FDA’s Proposed Regulation of Brewers’ Spent Grains is All Wet

spent brewing grains

spent brewing grains

During his February 5, 2014 appearance at a House Energy and Commerce Committee hearing, Food and Drug Administration (FDA) Deputy Commissioner Michael Taylor stated that “the whole goal of [the Food Safety Modernization Act (FSMA)] is to achieve the food safety goal without imposing regulations, just for the sake of regulation.” Dr. Taylor must have been unaware of his agency’s proposal to require that brewers, distillers, and vintners develop extensive hazard analysis and control plans before selling or donating their spent grains or grape pomace to farmers for livestock feed. This proposal seems to be the epitome of regulating for the sake of regulating.

Farmers have been procuring and feeding their livestock spent brewing grains and grapes for centuries. These livestock “happy hour” arrangements advance environmental sustainability, engender bonds among local businesses, and financially benefit both parties. Farmers get low cost whole grain feed packed with fiber, protein, and, of particular importance to livestock in arid climates, moisture. Alcohol makers save millions by not having to landfill the by-products.

FSMA Section 116 exempts activities at facilities which “relateto the manufacturing, processing, packing, or holding of alcoholic beverages.” In a proposed animal food safety regulation, FDA essentially nullifies this statutory exemption. The agency “tentatively concludes” that when brewers or distillers go through the “mashing” process—soaking grains in hot water—and then offer the by-product to farmers, they suddenly become food producers. The same goes for winemakers and their grape pomace. FDA’s conclusion has sparked a deserved firestorm of opposition from the affected industries as well as members of Congress. Continue reading

Does FTC Glass Settlement Break the Efficiencies Mold?

amurinoFeatured Expert Column – Antitrust/Federal Trade Commission

Andrea Agathoklis Murino,Wilson Sonsini Goodrich & Rosati

(Editors note: The Legal Pulse would like to (belatedly) congratulate Andrea on her promotion to partner, the announcement for which at the end of last year escaped our discovery)

As expected, on April 11, 2014, the Federal Trade Commission (“FTC”) announced the resolution of their investigation and administrative court challenge into the $1.7 billion acquisition of Saint-Gobain Containers, Inc. (“St. Gobain”) by Ardagh Group SA (“Ardagh”). In order to allow the transaction to proceed and resolve the pending administrative trial, Ardagh agreed to sell six of its nine glass container manufacturing plants in the United States to an FTC-approved buyer within six months, including all tangible and intangible assets, and customer contracts. (All pleadings and filings for all parties, including the original complaint, which argued that the acquisition would harm competition in the markets for glass containers used to package beer and spirits, are available online.)

The fact that this litigation was resolved via a divestiture of brick-and-mortar facilities in an industry like glass manufacturing is not news of note to this FTC observer. What is worthy of pause, however, is that the vote to approve this consent was not unanimous (it was 3-1) and that the efficiencies defense stands front-and-center in the dispute between the majority and minority.

For the majority, Chairwoman Ramirez and Commissioners Brill and Ohlhausen, found that the transaction as originally structured would have resulted in a violation of Section 7 of the Clayton Act. When presented with a carefully crafted remedy, these Commissioners believed that the remedy would “fully replace[ ] the competition that would have been lost in both the beer and spirits glass container markets had the merger proceeded unchallenged.” Thus, they voted to accept the settlement. Continue reading

Federal Workplace Police Have a Tough Week in Court

6th CircuitIf anyone doubts our democracy’s need for an independent judiciary to check the executive and legislative branches, consider two federal court opinions issued last week. Federal workplace police at the Equal Employment Opportunity Commission (EEOC) and the Department of Labor (DOL) each received a thorough (and richly deserved) judicial slapdown for arrogantly flouting the rule of law.

EEOC v. Kaplan Higher Education Corp. The unanimous U.S. Court of Appeals for the Sixth Circuit panel set the tone of this seven-page opinion by declaring, “In this case the EEOC sued the defendant for using the same type of background check that the EEOC itself uses.”

Kaplan implemented vigorous screening of job applicants, including the use of credit checks, in response to several instances of employee theft. Such increased self-policing earned the company an EEOC legal action. The Commission argued that Kaplan’s credit checks had a disparate impact on minorities.

