Time For SCOTUS To Set Meaningful Due-Process Standards For State UDAP Laws

As soon as February 17, the U.S. Supreme Court will consider a certiorari petition urging review of a California court’s $300 million penalty for violations of the state’s “unfair and deceptive acts and practices” (UDAP) laws. The petitioner, Johnson & Johnson (J&J), argues the laws the company’s marketing practices allegedly broke—the Unfair Competition Law (UCL) and the False Advertising Law (FAL)—were applied in an arbitrary and unpredictable manner contrary to J&J’s due-process right to fair notice. Because nearly every State has similarly vague UDAP statutes, the outcome of J&J’s petition could have repercussions well beyond California or Johnson & Johnson v. California.

Background

The case involves instructional literature and marketing materials for a medical device manufactured by a J&J subsidiary, Ethicon. The medical device, pelvic mesh, is used surgically to treat Stress Urinary Incontinence (SUI) and Pelvic Organ Prolapse (POP). FDA approved Ethicon’s SUI and POP pelvic mesh, and Ethicon consulted FDA staff throughout its drafting of the required instructions for use—a product-insert that explains adverse-reaction and other risk information. Ethicon developed a campaign to raise awareness of pelvic mesh with doctors and patients that featured brochures and other materials.

Between 2008 and 2011, FDA issued public-health notices about pelvic mesh, with particular focus on the POP products. Ethicon ceased sales of POP products but continued to sell SUI mesh. FDA released updated research in 2013 that strongly reinforced the safety of SUI mesh. However, in 2016, FDA ordered mesh manufacturers to seek approval of their POP products under a new, more closely reviewed category of devices.

That same year, California sued the largest company in the pelvic-mesh space, J&J, even though its Ethicon unit ceased sales of the purportedly more dangerous POP mesh five years earlier. The State alleged that J&J distributed untrue or misleading pelvic-mesh information in violation of the UCL and FAL.

State Proceedings

After a bench trial, the court found Ethicon liable. Even though the information-for-use and marketing materials disclosed risks to FDA’s satisfaction, the court ruled Ethicon did not disclose the “full scope and severity” of the risks. It also held that Ethicon’s patient-education materials were “likely to deceive.”

The court’s method of determining damages was scattershot and at times speculative, in no small part because neither the UCL nor FAL define “violation.” The court tallied over 275,000 violations by making estimates of marketing materials shipped, factoring in educational packets that doctors and hospitals may have redistributed, and including boxes of other materials that likely never left a warehouse. The court set a per-violation fine of $1,250, an amount that applied even if no consumer or doctor saw or relied upon the Ethicon materials, bringing the fine to a total of $343,993,750.

A California Court of Appeal reversed the trial court on some violations, reducing the fine by around $42,000,000, but otherwise upholding the verdict. The state Supreme Court denied J&J’s petition, and the company then sought U.S. Supreme Court review.

Meaningful Constitutional Limits Needed

Notice of what type of behavior the government considers unlawful and the level of punishment for such violations is what separates societies organized under a Rule of Law from those ruled by the whims of men. The U.S. Supreme Court has closely scrutinized the notice provided under civil laws that implicate interests such as free expression or (in the context of immigration) personal liberty. It has not, however, spoken on what due-process standards apply to statutes like state UDAP laws. State courts have held that such laws merit little to no due-process scrutiny because UPAP statutes are regulatory in nature and govern business conduct. Such a rationale is an affront to America’s free-enterprise system and the fundamental economic liberties needed to help commerce flourish.

UDAP statutes are, by design, broadly worded and play an important role in state consumer protection. As J&J’s reply brief clarifies, the “Petition is not asking for a ruling that UDAP statutes are facially unconstitutional.” Rather, the petition seeks a meaningful role for courts, through due-process review, to check the wide discretion UDAP statutes grant to government. Ethicon had no notice whatsoever, for example, that merely shipping marketing materials over state lines never to be seen by consumers or doctors would violate the UCL and FAL and subject them to millions of dollars in fines. Would any reasonable person believe the law to reach that far? Such interpretations of UDAP laws not only can deter distribution of products needed by consumers, but they can also easily chill constitutionally protected speech about those products.

The costs, financial and otherwise, caused by unchecked application of vague UDAP statutes is not limited to medical-product companies doing business in California. The problem is especially acute in California, as Washington Legal Foundation’s amicus brief describes (see pp. 13-16). But WLF’s brief, as well as the U.S. Chamber of Commerce’s brief, also detail equally standardless enforcement of other state UDAP laws, sometimes by profit-seeking private lawyers suing on behalf of the State or filing claims for individual plaintiffs. The Chamber brief also notes how States, egged on by activists and plaintiffs’ lawyers, have relied upon UDAP statutes to judicially silence fossil-fuel businesses, regulate food labeling, and shut down facial-recognition technology. Two other amicus briefs (here and here) advancing the perspectives of the medical-device and pharmaceutical industries, as well as the National Association of Manufacturers and the American Tort Reform Association, reflect the breadth of business concern the Supreme Court must consider.

A Case Worthy of the Court’s Review

Public officials and private plaintiffs alike have turned statutes such as California’s UCL and FAL into all-purpose business-regulation tools (or, in the U.S. Chamber’s words, “Swiss Army knives). Courts have assisted in the laws’ expansion, adopting plaintiffs’ demands for ever broader interpretation and imposing fines as if they were criminal sanctions. States’ highest courts have refused to create limiting principles or standards for these laws’ applications. What J&J’s petition requests is not a radical proposition. As the NAM/PhRMA/ATRA brief explains so effectively, the Supreme Court has set constitutional boundaries to prevent arbitrary enforcement of civil laws before.

Businesses deserve enforcement of consumer-protection laws that conforms to the Rule of Law, not the rule of lawyers.