On January 9, 2012, the Supreme Court heard oral argument in the case of Sackett v. United States Environmental Protection Agency. Although the facts of the case concern issues governed by the Clean Water Act (“CWA”), this case is important to all administrative law practitioners because of its potential to more clearly define the line between “final agency action,” which is generally subject to judicial review, and non-final agency actions which are not. Such a clarification will not only serve as a guide in future litigation against federal administrative agencies, but may also dramatically change how such agencies engage in “informal” communications with those subject to their jurisdiction. A copy of the oral argument transcript can be read here.

1. Background

The Sacketts’ fight with the EPA centers on a small 0.63 acre property located near Priest Lake, Idaho and an EPA compliance order prohibiting its development. In May of 2007, the Sacketts began to fill in the property with dirt and rocks in preparation for construction of a three-bedroom home. However, in November of that year, the EPA issued a Compliance Order that ordered construction to be halted claiming that the Sacketts’ land was a wetland, was subject to EPA jurisdiction under the CWA, and that the construction could not continue without first obtaining a permit from the Army Corp of Engineers. The Compliance Order also required the Sacketts to remove all fill material, restore the property to its original condition, and replant the property with wetland vegetation no later than April 30, 2008. Additionally, the Compliance Order threatened civil penalties as high a $32,500 per day for each day the Sacketts did not comply with the Order. A copy of the EPA’s news release announcing the issuance of the Compliance Order can be read here.

2. What is a Compliance Order?

Under the CWA, after the EPA identifies a violation, the agency has three options: 1) the EPA may assess an administrative penalty, in response to which “the alleged violator is entitled to a reasonable opportunity to be heard and to present evidence, the public is entitled to comment, and any assessed penalty is subject to immediate judicial review;” 2) the agency can initiate a civil enforcement action in federal district court; or 3) the EPA can issue, as it did in this case, an administrative compliance order. See Sackett v. United States Environmental Protection Agency, 622 F.3d 1139, 1142 (9th Cir. 2010); see generally 33 U.S.C. § 1319. As explained by the Ninth Circuit, “a compliance order is a document served on [a] violator, setting forth the nature of the violation and specifying a time for compliance with the [CWA].” Sackett, 622 F.3d at 1142.

In order for a compliance order to be enforced, the agency must bring an enforcement action against the individual in federal court. However, pre-enforcement, the CWA does not give the alleged violator any right to a hearing in front of the agency to challenge its issuance, nor does it allow for the alleged violator to sue the agency in court. Instead, an alleged violator’s only way to challenge a compliance order is to do nothing, face potential mounting fines, wait for the EPA to sue for enforcement of the compliance order, and then argue the jurisdictional merits of the EPA’s authority. It is this lack of a pre-enforcement challenge to EPA’s authority which is at the heart of the Sacketts’ Supreme Court case.

3. Final Agency Action and Review Under the Administrative Procedure Act

Section 10(c) of the Administrative Procedure Act (“APA”), codified at 5 U.S.C. § 704, provides that “final agency action for which there is no other adequate remedy in a court [is] subject to judicial review” under the APA. The APA applies to all final agency actions except to the extent that an enabling statute precludes review. See 5 U.S.C. § 701. However, the statute provides that the judicial review provisions of the APA may not be superseded by subsequent statutes unless such statutes expressly provide so. See 5 U.S.C. § 559. Additionally, the Supreme Court has found that there is a presumption favoring judicial review of administrative actions. Abbott Laboratories v. Gardner, 387 U.S. 136, 140 (1967) overruled on other grounds by Califano v. Sanders, 430 U.S. 99 (1977). However, this presumption is overcome “whenever the congressional intent to preclude judicial review is fairly discernible in the statutory scheme.” Block v. Cmty. Nutrition Inst., 467 U.S. 340, 351 (1984).

“The cases dealing with judicial review of administrative actions have interpreted the ‘finality’ element in a pragmatic way.” Abbott Laboratories, 387 U.S. at 149. As first announced in Abbott Laboratories, an agency action will be considered final and a pre-enforcement challenge will be allowed:

Where the legal issue presented is fit for judicial resolution, and where a regulation requires an immediate and significant change in the plaintiffs conduct of their affairs with serious penalties attached to noncompliance, access to the courts under the [APA] and the Declaratory Judgment Act must be permitted, absent a statutory bar or some other unusual circumstance. . . .

Abbott Laboratories, 387 U.S. at 153.

In Bennett v. Spear, 520 U.S. 154, 177-178 (1997), the Court articulated a two part test to determine whether an agency action qualifies as “final” and thus generally subject to judicial review under the APA. As stated by the Court:

As a general matter, two conditions must be satisfied for agency action to be “final”:

First, the action must mark the ‘consummation’ of the agency’s decision-making process – it must not be of a merely tentative or interlocutory nature.

And second, the action must be one by which ‘rights or obligations have been determined,’ or from which ‘legal consequences will flow.’

Bennett, 520 U.S. at 177-178 (emphasis added).

When assessing whether an agency action qualifies as “final,” the Court looks to numerous factors including: 1) whether the administrative order provides the definitive statement of the agency’s position; 2) whether the administrative order has a “direct and immediate effect on the day-to-day business of the complaining parties;” 3) whether agency expects immediate compliance with the terms of the order such that the order has “the status of law;” 4) whether the suit challenging the agency action presents a “legal issue fit for judicial review;” and 5) whether the suit challenging the administrative order is calculated to speed enforcement.” See Brief of the American Farm Bureau Federation et al. as Amici Curiae Supporting Petitioners, Sackett v. Environmental Protection Agency, 14-15 (No. 10-1062) (2012) (quoting FTC v. Standard Oil Co. of California, 449 U.S. 232, 239 (1980)).

