Exela Pharma Sciences, LLC v. Sandoz, Inc.

IN THE UNITED STATES DISTRICT COURT

FOR THE WESTERN DISTRICT OF NORTH CAROLINA

ASHEVILLE DIVISION

CIVIL CASE NO. 1:19-cv-00318-MR

EXELA PHARMA SCIENCES, LLC, )

)

Plaintiff, )

) MEMORANDUM OF

vs. ) DECISION AND ORDER

)

SANDOZ, INC., )

)

Defendant. )

_______________________________ )

THIS MATTER comes before the Court upon the Plaintiff’s Motion for

Ex Parte Temporary Restraining Order and Preliminary Injunction [Doc. 3],

and the Defendant’s Motion to Dismiss the Complaint or, in the Alternative,

Stay the Case Pending Referral to FDA [Doc. 29].

I. PROCEDURAL BACKGROUND

On November 6, 2019, Exela Pharma Sciences, LLC, (the “Plaintiff”),

initiated this action against Sandoz, Inc., (the “Defendant”), asserting claims

for unfair and deceptive trade practices in violation of N.C. Gen. Stat. 75-1.1,

et seq. (“Chapter 75”); tortious interference with prospective business

advantage in violation of North Carolina common law; and false advertising

and unfair competition in violation of the Lanham Act, 15 U.S.C. § 1125(a).

[Doc. 1]. Along with the Complaint, the Plaintiff filed a motion seeking the

immediate issuance of a temporary restraining order and a preliminary

injunction requiring the Defendant to recall and take all necessary steps to

recover, remove from interstate commerce, and cease the sale of all the

Defendant’s L-Cysteine product. [Doc. 3]. In support of its motion, the

Plaintiff relies upon the allegations of its Complaint, as verified by the

Plaintiff’s manager, Phanesh Koneru,1 as well as several exhibits.

The Court held a hearing on the Plaintiff’s request for a temporary

restraining order on November 7, 2019. On November 12, 2019, the Court

issued an Order denying the Plaintiff’s request for a temporary restraining

order, finding that the Plaintiff failed to show “its entitlement to such relief.”

[Doc. 16 at 9]. Nevertheless, the Court held the Plaintiff’s request for a

preliminary injunction in abeyance pending further presentation of evidence

and briefing by the parties. [Id. at 13].

On December 6, 2019, the Defendant filed a Response in Opposition

to Plaintiff’s Motion for Preliminary Injunction [Doc. 31] and a Motion to

Dismiss the Complaint or, in the Alternative, Stay the Case Pending Referral

to FDA [Doc. 29]. On December 13, 2019, the Plaintiff filed a Reply in

1 Mr. Koneru’s Verification provides as follows: “That he/she has read the foregoing

COMPLAINT; that he/she is the Manager of Exela Pharma Sciences LLC, named Plaintiff

in this matter, and that he/she know the contents thereof; that the same is true of his/her

own knowledge, except as to those matters and things stated therein upon information

and belief, and as to those matters and things he/she believes them to be true.” [Doc. 1

at 29 (emphasis added)].

Support of Plaintiff’s Motion for Preliminary Injunction [Doc. 33]. On

December 23, 2019, the Plaintiff filed a Response in Opposition to

Defendant’s Motion to Dismiss. [Doc. 38].

Having been fully briefed, this matter is ripe for disposition.

II. FACTUAL BACKGROUND

The Plaintiff’s Verified Complaint presents the following facts.2

The Plaintiff is a North Carolina limited liability company with its

principal place of business in Lenoir, North Carolina.3 [Doc. 1 at ¶ 14]. The

Plaintiff develops, manufactures, and markets injectable pharmaceutical

products, including an L-Cysteine injection product that is now approved by

the FDA. [Id. at ¶¶ 14, 42-43].

L-Cysteine is an amino acid that is administered by parenteral

administration (i.e., injection or intravenous infusion) to high-risk patients,

2 Several allegations in the Complaint are made “on information and belief.” Mr. Koneru

did not verify such statements (see footnote 1 supra), and the Plaintiff provided no

affidavits or sworn testimony to support such allegations at the hearing. Conclusory

allegations based “upon information and belief” are no substitute for plausible factual

allegations that wrongdoing has occurred. See Harman v. Unisys Corp., 356 F. App'x

638, 640 (4th Cir. 2009) (stating that allegations that included the phrase “upon

information and belief” were insufficient to defeat a motion to dismiss because the

allegations at issue were “conclusory”). As such, the conclusory allegations in the

Complaint that are made “on information and belief” will not be considered.

3 The Plaintiff asserts subject matter jurisdiction in this Court pursuant to the existence of

diversity jurisdiction per 28 U.S.C. § 1332 and federal question jurisdiction based on the

Lanham Act claim. See 28 U.S.C. § 1331, 15 U.S.C. § 1125(a). The Plaintiff has not

presented sufficient allegations to invoke diversity jurisdiction. Nevertheless, the Court

will address the Motion to Dismiss based on the existence of federal question jurisdiction.

such as preterm or low-weight newborns and patients with severe liver

disease, as part of a nutritional supplement regimen (also known as “total

parenteral nutrition” or “TPN”). [Id. at ¶ 26]. Aluminum is a known

contaminant of TPN solutions, and aluminum toxicity can cause serious

health problems including dementia and impaired neurologic development

among others. [Id. at ¶ 27]. High-risk infants who receive TPN are

particularly susceptible to harm from excessive, toxic amounts of aluminum,

as they have immature kidneys, which impairs the removal of aluminum from

the body. [Id. at ¶ 28]. The Defendant manufactures an L-Cysteine product

in Canada with a label stating that it contains as much as 5,000 mcg/L of

aluminum. [Id. at ¶ 5]. The Defendant’s L-Cysteine product is not approved

by the FDA. [Id. at ¶ 1].

Beginning in 2014, there was a shortage of L-Cysteine in the United

States.4 [Docs. 1-15, 31-2 at 2]. This led the FDA to approach the Defendant

about importing and selling its unapproved L-Cysteine product in the United

States under the FDA’s “shortage program” without requiring the drug to

obtain FDA approval. [Id.; Doc. 1 at ¶¶ 6, 38]. Pursuant to the shortage

program and the Defendant’s request, the FDA ultimately gave the

4 Discussions between the FDA and the Defendant regarding the shortage began in 2014.

[Doc. 31-2 at 2].

Defendant a “Memorandum of Discretion” on April 12, 2016 [Doc. 31-2 at 38-

39], which stated that the FDA would not bring an enforcement action against

the Defendant for importing and selling its L-Cysteine product for 6 months

if the Defendant followed certain conditions. [Id. at ¶ 40, 44; see also Doc.

31-2 at 6, 13-16, 38-39, 41-59].5 One such condition was that the Defendant

had to distribute a “Dear Healthcare Provider” letter alongside its L-Cysteine

product that explained the product, the drug shortage, and the lack of other

similar FDA-approved products. [Doc. 1 at ¶ 41; Doc. 1-17; Doc. 1-18; see

also Doc. 31-2 at 41-59]. The contents of the letters were pre-approved by

the FDA and those letters had to be reviewed by the FDA before distribution.

[Doc. 31-2 at 41-50].

5 The Plaintiff’s Complaint does not attach the Memorandum of Discretion or the

communications between the FDA and the Defendant related to the issuance of the

Memorandum of Discretion and its subsequent renewals. The Defendant, however,

attaches the Memorandum of Discretion and those communications to its Response in

Opposition to Plaintiff’s Motion for Preliminary Injunction. [Doc. 31-2 at 13-16, 38-39, 41-

59]. The Court may consider a document submitted by a defendant without converting a

Rule 12(b)(6) motion to a summary judgment motion if the document “was integral to and

explicitly relied on in the complaint and if the plaintiffs do not challenge its authenticity.”

Am. Chiropractic Ass'n v. Trigon Healthcare, Inc., 367 F.3d 212, 234 (4th Cir. 2004)

(citation and quotations omitted); see also Lee v. City of Los Angeles, 250 F.3d 668, 688

(9th Cir. 2001). The Memorandum of Discretion and the communications surrounding its

issuance and renewals are integral documents that were explicitly referenced and relied

upon in the Plaintiff’s complaint. [Doc. 1]. The Plaintiff does not challenge the authenticity

of those documents. As such, the Court will consider the contents of the Memorandum

of Discretion and the communications between the FDA and the Defendant when

analyzing this Motion. [Doc. 31-2 at 13-16, 38-39, 41-59].

