FDA’s Legally-Suspect Shift of Clinical Lab Test Regulation Through Guidance Documents

_MG_8707Guest Commentary

by Gail Javitt, Sidley Austin LLP*

The penchant of the Food and Drug Administration (FDA) to use “guidance” documents as a means to effectuate substantive regulatory change may have reached its zenith on July 31, 2014, when FDA’s Center for Devices and Radiological Health announced its intent to issue two new draft guidances. Those draft guidances would fundamentally alter the oversight of clinical laboratory testing in the United States, by regulating clinical laboratories as medical device manufacturers and the laboratory developed tests (LDTs) they perform as medical devices.

As mandated by Congress under the 2012 Food and Drug Administration Safety and Innovation Act (FDASIA), FDA notified the House and Senate committees of jurisdiction that the agency intended to issue draft guidance, and also unveiled advance copies of the guidance documents. These documents announce the agency’s “risk-based” framework for LDTs, which comprise essentially all laboratory testing that is not performed using an in vitro diagnostic test kit in accordance with a manufacturer’s instructions for use.

Under the proposed framework, all clinical laboratories that perform laboratory developed tests will, at a minimum, be required to register with FDA, list the LDTs they perform, and report “adverse events” to FDA. LDTs that FDA classifies as “high” or “moderate” risk will also need to obtain FDA premarket review and authorization. They will additionally be subject to quality system regulatory requirements for medical devices, although the agency has not yet explained how it plans to adapt these to the clinical laboratory context. Continue reading

Supreme Court’s “Executive Benefits” Bankruptcy Ruling Provides a Practical Solution to a “Stern” Problem

supreme courtGuest Commentary

by Dee Wallander, a 2014 Judge K.K. Legett Fellow at the Washington Legal Foundation and a student at Texas Tech University School of Law.

In an overlooked but practically significant decision from its October 2013 term, Executive Benefits Insurance Agency v. Arkison, the U.S. Supreme Court clarified the procedural impact of its 2011 bankruptcy decision, Stern v. Marshall. In Stern (a case that received more fanfare for its underlying facts—which featured the late model Anna Nicole Smith—than for its legal issues), the Court narrowly held that a bankruptcy court can preside over actions arising from bankruptcy, but cannot hear state-law claims independent of the bankruptcy action. More specifically, Stern held that Article III of the U.S. Constitution bars bankruptcy courts from adjudicating counterclaims to proofs of claims, even though such actions are permissible under 28 U.S.C. § 157 as “core” traditional bankruptcy claims. Despite the Court’s attempt to rule narrowly in Stern, lower courts’ varying interpretations of the decision have created confusion in the bankruptcy system.

Justice Thomas, who wrote the unanimous Executive Benefits opinion, carefully avoided a detailed analysis of Stern by discussing only the narrow statutory question of how federal district and bankruptcy courts should procedurally handle so-called Stern claims. Continue reading

Fifth Circuit Decides Texas Water Agencies Can Leave Crystal Ball at Home: Aransas Project v. Shaw

Guest Commentary

by John Eisler, a 2014 Judge K.K. Legett Fellow at the Washington Legal Foundation and a student at Texas Tech University School of Law.

Photo by NaturesFan1226

Photo by NaturesFan1226

“[B]ecause of convenience, of public policy, of a rough sense of justice, the law arbitrarily declines to trace a series of events beyond a certain point.”[1] That “certain point” is proximate cause and many times the line drawn can seem arbitrary. Consider last year’s opinion from a U.S. District Court in South Texas that held the Texas Commission on Environmental Quality (TCEQ) liable for “taking” whooping cranes under Section 9 of the Endangered Species Act (ESA). The taking occurred—in the court’s view—from the TCEQ’s failure to “properly manage” the inflows of freshwater into the San Antonio and Guadalupe bays over the winter of 2008-2009.[2] The court acknowledged that “[o]rdinary requirements of causation apply to ESA cases.” The very next sentence concluded that “[p]roximate causation exists where a defendant government agency authorized the activity that caused the take.”[3] Out of a 124-page opinion, that phrase marked the extent of the court’s proximate cause analysis. The court also enjoined the TCEQ from issuing any new water permits in the area until the State could provide “reasonable assurances” the permits would no longer take whooping cranes and ordered the TCEQ to “seek an Incidental Take Permit that will lead to development of a Habitat Conservation Plan.”[4]

The United States Court of Appeals for the Fifth Circuit, in a per curiam opinion, emphatically reversed, concluding, “the district court’s opinion misapplies proximate cause analysis and further, even if proximate cause had been proven, the injunction is an abuse of discretion.” Aransas Project v. Shaw, — F.3d —-, 13-40317, 2014 WL 2932514 (5th Cir. June 30, 2014). The Fifth Circuit’s welcome reversal restores proximate cause to its rightful place.