4. The Case Below

In this case, in response to the compliance order issued by the EPA, the Sacketts sought an administrative hearing to challenge the EPA’s findings that the property is subject to the CWA. However, this request was denied by the EPA. The Sacketts then filed their suit before the United States District Court for the District of Idaho seeking injunctive and declaratory relief arguing: 1) the compliance order was arbitrary and capricious under the APA, 5 U.S.C. § 706(2)(A); 2) the order violated the Sacketts’ due process rights because it was issued without a hearing; and 3) the standard for issuance of a compliance order under the CWA was unconstitutionally vague. Sackett, 622 F.3d at 1141.

Both the District Court and the Ninth Circuit dismissed the Sacketts’ pre-enforcement suit challenging the EPA’s issuance of the compliance order for lack of subject-matter jurisdiction. In its opinion, the Ninth Circuit ruled that, based upon the structure and objectives of the statutory scheme as well as the legislative history of the CWA, the CWA precluded judicial review of pre-enforcement actions under the APA. Sackett, 622 F.3d at 1143-1147.

The Ninth Circuit additionally held that, although due process is violated when the “practical effect of coercive penalties for noncompliance is to foreclose all access to the courts so that compliance is sufficiently onerous and coercive penalties sufficiently potent that a constitutionally intolerable choice might be presented,” the statutory preclusion of pre-enforcement review of compliance orders does not rise to such a level for two reasons. First, the CWA provides for a permitting process, the denial of which is immediately reviewable in federal district court under the APA. The Ninth Circuit found that the jurisdiction issues raised by the Sacketts could be litigated in that forum. As such, “rather than completely foreclosing the Sacketts’ ability to . . . challenge CWA jurisdiction, the CWA channels judicial review through the affirmative permitting process.” Sackett, 622 F.3d at 1146. Second, the Ninth Circuit held that, although the violation of the CWA and of a issued compliance order may amount to [$37,500] each per day, the civil penalty is a matter of judicial, not agency, discretion. Thus, “any penalty ultimately assessed against the Sacketts would therefore reflect a discretionary, judicially determined penalty, taking into account a wide range of . . . equitable factors, and imposed only after the Sacketts have had a full and fair opportunity to present their case in a judicial forum.” Id. at 1147.

However, what is noticeably absent from the Ninth Circuit’s opinion is a discussion of the preliminary issue that has become a focal point of the briefs and oral argument before the Supreme Court: whether the compliance order is considered “final agency action” sufficient to trigger review under the APA.

5. The Parties Positions Regarding Final Agency Action Before the Supreme Court

1. The Merit Briefs

In accepting certiorari, the Supreme Court asked the parties to address two questions: 1) Whether the Sacketts may “seek pre-enforcement judicial review of the Administrative Compliance Order pursuant to the Administrative Procedure Act 5 U.S.C. § 704;” and 2) if not, does the Sacketts’ “inability to seek pre-enforcement judicial review of the Administrative Compliance Order violate their rights under the Due Process Clause?” See Brief for the Petitioners, Sackett v. United States Environmental Protection Agency, at i (No. 10-1062). In order to fully answer these questions, the issue of whether the Administrative Compliance Order constitutes “final agency action” is of critical importance.

In their Initial Brief, the Sacketts, most likely because the Ninth Circuit ignored the issue of whether the compliance order was a “final agency action,” only briefly outline their position as to why the EPA’s compliance order qualifies as “final agency action.” First, the Sacketts argue that the compliance order “represents the consummation of the EPA’s decision-making process” for three reasons: 1) “there are no further steps for the agency to take with respect to jurisdiction, or with respect to the order’s issuance;” 2) “the order does not initiate any administrative process, nor is there any administrative process whereby the Sacketts can seek review of the order;” and 3) the CWA provides that the compliance order is immediately enforceable in court by the agency. See Brief for the Petitioners, at 55. Second, the Sacketts argue that the compliance order satisfies the second step of the Bennett test because failure to comply with the compliance order itself is both actionable and punishable by civil penalties. Thus, according to the Sacketts, independent “legal consequences flow from the compliance order.” Id.

In response, the Government dedicated several pages of its brief to counter the Sacketts claims that the compliance order is a “final agency action” subject to judicial review and argued that the compliance order fails both prongs of the Bennett test. First, the Government argued that the compliance order fails step one of Bennett because it does not mark the consummation of the agency’s decision-making process. According to the Government, the order invited the Sacketts to contact the EPA informally regarding the terms and requirements of the order itself as well as any factual allegations that the Sacketts believed to be false. Additionally, the compliance order invited the Sacketts to propose alternatives to the remediation plan proposed. Thus, “because EPA indicated that allegations and conclusions underlying the order were subject to revision based on petitioners might provide, and that the prescribed corrective measures were subject to negotiation, the compliance order cannot properly be viewed as representing the agency’s final conclusions.” Brief for the Respondent, Sackett v. United States Environmental Protection Agency, 24-25 (No. 10-1062).

The Government also argued that the compliance order failed step two of Bennett because compliance orders merely “express the agency’s views of what the law requires” and any factual determinations made within the compliance order would be given no deference by a court in an enforcement action. Brief for the Respondent, at 28. The Government also argued that any potential legal consequences faced by the issuance of a compliance order are not “sufficiently concrete or substantial to render the order ‘final agency action.’” Id. at 29. Here, the Government’s argument mirrors the Ninth Circuit’s logic that because the penalties associated with the failure to comply are subject to judicial, not agency discretion, and because an after-the-fact permit process exists which provides for judicial review wherein a potential violator can challenge EPA jurisdiction, the legal consequences are not such that pre-enforcement review is essential. Id. at 29-31.