To support its case, EEOC hired a psychologist to perform statistical studies using Kaplan’s applicant data. The “expert” filed numerous reports with the trial judge, most of which were either late or contrary to the judge’s demand that he cease providing reports. The judge found that the psychologists’ reports were unreliable under Federal Rule of Evidence 702 and dismissed EEOC’s case.

The Commission fared just as poorly on appeal. The Sixth Circuit agreed with the lower court’s conclusion that EEOC’s “expert” and his methodology failed every factor that courts utilize to assess expert testimony under the Supreme Court’s Daubert v. Merrell Dow opinion. The judges agreed that a court could neither test the psychologist’s technique, nor could it evaluate the test’s error rate. EEOC argued that its “expert’s” theory did not have to be subject to peer review. The Sixth Circuit found the argument “meritless.” As for the other Daubert factors, EEOC essentially argued that the burden fell on Kaplan to prove they had been met. The court pointedly retorted, “The law says to the contrary.”

The opinion ended as sharply as it began:

We need not belabor the issue further.  The EEOC brought this case on the basis of homemade methodology, crafted by a witness with no particular expertise to craft it, administered by persons with no particular expertise to administer it, tested by no one, and accepted only by the witness himself.

Gate Guard Services v. Perez. Here, the Department of Labor lost more than just a case.  Because of its antics, American taxpayers had to shell out $565,527.61 in attorneys’ fees to the enforcement target.

DOL accused Gate Guard Services (GGS) of misclassifying gate sentries as independent contractors. GGS counter-sued and sought a declaratory judgment. In February 2013, U.S. District Court for the Southern District of Texas Senior Judge John Rainey granted GGS summary judgment and dismissed DOL’s claims against the company. GGS then sought attorneys’ fees under the Equal Access to Justice Act (EAJA).

Under that statute, the government must prove that its position in a lawsuit had a reasonable basis in both fact and law (“substantially justified”) at every stage of the action. Judge Rainey agreed with GGS that DOL’s lead investigator departed from DOL enforcement procedures when he destroyed interview notes and assessed a $6 million fine after he had interviewed only three gate sentries.

“Had the DOL interviewed more than just a handful of GGS’s roughly 400 gate attendants,” Judge Rainey wrote, “it would have known [they] were not employees.” He listed ten different factors that DOL failed to reasonably consider, including “the federal government itself, via the ACE [Army Corps of Engineers] uses the services of gate attendants at federal parks and classifies these individuals as independent contractors.”

The court concluded that DOL’s actions both before and during the suit were not substantially justified and awarded fees to GGS.

Checked and Balanced. But for an independent judiciary, the executive branch would be free to engage in the type of hypocrisy and disrespect for rules that were on display in these two cases. It might routinely label employers’ credit checks discriminatory while utilizing the very same screening method, or it could categorize a company’s gate sentries “employees” while other federal agencies consider similarly situation workers “independent contractors.” Agencies would prosecute businesses for destroying internal documents while permitting federal investigators to freely do the same.

We should all be grateful that our federal courts did not tolerate such behavior from EEOC and DOL, and instead reminded them of principles most of us learned in kindergarten: play by the rules and live by the same rules you expect others to abide by.