The Defendant sought several extensions of the Memorandum of

Discretion and the FDA granted each of the Defendant’s requests, with each

renewal providing the Defendant with six additional months to import and

distribute its unapproved product. [Doc. 1 at ¶ 40]. The FDA approved the

last Dear Healthcare Provider letter on June 21, 2019, instructing the

Defendant to ensure that the “previously reviewed Dear Healthcare Provider

letter continues to accompany [the Defendant’s] L-Cysteine in distribution” in

shipments thereafter. [Doc. 31-2 at 50]. Every version of the letter stated

that “there are currently no FDA-approved L-Cysteine Hydrochloride

Injection products in the United States.” [Doc. 1 at ¶ 41; Doc. 1-18; see also

Doc. 31-2 at 41-59].

Beginning in 2017, the Plaintiff undertook extensive efforts to tackle

the aluminum problem in TPN solutions and develop an L-Cysteine product

with low aluminum levels. [Doc. 1 at ¶ 31]. In May 2017, the Plaintiff filed a

New Drug Application (NDA) with the FDA for an L-Cysteine product that

contained a maximum of 1,400 mcg/L of aluminum. [Id.]. In July 2017,

however, the FDA informed the Plaintiff that this proposed level of aluminum

was unacceptably high, and that the product should have less than or equal

to 145 mcg/L of aluminum in order to gain permanent approval. [Id. at ¶ 32].

The Plaintiff ultimately succeeded in reducing the aluminum levels in its L-

Cysteine product to less than 120 mcg/L and submitted its new data to the

FDA for its redeveloped product in July 2018. [Id. at ¶ 33]. On April 16,

2019, the FDA approved the Plaintiff’s NDA under Fast Track designation

and Priority Review. [Id.]. The Plaintiff branded its L-Cysteine product

ELCYS. [Id.].

After ELCYS received FDA approval, the Plaintiff’s marketing and

sales teams began communicating with health systems regarding its

availability. [Id. at ¶ 34]. By late May 2019, the Plaintiff had manufactured

sufficient inventory to meet the entire market demand for L-Cysteine.6 [Id.].

In late May 2019, the Defendant’s executives reached out to the

Plaintiff’s executives to inquire whether the Plaintiff would be willing to

license its “recently approved products,” including ELCYS, to the Defendant.

[Id. at ¶ 43]. The Plaintiff declined the Defendant’s offer. [Id.].

After the FDA approved the Plaintiff’s product, the Plaintiff made

numerous efforts to get the Defendant to stop selling its unapproved product.

Starting in May 2019, the Plaintiff repeatedly asked the FDA to remove L-

Cysteine hydrochloride injection from its drug shortage list and prohibit any

further importation and distribution of the Defendant’s unapproved product.

6 Notwithstanding its approval of the Plaintiff’s ELCYS product, the following month the

FDA approved the Defendant’s continued distribution of its product along with the

previously approved Dear Healthcare Provider letter. [Doc. 31-2 at 50].

[Doc. 1 at ¶ 49; Doc. 1-23]. Receiving no relief from the FDA, the Plaintiff

sent letters to the CEO and Chairman of the Board of Defendant Sandoz’s

parent company, Novartis, A.G., on August 20, 2019. [Doc. 1-24]. Copying

the FDA on the letter, the Plaintiff told Novartis about the allegedly improper

and unethical conduct and asked that Novartis immediately stop importation

and distribution of the L-Cysteine product. [Doc. 1 at ¶ 50; Doc. 1-24].

On September 3, 2019, the FDA declared an end to the L-Cysteine

drug shortage. [Id. at ¶ 50; Doc. 1-25]. Around the same time, the FDA

asked the Defendant to stop importing its L-Cysteine product. [Doc. 1-21].

The Defendant’s stopped importing its L-Cysteine product in response to the

FDA’s request. [Doc. 1 at ¶ 45]. On September 25, 2019, the Plaintiff sent

a letter to its customers stating that although “there is now an FDA approved

L-Cysteine available in the US market[,]” the “FDA is allowing Sandoz to

continue distributing its existing inventory . . . .” [Doc. 1-21 at 2].

On September 24, 2019, the Defendant responded to the Plaintiff’s

August 20 letter, acknowledging that the Plaintiff’s ELCYS product had been

approved by the FDA and that “the drug shortage has abated.” [Doc. 1 at ¶

51; Doc. 1-15]. The Defendant nevertheless confirmed that it had the FDA’s

permission to sell the product that it had already imported and expressed its

intention to do so. [Id.]. The Plaintiff’s marketing team claims to have

observed customers buying or committing to buy up to a year’s supply of the

Defendant’s product even after ELCYS received FDA approval. [Doc. 1 at ¶

53].

On October 8, 2019, the FDA directed the Defendant to stop

distribution distributing its L-Cysteine product. [Doc. 1-20]. The Defendant

immediately complied with the FDA’s request. [Doc. 1 at ¶ 45; Doc. 1-20].

Despite being the only FDA-approved L-Cysteine product on the market and

having low aluminum levels, the Plaintiff’s ELCYS has attained less than

20% of the L-Cysteine market while the Defendant “maintain[s] over” 80%.7

[Id. at ¶¶ 35, 58].

III. STANDARD OF REVIEW

To survive a motion to dismiss pursuant to Rule 12(b)(6), “a complaint

must contain sufficient factual matter, accepted as true, to ‘state a claim to

relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678

(2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)).

7 The Plaintiff’s allegation in Paragraph 58 of the Complaint appears to facially contradict

its allegation in Paragraph 45. If the Defendant discontinued sales of this product by

October 8, 2019, then as of the date of the Plaintiff’s filing (November 6, 2019), the

Defendant no longer had any share of the market. [Doc. 1 at ¶¶ 45, 58]. Giving the

Plaintiff the benefit of a very generous inference, this may mean that 80% of the use

(rather than sales) of an L-Cysteine product in the United States as of November 6, 2019

was of the Defendant’s product that had been sold prior to October 8, 2019.

To be “plausible on its face,” a plaintiff must demonstrate more than “a sheer

possibility that a defendant has acted unlawfully.” Iqbal, 556 U.S. at 678.

In reviewing the complaint, the Court must accept the truthfulness of

all factual allegations but is not required to assume the truth of “bare legal

conclusions.” Aziz v. Alcolac, Inc., 658 F.3d 388, 391 (4th Cir. 2011). “The

mere recital of elements of a cause of action, supported only by conclusory

statements, is not sufficient to survive a motion made pursuant to Rule

12(b)(6).” Walters v. McMahen, 684 F.3d 435, 439 (4th Cir. 2012).

Determining whether a complaint states a plausible claim for relief is

“a context-specific task,” Francis v. Giacomelli, 588 F.3d 186, 193 (4th Cir.

2009), which requires the Court to assess whether the factual allegations of

the complaint are sufficient “to raise the right to relief above the speculative

level,” Twombly, 550 U.S. at 555. As the Fourth Circuit has explained:

To satisfy this standard, a plaintiff need not forecast

evidence sufficient to prove the elements of the

claim. However, the complaint must allege sufficient

facts to establish those elements. Thus, while a

plaintiff does not need to demonstrate in a complaint

that the right to relief is probable, the complaint must

advance the plaintiff’s claim across the line from

conceivable to plausible.

Walters, 684 F.3d at 439 (citations and internal quotation marks omitted).

IV. DISCUSSION

In its Motion to Dismiss the Complaint or, in the Alternative, Stay the

Case Pending Referral to FDA, the Defendant argues that the Plaintiff’s

Chapter 75 and tortious interference with prospective business advantage

claims are preempted by the Food, Drug, and Cosmetic Act (“FDCA”), 21

U.S.C. § 301 et seq., and that the Plaintiff’s Lanham Act claim fails because

it is inconsistent with the FDCA. [Doc. 29-1]. Specifically, the Defendant

argues that the FDCA does not contain a private right of action to enforce its

provisions and that the Plaintiff’s state-law claims interfere with the federal

regulatory regime because they are allegedly predicated on unenforced

FDCA violations. [Id.]. The Defendant, therefore, argues that the Plaintiff’s

Complaint , as a matter of law, fails to state a claim upon which relief can be

granted. The Plaintiff responds that the Complaint contains sufficient facts

to support the Chapter 75, tortious interference with prospective business

advantage, and Lanham Act claims and that those claims are not preempted

by or inconsistent with the FDCA. [Doc. 38].

