Disputed Federal Regulatory Duty Allows Federal Question Removal

by Reed Smith
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As we’ve mentioned before, we watch state-law litigation over genetically-modified organisms (“GMOs”) because they tend to produce interesting results on federalism issues such as preemption, since anti-GMO zealots often try to interpose state law to gum up the works of federal regulatory decisions that they don’t like.  Those results are applicable by analogy (at least to our defense-oriented way of thinking) to litigation in our sandbox that attempts to litigate FDA-related issues in the context of product liability litigation.

The recent decision Bader Farms, Inc. v. Monsanto Co., 2017 WL 633815 (E.D. Mo. Feb. 16, 2017), is such an opinion – on the issue of federal question removability to federal court under Grable & Sons Metal Products, Inc. v. Darue Engineering & Manufacturing, 545 U.S. 308, 314 (2005).  The plaintiffs in Bader Farms brought state-law tort claims alleging that herbicide “drift” had damaged their crops.  The GMO aspect arose because the herbicide was “old” and the defendant had not provided a new type of herbicide to be used on genetically engineered crops.

Genetically engineered crops are “highly regulated” by the federal government.  2017 WL 633815, at *1.  In this case, the agent was a “plant pest” bacterium so-designated by a federal agency going by the interesting acronym “APHIS” – only a one-letter keyboard typo away from “aphid,” which would have other agricultural connotations.

But we digress.

Anyway, APHIS can “allow[] the commercialization and sale” of genetically modified seeds for agricultural use “only after a strenuous investigation process and only based on sound science.”  2017 WL 633815, at *1-2.  According to plaintiffs, herbicides for such GMOs are “custom[arily]” released at the same time as “complete crop system[s].” Id. at *2.  Plaintiffs’ injury claim was based on the allegation that the defendant released seeds for a genetically engineered crop, but did not simultaneously release a new herbicide − resulting in the “old” herbicide being used. Id.

Bader Farms was non-diverse, but the defendant removed it to federal court anyway, alleging Grable-based federal question jurisdiction, id. – something our drug/device clients have also attempted, unfortunately with limited success.  However, in Bader Farm the defendant succeeded and the removal stuck.  The court’s Grable rationale should prove useful to our clients as well.

One count of the plaintiffs’ complaint, for “fraudulent concealment,” “present[ed] a substantial federal question” under Grable.  Id. at *2.  That was all that was necessary to deny remand, whether the other counts were preempted (or not) didn’t matter:

The fraudulent conduct alleged in the petition is that “[defendant] knew of [APHIS’s and others’] ignorance of the truth and intentionally withheld the truth about its product and its risks,” and that “[defendant] intended that [APHIS and others] should act in ignorance in carrying out their…oversight responsibilities.”

Id.  That sure sounds like an allegation of fraud on a federal agency – and indeed the citation of Buckman Co. v. Plaintiffs Legal Committee, 531 U.S. 341 (2001), in Bader Farms was how we became aware of the decision.

The fraudulent concealment allegation was premised on plaintiffs’ assertion of a duty allegedly owed to the federal agency APHIS. “Plaintiffs must necessarily prove . . . that [defendant] had a duty to inform APHIS regarding the” risk in question.  2017 WL 633815, at *3.  Whether such a duty was owed to a federal agency constituted a substantial federal question justifying removal:

[P]laintiffs cannot dictate what duty was owed to APHIS, nor what kind of information should be material to APHIS’s decisions.  Nor can plaintiffs dictate the criteria under which APHIS was purportedly unable to perform its regulatory duties.

Id.  Rather, “the information [defendant] is required to disclose” was “set out in federal regulations.”  Id. (regulatory citations omitted).

The Buckman citation in Bader Farms did not involve preemption (the court did not have to reach that issue to deny remand), but instead concerned state-law litigation over what duties that the defendant owed to APHIS, the relevant federal regulatory agency.  Buckman held that “whether federal regulatory bodies fulfilled their duties with respect to the entities they regulate is ‘inherently federal in character.’”  2017 WL 633815, at *3 (Buckman citation omitted).  This type of question was both “substantial” and “federal”:

Count VII [for fraudulent concealment] is in a way a collateral attack on the validity of APHIS’s decision to deregulate the new seeds.  Despite plaintiffs’ argument that they are not challenging the agency decision itself, they can only succeed on that count if they establish that the agency decision was incorrect due to defendant’s fraudulent concealment.  Under these circumstances, disposition of Count VII presents a substantial federal question.

Id. (emphasis added).  Since “the outcome of the fraudulent concealment claim necessarily depends on the interpretation and application of the federal regulatory process,” remand was denied solely due to a substantial federal question in that one count.  Id.

An argument similar to Bader Farms can be made in drug/device cases where fraud on the FDA is alleged, even though a preemption defense, by itself, might not be sufficient to support removal.  As in Bader Farms, allegations that information was concealed or withheld from the FDA would require a court in an ostensibly state-law action to decide if the defendant had a duty, under relevant regulations, to supply the information in question and whether the information was “material” under the FDCA scheme.  Likewise, such claims only cause injury if the “agency decision was incorrect” as found by a state-law jury.  Thus, as in Bader Farms the substantial federal question would not be preemption, but rather the scope of disclosure duties owed to the FDA and whether or not those duties were met.  Finally, removability needs nothing more than that agency-fraud-based claim to succeed – whether that claim, or any other pleaded claim, was preempted (or “completely preempted”) isn’t decisive on the removal/remand issue.

Even though Buckman was decided back in 2001, plaintiffs still like to plead fraud on the FDA – even though Buckman preempts such claims.  But the availability of a federal preemption defense alone has not been enough in so many cases to support removal.  Bader Farms shows the value of focusing on a different federal issue, the nature of the duty owed to the FDA, as the substantial federal question.  Nor cn plaintiffs “fix” things by amending out the offending count, as removability is determined at the moment of removal.

Now, at least in the Eastern District of Missouri, there is persuasive precedent supporting removal of agency fraud claims as presenting substantial federal questions.

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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