Continue reading

Yates Prosecution Throws Logic of Sarbanes-Oxley Act Overboard

Guest Commentary

by Nicholl B. Garza, a 2014 Judge K.K. Legett Fellow at the Washington Legal Foundation and a student at Texas Tech University School of Law.

Imagine if a commercial truck driver received a citation from the Federal Motor Carrier Safety Administration for failing to keep a record of his driving hours. Further suppose the truck driver lost some of his records, but decided to pay a civil penalty to dispose of the matter. Normal, right? Now imagine three years later the Department of Justice (DOJ) decided to prosecute that person, alleging that he intentionally discarded documents during a federal investigation (a crime under the Sarbanes-Oxley Act (SOX)). While this circumstance may seem absurd, a very similar situation is happening to commercial fisherman John Yates because he allegedly disposed of three fish after being stopped by an official from the Florida Fish and Wildlife Conservation Commission during a commercial fishing trip.

SOX was enacted in 2002. The intended purpose of SOX was to provide (1) criminal prosecution for persons who defrauded investors in publicly traded securities and (2) criminal prosecution for persons who destroyed or altered evidence in certain federal investigations. With regard to “certain Federal investigations,” the SOX Senate Report listed examples such as people committing securities fraud and auditors who intentionally fail to retain audit records. However, the statutory language in SOX does not integrate these specific examples and instead simply references “Federal investigations.” Nevertheless, the Senate Report and previous prosecutions under SOX illustrate that the purpose of the act is to provide a tool to prosecute those who commit financial crimes. Strangely then, in 2010, DOJ decided to prosecute Mr. Yates under SOX. DOJ asserts that in 2007 Yates violated SOX by discarding fish because a federal investigation was taking place.

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Seventh Circuit Ruling Exposes Federal Regulators to Public Nuisance Claims

sboxermanFeatured Expert Column – Environmental Law and Policy

by Samuel B. Boxerman, Sidley Austin LLP with Katharine Falahee Newman, Sidley Austin LLP

In recent years, plaintiffs have increasingly asserted public and private nuisance theories in cases seeking damages and remedies to address alleged environmental harms, despite the fact that the defendant was in compliance with relevant federal law—and in particular, the Clean Air Act (CAA). Defendants have opposed these suits on multiple grounds, including arguing the CAA preempts these common law claims. Most prominently, in American Elec. Power Co., Inc. v. Connecticut, 131 S. Ct. 2527 (2011), the Supreme Court held the CAA displaced public nuisance claims under federal common law, but left open the question whether the Act would similarly limit state common law tort claims. Last year, in Bell v. Cheswick Generating Station, 734 F. 3d 188 (3rd Cir. 2013), the U.S. Court of Appeals for the Third Circuit addressed the issue, holding the CAA did not preempt state common law claims of the source state. It now appears that the Sixth Circuit will get into the act, as the district court certified an interlocutory appeal in Merrick v. Diageo Americas Supply, (W.D. Ky. June 12, 2014), where, like Cheswick, the court had held the CAA does not preempt source state common law tort claims.

Recently, a unanimous panel of the Seventh Circuit weighed in on a similar but somewhat different variation on the theme of claims for public and private nuisance in Michigan, et al. v. United States Army Corps of Engineers, et al. (No. 12-3800). There, the court determined that governmental agencies may be subject to public nuisance suits despite maintaining a waterway as authorized by federal statute, but ultimately dismissed the suit after finding that Asian Carp are not an imminent threat to the Great Lakes. Continue reading

Light Finally Shining on FDA’s Approval Delays of Next-Generation Sunscreen Products

sunshineGuest Commentary

by Samantha J. Malnar, a 2014 Judge K.K. Legett Fellow at the Washington Legal Foundation and a student at Texas Tech School of Law.