A. State Law Claims

The Supremacy Clause of the Constitution makes evident that “state

laws that conflict with federal law are ‘without effect.’” Altria Grp., Inc. v.

Good, 555 U.S. 70, 76 (2008) (citation omitted). There are three types of

preemption under the Supremacy Clause: (1) express preemption, (2) field

preemption, and (3) conflict preemption. Id. at 76–77. Conflict preemption,

the only type of preemption relevant here, exists where “there is an actual

conflict between state and federal law,” id, and the “state law stands as an

obstacle to the accomplishment and execution of the full purposes and

objectives of Congress.’” Hillsborough Cnty., Fla. v. Automated Med. Labs.,

Inc., 471 U.S. 707, 713 (1985) (citations and quotations omitted). For

example, the Supreme Court has held that a state-law claim contrary to the

FDCA is barred by conflict preemption because “the federal statutory

scheme . . . used by the [FDA] to achieve a somewhat delicate balance of

statutory objectives” would be “skewed by allowing” a plaintiff to bring state-

law claims. Buckman Co. v. Plaintiffs' Legal Comm., 531 U.S. 341, 348

(2001). In evaluating whether federal law has preempted state law, the Court

must look to “the purpose of Congress [as] the ultimate touchstone,” while

also “start[ing] with the assumption that the historic police powers of the

States were not to be superseded . . . unless that was the clear and manifest

purpose of Congress.” Wyeth v. Levine, 555 U.S. 555, 565 (2009).

The FDCA charges the FDA with “promot[ing] the public health by

promptly and efficiently reviewing clinical research and taking appropriate

action on the marketing of regulated products in a timely manner.” 21 U.S.C.

§ 393(b)(1). In the FDCA, Congress required the FDA to “protect the public

health” by making sure that “drugs are safe and effective.” Id. § 393(b)(2)(B).

The FDCA also empowers the FDA to combat drug shortages, See, e.g., id.

at §§ 356c-1(a)(5), 356d, 356(e)(4).

If a drug is marketed without prior FDA approval, the FDA may bring

an enforcement action under the FDCA. See 21 U.S.C. §§ 332–34 (1982).

The FDCA gives the FDA “complete discretion” to “decide how and when [it]

should be exercised.” Heckler v. Chaney, 470 U.S. at 835. The FDCA

provides that “all such proceedings for the enforcement, or to restrain

violations, of [the FDCA] shall be by and in the name of the United States.”

As such, “[t]he FDCA leaves no doubt that it is the Federal Government

rather than private litigants who are authorized to file suit for noncompliance

. . . .” Buckman, 531 U.S. at 349 n. 4.

The FDCA’s prohibition on private actions, however, would be

“thwarted if savvy plaintiffs can label as arising under a state law for which

there exists a private enforcement mechanism a claim that in substance

seeks to enforce the FDCA.” Loreto v. Procter & Gamble Co., 515 F. App'x

576, 579 (6th Cir. 2013). As such, “private litigants may not bring a state-

law claim against a defendant when the state-law claim is in substance (even

if not in form) a claim for violating the FDCA.” Id. (citations and internal

quotation marks omitted); see also American Home Products Corp. v.

Johnson & Johnson, 436 F. Supp. 785, 797 (S.D.N.Y.1977) (noting that

“state unfair competition laws [are] not the proper legal vehicle in which to

vindicate the public's interest in health and safety.”). Likewise, “[t]here can

be no state law cause of action if a plaintiff’s true goal is to privately enforce

alleged violations of the FDCA.” Borchenko v. L’Oreal USA, Inc., 389

F.Supp.3d 769, 773 (C.D. Cal. 2019) (citation and quotations omitted).

“The test for determining whether a state law claim is impliedly

preempted is whether or not the claim would exist in the absence of the

FDCA.” Evans v. Rich, No. 5:13-CV-868-BO, 2014 WL 2535221, at *2

(E.D.N.C. June 5, 2014) (citing Loreto, 515 Fed. App'x at 579). “As the Sixth

Circuit has explained, any claim that relies on the FDCA or its implementing

regulations ‘[a]s a critical element’ is barred by § 337(a).’” Agee v. Alphatec

Spine, Inc., No. 1:15-CV-750, 2017 WL 5706002, at *3 (S.D. Ohio Mar. 27,

2017) (quoting Marsh v. Genentech, Inc., 693 F.3d 546, 553 (6th Cir. 2012));

see also In re Darvocet, Darvon, & Propoxyphene Prods. Liab. Litig., 756

F.3d 917, 936 (6th Cir. 2014) (“claims” premised on “a violation of the FDCA”

are impliedly preempted “because the FDA has the exclusive power to

enforce the FDCA” and there is “no private right to enforce the statute”). For

example, “a state-law claim that the defendant made misrepresentations to

the FDA is preempted because such a claim would not exist absent the

federal regulatory scheme established by the FDCA.” Riley v. Cordis Corp.,

625 F. Supp. 2d 769, 777 (D. Minn. 2009) (citing Buckman, 531 U.S. at 352-

53). Similarly, courts have found implied preemption applies to claims like

“breach of warranty, negligence per se, design defect, and failure to warn.”

Evans, 2014 WL 2535221, at *2 (citing in re Medtronic, Inc. Sprint Fidelis

Leads Products Liab. Litig., 592 F.Supp.2d 1147, 1159–64 (D. Minn. 2009)).

With this preemption framework in mind, the Court now turns to each

of the Plaintiff’s state law claims.

1. Chapter 75 Claim

A Chapter 75 claim requires (1) an unfair or deceptive act or practice;

(2) in or affecting commerce; which (3) proximately caused actual injury to

the claimant or its business. N.C. Gen. Stat. § 75-1.1. An act is deceptive “if

it has a tendency or capacity to deceive.” Rahamankhan Tobacco

Enterprises Pvt. Ltd. v. Evans MacTavish Agricraft, Inc., 989 F.Supp.2d 471,

477 (E.D.N.C. 2013). An act is unfair “if it offends established public policy,”

“is immoral, unethical, oppressive, unscrupulous, or substantially injurious to

consumers,” or “amounts to an inequitable assertion of . . . power or

position.” Id. A deceptive practice is one that has “the capacity or tendency

to deceive the average consumer, but proof of actual deception is not

required.” Spartan Leasing, Inc. v. Pollard, 101 N.C. App. 450, 461, 400

S.E.2d 476, 482 (1991). “What is an unfair or deceptive trade practice

usually depends upon the facts of each case and the impact the practice has

in the marketplace.” Durling v. King, 146 N.C. App. 483, 489, 554 S.E.2d 1,

4 (2001) (citing Pan American World Airways, Inc. v. United States, 371 U.S.

296 (1963)).

The Plaintiff generally claims that the Defendant violated Chapter 75

through its “unfair and deceptive actions to import, sell, and stuff the

distribution channels with its unapproved product.” [Doc. 1 at ¶ 1].

Specifically, the Plaintiff alleges that the Defendant acted unlawfully by (1)

importing and selling an illegal product, [id. at ¶¶ 6, 8, 36, 37, 66, 67, 69, 77,

79]; (2) seeking a “Memorandum of Discretion,” and numerous extensions of

that Memorandum, to import an illegal product, [id. at ¶¶ 40, 69]; (3) failing

to update its 2018 Dear Healthcare Provider letter after the FDA approved

ELCYS, [id. at ¶ 69]; (4) failing to warn its customers about its product’s

aluminum content, [id.]; and (5) misusing “its incumbent status in the market

and its huge market power and reach to block hospitals and distributors from

switching” to the Plaintiff’s L-Cysteine product. [Id.].

a. Importing and Selling an Illegal Product

The Plaintiff claims that the Defendant violated Chapter 75 by

importing and selling its L-Cysteine product because such conduct is the type

of “‘immoral, unethical, [and] unscrupulous behavior’” that Chapter 75

“deems as ‘unfair.’” [Doc. 1 at ¶ 68 (quoting State ex rel. Cooper v. NCCS

Loans, Inc., 174 N.C. App. 630, 640 (2005)]. The crux of the Plaintiff’s

Chapter 75 claim is that the Defendant’s L-Cysteine product was unlawful,

dangerous, and unfit for importation or sale, and that the FDA acted

unlawfully by letting the Defendant import and sell that product.8 Stated

differently, the Plaintiff’s state-law claim challenges the FDA’s decision not

to bring enforcement proceedings against the Defendant under the FDCA for

importing and selling an unapproved and unsafe drug.