Also posted at WLF’s Forbes.com contributor page

Finger on the Pulse: From Our Blogroll and Beyond

  • Pepsico General Counsel (and new member of WLF’s Legal Policy Advisory Board) Larry D. Thompson has a new scholarly article on the Foreign Corrupt Practices Act (FCPA Professor)
  • SEC Commissioner Gallagher speaks out on reforms needed to address proxy wars initiated by gadfly shareholder activists (Reuters)
  • More troubling revelations on FDA and meningitis B vaccine, which we’ve blogged on here (and here) (Forbes.com The Apothecary)
  • Green activism has consequences: Desert smelt prevails over California water supply (Perkins Coie)
  • In battle of NIMBY activists and wind power advocates, wind power advocates win this round (DLA Piper)
  • Electric car maker’s efforts to sell directly to consumers tests retail distribution model and state laws (Truth on the Market)
  • State AGs inject themselves into scrutiny of Comcast-Time-Warner merger (Reuters via State AG Monitor)
  • Federal trial judge properly excludes “expert” testimony based solely on extrapolation from unreliable case reports (Product Liability Monitor)
  • POM Wonderful brings food labeling dispute to the Supreme Court; will it impact cases in the Food Court? (Private Surgeon General Class Action Defender)
  • Whistleblowers succeed in expanding controversial “implied certification” theory of qui tam liability under California false claims law (Original Source)
  • The real and ugly facts of litigation financing (D&O Diary)
  • Plaintiffs can’t evade removal under Class Action Fairness Act by suing for only declaratory relief (Class Defense)
  • Daimler v. Bauman SCOTUS decision and U.S. jurisdiction over foreign corporations scrutinized (Corporate Counsel)

District Court’s Attorney-Client Privilege Ruling Counteracts Incentives to Perform Internal Investigations

829-Brower_GregjohnsonGuest Commentary

by Greg Brower and Brett W. Johnson, Snell & Wilmer LLP*

It has long been assumed that under the U.S. Supreme Court’s decision Upjohn Co. v. United States, reports generated during an internal investigation undertaken at the direction, and under the supervision, of corporate attorneys are protected from discovery by the attorney-client privilege.  It came as a significant surprise then that the U.S. District Court for the District of Columbia recently held that the privilege does not apply when an investigation is conducted pursuant to a legal requirement, and not purely for the purpose of obtaining legal advice.  Unless reversed, this decision could pose a significant new dilemma for regulated companies, and especially for government contractors, that perform internal investigations to determine whether “credible evidence” of actual wrong-doing exists.

The decision in United States of America ex rel. Harry Barko v. Halliburton Company, et al. is the latest in a long-running False Claims Act (“FCA”) suit against Halliburton and its former subsidiary, Kellogg, Brown & Root (“KBR”).  In the course of pre-trial discovery, the relator sought the production of reports created by KBR in the course of conducting internal investigations into alleged violations of the company’s Code of Business Conduct (“COBC”).  KBR objected to the production of the COBC reports, contending they were protected from discovery by the attorney-client privilege and work-product doctrine.  On the relator’s motion to compel, the court rejected KBR’s argument that Upjohn was dispositive of the issue, and ordered that the reports be produced.  The court reasoned that because the KBR investigators who prepared the reports were not lawyers, and because the subject investigations were done pursuant to legal requirements and corporate policy, and not solely for the purpose of obtaining legal advice, the reports were not privileged.

Continue reading

The Federal Circuit Muddies Its Venue Transfer Jurisprudence

federal circuit Patent plaintiffs, especially those resembling “patent trolls,” routinely sue in plaintiff-friendly forums, such as the Eastern District of Texas, or in other forums thousands of miles away from a defendant’s home base. Plaintiffs use the attendant inconveniences as leverage when pursuing quick settlements. Such venue manipulation is an item of significant concern to repeat player defendants of patent lawsuits.

Congress considered and rejected venue reforms as part of the America Invents Act of 2011, which may be one reason such provisions are not included in current reform efforts on Capitol Hill. Another reason may be that over the last five years, the U.S. Court of Appeals for the Federal Circuit has built up a robust jurisprudence which gives defendants a fair chance at having lawsuits transferred to a more convenient forum. Our 2010 Legal Pulse post The Federal Circuit Messes with (the Eastern District of) Texas Yet Again examined a series of Federal Circuit rulings which together have provided predictable standards for judging venue transfer requests under 28 U.S.C. § 1404(a).

However, two Federal Circuit decisions issued on the same day—February 27—by the same panel of judges now threaten the prevailing clarity on patent litigation transfer of venue. In both cases, Judges Prost and Reyna affirmed the lower courts’ denial of defendants’ motions to transfer with Judge Newman twice dissenting. In re Apple Inc. originated in the Eastern District of Texas, while In re Barnes & Noble, Inc. was filed in the Western District of Tennessee. The plaintiff in In re Apple is a Luxembourg company with one employee which has a Plano, Texas subsidiary whose six employees manage the company’s patent portfolio. The plaintiff in In re Barnes & Noble registered to do business in Tennessee just before filing this suit (as well as 19 other identical suits in the same court) and is a one-employee company with a home office. Continue reading

WLF Program to Address FTC’s Dual Role in Administrative Litigation: Prosecutorial and Adjudicative

FTC’S ADMINISTRATIVE LITIGATION PROCESS:

Should the Commission Be Both Prosecutor and Judge?

