Generic Drug Law Update -- November 2012: An Agency "Warning Letter" Does Not a Lawsuit Make: Sometimes a "Warning Letter" Is Really Just a Warning


[author: Carol Brophy]

The number of consumer class action complaints brought against product manufacturers under state consumer protection and/or false advertising law statutes continues to rise. This increase can be traced in part to some plaintiffs’ counsel’s ingenious efforts to build entire cases around purported violations found in Food and Drug Administration (FDA) or Federal Trade Commission (FTC) press releases, warning letters and complaints. To these attorneys, warning letters and press releases equal liability. Period.  End of story.  Thus, after plaintiffs’ counsel finds a potential violation and willing plaintiff, he or she files suit alleging one of two things: (1) that the defendant made a label or advertising claim without having adequately tested the product or substantiated the claim (commonly called “prior substantiation”), or (2) that the plaintiff “in deciding to purchase the product relied on and thus, the defendant misrepresented the product’s benefits.”  Plaintiffs bringing these cases typically construe the agencies’ notice as containing legal conclusions and findings sufficient to state a claim for false advertising or misrepresentation and also fail to allege additional facts or have independent verification of their allegations.


The FTC’s and FDA’s enforcement of false advertising.  Both the FTC and FDA monitor and enforce false advertising and fraud involving products under their jurisdiction. Section 5 of the Federal Trade Commission Act empowers the FTC to protect consumers from “unfair and deceptive trade practices.” The prior substantiation doctrine embodies the FTC requirement that advertisers possess reasonable substantiation for all verifiable product claims before the claims are made to consumers. The form and extent of “reasonable” substantiation in each case depends upon the claim at issue, the product and the consumer expectation concerning the representation.  (See FTC Policy Statement Regarding Advertising Substantiation (Appended to Thompson Medical Co., (1984).)


In exercising its authority, the FTC may take action against an entire industry or a single company. The FTC investigates suspected Section 5 violations by issuing a warning letter, sending an “informal inquiry letter” (also called an “access letter”), or serving a subpoena or civil investigative demand.  If the investigation reveals unlawful conduct, the FTC may seek voluntary compliance through a consent order, filing an administrative complaint, or initiating federal litigation. Significantly, a FTC consent order is a binding voluntary agreement between the FTC and a company that commits the company to a future course of action in return for the FTC’s withdrawal of pending or potential enforcement action.  The defendant expressly does not admit to fault, illegality or damages. None of these letters, orders or complaints are judicial findings of a violation, although they represent the agency’s interpretation of the law and facts in each case.


The FDA administers the Federal Food, Drug and Cosmetic Act (FDCA), which prohibits "misbranding."   Among other things, an FDA-regulated product is misbranded if its labeling “is false or misleading in any particular.”  (See 21 U.S.C. §352 (a) (drugs and devices) 21 U.S.C. §343(a)(1)(foods and dietary supplements) 21 USC §362 (cosmetics).)  The regulatory scheme for medical devices and drugs also restrict claims that may be made to those that have been substantiated, reviewed and approved by the FDA.  Although dietary supplements are not subject to FDA premarket review and approval, a manufacturer must have substantiation for its claims. When determining if a product is misbranded or lacks substantiation, the FDA has generally adopted the FTC’s “competent and reliable scientific evidence” standard.  See, FDA, Guidance for Industry: Substantiation for Dietary Supplement Claims Made Under Section 403(r)(6) of the Federal Food, Drug and Cosmetic Act (2008).


If an FDA compliance office believes the company has violated the FDCA, it typically issues a warning letter, setting forth its views and warning recipients that they should take voluntary corrective action.  Recipients are directed to respond within 15 business days.  If the agency is satisfied with the response, the matter may be “closed” with no further action taken.  If the company fails to respond or if the FDA finds the response unsatisfactory, the FDA may take more formal legal action, such as filing an administrative complaint or a lawsuit in federal court.  Significantly, the FDA publishes every warning letter, and all complaints it files, on its website.  The FDA’s enforcement activity can be found at here.  The site is updated daily. Moreover, anyone can request a copy of new warning letters as they are issued by the agency – a gold mine well prospected by plaintiffs’ counsel.