The Plaintiff’s Chapter 75 claim related to the Defendant’s sale and

importation of the L-Cysteine product is preempted. The FDCA contains no

private right of action and gives the FDA “complete discretion” to decide

whether to bring enforcement proceedings. Heckler, 470 U.S. at 835. As

such, the “FDA has power to determine whether particular drugs require an

approved NDA [New Drug Application] in order to be sold to the public.”

8 The Plaintiff concedes that the Defendant’s “misconduct originated in a violation of the

FDCA–the import and sale of the unapproved product.” [Doc. 1-38 at 7].

Weinberger v. Hynson, Westcott & Dunning, Inc., 412 U.S. 609, 624 (1973).

The Plaintiff does “not have the authority to stand in the shoes of the FDA to

determine whether [the defendant’s] sale of the products at issue amounts

to the sale of an unapproved drug under the FDCA. This enforcement

authority [lies] exclusively with the FDA.” Allergan, Inc. v. Athena Cosmetics,

Inc., 738 F.3d 1350, 1359 (Fed. Cir. 2013); see also Agee, 2017 WL

5706002, at *5 (stating that if “the distribution of [the product] was in violation

of the FDCA and relevant FDA regulations . . . it is the sole responsibility and

privilege of the federal government, and not private plaintiffs, to bring a suit

to enforce those violations.”). The crux of the Plaintiff’s Chapter 75 claim is

a challenge to whether the importation and sale of the Defendant’s L-

Cysteine product are lawful under the FDCA. As such, the Plaintiff is

preempted from making that claim.

The Plaintiff’s claim related to the Defendant’s importation and sale of

its L-Cysteine product is also preempted because it would stand “as an

obstacle to the accomplishment and execution of the full purposes and

objectives of Congress.” Hillsborough Cnty., 471 U.S. at 713 (citations

omitted). The FDCA empowers the FDA to combat drug shortages, see,

e.g., 21 U.S.C. §§ 356c-1(a)(5), 356d, 356(e)(4), while also ensuring “that

any product regulated by the FDA is ‘safe’ and ‘effective’ for its intended use.”

FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 120, 133 (2000) (citing

21 U.S.C. § 393(b)(2). As such, the FDA “must evaluate the risks

associated” with a drug shortage when deciding to bring an enforcement

action under the FDCA. 21 U.S.C. § 356d(c). Allowing a state-law claim

challenging the FDA’s discretionary refusal to bring an enforcement action

under the FDCA against the Defendant would therefore thwart the FDA’s

purpose. Hillsborough Cnty., 471 U.S. at 713 (citations omitted). Other

courts have rejected similar claims. See Loreto, 515 F. App'x at 579 (stating

that “[a] plaintiff cannot use a state-claim to argue that a defendant’s product

was “‘illegal,’ and had [consumers] known it, they wouldn't have purchased

the products” because that “theory of liability depends entirely upon an FDCA

violation.”).

Allowing a Chapter 75 claim based on the safety of the Defendant’s L-

Cysteine product would also skew “the federal statutory scheme . . . used by

the [FDA] to achieve a somewhat delicate balance of statutory objectives.”

Buckman, 531 U.S. at 348. Here, the record shows that the FDA engaged

in a prolonged effort to balance those objectives, as well as the various

interests, before deciding to let the Defendant to distribute its L-Cysteine

product. That decision necessarily involved balancing the risks inherent in a

drug shortage with the safety risks of allowing the importation and sale of an

unapproved product. After ELCYS received FDA approval, the FDA still had

to account for the risk that ELCYS might not be able to meet the entire market

demand for L-Cysteine, the risk of supply chain issues during the transition

from the Defendant’s L-Cysteine product to ELCYS, and other associated

risks.9 Allowing state-law claims would disrupt the delicate and considered

balance that the FDA struck. In short, the FDA was charged with addressing

a shortage of a critical medical product. The FDA made its determination of

the best solution of the problem. For the Plaintiff to now second guess the

FDA’s decision in a civil action based on state law would render the FDA’s

authority to be a nullity.

The Plaintiff’s claim related to the Defendant’s importation and sale of

its L-Cysteine product presents a similar issue to the one addressed in

Drager v. PLIVA USA, Inc., 741 F.3d 470, 479 (4th Cir. 2014). In Drager, a

consumer injured by a drug brought state-law claims alleging that the

manufacturer’s label that was approved by the FDA was inadequate. The

Fourth Circuit held that the state-law claims were preempted by federal law

because they would force the manufacturer to either “leave the market or

9 The FDA also had to balance the competing interests of these parties, each of whom

sought and advocated for different outcomes. While the Plaintiff wanted the FDA to

remove the Defendant’s L-Cysteine product from the market almost immediately after

ELCYS received FDA approval, the Defendant wanted a chance to sell the inventory it

created in response to the FDA’s requests to help with the drug shortage.

accept tort liability” despite the manufacturer’s compliance with the FDA’s

edicts. Id. The Fourth Circuit explained that the Hobson's choice presented

in such a situation illustrates how allowing a state-law claim can subvert the

federal regulatory scheme, thus requiring the preemption of such state

claims. Id.

The logic of Drager is applicable to this case. Here, the FDA issued a

Memorandum of Discretion, and several renewals of that Memorandum,

allowing the Defendant temporary permission to import and sell its L-

Cysteine product. [Doc. 1 at ¶¶ 40, 44]. Notwithstanding the Defendant’s

permission from the FDA, a viable Chapter 75 claim related to the import and

sale of the L-Cysteine product would have nonetheless forced the Defendant

“to leave the market or accept tort liability.” Id. This is precisely the type of

claim that the Fourth Circuit held in Drager must be preempted.

This case, just like Drager, is unlike the failure-to-warn cases that the

Plaintiff cites. [See Doc. 38 at 11]. For example, in Wyeth v. Levine, the

Supreme Court explained that a state-law claim was not preempted by the

FDCA’s labeling requirements because those “requirements create a floor,

not a ceiling, for state regulation.” 555 U.S. 555, 563 (2009). As such, the

Court in Wyeth found that the state-law claim did not “stand as an obstacle

to the accomplishment of Congress' purposes in the FDCA” because the

defendant could have remained in the market by adding additional warnings

that would comply with both the state-law and federal-law requirements. Id.

at 581. That is not the case here, where the Plaintiff asserts that the only

way to comply with state law would have been for the Defendant to leave the

market, notwithstanding the Defendant’s compliance with the FDA’s

directives. Drager, 741 F.3d at 479. Likewise, Wyeth was a claim by an

injured patient against a drug company related to a purportedly deficient

label, not a claim by a competitor seeking to prevent the distribution of a

purportedly unsafe drug. That distinction is important because removing a

product that the FDA expressly allowed in the market to address a drug

shortage interferes with federal objectives in a way that changing a product’s

label does not. See Zogenix, Inc. v. Patrick, No. CIV.A. 14-11689-RWZ,

2014 WL 1454696, at *2 (D. Mass. Apr. 15, 2014) (stating that “Wyeth is a

drug labeling case, and defendant present no evidence of persuasive

argument that its reasoning should control” when determining whether a

state law can contravene the FDA’s decision to allow the sale of a drug.).

The Plaintiff also relies on Allergan, [Doc. 38 at 12], where the Federal

Circuit found that a state-law claim based on the marketing, sale, and

distribution or an unapproved drug was not preempted by the FDCA. Id. In

that decision, however, the Federal Circuit focused on the fact that the state-

law requirements paralleled the FDCA requirements, in a situation where the

FDA had not given the defendant explicit permission to market, sell, or

distribute the drug at issue. Allergan, 738 F.3d at 1355. That case has no

application here, because the FDA gave explicit permission to the Defendant

to distribute its product. The Plaintiff’s state-law claim would entirely

undercut the FDA’s decision and authority.

Instead, Zogenix, Inc. v. Patrick, No. CIV.A. 14-11689-RWZ, 2014 WL

1454696, at *2 (D. Mass. Apr. 15, 2014) is more instructive. In that case,

Massachusetts’ ban on the sale of an FDA-approved drug was preempted

because allowing the state to “countermand the FDA’s determinations and

substitute its own requirements [would] undermine the FDA’s ability to make

drugs available to promote and protect the public health.” Id. As such, the

state-tort claim would interfere with “‘the accomplishment and execution of’

an important federal objective.” Id. (quoting Hines v. Davidowitz, 312 U.S.

52, 67 (1941)). Like the plaintiff in Zogenix, the Plaintiff herein seeks to

overturn the FDA’s decision to allow the importation and sale of a product.

