Sovereign Immunity in Texas for Warning Letters Sent by the Attorney General? The U.S. Court of Appeals for the 5th Circuit says, “Not so fast cowboy”

By Jenifer R. Stach* – 

There have been a number of recent battles between Attorneys General (AG)in various states and dietary supplement manufacturers.  These battles have generally been triggered by AG letters which have alleged that manufacturers have marketed supplements that contain drug-like ingredients in violation of deceptive trade practice state laws.  The letters have resulted in some settlements (see press releases from the New York State Office of the Attorney General, Oregon Department of Justice, and Vermont Office of the Attorney General).  We will see if the recent decision by the 5^th Circuit may discourage state Attorneys General from sending similar warning letters to dietary supplement manufacturers.  We will also see if this ruling provides a legal path for dietary supplement manufacturers to pursue legal claims against a state, state agency, or state official upon receiving a warning letter. 

NiGen is a Utah-based manufacturer and distributor of the dietary supplements, Isodrene and The HCG Solution.  In December 2011, NiGen brought suit against the Texas Attorney General (AG) Ken Paxton after the AG sent warning letters to NiGen, and retailers CVS, Walgreens, and Wal-Mart.  The Texas AG determined that use of the term “hCG” was “false, misleading, or deceptive” in violation of the Texas Deceptive Trade Practices Act because, “the claim is trying to mimic claims that FDA considers off-label for the prescription drug.”  (As stated in the 5th Circuit opinion, discussed below, “hCG is an acronym for human chorionic gonadotropin hormone, a protein found in pregnant women that is an ingredient in prescription drugs sold under the brand names Novarel, Ovidrel, and Pregnyl.”)  Retailers removed the products from the shelves allegedly resulting in millions of dollars in lost revenue for NiGen.

NiGen filed suit under 42 U.S.C. § 1983 alleging violations of its rights under the First Amendment, Fourteenth Amendment Due Process and Equal Protection Clauses, the Commerce Clause, the Supremacy Clause, and state law claims of tortious interference with business relations.  According to the 5th Circuit opinion, “NiGen sought 1) a declaration that its labeling did not violate federal law and that it was entitled to use “HCG” on its labels; 2) preliminary and permanent injunctive relief; 3) money damages; and 4) costs and attorneys' fees.”  After motions by the AG for dismissal and an unexplained two-year delay, the District Court for the Northern District of Texas dismissed the case based on state sovereign immunity.   

NiGen timely appealed and in the case of NiGen Biotech, L.L.C. v. Paxton, No. 14-10923, 2015 WL 5749618 (5th Cir. Sept. 30, 2015), the court reversed in part in favor of NiGen.  The 5th Circuit ruled that NiGen’s claims are not barred from federal jurisdiction on the basis of Ex Parte Young, that federal jurisdiction exists over most of the claims pled, and that NiGen has standing to sue.  In its opinion, the 5th Circuit addressed State Sovereign Immunity, Federal Question Jurisdiction, and Standing.  

State Sovereign Immunity

State sovereign immunity is based on the premise that Federal Courts do not have jurisdiction over suits against a state, state agency, and officials acting in their official capacity, unless the state has waived its immunity or Congress has abrogated it.  According to the 5th Circuit opinion, “[u]nder the doctrine articulated in Ex parte Young, 209 U.S. 123 (1908), a state official attempting to enforce an unconstitutional law ‘is stripped of his official clothing and becomes a private person subject to suit.’”  Under Ex parte Young, a plaintiff must seek relief from a state actor acting in his official capacity, for alleged ongoing violations of federal law (and not merely that the state actor has violated federal law in the past), and that the relief sought must be injunctive in nature and prospective in effect.  The court concluded that NiGen’s allegations of the AG's continuous refusal to justify the warning letters were sufficient to meet the Ex parte Young standard.  The AG’s action was allegedly an ongoing violation of federal law, which could be remedied with injunctive relief which would allow NiGen to sell their products.   

Federal Question Jurisdiction

The AG contended that NiGen’s claims were anticipatory defenses to threatened enforcement action, and were therefore barred from Federal Jurisdiction.  The 5^th Circuit disagreed with the AG and stated that a plaintiff who seeks both declaratory and injunctive relief based on the unconstitutionality of a state statute may raise this as a claim, even if the claim might also be used as a defense to state enforcement action. 

Standing

The AG challenged NiGen’s standing by contending that, “To have standing to sue, the plaintiff must demonstrate injury in fact that is fairly traceable to the defendant's conduct and that would be redressed by a favorable judicial decision. Lujan v. Defenders of Wildlife, 504 U.S. 555, 560, 112 S.Ct. 2130, 2136 (1992).”  In Lujan, standing was denied in part because the only entities that could redress the plaintiff’s alleged injury were nonparties that would be bound to the judgment.  The AG points to the claim by NiGen that the warning letters to the retailers cost NiGen millions of dollars in lost revenue.  In response, the 5th Circuit pointed out that the warning letters were directed at NiGen itself, and concluded that a favorable court decision would allow NiGen to sell its products in Texas, whether directly or through its retailers, and could again conduct business as usual.  

In conclusion, the 5th Circuit affirmed the District Court’s dismissal of NiGen’s claims for money damages, state law violations, retrospective relief, and declaratory relief against a threatened enforcement action, reversed the dismissal of NiGen’s constitutional law claims, and remanded the case for further proceeding.  We will keep you posted as to how the District Court rules in light of the 5th Circuit analysis if NiGen decides to pursue its Constitutional claims against the Texas AG.

*Admitted only in Maryland. Work supervised by the Firm while D.C. Bar application is pending.