A “call to action” this week from the Surgeon General of the United States reports that nearly 5 million people are treated with skin cancer in America each year. Of those treated yearly, 9,000 die from melanoma. The report explains that skin cancer is the most preventable form of cancer, and urges steps government and individuals can take to reduce the risks. Regretfully, the Surgeon General failed to spotlight the role government regulation has played in increasing the risk of skin cancer. Thanks to federal regulators’ unconscionably slow action on reviewing and approving new formulas, Americans can only get the best available sunscreens overseas.

It has been fifteen years since the Food and Drug Administration (FDA) has approved a new sunscreen ingredient, even though there are eight applications pending—some dating back to 2002. Notably, the last application was submitted in 2009, which suggests that the agency’s failure to act has deterred companies from investing in the United States market. As the former head of the American Academy of Dermatologists told The Washington Post, “These sunscreens are being used by tens of millions of people every weekend in Europe, and we’re not seeing anything bad happening.” In fact, in European countries, sunscreen manufacturers can choose from twenty-seven chemicals, seven of which were specifically designed to protect against UVA rays.

As of right now—as was the case fifteen years ago—sunscreen manufacturers in the U.S. are limited to the use of seventeen sunscreen ingredients, only three of which protect against UVA rays. UVA rays are especially dangerous because they deeply penetrate the skin, normally damaging it without showing any immediate signs or symptoms of the damage, such as sunburn. Continue reading

EPA’s “Waters of the U.S.” Proposal: Coming Soon to a Back Yard Near You?

 wetlandGuest Commentary

by Scott McFadin, a 2014 Judge K.K. Legett Fellow at the Washington Legal Foundation and a student at Texas Tech School of Law.

On April 21, the Environmental Protection Agency (EPA) and the United States Army Corps of Engineers issued proposed regulations that would increase their regulatory jurisdiction under the Clean Water Act (CWA). The Act gives EPA authority to regulate “waters of the United States.” Over the past two decades, federal courts have (pardon the pun) muddied the waters on agencies’ authority. The most recent Supreme Court pronouncement on federal regulators’ jurisdiction, Rapanos v. U.S., held that the agencies only have jurisdiction over waters or wetlands with a “significant nexus” to traditional navigable waters. EPA has taken advantage of this unclear legal guidance, proposing a stunningly broad definition of “waters of the United States.” EPA claims its definition merely clarifies existing guidance on “waters,” and will in fact reduce the scope of its jurisdictions. When one considers EPA’s own proposed definitional language, testimony from respected trade groups, and social scientists, however, the truly expansive reach of the new rule becomes quite clear. In classic bureaucratic fashion, EPA has proposed a regulation that is long enough to deter it being read and far-reaching enough to arguably provide jurisdiction over a dry ditch in your backyard.

Much like Humpty Dumpty in Through the Looking Glass, EPA is quite masterful at using words in just the way they choose them to mean.1 Continue reading

Move by Biotech Company Tees Up Court Consideration of Attorneys’-Fee Clause in Corporate Bylaws

DelawareThe Wall Street Journal Law Blog reported today that Philadelphia-based (but Delaware-incorporated) biotechnology company Hemispherx BioPharm Inc. has injected itself into the middle of a growing dispute over attorneys’ fees in shareholder class action lawsuits. (A hat-tip to the Institute for Legal Reform, whose must-read daily email referenced the WSJ Law Blog piece) Prompted by a May 14 Delaware Supreme Court decision, ATP Tour, Inc. v. Deutscher Tennis Bund, et al., Hemispherx earlier this month adopted a provision in its corporate bylaws that shareholder plaintiffs must pay the company’s legal fees if Hemispherx prevails in a shareholder-initiated lawsuit. The provision applies retroactively to pending suits, and lawyers for shareholders in a class action against Hemispherx have asked the Delaware Chancery Court to invalidate the bylaws.

A July 11 Washington Legal Foundation Legal Backgrounder, Is Delaware High Court Ruling an Ace for Merging Companies Served with Shareholder Suits?, discussed the ATP Tour decision and assessed how it could be applied to deter frivolous shareholder class actions. Authored by Snell & Wilmer LLP attorneys Greg Brower and Casey Perkins, the paper explains that ATP Tour involved not a public company, but a private membership corporation which included in its bylaws a fee-shifting provision. The Delaware Supreme Court, answering a question certified to it by the U.S. Court of Appeals for the Third Circuit, held that the fee-shifting provision was a matter of private contract, and nothing in the state’s corporate law prohibited its inclusion in ATP’s bylaws.

