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October Term, 2010

June 23, 2011

Today the Supreme Court issued four decisions, described below, of interest to the business community.

Generic Drugs—Food, Drug, and Cosmetic Act—Preemption of Failure-To-Warn Claims

PLIVA, Inc. v. Mensing, No. 09-993 (previously discussed in the December 13, 2010 docket report).

In a trilogy of closely watched cases, PLIVA, Inc. v. Mensing, No. 09-993, Activas Elizabeth, LLC v. Mensing, No. 09-1039, and Activas, Inc. v. Demahy, No. 09-1501, the Supreme Court held today that the federal statutes and regulations governing the labeling of generic drugs preempt state-law failure-to-warn claims against generic drug manufacturers. The Court had previously held, in Wyeth v. Levine, 129 S. Ct. 1187 (2009), that failure-to-warn claims against brand-name drug manufacturers generally are not preempted.

Manufacturers seeking to market generic forms of a previously approved drug must demonstrate, among other things, that the generic drug’s labeling will be identical to that approved by the FDA for its brand-name equivalent. Slip op. 6. In today’s decision, the Court concluded that generic manufacturers would violate federal labeling requirements if they unilaterally changed their warning labels to satisfy the state-law tort duties that a failure-to-warn claim necessarily would impose. Invoking the rubric of “impossibility” preemption, the Court held that state law had to give way in favor of the directly conflicting federal law. Slip op. 11-12.

The plaintiffs here—echoing similar arguments advanced by the plaintiffs in Wyeth and adopted by the Wyeth Court in concluding that preemption did not apply in the brand-name-drug context—asserted that there was no true conflict because, in their view, “federal law provided several avenues through which the [generic drug manufacturers] could have altered their . . . labels.” Slip op. 6. The Court was not persuaded. Writing for the majority, Justice Thomas discerned a crucial difference between the federal regulatory regime applicable to brand-name manufacturers and that applicable to generic manufacturers.

Brand-name manufacturers have a continuing responsibility “for the accuracy and adequacy” of labeling and are specifically permitted to “change their labels” to add additional warnings. Slip op. 6-7, 9. Impossibility preemption thus was rejected in Wyeth on the ground that “the federal regulations applicable to [a brand-name manufacturer] allow[] the company, of its own volition, to strengthen its label in compliance with its state tort duty.” Slip op. 18.

Generic manufacturers, on the other hand, “have an ongoing federal duty of ‘sameness.’” Slip op. 6. Deferring to the FDA’s interpretation of its own regulations, the Court concluded that federal law did not permit generic manufacturers to unilaterally strengthen their warning labels. In particular, generic manufacturers are forbidden from adding warnings through the FDA’s “changes-being-effected” process or by sending “Dear Doctor” letters. Slip op. 7-9. 

The Court also rejected the plaintiffs’ remaining suggestion that impossibility preemption does not apply because generic manufacturers could ask the FDA for help in strengthening the brand-name drug’s label, in turn allowing the generic drug’s label to be updated. Slip op. 10, 13. The Court concluded “[t]he question for ‘impossibility’ is whether the private party could independently do under federal law what state law requires of it.” Slip op. 13 (emphasis added). To hold otherwise, the Court explained, would “render conflict pre-emption largely meaningless,” since a private party could always, in principle, try to persuade “the Federal Government . . . [to] do something that makes it lawful for a private party to accomplish under federal law what state law requires of it.” Slip op. 14.

Justice Thomas, writing for himself and three other justices, would have clarified that no presumption against preemption applies in conflict preemption cases. Slip op. 15-17. Justice Kennedy did not join that section of the majority opinion.

Justice Sotomayor dissented, joined by Justices Ginsburg, Breyer, and Kagan. The dissent would have required the generic manufacturers to prove that the FDA would not have accepted a requested labeling change. “Until today, the mere possibility of impossibility had not been enough to establish pre-emption.” Dissent at 1. The dissent invoked the presumption against preemption, which, according to the dissent, “has particular force when the Federal Government has afforded defendants a mechanism for complying with state law, even when that mechanism requires federal agency action.” Dissent at 13. The dissent also pointed out the anomaly in finding preemption here, but not in Wyeth—namely, that a patient injured by a generic drug might be left without a remedy at the same time that a patient injured by its brand-name equivalent could bring a failure-to-warn claim.

