Thursday, December 18, 2008

Legal Advocacy
Supreme Court Refuses to Allow Federal Labeling Law to Shield Against Fraud/Misrepresentation Claims

The U.S. Supreme Court ruled that manufacturers of potentially dangerous products are not shielded from state consumer law merely because their products have complied with federal labeling laws. The specific product at issue in Altria Group Inc. v. Good was “light” cigarettes, but the Court is also considering this term a case that asks whether federal law preempts state product liability claims against pharmaceutical manufacturers for labeling that fails to adequately warn of a drug’s risks.

AARP filed “friend of the court” briefs in both the cigarette and the pharmaceutical case, urging the Court not to preempt state laws because doing so would limit state efforts to protect the health and welfare of their citizens -- allowing consumers who have been injured as a result of a manufacturer’s deceptive practices or faulty manufacturing without a remedy for the harm.

The dispute

Stephanie Good was a smoker who lived in Maine and favored Marlboro Lights and Cambridge Lights cigarettes, believing the marketing claims by cigarette manufacturers that “light” cigarettes were a healthier alternative to regular cigarettes. After learning that the marketing claims were false, she sued Altria and other cigarette manufacturers. She alleged that they had falsely marketed their “light” cigarettes as containing lower tar and nicotine in order to convey to consumers the impression that the cigarettes are less harmful than regular cigarettes. The class action lawsuit argued that in contrast, light cigarettes can actually be more harmful than regular cigarettes due to the cigarettes’ design. The lawsuit alleged that the companies had known this information and had deliberately deceived consumers systematically and over many years.

Plaintiffs specifically invoked the protections of the Maine Unfair Trade Practices Act (MUTPA), which prohibits unfair or deceptive acts or practices in commerce. The defendant cigarette companies argued that their cigarettes complied with federal cigarette safety warning laws and that the federal labeling law preempted the state consumer protection law.

Numerous similar lawsuits have been filed around the country and, faced with conflicting rulings from various courts, the U.S. Supreme Court agreed to take up the matter and resolve this preemption issue.

The ruling

The Supreme Court began with the assumption that the historic powers of states to regulate the health and welfare of their citizenry was not to be disturbed unless Congress specifically intended to do so. It then looked to the enactment of the federal Labeling Act of 1965 (which required cigarette manufacturers to include specific warnings about the potential hazards of smoking cigarettes) to determine whether Congress intended to preempt state labeling laws. Reviewing the many amendments and refinements enacted into law, the Court did find the intent to prohibit states from enacting stronger cigarette labeling laws – but only those laws that specifically addressed the labeling of cigarettes.

The Court was unable to find any support for the argument that state fraud laws were to be preempted. In fact, the court noted in a prior cigarette labeling case, unlike the concerns about wide divergence in labeling that led to Congress limiting state ability to mandate cigarette labels, fraud claims “rely only on a single, uniform standard: falsity.” Or, as AARP’s brief put it, “Make no mistake, this case is about fraud.” Since the MUTPA only addressed fraud and deceit as a general business practice, its general principles were not to be disturbed and defendants were not shielded by the federal cigarette labeling law.

In other words, the Court ruled that federal cigarette labeling law does not protect a manufacturer from liability for breaching the general duty not to lie to the public.

The ruling carries additional significance because the Court is considering this term another case that tests the balance between federal and state law. In Wyeth v. Levine, the pharmaceutical manufacturer is seeking to be shielded from liability because it complied with federal Food and Drug Administration approvals that did not require it to warn of specific dangers. In that case, Diana Levine went to the hospital suffering from migraines but had to later have her arm amputated after doctors intravenously administered a drug that destroyed her arteries. Levine alleged that the drug manufacturer had evidence that if the drug reached arteries, it could cause gangrene but despite this it did not warn of this danger. A jury agreed that the company had failed to warn of risks and awarded her $6.7 million in damages.

At trial and in its appeal, Wyeth argued that it was exempted from state tort law because the federal Food and Drug Administration (FDA) had approved the drug without requiring the warning sought and this preempted state tort law.

AARP’s briefs

In both Altria and Wyeth, the AARP “friend of the court” briefs filed by AARP Foundation Litigation attorneys pointed out that while regulatory agencies impose Congressionally-authorized requirements on manufacturers, those agencies face particular challenges. Both the Federal Trade Commission (which oversees cigarette labeling) and the Food and Drug Administration (pharmaceuticals) are chronically underfunded, often criticized for reliant relationships with industry, and have limited authority over the products -- with very little FTC oversight over cigarettes and extremely limited post-market oversight by the FDA.

Fortunately, there has been another safety net built into the legal system – the traditional tort lawsuit. By imposing the possibility of significant monetary penalties directly on wrongdoers, tort lawsuits incentivize those who develop, make, and distribute potentially dangerous products to do so with the utmost consideration for human health. The tort system plays a critical complementary role with agency regulatory processes to help ensure that items placed into the marketplace are as safe as possible and that any necessary warnings are adequately written and targeted.

The brief in Altria detailed the history of misrepresentation and deception in the marketing of “light” cigarettes, noting the voluminous evidence that has been presented indicating cigarette companies’ knowledge both that smokers were sensitive to health claims and that the health claims were exaggerated. One example of the sensitivity of “light” cigarette consumers: following aggressive health-based campaigns, the market share for “light” cigarettes skyrocketed from 2% in 1967 to 81% of cigarette sales in 1998.

Finally, AARP’s brief pointed out the absurdity of allowing the federal law to preempt state fraud law. Under a theory advanced by one of the defendants, the brief noted, cigarette manufacturers would be shielded from liability even if they made the following claims ”Smoking fights Parkinson’s Disease,” or “Smoking wards off depression.” As the brief put it, “Under Philip Morris’ reading, the Labeling Act – a statute designed to ensure that the public is informed of the risks of smoking – becomes an instrument of deception.”

AARP filed its brief in Altria with other health care and consumer protection advocates. The narrow 5-4 decision is a welcome ruling and could pave the way for further bolstering of state law remedies when the Court turns to Wyeth later this Term.

Contact persons:

Julie Nepveu

Stacy Canan

No comments: