobacco Control Act’s prohibition against representations that a particular product contains a lower or reduced level of harmful substances. The complaint posits the theory that the Act might even bar Lost Art’s executives from engaging in public discussion about the relative benefits of vaping as compared to smoking. As to the Fifth Amendment, Lost Art claims that the requirement that an “excessive” percentage of Lost Art’s product labels be devoted to a mandatory warning about nicotine’s addictiveness constitutes a governmental “taking” without due process and requisite compensation.

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The fourth claim in the Lost Art complaint is that the Deeming Rule amounts to an abuse of the FDA’s discretion by requiring Lost Art and others to participate in the PMTA pathway prior to the release of products, a pathway the complaint describes as a “nebulous, bankrupting dead-end.”[6]

Analysis:

At this early stage, it is difficult, if not impossible, to accurately forecast the likelihood that these two plaintiffs will succeed on the merits of their respective claims. The Supreme Court previously held that regulatory agencies must be given ample latitude to “adapt their rules and policies to the demands of changing circumstances.”[7] The FDA will no doubt claim, in essence, that the rise of vaping constitutes such a “changing circumstance” requiring it to act. (Though the riposte here would be that if governmental action was indeed required, that action should be a regulation specifically devised for vaping pursuant to the basic truth that vaping and smoking are fundamentally different activities involving fundamentally different products.) The Supreme Court has also held that a regulatory action is “arbitrary and capricious” (and, thus, in violation of the APA) where it is irrational, not based on reasonable consideration of relevant facts, outside the scope of the agency’s authority.[8] If these cases proceed to litigation, the result may well be a battle of the expert witnesses, with both sides putting experts on the stand to testify about the purported health consequences (or lack thereof) of vaping. The reasonableness of the FDA’s rule appears to depend in very large part upon there being a real similarity between vapor products and tobacco products; if it can be established with credible evidence that no such similarity exists, the Plaintiffs’ cases will be greatly assisted.

Jackson Waste is an attorney with the California-based law firm of Baker Manock & Jensen, PC.

[1] Nicopure Complaint filed 5/10/16, at ¶ 30.

[2] 5 U.S.C. § 706.

[3] Complaint, at ¶ 48.

[4] Complaint, at ¶ 54.

[5] 5 U.S.C. § 601 et seq.

[6] Complaint, at ¶ 105.

[7] Permian Basin Area Rate Cases, 390 U.S. 747, 784 (1968).

[8] Motor Vehicle Mfrs. Ass’n of U.S., Inc. v. State Farm, 463 U.S. 29, 42-43 (1983).