First Amendment—Commercial Speech—Use of Prescription Data

Sorrell v. IMS Health Inc., No. 10-779 (previously discussed in the January 10, 2011 Docket Report)

Today, the Supreme Court held in Sorrell v. IMS Health Inc., No. 10-779, that Vermont’s prescriber-data law, which prohibited pharmacies from distributing, and pharmaceutical companies from using, prescriber-identifiable information for pharmaceutical marketing purposes without the physician’s consent, violates the First Amendment.

When pharmacies fill a prescription, they record the name and address of the prescriber, the name and dosage of the drug, and the age and gender of the patient. Pharmacies sell this information to data aggregators, which compile it into reports detailing individual physicians’ prescription histories. Data aggregators in turn sell the information to, among others, pharmaceutical companies, which use the data to direct their marketing efforts, and academic researchers, who use the data in their research.

The Vermont prescriber-data statute, which was similar to laws adopted in several other States, did not prohibit the distribution or use of such data for all purposes, but specifically for the purpose of marketing or promoting prescription drugs. The State justified the statute on the ground that it would protect physician privacy as well as reduce health-care costs and promote public health by reducing the frequency with which patented drugs are prescribed.

Three data aggregators and PhRMA, the industry association for pharmaceutical researchers and manufacturers, challenged the statute, arguing that it violated the First Amendment because its restrictions—which applied only to the promotion of prescription drugs—were neither content-neutral nor viewpoint-neutral. In response, Vermont argued that the law did not implicate the First Amendment because it regulated only commercial activity, not speech. Vermont also argued that, even if the law did regulate speech, it would satisfy the First Amendment because it is narrowly tailored to the state’s substantial interest in protecting medical privacy, controlling prescription-drug costs, and promoting public health. 

The district court agreed that the statute implicated the First Amendment, but upheld it nevertheless. The Second Circuit reversed, holding that the statute could not be justified on privacy grounds because it allowed the use of the data for purposes other than pharmaceutical marketing, and because it was not narrowly tailored to the State’s avowed goal of reducing health-care costs and promoting public health.

In a 6-to-3 decision authored by Justice Kennedy, the Supreme Court affirmed the Second Circuit’s decision. According to the Court, “[s]peech in aid of pharmaceutical marketing . . . is a form of expression protected by the Free Speech Clause of the First Amendment.” Slip op. 1. Finding that the Vermont statute imposed “content- and speaker-based restrictions on the sale, disclosure, and use of prescriber-identifying information” that “burden[] disfavored speech by disfavored speakers,” the Court held that the statute was subject to “heightened judicial scrutiny.” Id. at 8. The Court explained that commercial speech is “no exception” to the rule that “[t]he First Amendment requires heightened scrutiny whenever the government creates a regulation of speech because of disagreement with the message it conveys.” Id. at 10–11 (internal quotation marks omitted). For a restriction on commercial speech to withstand heightened scrutiny, the Court said, it must “directly advance[] a substantial governmental interest” and be “drawn to achieve that interest.” Id. at 16. Although the Court did not doubt that Vermont had a substantial interest in ensuring privacy as well as in reducing health-care costs and promoting public health, the Court found that neither justification withstood scrutiny. According to the Court, the statute did not ensure privacy because it allowed the distribution and use of prescriber-identifying data for all purposes other than pharmaceutical marketing. And, while the prohibition on using prescriber-identifying data for pharmaceutical marketing might well reduce the frequency with which physicians prescribe patented drugs, it did so only “because doctors find” such marketing “persuasive.” Id. at 21. But, said the Court, the fact that “the State finds expression”—even commercial expression—“too persuasive does not permit it to quiet the speech or to burden its messengers.” Id. at 22.

In a dissenting opinion, joined by Justices Kagan and Ginsburg, Justice Breyer argued that Vermont’s prescriber-data law was a commercial regulation that should not be reviewed under a heightened level of scrutiny, and that, in any event, the law was valid under heightened First Amendment scrutiny because it directly advanced a substantial government interest.

Bankruptcy—Bankruptcy Court Jurisdiction

Stern v. Marshall, No. 10-179 (previously discussed in the September 28, 2010 docket report).