A Washington Legal Foundation Briefing

Tuesday, March 11, 9:30-10:30 a.m.

RSVP to attend in person (2009 Massachusetts Ave., NW) to glammi@wlf.org

To view live online click HERE to register

Our Speakers:

WLF Briefing Focuses on U.S. Supreme Court at its Mid-Term Point

One of our speakers, Troutman Sanders’ Peter Glaser, and his authoring of WLF’s amicus brief in Utility Air Group v. EPA, were referenced in a New York Times story on the case.

Attendees of the briefing received printouts of the following WLF Supreme Court-related resources:

CVS Action Brings Call for a Food Fight

CVS aisle, CVS/Pharmacy, Bethesda, MD

CVS aisle, CVS/Pharmacy, Bethesda, MD
Photo by Glenn G. Lammi

Well, that didn’t take long.

Just hours after CVS announced last Wednesday that it would halt sales of tobacco, public health activists and their media allies seized the opportunity to advance a notion championed by such anti-”Big Food” luminaries as The New York Times’ Mark Bittman and the Dean of Duke University’s Sanford School of Public Health, Kelly Brownell: food is the next tobacco.

For instance, the Texas Medical Association sent out the following tweet:

The commentary referenced in the tweet stated baldly, “Wander the aisles of CVS and see how their nutritional offerings fit within the framework of an organization pitching health.”

Next, this from Slate business and economics correspondent Matthew Yglesias:

But the cigarettes issue seems to me to mostly raise the question of how far CVS can really go down this road. After all, I was in CVS just yesterday to buy myself some Diet Coke. The Diet Coke sits next to the sugary sodas. And they’re across the aisle from the potato chips. Up front where you cash out there are lots of M&M’s and Snickers bars.

A Saturday op-ed in The Boston Globe called on CVS to put soda, energy drinks, and other “sugary beverages” behind the counter. In support of its absurd viewpoint, the piece quoted health researcher Deborah Cohen from the (normally cerebral) think tank RAND Corporation, who proclaimed, “The food industry is just shoving food in to us.” Nice imagery.

Speaking of imagery, the food=tobacco messaging wouldn’t be complete without a political cartoon.  One by nationally syndicated cartoonist Jimmy Margulies appeared Saturday on the Washington Post op-ed page.

Food companies obviously chafe at the comparison of these two highly dissimilar product categories, as should any person who doesn’t have an axe to grind. But now that opportunities for paternalistic power and money through tobacco control are waning, anti-Big Food activists and their erstwhile allies in the plaintiffs’ bar see food as a logical and vulnerable next target. And they have at the ready an effective strategic activism plan, battle-tested from the “tobacco wars.” Continue reading

Finger on the Pulse: From Our Blogroll and Beyond

  • Ninth Circuit rules credit card late fees and over-limit fees are not punitive damages subject to constitutional limitations; Judge Reinhardt concurs, reluctantly (California Punitive Damages)
  • In a case not involving smelly washers, Judge Posner-led Seventh Circuit panel rejects a class certification (Class Action Countermeasures)
  • Legal and judicial activism has real economic consequences: court ruling deters Shell from pursuing new domestic oil resources (E&E News)
  • Critical question in forthcoming Supreme Court Aereo copyright case: What does “to the public” mean? (Copyhype)
  • The venerable Business Judgment Rule comes under attack (D&O Diary)
  • Sixth Circuit narrows the applicability of Michigan’s “FDA defense” law in drug liability cases (Drug & Device Law)
  • FDA continues to conjure up requirements for “medical foods,” this time through two warning letters (FDA Law Blog)
  • Patent troll sues FTC (Patent Progress)