Does the recent decision in a federal district court in Texas, finding that the U.S. Food and Drug Administration’s tobacco civil money penalty authority is unconstitutional, mean the end of the federal agency bringing administrative civil money penalty actions? And if so, can regulated companies breathe a sigh of relief from monetary penalties and continue selling unauthorized, adulterated, and/or misbranded FDA-regulated products, or should they strive to comply with the law to avoid facing even more onerous liability than paying a civil money penalty?
These questions are at the center of the federal district court’s ruling last week in Wulferic LLC vs. U.S. Food and Drug Administration. While the case focused on a company that sold unauthorized tobacco products — Wulferic operates under the trade name Vapor Lab — the court’s ruling has the potential to serve as the death knell for the particular FDA enforcement authority of imposing significant monetary penalties against entities found in violation of the federal Food, Drug, and Cosmetic Act (FDCA). Vapor Lab argued that the FDCA’s tobacco civil money penalty (CMP) provision violated its Seventh Amendment right to a jury trial.
The decision has important implications for the life sciences industry, including device and drug manufacturers and businesses conducting clinical trials, as it relates to FDCA compliance and state laws. It is also important for radiologists and practices that perform mammograms, against whom FDA has sought CMPs for failure to comply with the certification requirements and quality standards for mammography. There are also potential implications for the food and beverage industry, because the act gives FDA CMP authority relating to adulterated food.
Court’s Reasoning in Civil Money Penalty Case
In the FDCA, Congress gave the FDA authority to assess CMPs administratively for certain act violations. FDA has broad authority to seek CMPs from people and companies that violate the law’s provisions regarding tobacco products and devices, and more limited CMP authority for violations relating to drugs, foods, and clinical trials. FDA also has the authority to seek CMPs administratively under the Mammography Quality Standards Act, found in the Public Health Service Act.
After the Supreme Court’s 2024 decision in SEC vs. Jarkesy, attorneys representing the vaping industry have filed several cases in federal court arguing that FDA’s tobacco CMP authority, under which the agency’s Center for Tobacco Products has been bringing administrative cases since 2012, violates the Seventh Amendment, which guarantees the right to a jury trial in suits at common law. After two federal district courts ruled that they lacked jurisdiction to review constitutional challenges to FDA’s tobacco CMP authority, the United States District Court for the Northern District of Texas in Wulferic found that it did have jurisdiction and held that FDA’s administrative tobacco CMP authority violated the Seventh Amendment. FDA’s administrative case against Vapor Lab sought a $20,678 penalty for its sale of adulterated and misbranded tobacco products, specifically e-liquid products that had not been authorized by FDA for sale.
District Court Judge Reed O’Connor ruled that the court had jurisdiction to hear Vapor Lab’s challenge. Then, relying on the Jarkesy decision, the court found that the FDCA’s tobacco CMP provisions were legal in nature and thus implicated the Seventh Amendment, and that the public rights exception, which allows certain matters to be adjudicated by agencies without a jury, did not apply in this case. The court issued a permanent, but not nationwide injunction, enjoining FDA and the Department of Health and Human Services from adjudicating CMPs against Vapor Lab in an administrative proceeding and requiring the dismissal of the administrative complaint against Vapor Lab.
What This Case Means for Life Sciences Companies Going Forward
It is unclear whether FDA will appeal this decision, but given that Jarkesy originated in the Fifth Circuit, it is highly likely that Judge O’Connor’s decision will be upheld if appealed to it. Perhaps there will be a circuit split on this issue down the road, as there was in Jarkesy, but all signs point to the Supreme Court believing Jarkesy squarely applies to FDA’s tobacco CMP authorities, so the likelihood of FDA ultimately prevailing before the Supreme Court is slim.
Because FDA’s other CMP authorities are similar to its tobacco authorities, Wulferic calls into question the constitutionality of those authorities and could signal the end of this enforcement tool. Indeed, perhaps FDA will simply decide to abandon its CMP authorities entirely absent a legislative change permitting it to bring these cases in federal court. It’s important to note that type of change would mean that the FDA would be reliant on the Department of Justice (DOJ) to file CMP cases in which the defendants have a right to a jury trial; whether the DOJ would use its scarce resources on such cases is an entirely different question.
What would the end of the FDA’s CMP authority mean for life sciences companies and other regulated businesses? Some of the same lawyers who have been bringing challenges to the FDA’s authority have not yet been successful in pausing North Carolina’s e-cigarette law, which gives the state’s Department of Revenue the authority to issue fines against retailers and manufacturers that sell e-cigarettes that lack the required FDA marketing authorization (similar conduct to that at issue in FDA’s administrative case against Vapor Lab). So even if FDA’s authority is abandoned, state laws may apply to similar violative behavior.
Moreover, the FDCA is a strict liability misdemeanor statute, meaning that anyone who violates any of its prohibited acts with regard to any FDA-regulated product could be charged criminally with a misdemeanor. If the government can show intent to defraud or mislead a consumer or the government, that violation can be charged as a felony. And the act gives FDA the authority to institute an action to seize violative products and/or enjoin violative behavior.
These types of judicial actions need to be filed by the DOJ, which means FDA has less autonomy to bring them than it has in bringing administrative actions. But companies would be wise to fully comply with federal law to avoid these actions, which are generally more expensive to defend and can result in significant financial loss, potential loss of freedom, and reputational damage. Companies should consider partnering with outside counsel to further assess any potential liability that they could face in their FDA-regulated business.
Final Takeaway
Businesses should pay close attention to how this issue continues to play out in the courts. One other case is awaiting a decision from a different judge in the same district while two others are pending in the U.S. Court of Appeals — one in the Fifth Circuit and another in the D.C. Circuit — as businesses challenge the FDA on cases seeking monetary fines against them.
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