In January, the Food & Drug Administration denied R.J. Reynolds Vapor (RJRV) Company's application to market menthol-flavored electronic cigarettes. This is no surprise as the FDA has denied most e-cigarette applications and has yet to approve a non-tobacco-flavored e-cig application. RJRV sued, and sought a stay of the FDA's order (so that RJRV could continue to market its products pending the outcome of litigation). Yesterday, the U.S. Court of Appeals for the Fifth Circuit granted RJRV's petition for a stay and, in the process, provided further evidence that the FDA has a serious vaping problem.
In R.J. Reynolds Vapor Co. v. FDA, a unanimous panel concluded that the RJRV made a strong showing that it would prevail on the merits of its challenge to the FDA's denial, and satisfied the other requirements of a stay. As Judge Edith Jones summarized for the panel:
RJRV demonstrates that the FDA failed to reasonably consider the company's legitimate reliance interests concerning the need for longitudinal studies and marketing plans; failed to consider relevant evidence, inter alia, that youthful users do not like menthol-flavored e-cigarettes; and has created a de facto rule banning all non-tobacco-flavored e-cigarettes without following APA notice and comment requirements.
This ruling is significant beyond the court's conclusion that the FDA's denial of RJRV's specific product applications was likely to be found to be arbitrary and capricious. Because the FDA has treated product applications from other manufacturers in a similar fashion, the court is in effect concluding that the FDA has been arbitrary across-the-board. (Of note, the en banc Fifth Circuit is currently considering similar claims from another product manufacturer which also complained of a "surprise switcheroo.")
More significantly, the Fifth Circuit recognized that the FDA's conduct exhibits that the agency has created a de facto rule against approving certain sorts of products (non-tobacco-flavored e-cigarettes) without going through the required notice-and-comment process. Further, in reaching these conclusions, the Fifth Circuit expressly disagreed with the analyses of other circuits that have rejected challenges to FDA product denials, setting up the possibility of Supreme Court review.
The Fifth Circuit's emphasis on how the FDA disregarded RJRV's reliance interests is interesting as it confirms the potential impact of the Supreme Court's DACA decision on the ability of agencies to make policy changes without going through more extensive administrative processes. From the court:
The FDA did not reasonably consider RJRV's legitimate reliance interests before changing its position on the types of comparative studies and marketing plans critical to a compliant and complete PMTA. . . .
. . . the FDA's prior representations were that RJRV need not submit long-term studies showing that its menthol-flavored ecigarette was more likely than a tobacco-flavored e-cigarette to cause smokers to quit. Yet the lack of that evidence became the very basis on which the FDA denied RJRV's application. . . .
The FDA's second unexplained switch was from the policy on marketing plans it announced in its April 2020 Final Guidance ("2020 Guidance"). The 2020 Guidance enumerated "adequate measures" manufactures could take "to prevent minors' access" to ENDS products. . . . RJRV's proposed marketing plan accounted specifically for these and many more measures.
The FDA changed positions on this front as well, cursorily stating in its Denial Order that RJRV's "marketing restrictions and other mitigation measures" were insufficient. . . .
The FDA's Denial Order wholly failed to explain both of these "about face" maneuvers.
The FDA also failed to adequately consider evidence RJRV submitted indicating the potential for significant health benefits for smokers who switched to RJRV's products that would not be offset by an increase in youth use because menthol-flavored e-cigs are not particularly popular with younger tobacco users. As the court noted, "This evidence was overlooked even though it comports with the FDA's own findings published at the time RJRV filed its PMTA." The court goes on:
When rejecting RJRV's evidence in the Denial Order, the FDA brushed over its prior statements about the low popularity of menthol flavored e-cigarettes among youth and substantial benefits for cigarette smokers who make the switch. Because its "new policy rest[ed] upon factual findings that contradict those which underlay its prior policy," the FDA had to provide "a more detailed justification." FCC v. Fox Television Stations, Inc., 556 U.S. 502, 515, 129 S. Ct. 1800, 1811 (2009). It did not do so. This sudden turnabout further reinforces that the Order is likely arbitrary, capricious, or otherwise unlawful.
Were that not enough, the court also concluded that the FDA appears to have adopted a de facto "product standard" for electronic cigarettes that precludes the use of any non-tobacco flavor, but without having ever gone through the required regulatory process to establish such a standard.
RJRV has adduced evidence that the FDA has effectively banned all non-tobacco-flavored e-cigarettes, pursuant to its new and secret heightened evidentiary standard, without affording affected persons any notice or the opportunity for public comment. There is no dispute that the TCA requires the FDA to abide by notice-and-comment rulemaking procedures before establishing a "tobacco product standard." 21 U.S.C. § 387g(c)–(d). Similarly, it is clear that a ban on all but tobacco-flavored e-cigarettes would constitute a "tobacco product standard." See id. § 387g(a)(1)(A); id. § 387g(a)(2); id. § 387g(a)(3). The FDA admits that it "has yet to grant" a single application to market non-tobacco-flavored e-cigarettes. This means it has denied over 355,000 such applications, which amount to 99% of all timely-filed PMTAs. . . . The only question, then, is whether the FDA has instituted a de facto ban on non-tobacco-flavored e-cigarettes. If so, then it has violated the APA by failing to provide those regulated with notice or an opportunity for public comment.
The de facto rule was issued in the form of a memorandum—the "Fatal Flaw memo"—adopted by the FDA to help it speed up product application reviews and summarily deny most such applications.
We conclude that the Fatal Flaw memo's heightened evidentiary standard "bears all the hallmarks" of a substantive rule. City of Arlington, 668 F.3d at 242. First, the memo is binding on its face by mandating that applications contain "the necessary type of studies." Second, it has been applied in a way that indicates it is binding; indeed, the subsequent, myriad Denial Orders refer to the same deficiencies identified as "fatal" in the memo. Third, it took away the FDA reviewers' former discretion to consider individual PMTAs solely on their merits and instead requires a cursory, boxchecking review. Finally, it affected the rights of literally hundreds of thousands of applicants whose PMTAs were denied. This is not a close call. . . .
In sum, the FDA has articulated reasons to be concerned about youth vaping. But "[r]egardless of how serious the problem an administrative agency seeks to address, . . . it may not exercise its authority 'in a manner that is inconsistent with the administrative structure that Congress enacted into law.'" FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 120, 125, 120 S. Ct. 1291, 1297 (2000) (holding that Congress had not yet empowered the FDA to regulate tobacco products). Here, RJRV is likely to show that the FDA has instituted a de facto ban on non-tobacco-flavored e-cigarettes without going through notice-and-comment. Such action would be held unlawful and set aside as promulgated "without observance of procedures required by law." 5 U.S.C. § 706(2)(D).
The FDA has managed to successfully defend several e-cig product denials, and has avoided defeats in some other cases by strategically confessing error in some of the most extreme cases (as it did with Juul). But as this decision makes clear, when courts look carefully at how the FDA has been considering these applications, they discover an agency acting in an arbitrary and procedurally deficient fashion. The was not the FDA's first loss in an e-cig case, and it will almost certainly not be the last.
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