While the Plaintiff argues that Zogenix is distinguishable because that case

involved an FDA-approved drug, rather than drug allowed to be imported and

sold under a Memorandum of Discretion, [Doc. 38 at 12], that distinction

matters little for preemption purposes. The outcome of the FDA’s decision

in both instances, whether made through its approval process or through an

exercise of discretion to address a shortage, was to allow the drug to be

imported and sold. The Plaintiff cannot use a state-law claim to contravene

the FDA’s decision and remove that drug from the market because that

would interfere with the federal objective of allowing that drug to remain

available. See id. at *2-3. This is particularly true in a case such as this one

where the FDA was trying to address a crucial shortage.

The Plaintiff next argues that the FDA’s Memorandum of Discretion

allowing the Defendant to import and sell its L-Cysteine product was

illegitimate because the FDA’s entire shortage program was declared illegal

by the D.C. Circuit in Cook v. FDA, 733 F.3d 1 (D.C. Cir. 2013). [Doc. 1 at ¶

39]. The claim in Cook was brought under the Administrative Procedures

Act against the FDA regarding the importation of sodium thiopental from

unregistered foreign laboratories for use in lethal injections. 733 F.3d at 10.

Cook held that the FDA is required to examine samples of imported drugs

manufactured in unregistered facilities to determine if those drugs violate

FDCA requirements. Id. at 9 (“We do not say the FDA must sample and

examine every article under its jurisdiction that is offered for import but only

that it must sample and examine drugs manufactured . . . in an unregistered

establishment.”).10 Cook specifically allowed the FDA to “exercise

enforcement discretion to allow the domestic distribution of a misbranded or

unapproved new drug” and “invoke its express statutory authority to permit

the importation of an unapproved new drug.” Id. at 10. Contrary to the

Plaintiff’s argument, Cook did not go as far as to hold that the FDA’s shortage

program is illegal. Id. at 10.

Cook is simply inapposite here. Unlike Cook, the Plaintiff did not bring

this action against the FDA seeking judicial review of agency action (or

inaction) under the Administrative Procedures Act. The FDA is not even a

party to this case. Instead, this case presents a dispute between two drug

manufacturers. Moreover, the Plaintiff cites no authority for the proposition

that the FDA’s refusal to bring enforcement proceedings would even be

reviewable under the circumstances found here as it was in Cook. See

Heckler v. Chaney, 470 U.S. 821, 832-33 (1985) (stating that “an agency's

decision not to take enforcement action should be presumed immune from

judicial review” unless the “substantive statute has provided guidelines for

the agency to follow in exercising its enforcement powers.”). While the

presumption against judicial review did not apply in Cook because the FDCA

10 While Cook involved importation from an unregistered facility, this case involves

importation from a registered facility. [Doc. 1-22 at 5]; Cook, 733 F.3d at 9.

“provided guidelines for the agency to follow in exercising its enforcement

powers” concerning unregistered foreign facilities, Cook, 733 F.3d at 6, the

Plaintiff identifies no such guidelines that apply to the registered facility at

issue here. As such, the FDA’s enforcement decisions concerning

registered laboratories appear to be immune from judicial review because

the FDCA’s enforcement provisions commit “complete discretion to the FDA

to decide how and when they should be exercised.” Heckler, 470 U.S. at

835.

For all these reasons, the Plaintiff’s Chapter 75 claim based on the

Defendant’s sale or importation of its L-Cysteine product must be dismissed

as preempted.

b. Seeking a Memorandum of Discretion

The Plaintiff next claims that the Defendant violated Chapter 75 by

seeking a renewal of the Memorandum of Discretion in June 2019 after

ELCYS received FDA approval to continue selling its L-Cysteine product.

[Doc. 1 at ¶¶ 40, 69]. In this sense, however, the Plaintiff’s true quarrel is

with the FDA granting the Defendant’s June 2019 request for a renewal of

the Memorandum of Discretion, not with the Defendant’s seeking the

renewal. The FDA did not declare the end of the drug shortage until

September 3, 2019. [Id. at ¶ 50; Doc. 1-25]. It was not unfair or deceptive

for the Defendant to ask if it could continue importing and selling its L-

Cysteine product while the drug shortage continued. That is particularly true

considering that it was this drug shortage that originally led the FDA to ask

the Defendant to import and sell its L-Cysteine product. [Doc. 1-15].

Moreover, the Plaintiff has failed to plausibly allege that the

Defendant’s requests for the Memorandum of Discretion or the subsequent

renewals of that Memorandum involved any unfairness or deception. The

FDA was fully aware of the development of ELCYS, its approval status and

production status, the differences in the aluminum content between the

ELCYS and the Defendant’s L-Cysteine product, as well as the state of the

L-Cysteine market when it renewed the Memorandum of Discretion in June

2019. Despite that knowledge, the FDA rebuffed the Plaintiff’s requests to

end the drug shortage until September 3, 2019, waited until that time to halt

importation of the Defendant’s L-Cysteine product, and waited until October

8, 2019 to halt sales of that product. [Docs. 1-23, 1-20, 1-21].

Though the FDA is not a party to this case, it has issued guidance

explaining that it generally weans unapproved products off the market once

a competing product has been approved. See FDA, Marketed Unapproved

Drugs – Compliance Policy Guide: Sec. 440.100, Marketed New Drugs

without Approved NDAs or ANDAs (Sep. 2011) at 7-8 (“When a company

obtains approval to market a product that other companies are marketing

without approval, FDA normally intends to allow a grace period of roughly 1

year from the date of approval of the product before it will initiate enforcement

action (e.g., seizure or injunction) against marketed unapproved products of

the same type.” “To assist in an orderly transition to the approved product(s),

in implementing a grace period, FDA may identify interim dates by which

firms should first cease manufacturing unapproved forms of the drug

product, and later cease distributing the unapproved product.”). That

guidance explains the FDA’s actions here. In fact, rather than allowing the

Defendant a one-year grace period per its regulations, it gave the Defendant

only six months (April to October 2019) to continue importing and selling its

L-Cysteine product before halting importation of the product and then halting

sales of the product.11

The Plaintiff does not allege that the FDA’s guidance-based decisions

were a result of any false or misleading actions on the part of the Defendant.

The Plaintiff only alleges that the Defendant committed an unfair or deceptive

act by merely seeking renewal. That is insufficient to support a Chapter 75

11 Notably, the Plaintiff did not have sufficient production to satisfy the market for a

significant portion of that six-month period. The Plaintiff makes no allegations regarding

the adequacy of its distribution network to distribute what it was able to manufacture

during that time.

claim. For these reasons, the Plaintiff’s Chapter 75 claim based on the

Defendant seeking a renewed Memorandum of Discretion in June 2019 is

without merit, and that claim must be dismissed.

c. Failing to Update Dear Healthcare Provider Letter

The Plaintiff next claims that the Defendant violated Chapter 75 by

failing to update the Dear Healthcare Provider letter that accompanied its L-

Cysteine product to inform customers that ELCYS had received FDA

approval. [Doc. 1 at ¶¶ 9, 41, 69]. Specifically, the Plaintiff alleges that the

Defendant sent out Dear Healthcare Provider letters in March 2016, [Doc. 1-

17], and September 2018 [Doc. 1-18], stating that “there are currently no

FDA-approved L-Cysteine Injection products in the United States” and failed

to send a new letter to update that statement until six months after ELCYS

received FDA approval. [Doc. 1 at ¶ 9, 41, 46, 69; Doc. 1-21].12

12 The Plaintiff’s Complaint fails to identify the particular communication that provides a

basis for the alleged Chapter 75 violation. The Plaintiff alleges, on information and belief,

that the Defendant sent Dear Healthcare Provider letters with incorrect information

regarding ELCYS’ FDA approval status after it had received FDA approval on April 16,

2019. [Doc. 1 at ¶¶ 9, 46]. The Plaintiff’s Complaint, however, only attaches Dear

Healthcare Provider letters sent on March 1, 2016, and September 1, 2018. [Doc. 1-17;

1-18]. The Plaintiff provides no communication from after April 16, 2019, where the

Defendant falsely states that its L-Cysteine product is the only L-Cysteine product

available in the United States. The only communication that the Plaintiff provides from

that period is from September 25, 2019, when the Defendant informed customers that

“there is now an FDA approved L-Cysteine available in the US market.” [Doc. 1-21].

The Defendant argues that the Plaintiff’s claim is preempted because

the Dear Healthcare Provider letters were mandated, overseen, and

preapproved by the FDA as part of its decision to grant a Memorandum of

Discretion to the Defendant under the FDCA. [Doc. 29-1 at 17]. The

Defendant also argues that it did not violate Chapter 75 because it sent a

new letter to tell customers that “there is now an FDA approved L-Cysteine

available in the U.S. market” roughly five months after ELCYS received FDA

approval. [Doc. 29-1 at 18 (citing Doc. 1 at ¶¶ 46)].

“Manufacturers and distributors of drugs and the Food and Drug

Administration occasionally are required to mail important information about

drugs to physicians and others responsible for patient care” in so-called Dear

Healthcare Provider letters. See 21 C.F.R. § 200.5. The FDA can mandate

and oversee the distribution of Dear Healthcare Provider letters in

conjunction with its oversight of drug shortages. [Doc. 29-1 at 17]; Center

for Drug Evaluation and Research, Drug Shortage Management, Manual of

Policies and Procedures 4190.1 at 10 (“When a potential or actual shortage

might be resolved by obtaining a drug from an alternate source,” the FDA

will “[c]oordinate issuance and clearance of a Dear Healthcare Provider

Letter . . . .”). While no explicit statutory or regulatory provisions set forth the

circumstances under which a drug manufacturer must issue a Dear

Healthcare Provider letter, the FDA has brought enforcement actions under

the FDCA where Dear Healthcare Provider letters contained “false or

misleading” statements. State ex rel. McGraw v. Johnson & Johnson, 226

W. Va. 677, 682, 704 S.E.2d 677, 682 (2010).

Here, the Memorandum of Discretion and the subsequent renewals of

that Memorandum show that the Defendant distributed the Dear Healthcare

Provider letters at the FDA’s direction and with the FDA’s approval. [Doc.

31-2 at 41-59]. The distribution of those letters was one of the FDA’s

conditions for not exercising its enforcement authority against the

Defendant’s L-Cysteine product. [Id.]. Under those conditions, the FDA

explicitly approved the language contained in the Defendant’s Dear

Healthcare Provider letters and any revisions of those letters required FDA

approval. [Doc. 31-2 at 41, 43, 46-50].

Notably, the last Memorandum of Discretion renewal occurred on June

21, 2019, after the FDA approved ELCYS, after the Plaintiff had produced

sufficient ELCYS for the entire market, and after the Plaintiff had started

shipping ELCYS. [Id. at 50; Doc. 1 at ¶ 33, 34]. The FDA, however, did not

require the Defendant to update its Dear Healthcare Provider letter after

ELCYS was approved. Instead, the June 21, 2019 renewal mandated (under

threat of enforcement action) that “[t]he previously reviewed Dear Healthcare

Provider letter continues to accompany” the Defendant’s product. [Doc. 31-

2 at 50 (emphasis added)]. That previously reviewed letter stated that “there

are currently no FDA-approved L-Cysteine Injection products in the United

States.” [Doc. 1-18]. Accordingly, the FDA not only approved the statement

in the Dear Healthcare Provider letter about which the Plaintiff complains,

but required the Defendant to make that statement.

Nevertheless, the Plaintiff argues that the Defendant should face state

tort liability for failing to ask the FDA for permission to update the Dear

Healthcare Provider letter after the FDA approved ELCYS. [Id. at ¶ 69]. The

Memorandum of Discretion and its subsequent renewals prohibited the

Defendant from unilaterally changing the statements contained in the letter,

including the statement about which the Plaintiff complains. [Doc. 31-2 at

50; see also Doc. 31-2 at 43 (stating that “if Sandoz makes further edits to

this letter, [the FDA] requests the opportunity to review before the letter is

printed and distributed”)]. The Supreme Court has held that “when a party

cannot satisfy its state duties without the Federal Government's special

permission and assistance, which is dependent on the exercise of judgment

by a federal agency, that party cannot independently satisfy those state

duties for pre-emption purposes.” PLIVA, Inc. v. Mensing, 564 U.S. 604,

623-24 (2011). That is because “[t]he only action the [Defendant] could

independently take—asking for the FDA's help—is not a matter of state-law

concern.” Id. at 624. To the extent that the Plaintiff’s Chapter 75 claim is

based on the Defendant’s failure to update its Dear Healthcare Provider

letter, that claim is preempted because the FDA controlled the contents of

the Dear Healthcare Provider letters and the Defendant could not unilaterally

update those letters without the FDA’s involvement and approval, which is

not a matter of state-law concern. Therefore, the failure to change the

contents of the letter cannot be a basis for a state law claim.

While the Plaintiff asserts that the Defendant “failed to inform its

customers of the FDA-approved status of Exela’s product at least until

September 25, 2019[,]” [Doc. 1 at ¶ 69], that allegation also cannot support

a Chapter 75 claim. As discussed above, the FDA’s scheme for controlling

the risks associated with the Defendant’s product required the Defendant to

communicate with customers through Dear Healthcare Provider letters. That

arrangement and process would have been undermined if the Defendant

sent other communications to customers contradicting the contents of the

FDA-approved Dear Healthcare Provider letters. The Defendant’s failure to

subvert the FDA’s scheme and risk enforcement action by sending a

communication other than a Dear Healthcare Provider letter cannot give rise

to a Chapter 75 claim.

d. Failing to Warn Customers About Aluminum

Content

The Plaintiff next claims that the Defendant violated Chapter 75 by

failing to warn its customers that its L-Cysteine product had a higher

aluminum content than the standard that the FDA required ELCYS to meet

and by failing to tell its customers about the difference in aluminum content

between the two products. [Doc. 1 at ¶ 69]. The Plaintiff also alleges that

the Defendant did not update its Dear Healthcare Provider letters or

“distribute any other formal communication to the field to inform its customers

that the aluminum levels of its unapproved product far exceed” the standard

that the FDA required ELCYS to meet to receive approval. [Id. at ¶ 9].13

To begin, what the Plaintiff refers to as “FDA standards” are not

standards at all. The relevant regulations do not set any upper limit on

aluminum content for small volume parenteral drug products like the

Defendant’s L-Cysteine product. See 21 C.F.R. § 201.323. Moreover, the

letter where the Plaintiff contends that the FDA provided its aluminum

content standard “does not constitute an official agency determination.”

Schering-Plough Healthcare Prod., Inc. v. Schwarz Pharma, Inc., 547 F.

Supp. 2d 939, 947 (E.D. Wis. 2008), amended, No. 07-CV-642, 2009 WL

13 Regarding the Plaintiff’s allegations concerning the Dear Healthcare Provider letter,

see Part IV.A.1.c, supra.

151573 (E.D. Wis. Jan. 22, 2009) (collecting cases); see also Dietary

Supplement Coal., Inc. v. Sullivan, 978 F.2d 560, 563 (9th Cir.1992) (stating

that “regulatory letters do not constitute final agency action.”). Indeed, the

FDA later explained to the Plaintiff that the Defendant’s L-Cysteine product

had aluminum levels that were “well within the standards agreed upon with

FDA” and that “[i]t is thus inappropriate to suggest that the Sandoz product

is somehow unsafe.” [Doc. 1-15]. As such, the fact that the FDA required

the Plaintiff’s ELCYS product to meet a certain aluminum level to receive

FDA approval did not create a binding limitation on other drugs, especially

ones that do not seek FDA approval like the Defendant’s. In this argument,

the Plaintiff conflates the level that needed to be met to receive temporary

permission with the level for permanent approval.

The Plaintiff further argues that the Defendant violated Chapter 75 by

failing to tell its customers about the difference in aluminum content between

the Defendant and the Plaintiff’s products. [Doc. 1 at ¶ 69]. The Plaintiff has

cited no authority for the proposition that a merchant’s failure to inform its

customers as to how its product compares unfavorably to a competitor’s

product constitutes a deceptive trade practice. There is no basis to conclude

that the law imposes such obligation.

The Plaintiff’s dispute appears to be with the FDA for temporarily

permitting importation and sale of a drug that did not meet the same

aluminum levels that the FDA required ELCYS to meet for permanent

approval. The Plaintiff cannot, however, use a state-law claim against a

competitor to “countermand the FDA's determinations and substitute its own

requirements” regarding the permissible aluminum content of the

Defendant’s L-Cysteine product. Zogenix, 2014 WL 1454696, at *2. If the

Plaintiff were allowed to bring such a claim, it would stand “in the way of ‘the

accomplishment and execution of’ an important federal objective” by

undermining “the FDA's ability to make drugs available to promote and

protect the public health.” Id. (quoting Hines v. Davidowitz, 312 U.S. 52, 67

(1941)). “The Constitution does not allow it to do so.” Id.