In Stern v. Marshall, No. 10-179, the Supreme Court today held that the Constitution does not permit non-Article III federal bankruptcy courts to enter final judgments on a debtor’s counterclaims when those claims are based solely on state law.

The ruling extended an earlier decision by the Supreme Court in Northern Pipeline Construction v. Marathon Pipe Line, 458 U.S. 50 (1982),that limited bankruptcy judges’ powers. In Northern Pipeline, a fractured Court held that bankruptcy judges serving under the Bankruptcy Act of 1978—who lacked the tenure and salary guarantees of Article III—could not “constitutionally be vested with jurisdiction to decide [a] state-law contract claim” against an entity that was not otherwise part of the bankruptcy proceedings. 458 U. S. at 87 n. 40 (plurality opinion). In response to that decision, Congress amended the statutes governing bankruptcy jurisdiction by permitting bankruptcy courts to enter final judgments only in “core” proceedings. 28 U.S.C. § 157(b). Congress provided a non-exhaustive list of “core” proceedings that a bankruptcy court can determine, a list that includes “counterclaims by the estate against persons filing claims against the estate.” 28 U.S.C. § 157(b)(2)(C). At issue in Stern was whether the petitioner’s counterclaim qualified as a “core” proceeding as defined by the statute, and if so, whether the statutory authority vested in bankruptcy courts to decide such a claim exceeds the bounds of Article III.

The case involved a convoluted dispute between a businessman’s wife and son over their respective entitlements to the businessman’s assets after his death. After the wife filed for Chapter 11 protection in bankruptcy court, the son sought damages for defamation in that proceeding, and the wife responded by filing a counterclaim for tortious interference with a gift she expected from her late husband. The bankruptcy court issued what it characterized as a final judgment in favor of the wife, and the son appealed to the federal district court. While that appeal was pending, the Texas probate court held a trial on the merits of the parties’ dispute and entered a judgment in favor of the son. Finding that the wife’s counterclaim was not a “core” proceeding, and that the bankruptcy court’s judgment thus had to be treated as a proposed rather than final judgment, the district court conducted its own, independent review of the counterclaim. The district court ultimately rendered judgment in the wife’s favor after refusing to give preclusive effect to the intervening Texas judgment in the son’s favor. The Ninth Circuit reversed. Although it agreed that the wife’s counterclaim was not a “core proceeding” and that the bankruptcy court therefore lacked authority to enter final judgment on the counterclaim, it concluded that because the final judgment of the Texas court had been issued before that of the district court, the Texas judgment was entitled to preclusive effect in the district court.

In today’s opinion, authored by Chief Justice Roberts, the Supreme Court affirmed that result, albeit on different grounds. All of Justices agreed that the wife’s counterclaim for tortious interference was a “core” proceeding under the plain text of 28 U.S.C. § 157(b)(2)(C), and the bankruptcy court therefore had the statutory authority to enter final judgment on the claim. The son, the respondent in the Supreme Court, had argued that § 157(b) limited the authority of bankruptcy court to determine only cases “arising under” or “arising in” Title 11, rather than Title 11 cases more generally.  The Court rejected that narrow reading, explaining that “core proceedings are those that arise in a bankruptcy case or under Title 11.” Slip op. 10 (emphasis added).

Although all of the Justices agreed that the bankruptcy court had the statutory authority to enter final judgment on the wife’s counterclaim, a 5-4 majority held that it lacked the constitutional authority to do so. In the Court’s view, Congress failed to comply with Northern Pipeline by limiting bankruptcy courts’ authority to enter final judgments only to “core” proceedings. The Court found that under the revised statute, the newly constituted bankruptcy courts still exercised the same powers they held under the earlier act, including the resolution of “‘[a]ll matters of fact and law in whatever domains of the law to which’ a counterclaim may lead.” Slip op. 20 (quoting Northern Pipeline, 458 U. S. at 91 (Rehnquist, J., concurring)). Thus, according to the Court, Congress had again exceeded constitutional limits by conferring such authority on non-Article III judges. Explaining that “Article III could neither serve its purpose in the system of checks and balances nor preserve the integrity of judicial decisionmaking if the other branches of the Federal Government could confer the Government’s ‘judicial Power’ on entities outside Article III,” the Court reaffirmed that “Congress may not ‘withdraw from judicial cognizance any matter which from its nature, is the subject of a suit at the common law, or in equity, or admiralty.’” Slip op. 18 (Murray’s Lessee v. Hoboken Land & Improvement Co., 18 How. 272, 284 (1856)).