The authors went on to examine whether Delaware statutory or common law would permit public companies to include such a fee-shifting mechanism in their bylaws. They found that a recent Delaware Chancery Court case, Boilermakers Local 154 Retirement Fund, et al. v. Chevron Corporation, et al., strongly supported the legality of fee-shifting through bylaws.  Brower and Perkins concluded:

Chevron and ATP Tour together make it clear that Delaware law is intended to give broad leeway to corporations, private and public, to adopt bylaws not otherwise prohibited by law, and that duly adopted bylaws are presumed to be part of the contract between the company and the member or shareholder. This means that publicly-traded companies and their shareholders ought to be able to freely contract for the details of their relationship, including details such as where disputes between them will be litigated, and whether the losing party in such litigation should have to pay the legal fees of the prevailing party. Such contracts are part of the fundamental structure of the corporate law of Delaware—or, it seems, of any other state for that matter.

Given the financial implications for the securities fraud class action bar and the promise such provisions hold for public companies, the Hemispherx case is likely just the first skirmish in what will be a drawn-out, intense battle over fee-shifting through corporate bylaws.

Class Actions Alleging Injuries from Data Breaches Continue to Wither in Face of Standing Challenges

securityGuest Commentary

by Jennifer Wissinger, a 2014 Judge K.K. Legett Fellow at the Washington Legal Foundation and a student at Texas Tech School of Law.

Data-breach cases were supposed to be a new, lucrative litigation frontier for plaintiffs’ attorneys. Some experts speculated a wave of class-action suits would emerge against companies victimized by unauthorized access of customer data. Media reports of lawsuits filed in the immediate aftermath of high-profile data breaches, like the one that befell Target last December, have created the impression that these cases are proliferating rapidly. Reality belies such perceptions of success, however. Trial courts in fact have routinely dismissed data-breach lawsuits because plaintiffs cannot answer the American legal system’s most fundamental threshold question: have you actually been harmed? As a series of U.S. Supreme Court cases construing the constitutional standing-to-sue requirement dictate, mere fear of possible future harm does not suffice. In many data-breach cases, fear of future harm is the most plaintiffs can prove.

As The Legal Pulse has discussed, the Supreme Court most recently addressed standing two years ago in Clapper v. Amnesty International. Since 2012, federal and state trial courts have consistently applied Clapper’s reasoning to dismiss data-breach cases for lack of standing. In the last two months, three more courts have thrown out data-breach cases because the plaintiffs failed to show that the expected injury was at least “certainly impending.”

Galaria v. Nationwide Mutual Insurance Co. After Nationwide’s computer systems were hacked, the company notified its customers and advised them to safeguard their personally identifiable information (PII). Even though Nationwide offered its customers free credit monitoring for a year, the plaintiff in Galaria sued alleging violations of the federal Fair Credit Reporting Act (FCRA) and unlawful invasion of privacy under Ohio common law. Continue reading

There’s Nothing “New” about “Lone Pine” Orders for Active Case Management

faulkFeatured Expert Column − Complex Serial and Mass Tort Litigation

by Richard O. Faulk, Hollingsworth LLP*

To listen to the plaintiffs’ bar, you’d think that “Lone Pine” orders were a novelty recently conjured out of “thin air” by creative defense lawyers—or a device unsupported by any significant precedents. But although those orders may seem new to the uninitiated, they have deep roots in the history of active case management.

Many lawyers know—or have learned the hard way—why these case management tools are called “Lone Pine” orders, and what they are intended to accomplish. In Lore v. Lone Pine Corporation, No. L-03306-85, 1986 WL 637507 (N.J. Sup.Ct. Nov. 18, 1986), the plaintiffs claimed injuries resulting from contamination allegedly coming from a landfill. When the defendants presented a government investigation that found no offsite contamination, the court required the plaintiffs to make a preliminary showing of exposure, injury, and causation before allowing full discovery to proceed. This ruling led to other cases which recognized the propriety of “Lone Pine” orders when doubt existed “over what medical condition or disease, if any, can be causally related to the toxic agent exposure alleged by each plaintiff.”2 Lawrence G. Cetrulo, Toxic Torts Litigation Guide § 13:49 (2013). Since then, “Lone Pine” order have proliferated, not only in toxic tort litigation, but also in other types of cases.See generally, David B. Weinstein and Christopher Torres, Managing the Complex: A Brief Survey of Lone Pine Orders, 34 Westlaw Envt’l J. 1 (Aug. 21, 2013) (providing extensive list of categorized cases). Continue reading