As such, to the extent that the Plaintiff’s Chapter 75 claim is based on

the Defendant failing to meet the same aluminum content level that ELCYS

was required to meet or on the Defendant failing to affirmatively advertise

the differences between the two products, that claim must be dismissed as

preempted and as failing to state a claim upon which relief can be granted.

e. Oversupplying Customers

The Plaintiff next argues that the Defendant violated Chapter 75 by

“oversupplying customers and flooding distribution channels with its

unapproved product to prevent them from purchasing [ELCYS].” [Doc. 1 at

¶ 69]. In short, the Plaintiff bases this claim on the fact that the Defendant

imported, marketed, and sold a product that it was permitted by the FDA to

import, market, and sell, and in quantities that did not exceed that

permission.

As discussed previously, the Plaintiff is preempted from bringing a

state-law claim to challenge the FDA’s decision to allow the Plaintiff to import

and sell its L-Cysteine product because there is no private right of action in

the FDCA and the FDA is the sole entity that can bring enforcement actions

to halt the sale and importation of drugs. In re Darvocet, Darvon, &

Propoxyphene Prods. Liab. Litig., 756 F.3d 917, 936 (6th Cir. 2014) As

such, the Plaintiff is preempted from bringing a Chapter 75 claim against the

Defendant based on the volume of its L-Cysteine product sales.

f. Misusing Incumbent Status

Finally, the Plaintiff argues that the Defendant violated Chapter 75 by

misusing “its incumbent status in the market and its huge market power and

reach to block hospitals and distributors from switching” to ELCYS. [Id. at ¶

70]. It bears repeating that the Plaintiff’s claims cannot be based merely on

the Defendant’s importation or sale of its L-Cysteine product because those

claims are preempted.

The Defendant’s sales were permitted by the FDA and the Plaintiff

does not identify any act, other than the sales themselves, that constituted

an unfair or deceptive act or an inequitable assertion of power. The volume

of the sales, and the timing of those sales, as permitted by the FDA, are not

suitable bases for a Chapter 75 claim. Moreover, an incumbent market

competitor’s sale of its inventory does not become an unfair or deceptive act

simply because those sales come at the expense of a smaller market

competitor. The Plaintiff has cited no authority for this proposition. As such,

the Plaintiff cannot base its Chapter 75 claim on the Defendant’s incumbent

status in the market or its volume of sales before exiting the market.

For all these reasons, the Plaintiff’s Chapter 75 claim is dismissed.

2. Interference with Prospective Economic Advantage

Claim

The Plaintiff next claims that the Defendant illegally interfered with its

prospective economic advantage by continuing to sell its unapproved L-

Cysteine product after ELCYS received approval from the FDA. [Doc. 1 at

¶¶ 75-81].

Tortious interference with prospective economic advantage “arises

when a party interferes with a business relationship ‘by maliciously inducing

a person not to enter into a contract with a third person, which he would have

entered into but for the interference, . . . if damage proximately ensues, when

this interference is done not in the legitimate exercise of the interfering

person's rights.’” Beverage Sys. of the Carolinas, LLC v. Associated

Beverage Repair, LLC, 368 N.C. 693, 701, 784 S.E.2d 457, 463 (2016)

(quoting Spartan Equip. Co. v. Air Placement Equip. Co., 263 N.C. 549, 559,

140 S.E.2d 3, 11 (1965)). Because the interference must be done outside

of the legitimate exercise of the interfering person’s rights, “[i]nterference

with a contract is justified if it is motivated by a legitimate business purpose,

as when the plaintiff and the defendant . . . are competitors.” Id., 368 N.C.

at 700, 784 S.E.2d at 463 (citations and quotations omitted). To survive

dismissal, a complaint alleging tortious interference “must admit of no motive

for interference other than malice.” Pinewood Homes, Inc. v. Harris, 184

N.C. App. 597, 605, 646 S.E.2d 826, 832–33 (2007).

The Plaintiff tries to meet this element of the tort of intererence by

alleging that the Defendant’s “actions were not an exercise of any legitimate

right of its own” because “it is illegal to introduce” an unapproved drug into

interstate commerce. [Doc. 1 at ¶ 79 (citing 21 U.S.C. §§ 331(d), 355(a);

Cook, 733 F.3d at 9-10)]. Again, the cornerstone of the Plaintiff’s claim is

this assertion that it is somehow “illegal” for the Defendant to do precisely

what the FDA gave the Defendant permission to do. As such, this claim

again attempts to enforce the FDCA against the Defendant for importing and

selling an illegal drug. The FDA, however, is the only entity that can bring a

claim against the Defendant for its alleged introduction of an illegal drug into

interstate commerce. See Allergan, Inc. v. Athena Cosmetics, Inc., 738 F.3d

1350, 1359 (Fed. Cir. 2013). The Plaintiff is preempted from bringing a claim

based on the Defendant having no legal right to make the sales.

The Plaintiff’s allegations also show that the Defendant was merely a

competitor motivated by a legitimate business purpose when it imported and

sold its L-Cysteine product. Beverage Sys. of the Carolinas, 368 N.C. at

701, 784 S.E.2d at 463. The Plaintiff’s own allegations show that the crux of

the Defendant’s alleged wrongdoing is that it “schemed to stay, compete,

and dominate the L-Cysteine market for months” and thereby prevent “the

vast majority of customers from buying [the Plaintiff’s] FDA-approved

product.” [Doc. 41 at ¶ 78] (emphasis added). Those allegations, however,

simply show a market competitor motivated by a legitimate business

purpose—selling its existing inventory. The Plaintiff has failed to plausibly

allege that the Defendant, as its competitor, had no legitimate business

purpose for selling its inventory after ELCYS had been approved. As such,

the Plaintiff’s allegations concerning interference with prospective economic

advantage fail to state a claim upon which relief can be granted and must be

dismissed.

B. Lanham Act Claim

The Plaintiff next claims that the Defendant violated the Lanham Act

by making “false and misleading representations in the course of selling its

unapproved L-Cysteine product.” [Doc. 1 at ¶ 84]. According to the Plaintiff,

those false and misleading representations

include, but are not limited to failing to update its

Dear Healthcare Provider letter to inform customers

of the FDA approved status and availability of [the

Plaintiff’s] product; providing a link on its product

website to a database that says nothing about the

aluminum content of [the Defendant’s] product while

clearly indicating the low aluminum content of FDA-

approved ELCYS; failing to inform customers that the

aluminum levels of [the Defendant’s] unapproved

product exceed FDA standards; and failing to inform

customers of the much lower aluminum content of

[the Plaintiff’s] approved product.

[Id.].

To state a claim for false advertising under the Lanham Act, a plaintiff

must allege that: (1) the defendant made a false or misleading description of

fact or representation of fact in a commercial advertisement; (2) the

misrepresentation is material, in that it is likely to influence the purchasing

decision; (3) the misrepresentation actually deceives or has the tendency to

deceive a substantial segment of its audience; (4) the defendant placed the

false or misleading statement in interstate commerce; and (5) the plaintiff

has been or is likely to be injured as a result of the misrepresentation, either

by direct diversion of sales or by a lessening of goodwill associated with their

product. Scotts Co. v. United Indus. Corp., 315 F.3d 264, 272 (4th Cir. 2002).

Unless the omission of a statement would render an affirmative statement

false or misleading, the Lanham Act “imposes no affirmative duty of

disclosure.” MDM Grp. Assocs., Inc. v. Emerald Isle Realty, Inc., No. 2:07-

CV-48 D, 2008 WL 2641271, at *5 (E.D.N.C. July 1, 2008) (citation and

quotations omitted); see also Casper Sleep, Inc. v. Mitcham, 204 F. Supp.

3d 632, 638 (S.D.N.Y. 2016).

1. Failing to Update Dear Healthcare Provider Letter

The Plaintiff asserts that the Defendant violated the Lanham Act by

continuing to send Dear Healthcare Provider letters stating that “there are

currently no FDA-approved L-Cysteine Hydrochloride Injection products in

the United States” even after ELCYS received FDA approval on April 16,

2019. [Doc. 1 at ¶ 41; Doc. 1-18; see also Doc. 31-2 at 41-59]. The Plaintiff

does, however, allege that the Defendant updated its customers on

September 25, 2019, when it told them that “there is now an FDA approved

L-Cysteine available in the US market.” [Doc. 1-21 at 2].14 The Defendant

14 While the Defendant argues that the Dear Healthcare Provider letters do not constitute

commercial advertising, another court has held that Dear Healthcare Provider letters are

“disseminated in a manner sufficient to constitute commercial advertising placed in

interstate commerce[.]” De Simone v. VSL Pharm., Inc., 395 F. Supp. 3d 617, 624 (D.

