By JP Ellison & Anne K. Walsh —
It took only 3 months. In June, the Supreme Court ruled that the SEC cannot use its administrative authority to impose civil penalties for securities fraud on the ground that these penalties violate the U.S. Constitution’s Seventh Amendment right to a jury trial. See SEC v Jarkesy, 144 S. Ct. 2117 (2024). The Court reasoned that the SEC’s civil penalties “are designed to punish and deter, not compensate,” and that they are a remedy “that could only be enforced in courts of law.” At the time we posted about the Jarkesy decision, we predicted that it would impact FDA-regulated industry:
The impact on FDA matters could be significant. FDA has civil money penalty authority relating to clinical trials, devices, foods, drugs, and tobacco; although with the exception of tobacco, FDA has not recently exercised that authority with regularity. If FDA is prohibited from pursuing the relatively small dollar value tobacco penalty cases administratively, it could affect enforcement. Bringing an administrative claim is typically much less demanding in time and resources than litigating a jury trial.
Sure enough, the first challenge to FDA’s civil money penalty authority was filed last week in the Central District of California. In Huff and Puffers v. U.S. Food and Drug Administration, No. 8:24-cfv-02110 (C.D. Cal. filed Sept. 27, 2024), the plaintiff H&P challenged an FDA administrative complaint assessing a civil money penalty of $20,678 for H&P sale of an electronic cigarette without FDA authorization. In its administrative complaint, FDA alleged that H&P sold unauthorized tobacco products through its online website despite FDA notification through a Warning Letter that H&P’s tobacco products are adulterated and misbranded. FDA alleged that H&P shipped an unauthorized tobacco product from California and Virginia, in violation of the law, and thus sought an order assessing a civil money penalty against H&P. Under the Federal Food, Drug & Cosmetic Act (FD&C Act), retailers who violate a requirement of the Act related to tobacco products shall be liable for a civil money penalty up to $20,678 for each such violation, not to exceed $1,378,541 for all violations adjudicated in a single proceeding. 21 U.S.C. § 333(f)(9)(A); 21 C.F.R. § 17.2. H&P timely responded to the administrative complaint with several defenses, and specifically stated that it did not waive its Seventh Amendment right to a jury trial.
True to its word, H&P filed a Complaint in the District Court for the Central District of California seeking declaratory and injunctive relief on the ground that the FDA’s civil money penalty proceeding against it violates the U.S. Constitution. H&P specifically relies on the Supreme Court decision in Jarkesy, as well as the 2023 Supreme Court decision in Axon Enterprise, Inc. v. FTC, 598 U.S. 175 (2023) (holding that district courts have jurisdiction to hear constitutional challenges to agency authority to adjudicate enforcement actions). H&P seeks a declaration that the FD&C Act’s statutory provisions allowing FDA to impose civil money penalties violate the Seventh Amendment, a declaration that the administrative proceeding against H&P violates the Seventh Amendment, an order requiring FDA to dismiss the administrative complaint against H&P, an order prohibiting FDA from adjudicating civil money penalties generally and against H&P specifically, and an order awarding fees and expenses.
The case could provide greater clarity on whether and to what extent the “public rights” exception continues to permit the adjudication of certain administrative issues. The majority and dissenting Jarkesy opinions discuss and debate the history of the adjudication of certain “public rights” without a jury. Whether a civil penalty for violation of the FDC Act is sufficiently different from an SEC fraud penalty to be a “public right” remains to be seen.
Another potentially interesting aspect of this case appears only in the caption, which is styled as an action “SEEKING STATEWIDE OR NATIONWIDE RELIEF.” The propriety of nationwide injunctions has been discussed by legal scholars, judges and Justices in recent years. Even more limited statewide injunctive relief would be a departure from the normal rule that non-mutual collateral estoppel does not prevent the federal government from re-litigating an issue that it has lost, especially at the district court level.
In sum, this case raises some interesting unresolved legal issues, so we’ll be following it. Note that we also predicted that “[t]he impact on USDA and DEA could be similarly significant.“ Stay tuned.
