Thogus: Case Decision
In Thogus, Thogus, a plastic molding manufacturer, contracted with Bleep, a manufacturer of CPAP machines, to supply certain parts. The contract specified that “[the component supplier] shall meet FDA [Food and Drug Administration] standards for medical devices as well as Buyer’s and its quality consultants’ requirements for Goods.” Id. at *16. After the buyer received customer complaints regarding the quality of the components, it canceled outstanding purchase orders and issued notices of recall and warranty claims to the supplier. The supplier later filed suit seeking to recover manufacturing costs, and the buyer counterclaimed, alleging, among other things, breach of contract and fraudulent inducement based on the supplier’s failure to meet the FDA-standards-based quality covenant.
The district court dismissed the two counterclaims, holding that they were impliedly preempted by the FDCA. This preemption doctrine, common in mass torts but rarely invoked in commercial contract litigation, provides that state law is superseded to the extent that it is impossible to comply with both state and federal law, or where “federal law so thoroughly occupies a legislative field ‘as to make reasonable the inference that Congress left no room for the States to supplement it.’” Cipollone v. Liggett Grp., 505 U.S. 504, 516 (1992) (citations omitted). In determining if federal law preempts a state law cause of action, in accordance with principles of federalism, courts must begin with the assumption that the powers of the states are not to be superseded by federal law “unless that was the clear and manifest purpose of Congress.” Rice v. Santa Fe Elevator Corp., 331 U.S. 218, 230 (1947). The purpose of Congress is the “ultimate touchstone” in any preemption analysis. Cipollone, 505 U.S. at 516.
The Thogus court noted that, pursuant to the FDCA, “all . . . proceedings for the enforcement, or to restrain violations, of [the FDCA] shall be by and in the name of the United States.” 21 U.S.C. § 337(a). Relying on Buckman Co. v. Plaintiffs’ Legal Committee, the Thogus court concluded that “§ 337(a) impliedly preempts state law claims premised on conduct that is only made wrongful by the FDCA.” Thogus, 2003 U.S. Dist. LEXIS 152828, at *17 (citing Buckman, 531 U.S. 341 (2001)). In Buckman, patients who claimed injuries resulting from the use of a medical device sued a consulting company that assisted the device manufacturer in obtaining FDA approval for the product, alleging that the company made fraudulent representations to the FDA as to the device’s intended use. The U.S. Supreme Court held, first, that no presumption against preemption applied, as policing fraud against federal agencies is hardly “a field which the States have traditionally occupied.” Buckman, 531 U.S. at 347 (citing Rice, 331 U.S. at 230). Next, the Court held that state law fraud-on-the-FDA claims would inevitably conflict with § 337(a) and the FDA’s responsibility to police fraud consistently. Moreover, the Court held, the fraud-on-the-FDA claims arose exclusively from violations of the FDCA and were based on neither traditional state tort law principles nor state law causes of actions that parallel federal safety requirements. Id. at 352-53 (citing Silkwood v. Kerr-McGee Corp., 464 U.S. 238 (1984); Medtronic, Inc. v. Lohr, 518 U.S. 470 (1996)). As the fraud-on-the-FDA claims existed “solely by virtue of the FDCA disclosure requirements,” the Court concluded that they were impliedly preempted by the FDCA. Id. at 353.
The Thogus court also looked to Patane v. Nestlé Waters North America, Inc. in finding that the breach of contract and fraudulent inducement claims were entirely dependent on the FDCA and that therefore Bleep could not overcome the “insurmountable hurdle” of implied preemption. Thogus, 2003 U.S. Dist. LEXIS 152828, at *17 (citing Patane, 314 F. Supp. 3d 375 (D. Conn. 2018)). In Patane, the plaintiffs alleged that the defendant’s bottled water products were fraudulently labeled and sold as “spring water” despite not meeting the requirements for “spring water” under the FDCA. The Patane court noted that there can be no state law cause of action if a plaintiff’s “true goal is to privately enforce alleged violations of the FDCA.” Patane, 314 F. Supp. 3d at 385 (citing PDK Labs, Inc. v. Friedlander, 103 F.3d 1105, 1113 (2d Cir. 1997)). Patane further held that Buckman forecloses state law causes of action that are predicated on a violation of the FDCA rather than on some independent provision or requirement of state law. Thus, the Patane court held that “where a state law claim would not exist but for a FDCA regulation, § 337(a) [of the FDCA] impliedly preempts the claim.” Id. at 387.