The Sacketts countered the Government’s arguments in their Reply Brief arguing that Bennett is satisfied for several reasons. First, the language of the CWA itself only permits a compliance order to be issued after the EPA has made findings that the CWA has been violated. Reply Brief for the Petitioners, Sackett v. United States Environmental Protection Agency, 13 (No. 10-1062).  Further, the CWA “makes clear that the issuance of the compliance order is one of two equal enforcement options that EPA may take once it ‘finds’ that the statute has been violated.” Id. at 16 (emphasis in original). Thus, “the compliance order is not a prelude to enforcement[,] [r]ather, the compliance order is enforcement.” Id. (emphasis in original). Next, the Sacketts cited numerous circuit court decisions which have found that agency actions can be deemed “final” even though the actions themselves provide for informal consultation between the agency and an effected party. Id. at 15-16. Finally, the Sacketts argued that because the compliance order subjects them to additional penalties for non-compliance and creates additional requirements that must be satisfied before obtaining an after-the-fact permit, the compliance order creates additional legal obligations sufficient to be considered final.

2. The Government’s Policy Rationale for Arguing that Compliance Orders are Non-Final Agency Action and Thus Not Entitled to the Presumption of Reviewability

In addition to arguing in its brief that the compliance order failed to meet the Bennett test, the Government also presented several policy-based arguments as to why compliance orders should not be viewed as “final agency actions.”

The Government argues that compliance orders: 1) inform parties regulated by the administrative agency of requirements imposed by law, and 2) warn parties that the failure to comply with such laws may result in future enforcement actions. See Brief of Respondents, at 14. Contrary to the claims of the Sacketts, the Government’s position is that no additional obligations are imposed on parties issued compliance orders. Rather, such orders “set forth the EPA’s views as to the steps particular persons must take to achieve prospective compliance with the CWA itself.” Id. at 17.

            Additionally, the Government argues that compliance orders, as well as similar devices used by other agencies, serve an important purpose of “obviate[ing] the need for judicial intervention, either by inducing voluntary implementation of the measures specified therein, or by triggering a process of consultation between the agency and the alleged violator that produces a mutually acceptable alternative resolution.” Id. at 13. The Government further argues that communications such as compliance orders or warning letters provide a benefit similar to that found in settings where administrative exhaustion is required because agencies are given the “opportunity to correct their own mistakes and to refine their views without the need for judicial intervention.” Id. at 22.

The Government’s position is that compliance orders are neither entitled to pre-enforcement review nor unlawful merely because they present the “Hobson’s choice” of complying with an agency with questionable jurisdiction demands or do nothing and wait to challenge the agency’s jurisdiction in an agency brought enforcement order the face of mounting penalties. Id. at 22. Instead, the Government argues that “from the regulated party’s perspective, such communications give recipients an opportunity to conform their conduct to the agencies guidance before being subjected to an enforcement action.” Id.

            Given the broad purposes of environmental regulation in general and the CWA in particular, compliance orders allow the agency to achieve a quicker resolution to situations of ongoing environmental damages. The Government believes that if pre-enforcement judicial review is allowed for these communications their effectiveness at achieving voluntary compliance would be substantially weakened and resources of the administrative agency would be drained in litigating cases of minor offenders. Thus, by preventing pre-enforcement judicial review and by allowing agencies to “interact[] with regulated entities outside of more formal administrative-adjudication or judicial-enforcement settings, agencies can conserve resources and prioritize their enforcement efforts to respond to the most sever violations.” Id. at 22.

3. The Court’s Questioning of the Government’s Position at Oral Argument

At oral argument, the Justices focused on whether, based on Abbott Laboratories and the presumption of reviewability, challenges to the jurisdiction of an agency issuance of a compliance order require pre-enforcement review. In their questioning, the Justices appeared to clearly distinguish between warning letters, which have long been considered non-final agency action and not entitled to judicial review, and the compliance orders issued by the EPA. In particular, the Justices appeared interested in the language of the compliance order itself and the back and forth between the agency and the alleged violator before and after the issuance of a compliance order. Additionally, the Justices focused on the “Hobson’s choice” of either voluntarily complying with an order that the issuing agency may not have the jurisdiction to issue or to not comply, face mounting fines, and wait to assert a jurisdictional challenge at some undetermined time as the agency so chooses to bring an enforcement action. Transcript of Oral Argument, at 42-53, Sackett v. Environmental Protection Agency, (No. 10-1062).

During oral argument, Justice Breyer’s main concern as to whether the compliance order could be considered non-final turned on the language in the order suggesting that alleged violators should contact the EPA in informal discussions regarding the terms and requirements of the order itself as well as any factual allegations that the Sacketts believed to be false. In particular, Justice Breyer appeared concerned with whether such post-issuance communications actually result in the agency changing its position:

Justice Breyer: Is there anything you’ve got by – I mean, I’m – You’ve got me now into the area, we are applying the APA and the question is Abbott Labs and is it final. Well, here there doesn’t seem anything more for the agency to do, and here the person who the order is directed against is being hurt a lot. So the only thing I – left in my mind here is the order itself does say: Come in and talk to us about this. Which may suggest it isn’t final. So do you have any information on that point? That is, have you looked up or has the APA told you that really when we issue these things, people come in and modify them at X percent of the time.

Id. at 45 ln. 9-21. In response the Government argued that although only 3 percent of all compliance orders ever lead to enforcement actions being taken, the Government did not have any statistics as to whether this was because of informal communications between the alleged violator and the agency or whether it was merely because alleged violators have chosen to voluntarily comply. Id. at 46.

However, when pressed by Justice Kagan as to whether post-issuance communications normally result in modifications, the Government conceded that it was unlikely:

Justice Kagan: Mr. Stewart, you suggested that, that some communication occurs before this compliance order [is issued]. And my guess would be that most of the back and forth between the agency and the person does happen before the compliance order rather than after.

And the notion that the person can come in after the compliance order and say you were wrong, well they can, but they can do that with respect to any administrative action. So, am I wrong about that? That really the back and forth here takes place before the compliance order issues rather than after?