Justice Scalia joined the Court’s opinion, but filed a separate concurrence expressing his view that an Article III judge is required in “all federal adjudications, unless there is a firmly established historical practice to the contrary.” Concurring Opinion 2.

In a dissent joined by Justices Ginsburg, Kagan, and Sotomayor, Justice Breyer disagreed with the majority’s conclusion that bankruptcy court judges did not have constitutional authority to decide the counterclaim at issue. In the eyes of the dissent, the majority had erred in applying “formal standards” rather than taking a “pragmatic approach” to the separation-of-powers principles at stake. Dissent 6, 9.

Federal Employers’ Liability Act—Proximate Causation

CSX Transportation, Inc. v. McBride, No. 10-235 (previously discussed in the November 29, 2010 Docket Report)

Enacted in 1908, the Federal Employers’ Liability Act (FELA) provides the compensation scheme for injuries sustained by railroad employees in the workplace. It authorizes an employee to recover for an injury “resulting in whole or in part from the negligence” of the railroad, but requires that damages be reduced in proportion to any contributory negligence by the employee. 45 U.S.C. §§ 51, 53. For nearly 50 years after its enactment, the Supreme Court repeatedly stated that FELA requires proof of proximate causation. In Rogers v. Missouri Pacific Railroad, 352 U.S. 500, 506 (1957), however, the Court said that an employee may recover under FELA if the railroad’s negligence “played any part, even the slightest,” in producing the injury. Some lower courts interpreted that language to mean that FELA does not require proof of common-law proximate causation, while others interpreted it to address, not the requisite directness of a cause, but the distinct question of multiple causes under a comparative-negligence regime.

Today, in CSX Transportation, Inc. v. McBride, No. 10-235, the Supreme Court resolved that conflict. By a 5-4 vote, it held that FELA “does not incorporate ‘proximate cause’ standards developed in nonstatutory common-law tort actions.” Slip op. 1. Instead, the Court explained, “Rogers describes the test for proximate causation applicable in FELA suits”—namely, that a railroad causes an employee’s injury “if [the railroad’s] negligence played a part—no matter how small—in bringing about the injury.” Id. at 13, 18-19 (internal quotation marks omitted). The Court rejected the argument that “the Rogers standard concerns only division of responsibility among multiple actors.” Id. at 9. In addition to relying on Rogers, the Court pointed to lower-court authority on the causation standard and congressional inaction since Rogers. Justice Ginsburg wrote the Court’s opinion, which Justices Breyer, Sotomayor, and Kagan joined in full and Justice Thomas joined in large part. 

While holding that common-law proximate causation is not necessary under FELA, however, the Court did not go so far as to hold that “but for” causation is sufficient. On the contrary, responding to the dissent’s contention that an “any part” standard will allow a jury to return a verdict for an employee when the railroad’s negligence was merely a “but for” cause of the injury, the Court said the following: “Properly instructed on negligence and causation, and told, as is standard practice in FELA cases, to use their ‘common sense’ in reviewing the evidence, juries would have no warrant to award damages in far out ‘but for’ scenarios. Indeed, judges would have no warrant to submit such cases to the jury.” Slip op. 17 (citation omitted).

Chief Justice Roberts wrote the dissenting opinion. He pointed out that the Court had reached its conclusion “even though we have held that FELA generally follows the common law, unless the Act expressly provides otherwise; even though FELA expressly abrogated common law rules in four other respects, but said nothing about proximate cause; and even though our own cases, for 50 years after the passage of FELA, repeatedly recognized that proximate cause was required for recovery under that statute.” Slip op. 1 (dissenting opinion). “For the Court,” the dissent said, “time begins in 1957, with our opinion in Rogers”; but that opinion “left this law where it was.” Id. at 7 (dissenting opinion) (internal quotation marks omitted). Justices Scalia, Kennedy, and Alito joined the dissent.

Mayer Brown LLP represented CSX Transportation in the Supreme Court.

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