Md. 2019).

moves to dismiss, arguing that the Plaintiff’s Lanham Act claims fail as a

matter of law. [Doc. 29-1 at 16- 32].

In POM Wonderful LLC v. Coca–Cola Co., the Supreme Court held

that “the FDCA and the Lanham Act complement each other” and the FDCA

does not categorically bar Lanham Act suits. 134 S. Ct. 2228, 2241 (2014).

POM Wonderful, nevertheless, preserved “the possibility that some Lanham

Act suits might be precluded by the FDCA.” JHP Pharm., LLC v. Hospira,

Inc., 52 F. Supp. 3d 992, 998 (C.D. Cal. 2014) (citing id.). Specifically, the

Court in POM Wonderful said that a Lanham Act claim may be precluded by

the FDCA if “it turns on the content” of something that has been “previously

preapproved by the FDA.” Id. at 998; see also Church & Dwight Co. Inc. v.

SPD Swiss Precision Diagnostics, GmbH, 104 F. Supp. 3d 348, 352

(S.D.N.Y. 2015) (stating POM Wonderful held that “in essence, that Lanham

Act claims might be precluded if the FDA had authorized the challenged

name and label.”). Moreover, POM Wonderful suggested that a Lanham Act

claim might be precluded by the FDCA if it conflicts “with an affirmative policy

judgment by the FDA.” JHP Pharm., 52 F. Supp. 3d at 998 (citing POM

Wonderful, 134 S. Ct. at 2241). Likewise, other courts have found that

Lanham Act claims which “involve an issue on which the FDA has taken

‘positive regulatory action’ are all likely precluded by the FDCA.” Allergan

USA Inc. v. Imprimis Pharm., Inc., No. SACV171551DOCJDEX, 2017 WL

10526121, at *7 (C.D. Cal. Nov. 14, 2017) (quoting JHP Pharm., 52 F. Supp.

3d at 1000 n.5, 1004)).

Here, the Plaintiff’s Lanham Act claim regarding the Dear Healthcare

Provider letters “turns on the content” of something that was “previously

preapproved by the FDA.” JHP Pharm., 52 F. Supp. 3d at 998. Because

the Plaintiff’s Lanham Act claim challenges the letters that were a condition

of the Memorandum of Discretion, it thereby also challenges the FDA’s policy

judgment and implicates an issue upon which the FDA has taken positive

regulatory action. Imprimis Pharm., 2017 WL 10526121, at *7. Based on

the Supreme Court’s discussion in POM Wonderful, such a claim is

precluded.

Examining the practical effects of allowing such a claim to proceed

further demonstrates that preclusion is appropriate here. If the Plaintiff were

correct that the FDA approved and mandated Dear Healthcare Provider

letters could serve as the grounds for a Lanham Act violation, the Defendant

would have had three options once ELCYS received FDA approval in April

2019: (1) face Lanham Act liability for continuing to distribute its L-Cysteine

product with the FDA-approved Dear Healthcare Provider letter; (2) face

FDA enforcement action for violating the Memorandum of Discretion by

sending a new Dear Healthcare Provider letter that had not been approved

by the FDA; or (3) withdraw its product from the market completely while it

negotiated a new Dear Healthcare Provider letter with the FDA. It is

unreasonable to interpret the Lanham Act to impose such a Hobson’s choice,

particularly when the FDA has taken and continues to take positive

regulatory action to address something as critical and sensitive as a drug

shortage. As such, this is not an instance where “the FDCA and the Lanham

Act complement each other . . . .” POM Wonderful, 134 S. Ct. 2228, 2241

(2014). Accordingly, the Plaintiff’s Lanham Act claim based on the

Defendant’s failure to send a new Dear Healthcare Provider letter after

ELCYS received FDA approval fails to state a claim upon which relief can be

granted.

2. Failing to Disclose Aluminum Content Difference

The Plaintiff’s Lanham Act claim also fails to the extent it is based on

the Defendant’s failure to affirmatively advertise the aluminum content of its

L-Cysteine product. The Plaintiff, however, concedes that the Defendant

never affirmatively “told its customers the respective aluminum levels of the

[Plaintiff and the Defendant’s] products.” [Doc. 1 at ¶ 9]. The Plaintiff makes

no allegation that the Defendant made any statement that would be rendered

false or misleading by failing to affirmatively provide information regarding its

product’s aluminum content or ELCYS’s aluminum content. The Defendant

had no duty to provide such a statement under the Lanham Act. Therefore,

the Plaintiff cannot state a Lanham Act claim based on the Defendant’s

failure to affirmatively advertise the difference between the aluminum content

in its L-Cysteine product and ELCYS. Emerald Isle Realty, 2008 WL

2641271, at *5; see also Casper Sleep, 204 F. Supp. 3d at 638.

3. Failing to Disclose FDA “Standards”

The Plaintiff also asserts that the Defendant failed to inform customers

that the aluminum levels of its “unapproved product exceed FDA standards.”

[Doc. 1 at ¶ 84]. What the Plaintiff refers to as FDA “standards,” however,

are not actual FDA standards at all. (See, Part IV.A.1.c., supra.). As such,

Plaintiff’s allegations are based on a false premise. Moreover, the Plaintiff’s

own allegations show that the Defendant never made any statement

regarding the aluminum content of its L-Cysteine product or whether its

product met any FDA “standards.” The Lanham Act “imposes no affirmative

duty of disclosure.” Emerald Isle Realty, 2008 WL 2641271, at *5; Casper

Sleep, 204 F. Supp. 3d at 638.

This claim is a thinly veiled attempt by the Plaintiff to step into the shoes

of the FDA to enforce the FDCA based on an underlying assumption that the

Defendant’s product is unsafe due to its aluminum levels. Such a claim is

precluded. PhotoMedex, Inc. v. Irwin, 601 F.3d 919, 924 (9th Cir. 2010)

(“Because the FDCA forbids private rights of action under that statute, a

private action brought under the Lanham Act may not be pursued when, as

here, the claim would require litigation of the alleged underlying FDCA

violation in a circumstance where the FDA has not itself concluded that there

was such a violation.”); American Home Products Corp. v. Johnson &

Johnson, 436 F. Supp. 785, 797 (S.D.N.Y.1977) (stating that “an action

under the Lanham Act and state unfair competition laws is not the proper

legal vehicle in which to vindicate the public's interest in health and safety.”).

Accordingly, the Plaintiff’s Lanham Act claim cannot be based on the

Defendant’s failure to disclose that its product does not meet FDA

“standards.”

For all these reasons, the Plaintiff’s Lanham Act claim will be

dismissed.

V. CONCLUSION

In 2014 the FDA determined that there was a shortage of L-Cysteine

product needed for medical treatments in the United States. The FDA

approached the Defendant and worked out a program to temporarily allow

the Defendant to import and sell its L-Cysteine product in the United States

to meet this shortage. The Plaintiff meanwhile developed a competing L-

Cysteine product for which the Plaintiff sought full FDA approval to sell in the

U.S. market. Regarding the brief (less than six-month) period of the overlap

of the availability of both the Plaintiff's and the Defendant’s product, the

Plaintiff complains that the FDA should not have allowed the Defendant to

continue to sell its product. The Plaintiff brings this action, however, against

the Defendant, not the FDA. Because of the exclusivity of the FDCA and the

authority of the FDA regarding such sales, the Plaintiff's claims against the

Defendant fail both under the Lanham Act and pursuant to state law. For

this reason, the Defendant’s Motion to Dismiss will be granted.

ORDER

IT IS, THEREFORE, ORDERED that the Defendant's Motion to

Dismiss the Complaint or, in the Alternative, Stay the Case Pending Referral

to FDA [Doc. 29] is GRANTED, and this action is DISMISSED WITH

PREJUDICE.

IT IS FURTHER ORDERED that the Plaintiff's Motion for Preliminary

Injunction [Doc. 3] is DENIED.

The Clerk of Court is directed to close this civil action.

IT IS SO ORDERED. Signed: September 15, 2020

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Chief United States District Judge Ale