Mr. Stewart: I think you are right as a matter of typical agency practice that there would be an invitation well before the compliance order was issued to come in and give your side of the story, and you are probably right that if we got to the point where a compliance order was issued, then the likelihood that further communications would sway the agency substantially might be reduced. So I would take your point there –

Id. at 46 ln 15-25 – 47 ln. 1-10.

Of particular note was the exchange between Justice Scalia and the Government regarding the jurisdictional challenges to compliance orders. During the Government’s argument Justice Scalia posed the question of whether a person can “usually obtain a declaratory judgment if prosecution is threatened and you think that there is no basis for it, and you can’t – you are not – you’re not compelled to just stand there and wait for the prosecutor to, to drop the hammer?” Id. at 48.  In response, the Government argued that, although declaratory judgment actions are available in such situations, because the Government’s position is that compliance orders are “informal warnings,” extending a right to a declaratory judgment to compliance orders “would cause a huge upheaval in the practices of many agencies. . . .” Id. at 49.

However, the Justices appeared to reject this rationale and further pressed the issue of whether a compliance order should be considered “final agency action” with Justice Breyer commenting: “You are talking about a huge upheaval. My honest impression is that it is the Government here that is fighting 75 years of practice because – because the issue is the Abbott Labs issue of finality. And of course a warning isn’t reviewable. But this seems to meet the test where that fails.” Id. at 49 ln. 19-23.

6. Analysis and Conclusion

Based upon the totality of information before the Court, the arguments made by the Sacketts that compliance orders are “final agency action” entitled to pre-enforcement review appears to be strong. The Court pressed the Government on the issue of whether post-issuance discussions between alleged violators and the agency actually effect a change of the agency’s position. Additionally, the Government conceded in both its brief and at oral argument that the failure of alleged violators of the CWA to follow the remediation plan outlined in a compliance order potentially subjects the violator to additional penalties above and beyond the penalties for violating the CWA itself.

Moreover, it appears that the Government’s strongest argument that compliance orders are not entitled to pre-enforcement review is the “huge upheaval” such a ruling would level on the day-to-day operations of administrative agencies. As explained above, the Government has argued that a decision which classifies compliance orders as “final” could result in increased litigation and decreased voluntary compliance with the result being a more litigious and less effective administrative state.

However, even if the Court does agree with the Sacketts and finds that compliance order are in fact “final” thus entitling recipients to pre-enforcement judicial review, the practical consequences will not likely be as harsh as the Government fears. First, the Court in oral argument appears to have reaffirmed that less formal communications such as warning letters are properly considered non-final agency action to which no pre-enforcement review is required. Other agencies successfully use warning letters to achieve the same goals of voluntary compliance and administrative efficiency. Additionally, despite the actual and incidental consequences which commonly plague recipients who must defend themselves against such letters, the Court consistently denies pre-enforcement review for such agency actions. Furthermore, the Sacketts have not challenged any such less formal actions.

Additionally, the CWA provides for other forms of enforcement for violations, such as a civil enforcement action without the issuance of a compliance order. Thus, should the Supreme Court find that compliance orders are “final,” the most likely “upheaval” would be the seismic shift towards the increased use by agencies of warning letters followed by civil enforcement actions in cases of noncompliance.

Moreover, as explained above, judicial review of a “final agency action” pursuant to the APA can always be expressly superseded by an agency’s enabling statute. As such, should the Supreme Court decide favorably for the Sacketts, and mark a trend towards easier access to judicial review of agency actions, there is no reason to think that federal administrative agencies would not lobby Congress for statutory reforms to expressly preclude judicial review of compliance orders.

The debate as to what exactly is “final agency action” has been ongoing for decades. However, until such a time that the Court is willing to take a more concrete and expansive view of what qualifies under Abbott Laboratories and Bennett as “final agency action,” particularly a view based on the real life and practical consequences of the issuance of warning letters, administrative law practitioners, and their clients, will continue to be faced with a Hobson’s choice and uncertainty when responding to such non-final actions. In the end, the Court’s ultimate decision as to whether a compliance order is considered “final agency action” which entitles recipients to pre-enforcement judicial review may be more of a moral victory for administrative law attorneys and less of a game-changer in litigation against federal agencies.

On November 4, 2011, Hill Dermaceuticals, Inc. (Hill), a Florida-based drug manufacturer, sued the U.S. Food and Drug Administration (FDA). Hill brought suit in connection with the FDA’s recent approval of three Abbreviated New Drug Applications (ANDAs) submitted by Identi Pharmaceuticals (Identi). Hill, the manufacturer of Derma-Smoothe, an FDA-approved skin treatment, alleges that FDA’s recent approvals of the generic formulations of its drug violate the Federal Food, Drug and Cosmetic Act (FDCA).

Found here, Hills’ Complaint alleges that the FDA’s approvals of Identi’s ANDAs were arbitrary and capricious. In short, Hill alleges that in approving the ANDAs, FDA treated Identi differently and in contravention of the FDCA by foregoing certain testing to show that the drugs are safe for consumers. Because Derma-Smoothe is a topical treatment derived from peanut oil (a major allergen), FDA required Hill to perform testing to show that the refined oils in the drug contained only trace amounts of amino acids. Still required to test every batch it produces, Hill claims that it has “invested more than $1 million to license and develop a proprietary amino-acid analysis.” Because the methods Hill uses to test its products are proprietary, Hill alleges based on information and belief that FDA has approved Identi’s applications without requiring such testing or verification that Identi’s drugs have similarly low levels of amino acid.