Private enforcement of prior substantiation claims.  Federal courts from Florida to California have rejected plaintiffs’ counsel’s latest attempts to use “prior substantiation” enforcement actions as the basis for a class action under state consumer protection laws. Holding the FDA and FTC retain exclusive authority to prosecute claims of “no substantiation,” courts have refused to apply the “prior substantiation doctrine” in private class actions. The court reasoned, among other things, that false advertising claims cannot be based on a lack of substantiation, because the absence of substantiation in and of itself does not prove that an advertising claim is untrue. Franulovic v. Coca Cola Co. (3d Cir. 2010) (New Jersey Consumer Fraud Act claim cannot be premised on a prior substantiation theory of liability); Fraker v. Bayer Corp., 2009 (“In short, the government, representing the Federal Trade Commission, can sue an advertiser for making unsubstantiated advertising claims; a private plaintiff cannot.”); Chavez v Nestle USA, (C.D. Cal. 2011)(“false advertising claims cannot be based on a lack of substantiation”); Stanley v. Bayer Healthcare LLC, (S.D. Cal. 2012)( "Private individuals may not bring an action demanding substantiation for advertising claims.”)  The Fraker and Chavez courts also recognized that the plaintiffs’ prior substantiation enforcement actions impermissibly shifted the burden of proof from the plaintiffs’ requirement to show the claim is false to the defendants to show that their advertising claims, in fact, are substantiated. The Chavez court found “there is no basis in California law to shift the burden of proof to a defendant in a representative false advertising and unlawful competition action. We conclude further that the [California] Legislature has indicated an intent to place the burden of proof on the plaintiff in such cases.”).


Private enforcement of misbranding and false advertising. Faced with the demise of the prior substantiation claim, plaintiffs are proceeding against defendants using agency warning letters as the sole basis for alleging that advertising or label claims are false and misleading.  Although the plaintiff retains the burden of proving that the alleged violative claim is untrue, by using the agency warning letter, the plaintiffs' attorney improperly sidesteps the requirement to investigate the facts and law.  This maneuver may provide the plaintiff with a significant shortcut, but also provides defendants with some strategy for securing a dismissal.


Where the plaintiffs’ claims are based entirely on the agency determination (without extensive supporting facts being pleaded by the plaintiff), the defendant may couple a motion to dismiss with a motion to strike the agency warning letter and all “facts” set forth therein.  The court should find that the agency letter is third-party hearsay, and without independent supporting facts is insufficient to state a claim, and further, that the hearsay allegations should be stricken.  Regenerative Sciences, Inc. v. FDA, (D. Colo. 2010).  Plaintiffs’ counsel who fail to independently investigate the underlying facts and law and rely solely on agency letters may also violate Federal Rule 11 (b)(3), as well as related state-law statutes. Garr v. U.S. Healthcare, 22 F.3d 1274 (3d Cir. 1994).


Conclusion.  Although agencies are stepping up enforcement for consumer products through warning letters and consent orders, companies that find themselves in an agency’s crosshairs should not feel that they must pay off class-action plaintiffs and their attorneys to buy peace. Defendants in class actions and false advertising litigation can avail themselves of the courts’ refusal to apply the prior substantiation doctrine to claims brought by private plaintiffs and the courts’ recognition that agency letters are not dispositive of the facts or the law.  If your company finds itself in the crosshairs of a potential class action based on federal warning letters, consider promptly taking these steps:

  • Respond fully to any federal agency sending a warning letter, albeit through legal counsel to preserve applicable privileges.  Most agencies will keep your response confidential, but plaintiffs’ attorneys can be expected to make your response and any in-house investigation of the facts the center piece of discovery.  Companies should have their in-house counsel direct any investigation and limit staff e-mail and communication.
  • If a class action complaint is filed, immediately retain experienced local counsel to evaluate strategic options.  For example, Califonria’s Consumer Legal Remedies Act, requires a 30-day notice before claims for damages can be filed.  Companies facing class action litigation in California may be able to use their timely response to this demand to significantly limit the plaintiff’s ability to prosecute the case and/or obtain legal fees.
  • If the complaint is based wholly on the federal warning letter, consider aggressive defense tactics, such as a motion to strike all “facts” copied from the warning letter.  Investigate and, if the facts warrant it, consider filing a FRCP 11 21-day demand to dismiss, and motion for sanctions against plaintiffs' counsel. While sanctions are difficult to obtain, there is legal precedent for seeking them where complaints have been filed based solely on warning letters, media reports and/or other hearsay. 

These steps should help your company and counsel. In the past year, Sedgwick has used appropriate variants of the above strategies to obtain take-nothing dismissals in three class action cases that were based on agency enforcement.  Until plaintiffs’ attorneys begin to research the facts and law – as opposed to crafting copy-cat allegations, defendants have a strong defense to such class actions.



DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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