Analysis of Thogus Decision
In both Buckman and Patane, central to the courts’ preemption findings was the proposition that the state law claims were brought as private actions to enforce an FDCA violation, which conflicted with the exclusive enforcement power vested in the government under § 337(a). This was not the case in Thogus, however. The counterclaim for breach of contract was not brought to enforce the FDCA but rather to enforce the contract. In other words, that claim sought redress for the delivery of a nonconforming product and not for a violation of the FDCA. And the remedies available to Bleep, regardless of whether specified in the contract or provided under Article 2 of the Uniform Commercial Code, would be based on the damages incurred by the buyer as a result of the breach of the agreement, and not as defined by the FDCA violation. It is unclear in Thogus if an FDCA violation even occurred in this case, as the nonconforming device components were recalled and rejected. What is clear is that this was not a private action to enforce a violation of the FDCA, and an action to enforce the contract’s quality covenant—which is standard in this industry—would not in any way conflict with the government’s ability to police FDCA violations.
The Thogus court also found that the buyer would have to “step into the FDA’s exclusive domain to prove that [the component supplier] violated state contract law.” Thogus, 2003 U.S. Dist. LEXIS 152828, at *18. But even though § 337(a) gives the government the exclusive right to enforce and restrain violations of the FDCA, it does not prevent a contractual party from determining whether a product or process is compliant. For example, in its motion for summary judgment, the FDA-regulated manufacturer alleged that the component supplier was not in compliance with 21 C.F.R. § 820.70(i), which provides that
[w]hen computers or automated data processing systems are used as part of production or the quality system, the manufacturer shall validate computer software for its intended use according to an established protocol. All software changes shall be validated before approval and issuance. These validation activities and results shall be documented.
It does not require an FDA enforcement action to determine whether there was an established protocol for validating new software, or whether the validation activities were documented. And such a determination would ultimately not infringe on the government’s exclusive right to police the FDCA, as the purpose would be to establish whether the contract terms were complied with and not whether the cGMP regulations were violated.
Finally, the counterclaim for fraudulent inducement alleged that the component supplier made materially false “representations, assurances, and promises . . . regarding [its] operation and maintenance of an FDA compliant manufacturing process. . . .” Thogus, 2003 U.S. Dist. LEXIS 152828, at *18. The district court argued that the buyer must show that the supplier made misrepresentations about its understanding of, and disregard for, the FDCA regulations, and that such a fraud claim was preempted under Buckman. However, the fraud alleged by the Buckman plaintiffs was based on misrepresentations made to the FDA as part of the 510(k) approval process, and not misrepresentations made by a manufacturer to a buyer for purposes of securing the contract. In no way would the fraud claim in Thogus exist “solely by virtue of the FDCA disclosure requirements,” as it was premised entirely on alleged misrepresentations made by the defendant supplier to the plaintiff buyer—having nothing to do with the FDA. As such, it is a garden-variety state fraud claim involving misrepresentations related to a party’s ability to comply with a federal regulation.
In conclusion, the parties in Thogus entered into a manufacturing contract that included a quality covenant measured by reference to the FDCA and the cGMP regulations. The action was for breach of contract, and a finder of fact could have determined whether the components manufactured by the supplier conformed to this standard without deciding whether the FDCA was violated or otherwise seeking to enforce the statute. Such a finding would not have conflicted with the government’s exclusive right to enforce the FDCA, and therefore the claims for breach of contract and fraudulent inducement were not preempted by federal law. Any other result would effectively eliminate the purchaser’s ability to enforce the quality covenants and warranties contained in practically every purchase agreement that exists for components of FDA-regulated products.