Further, because Hill is required to declare that Derma-Smoothe has undergone such testing on the label of each product, Hill claims that Identi’s products cannot be approved as a generic form of Derma-Smoothe because the drug cannot contain such a declaration in product labeling. Under FDA regulations, generic formulations of drugs undergo approval through an Abbreviated New Drug Application (ANDA). Unlike a New Drug Application (NDA), an ANDA requires the manufacturer to demonstrate that its drug is bioequivalent to a drug approved via an NDA. This showing generally requires the generic to demonstrate that it contains the same active ingredients, is used in the same manner and will bear largely the same labeling. Thus, assuming the Hill case survives a motion to dismiss filed by the FDA, the Hill case will confront the extent of the differences that are permissible in product labeling in order for the Agency to make a finding of bioequivalence under the FDCA.  

Fuerst Ittleman will continue to monitor the developments of the Hill case. For more information regarding the ANDA generic drug approval process or for any questions regarding how your company can maintain FDA regulatory compliance, please contact us at contact@fuerstlaw.com.

On November 15, 2011, Zuffa, LLC, which owns the Ultimate Fighting Championship (“UFC”) brought suit against New York Attorney General Eric Schneiderman and Manhattan District Attorney Cyrus Vance Jr. seeking a declaration that New York’s ban on live mixed martial arts (“MMA”) events is unconstitutional. More specifically, the complaint, which was filed in the United States District Court for the Southern District of New York, alleges that enforcement of the ban violates UFC’s and its “performers’” free speech rights protected under the First Amendment. A copy of the UFC’s complaint can be read here.

Generally speaking, attempts by the regulate speech fall into two broad categories: 1) “content-neutral” regulations, and 2) “content-based” regulations. The government’s attempts to regulate the “time, place, and manner” of the expression or speech at issue, and not the message of the speech, are known as “content-neutral” speech regulations. In order for a “time, place, and manner” regulation to be found constitutional, it must: 1) be content neutral; 2) be narrowly tailored to achieve a significant government interest; and 3) the regulation must leave open alternative channels for communicating the information, i.e. other methods to communicate the same message still exist.

On the other hand, “content-based” regulations which attempt to regulate protected forms of expression are presumed to be unconstitutional. In order for a “content-based” regulation to be found constitutional it must pass strict scrutiny, i.e. the regulation must: 1) serve a compelling government interest which is 2) necessary to achieve this interest and for which there are no less restrictive means that would accomplish the government’s goals just as well. It should be noted that all expression is protected unless it falls into one of five categories: 1) obscenity; 2) fraudulent misrepresentation; 3) defamation; 4) advocacy of imminent lawless behavior; or 5) “fighting words.” Speech in these five categories is considered “unprotected speech” and thus may be regulated by the government without violating the First Amendment.

In its complaint, UFC alleges that N.Y. Unconsol. Law § 8905-a (2) (hereinafter “Live MMA Ban”), is an improper “content-based” law and thus violates the UFC’s and its performers’ freedom of expression. The UFC has alleged that, although the law has the appearance of a safety regulation, the legislative history of the Live MMA Ban reveals that the ban was implemented to restrict MMA’s misperceived message of violence.

On November 7, 2011, Judge Richard Leon of the United States District Court for the District of Columbia granted a preliminary injunction on behalf of five tobacco companies challenging the implementation of the FDA’s new graphic cigarette warning labels. As a result of the injunction, the FDA’s new cigarette labeling requirements, which were scheduled to take effect in September 2012, are now blocked from taking effect until fifteen months after resolution of the plaintiffs’ claims on the merits. A copy of the Court’s opinion can be read here.

As we previously reported, on June 21, 2011, pursuant to the authority granted to it by the Family Smoking Prevention and Tobacco Control Act to regulate tobacco, the FDA released nine new graphic warning labels that were required to appear on every pack of cigarettes sold in the US and in every cigarette advertisement starting no later than September 2012. In response to the FDA’s new rule, five tobacco companies (R.J. Reynolds Tobacco Company, Lorillard Tobacco Company, Commonwealth Brands, Inc., Liggett Group LLC, and Santa Fe Natural Tobacco Company, Inc.) filed a complaint in the United States District Court for the District of Columbia alleging that the FDA’s new cigarette labeling rules violated the First Amendment and the Administrative Procedure Act.

The five companies also sought an injunction to prohibit the rules from going into effect until fifteen months after a final decision has been rendered on the merits of their case. More background information involving this case can be read in our prior report here. In order for a court to grant a preliminary injunction, it must determine the following: 1) whether there is a substantial likelihood of success on the merits for the moving party; 2) whether the movant will suffer irreparable harm if the injunction is not granted; 3) whether the injunction will substantially injure other interested parties; and 4) whether the public interest would be furthered by the injunction. See Mova Pharm. Corp. v. Shalala, 140 F.3d 1060, 1066 (D.C. Cir. 1998). However, “the party seeking a preliminary injunction need not prevail on each factor.” R.J. Reynolds Tobacco Company, Inc. v. U.S. Food and Drug Administration, 11-1482, at 9 (November 7, 2011 D.D.C.). Rather, the court “appl[ies] the factors on a sliding scale.” Id. As a result, “if the arguments for one factor are particularly strong, an injunction may issue even if the arguments in the other areas are rather weak.” Id.

More specifically, the tobacco companies alleged that the requirement to place graphic images on its labels unconstitutionally compels speech. Generally speaking, compelled speech is presumptively unconstitutional and will only be upheld if it passes “strict scrutiny,” i.e.: 1) the government has a compelling interest it seeks to protect; and 2) the regulation is narrowly tailored to achieve that interest. However, as explained by the Court, narrow exceptions apply in the area of commercial speech. The government may require disclosure of only “purely factual and uncontroversial information” to protect consumers from “confusion or deception,” unless such a disclosure is “unjustified or unduly burdensome.” A lower level of scrutiny applies in cases where government- compelled speech meets this narrow exception.

In this case, the Court determined that the FDA’s rule did meet the narrow exception for compelled commercial speech for several reasons. First, the Court found that the images could not be considered purely factual because must were either digitally enhanced or manipulated to depict the negative consequences of smoking. Second, the Court found that the FDA’s argument that the images chosen by the rule were uncontroversial and purely factual was undermined by the fact that the FDA’s selected graphic images were designed to evoke viewers emotions. Finally, the Court found that when the graphic images were combined with the textual warnings and the mandatory display of the 1-800-QUIT-NOW smoking cessation hotline, the goal was to induce the viewer to quit or never start smoking. Thus, the Court found that the FDA’s labels were neither purely factual nor uncontroversial. Therefore, strict scrutiny and not a lower, more-deferential level of scrutiny applied.

In evaluating whether the FDA’s labeling rule passed constitutional muster, the Court found that regardless of whether the government’s interest in providing information to consumers is compelling, the FDA’s rule is not narrowly tailored to achieve such a purpose. The Court noted that the size and display requirements of the rule — the top 50% of the front and back panels of all cigarette packages and the top 20% of printed advertising — is not narrowly designed to achieve an informative purpose. Rather, the Court found that such dimensions promote a government sponsored anti-smoking message. Additionally, the Court found that the graphic warnings when combined with the textual messages and the 1-800 number result in the FDA “conscript[ing] tobacco manufacturers into an anti-smoking brigade.” Thus, the Court found that the tobacco manufacturers have a substantial likelihood of success on the merits because the FDA’s labeling requirements are likely to be found violative of the First Amendment.

The Court also found that the plaintiffs satisfied the other prongs necessary to be granted a preliminary injunction. The Court found that because of the plaintiffs’ likelihood of success on the merits and the fact that litigation would likely continue well beyond the September 2012 effective date, the plaintiffs would suffer irreparable harm if an injunction was not issued. Additionally, the Court found that injunctive relief would not harm any interested third parties because, based on the record, Congress did not demonstrate that such rules were urgent. In so finding, the Court noted that the Tobacco Act established a mutli-stage timeline in which the FDA was given two years to promulgate a Final Rule and a 15 month implementation period before the Final Rule took effect. Therefore, the Court found no prejudice to other third parties. Finally, the Court found that the “public interest will be served by ensuring that plaintiffs’ First Amendment rights are not infringed before the constitutionality of the regulation has been definitively determined.” As such, the Court granted the tobacco companies injunction.

Although the preliminary injunction is effective as of the Court’s order, the government does have the ability to file an interlocutory appeal challenging the Court’s decision. If the government does appeal and is successful, then the District Court’s preliminary injunction will be vacated. A similar situation arose in Sherley v. Sebelius, a case involving a challenge to federal funding for stem cell research. In that case, the plaintiffs were granted a preliminary injunction to prevent the NIH funding guidelines from taking effect. However, as we previously reported, the D.C. Circuit vacated the preliminary injunction on appeal and remanded the case to the district court for resolution on its merits.

The practical effect of a successful government appeal would be that, although tobacco companies would still be able to challenge the FDA’s rule on the merits, the companies would still have to comply with the FDA’s new labeling requirements starting September 2012.

Fuerst Ittleman will continue to monitor the progress of this lawsuit and the FDA’s regulation of tobacco products and advertising. For more information, please contact us at contact@fuerstlaw.com.

On October 17, 2011, the Seventh Circuit Court of Appeals affirmed a district court ruling dismissing a state law consumer fraud claim, finding that it was preempted by the Federal Food, Drug and Cosmetic Act (FD&C). The suit alleged that General Mills, Inc. and Kellogg Co. failed to disclose pertinent information concerning their “Fiber Plus” chewy bars.

In the district court case, the Plaintiff claimed that while the labeling of the product declared fiber to be 35% of the daily recommended value, this information was misleading to consumers. Because the fiber found in the product was allegedly a “non-natural,” processed fiber, providing fewer benefits than consumption of natural fiber, the Plaintiff argued that the manufacturers of Fiber Plus should have declared the origins of this fiber in labeling.

Found here, the Seventh Circuit’s Opinion discusses how state law labeling requirements may not exceed those found in the FD&C. In particular, 21 U.S.C. § 343-1(a)(5) provides that no state may establish “any requirement respecting any claim of the type described in section 403(r)(1) made in the label or labeling of food that is not identical to the requirement of section 403(r). . . .” 21 U.S.C. § 403(r) gives the U.S. Food and Drug Administration (FDA) authority to regulate nutrition labeling and related claims for food products. Taken together, these provisions prevent states from imposing and enforcing requirements that are additional to or different from those set forth by the FDA. In this case, 21 C.F.R. § 101.54(d), the FDA regulation pertaining to nutrient content claims for food, provides the requirements that manufacturers must comply with when making “fiber claims.” Reasoning that the regulation does not require a declaration of the origins of fiber in food labeling, the Seventh Circuit ultimately found the plaintiff’s state law claim preempted.

For more information regarding the labeling of food products, contact us at contact@fuerstlaw.com.

On October 14, 2011, Par Pharmaceutical, Inc. (Par Pharma) brought suit against the U.S. Food and Drug Administration (FDA) challenging the Agency’s rules that restrict claims made in marketing pharmaceutical products. Filed in the U.S. District Court in Washington D.C., the suit seeks a declaratory judgment and an injunction against the Agency’s enforcement of the speech restrictions. Found here, the Complaint alleges that FDA’s rules prevent Par Pharma from promoting its drug for both approved and unapproved uses.

Par Pharma’s drug, Megace ES, was approved by the FDA in 2005 for the treatment of anorexia and cachexia, an AIDS-related wasting syndrome. Since its approval, the drug has been prescribed by doctors to treat other, related disorders, a practice known as “off-label” use. However, the FDA prohibits companies from promoting drugs for off-label uses, and it regularly enforces against companies which do so. For instance, the pharmaceutical manufacturer Allergan has been targeted for utilizing off-label marketing in the past. For more information regarding the Allergan suit, see our previous report here.

The FDA’s jurisdiction to restrict off-label use is a contentious issue. While the FDA currently prohibits manufacturers from marketing FDA-regulated products for unapproved uses, the agency does not have the authority to prevent doctors from issuing prescriptions for off-label uses. Rather, the latter fits squarely within the practice of medicine, an area traditionally regulated by the states. Even where the FDA only attempts to restrict manufacturers without encroaching on the practice of medicine, FDA’s efforts relating to off-label use are often viewed as hindering innovation inasmuch as manufacturers and doctors are prevented from discussing new, alternative uses for FDA-approved drugs and devices.

Although Par Pharma challenges the FDA’s restrictions on off-label marketing, its suit also alleges that the Agency is unlawfully prohibiting the marketing of its drug for its approved uses. Specifically, Par Pharma claims that FDA is encroaching on its First Amendment rights by preventing the company from marketing its drug for its approved uses to physicians who are likely to prescribe the drug off-label. While this issue is slightly different than that regarding the promotion of off-label uses, it will be interesting to see who ultimately prevails.

For more information on FDA regulations and acceptable pharmaceutical marketing practices please contact us at contact@fuerstlaw.com.

On September 28, 2011, Florida’s Second District Court of Appeal (“2nd DCA”) asked the Florida Supreme Court to rule on the constitutionality of Florida’s Drug Abuse Prevention and Control law, § 893.13 Fla. Stat. in the case of State v. Adkins. A copy of the 2nd DCA’s opinion can be read here. As we previously reported, on July 27, 2011, Judge Mary Scriven of the United States District Court for the Middle District of Florida declared the law unconstitutional under the United States Constitution as a violation of due process because it eliminated mens rea as an element of felony delivery of a controlled substance thus making the law a strict liability offense.

The federal court’s decision has opened the floodgates to litigation in pending drug cases in Florida and has led to uncertainty for criminal defendants for two main reasons. First, because the United States and Florida are separate sovereigns, the rulings of federal courts other than the U.S. Supreme Court are generally not binding on state courts. Second, because neither the Florida Supreme Court nor any District Court of Appeal has ruled on the constitutionality of § 893.13, the Circuit Courts of Florida (the tribunals responsible for adjudicating felony criminal cases) have no binding precedent to rely upon in determining whether § 893.13 is constitutional.

As a result, the Circuit Courts have split on the issue as to whether § 893.13 violates the 14th Amendment. In fact, as noted in the 2nd DCA’s Certification Order, in certain circuits, such as the Eleventh Judicial Circuit in Miami-Dade County, conflict exists within the different felony divisions with some judges adopting Judge Scriven’s opinion and declaring the statute unconstitutional while others finding the Middle District of Florida’s rationale unpersuasive because the precedent relied upon by that court was distinguishable.

In certifying the question of whether § 893.13 is constitutional, the 2nd DCA stated that because it would be the only district court of appeals to have ruled on the constitutionality of the drug law, its “decision would be binding statewide and could affect literally thousands of past and present prosecutions throughout the state.” The 2nd DCA noted that while the Florida Supreme Court prefers to resolve cases after multiple district courts have issued opinions, given the volume of the cases involved and the fact that the issue has been “fully briefed and thoroughly discussed” in trial court proceedings, it would be appropriate for the Supreme Court to decide this issue.

Although the 2nd DCA certified the question to the Supreme Court as one of ”great public importance” pursuant to Fla. R. App. P. 9.125, it should be noted that because the Florida Supreme Court is a court of limited jurisdiction, the Court can choose not to decide the issue under  Article V § 3 of the Florida Constitution as jurisdiction over such certified questions is not mandatory.

Fuerst Ittleman will continue to track the progress of this matter with a keen eye as its final resolution could affect all strict liability offenses. The white collar criminal defense lawyers at Fuerst Ittleman are experienced in handling even the most complex cases where clients are facing allegations of criminal actions. The attorneys of Fuerst Ittleman have defended clients in cases involving numerous general intent and strict liability offenses including money laundering violations found at 18 U.S.C. § 1957, the operation of unlicensed money transmitting businesses found at 18 U.S.C. § 1960, and violations of the FDCA under 21 U.S.C. §§ 331 and 333 as well as prosecutions of corporate officials for FDCA violations under the Park Doctrine. For more information regarding Fuerst Ittleman’s white collar criminal defense practice, contact an attorney today at contact@fuerstlaw.com.

On September 19, 2011, two scientists who have been challenging government funding of human embryonic stem cell (hESC) research filed their Notice of Appeal in the U.S. Court of Appeals for the District of Columbia Circuit, seeking relief from the District Court’s July 27, 2011 Order dismissing their complaint and attempting to revive their case to block federal funding of hESC research.

As previously reported, the District Court granted the government’s Motion for Summary Judgment in July. In granting summary judgment and dismissing the Plaintiffs’ claims, the Court found that the National Institute of Health (NIH) Guidelines, which permit federal funding for hESC research, did not violate federal law. While the Plaintiffs argued that the Guidelines violated the 1996 Dickey-Wicker Amendment, which prohibits funding for “research in which a human embryo or embryos are destroyed,” the Court found that the NIH Guidelines do not violate this mandate because embryos are not actually subject to destruction during such research. Found here, the Court reasoned as follows:

The NIH reasonably concluded that the Dickey-Wicker Amendment prohibited federal funding for research projects “in which” human embryos are knowingly subjected to risk, such as preimplantation genetic diagnosis, but did not prohibit research projects, such as embryonic stem cell research, that do not involve embryos and so cannot knowingly subject them to risk “in” the research.

Because the Court found that the Guidelines promulgated by NIH were a permissible interpretation of the Dickey-Wicker Amendment, the Court concluded that the Guidelines did not contravene federal law and dismissed the Plaintiffs’ claims. While it is yet to be seen what the plaintiffs in the case will argue its appeal, Fuerst Ittleman will continue to closely monitor the progress in this case, as well as other issues pertaining to stem cell research.

If you have any questions pertaining to NIH Guidelines, or stem cell funding issues generally, contact Fuerst Ittleman PL at contact@fuerstlaw.com.

On September 13, 2011, the United States District Court for the Middle District of Pennsylvania issued its decision finding that the individual mandate provision of the Patient Protection and Affordable Care Act (PPACA) exceeded Congress’s authority under the Commerce Clause and therefore is unconstitutional. As discussed in a recent Forbes article, this decision is merely one in a long line of District and Circuit opinions on the constitutionality of the PPACA. Ultimately, the individual mandate provision the PPACA’s constitutionality will turn on the interpretation of two bedrocks of Commerce Clause precedent, Wickard v. Filburn, 317 U.S. 111 (1942) and Gonzales v. Raich, 545 U.S. 1 (2005). A copy of the Forbes article can be read here.

Generally speaking, Congress’s power under the Commerce Clause extends to three broad categories. First, Congress may regulate the channels of interstate commerce. Second, Congress may regulate and protect the instrumentalities of interstate commerce. Finally, Congress may regulate activities that have a substantial effect on interstate commerce. See United States v. Lopez, 514 U.S. 549, 558 (1995). It is within this third category that Congress’s Commerce Clause authority is pressed to its “outer limits” and is often the subject of judicial challenge. See Id. at 557. Such is the case with the PPACA.

In Wickard, the Supreme Court held that Congress could regulate the production of home grown wheat meant solely for personal use under its Commerce Clause power. In so holding, the Court found that although Filburn’s activities were entirely local, such activities, when taken in the aggregate, had a substantial effect on the national market for wheat. In the annals of Commerce Clause jurisprudence, Wickard v. Filburn represents the high-water mark for Congressional power.

More than 60 years later,    in Gonzales v. Raich, the Supreme Court upheld Congress’s authority under the Commerce Clause to prohibit the possession of home-grown marijuana intended solely for personal use, even when such possession was allowed by state law. Similar to the Court’s rationale in Wickard, the Raich Court found that the production of marijuana substantially affects supply and demand in the national market; therefore the regulation was “squarely within Congress’ commerce power.” The Court went on to hold that “Congress can regulate purely intrastate activity that is not itself ‘commercial’ . . . if it concludes that failure to regulate that class of activity would undercut the regulation of the interstate market in that commodity.” Raich, at 18. Both Raich and Wickard stand for an expansive and broad reading of Congress’s power under the Commerce Clause.

In finding that the PPACA’s individual mandate was unconstitutional, Judge Conner distinguished the mandate from the economic regulations at issue in Wickard and Raich. The Court found that unlike the laws at issue in Wickard  and Raich, which allowed people to not engage in regulated conduct and thereby stay beyond the reach of the statute, PPACA’s mandate requires people to become active participants in the health insurance market regardless of whether heath services will be used. As explained by Judge Conner:

Congress can reach the personal production of wheat – a clear activity affecting the interstate market – in an effort to stabilize the wheat market. Congress cannot, however, in order to stabilize that market, force the purchase of wheat by individuals who decide to forego wheat or wheat products, even if Congress legitimately determines that an individual’s decision not to purchase wheat or wheat products inhibits the government’s ability to regulate or stabilize the wheat market. Similarly, Congress may lawfully regulate the interstate market for health insurance and health services, but Congress cannot require individuals who choose not to purchase health insurance or individuals who are not currently seeking or receiving services in the health care market to purchase health insurance in order to stabilize the health insurance market. Congress cannot mandate or regulate in anticipation of conduct that may or may not occur.

Bachman v. U.S. Department of Health and Human Service, et. al., at 36.

The Court went on to find that an uninsured individual’s conduct has no effect on conduct Congress sought to regulate under the Commerce Clause until such time that: 1) the individual obtains health care services; and 2) the individual does not pay for the services received. The Court stated that “the mere status of being without health insurance, in and of itself, has absolutely no impact on interstate commerce . . . at least not any more so than the status of being without any particular good or service.” Id. at 38. As a result, “current Commerce Clause precedent does not permit Congress to reach a pre-transaction stage in anticipation of participation in a market. . . .”Id. at 40.

Ultimately, it is likely that the final decision as to the constitutionality of the individual mandate of the PPACA will be made by the Supreme Court. Such a decision has the potential to reshape Congress’s power to regulate individuals and businesses under the Commerce Clause regardless of its outcome. Fuerst Ittleman will continue to monitor the litigation challenging the PPACA and its effects on Commerce Clause jurisprudence. For more information, please contact us at contact@fuerstlaw.com.

On August 29, 2011, Del Monte began taking steps to sue the State of Oregon’s Public Health Authority (PHA) and one of its senior officials. After suing the FDA last week, the company filed a notice to sue letter, alerting the State that it will be pursuing legal action in relation to allegations of tainted cantaloupes. According to Del Monte, Oregon’s PHA and its officials had insufficient evidence to link Del Monte cantaloupes to an outbreak of Salmonella Panama.

We previously reported on Del Monte’s suit challenging an import alert issued by U.S. Food and Drug Administration (FDA). According to Del Monte, the FDA placed an Import Alert on all cantaloupes being imported from Guatemala because of the possible link to a salmonella outbreak earlier this year. As alleged by Del Monte, the Import Alert was unlawful because the Agency had insufficient evidence that the cantaloupes imported from Guatamala were contaminated. While Del Monte’s arguments against the State of Oregon are expected to be similar to those made against the FDA, the notice to sue letter is just the first step in what could become a long legal battle concerning the allegedly tainted fruit.

For more information on FDA enforcement measures or import compliance, please contact us at contact@fuerstlaw.com.