Bankruptcy Court Allows Discharge of Law Student’s Bar Loan Debt

bar loan 2A bankruptcy court for the Eastern District of New York has ruled that a former law student’s bar study loan can be discharged in bankruptcy because the loan is not an educational benefit.

The court did, however, dismiss the student’s claims that the lenders misrepresented the legal obligations of the lender and borrower in the loan by fraudulently misrepresenting the loan as a student loan, which cannot be discharged in a bankruptcy.

While a student at Pace University Law School, then-student Lesley Campbell applied for and received bar loan for $15,000 in April 2009.  Campbell, who did not pass the bar, had nearly $300,000 debt, according to the Wall Street Journal.

Student sought to discharge bar loan debt

After graduation, Campbell worked as a secretary earning $49,000 a year and made payments to the bar loan until June 2012.  She filed for Chapter 7 bankruptcy in November 2014.  Campbell received a discharge in March 2015, but the bar loan was not discharged.

Campbell asserted five claims against five lenders including Citibank, N.A. and The Student Loan Corporation.  Campbell sought a determination of the dischargeability and a declaratory judgement that the bar loan is dischargeable.

She also claimed the lenders violated the Truth in Lending Act by representing that the bar loan was a nondischargeable loan by its titling the promissory note “Master Student Loan Promissory Note.”  She further claimed that the lenders fraudulently misrepresented that the bar loan was a nondischargeable student loan.

Bar Loan not an educational benefit

The U.S. Bankruptcy Court thoroughly examined the United States Bankruptcy Code provision § 523(a)(8), which pertains to the discharge of educational benefits and does not discharge a debtor from debt incurred as an educational benefit.

The court discussed that other courts have interpreted “educational benefits” to encompass any loan which relates in some way to education, but wrote that if the term extended to all education-related loans, then it would “swallow” provisions in the statute that specifically identify the particular loans by particular lenders that are excepted from discharge.

The court wrote that the bar loan, unlike an educational loan, was a private consumer loan that required a consumer credit application evaluated through a credit-scoring model.  The lenders argued that the loan was an educational benefit because eligibility was dependent on Campbell being a law student.

The court found this argument, and the case law the lenders relied on unpersuasive, writing that the underwriting standards requiring an applicant to be a law student “does not turn an arm’s length consumer credit transaction into” an educational benefit within the meaning of the statute.

The court wrote further that loans provided tuition reimbursement on a condition of continued service to a company that are nondischargeable, do not apply to the bar study loan because it is not a conditional loan.  The court found that the bar loan was not an educational benefit under the bankruptcy code, and does not fall within its exceptions to discharge.

The court agreed with the lenders on their motion to dismiss Campbell’s claims for misrepresenting legal obligations and fraudulent misrepresentation, writing that she failed to plead any facts sufficient to establish that the lenders misrepresented any legal obligations of the parties.  The court further wrote that the lenders titling of the promissory note did not create a misrepresentation of any sort.

 

The case is Lesley Campbell v. Citibank, N.A., et. al., case no. 14-45990-CECin the United States Bankruptcy Court in the Eastern District of New York.

Law School Not Required to Award Degree In Spite of Admissions Error

TouroA foreign law student who was mistakenly admitted to an LLM program can not compel his law school to award him a degree, even though he was notified only a few days prior to graduation.

Leodegario D. Salvador filed suit against Touro College and Touro Law for a breach of implied contract and loss of employment for failure to issue a LLM degree. He also claimed a breach of contract, negligence, fraud in the inducement, and negligent representation.

Non-accredited law school

Salvador was admitted to Touro Law’s US Legal Studies LLM program as a foreign law student in 2011. He received his JD from an online university called Novus University which is a non-ABA accredited program.

Acceptance into an LLM program requires a law degree from an ABA-accredited institution.

According to the lower court opinion, Salvador completed required course load in the program and was ready for the January 2012 graduation. When the registrar reviewed his file, they discovered Novus University was not an accredited school in the Philippines.

The college notified Salvador of the factual error and offered him two options: continue as a non-matriculated student or receive a refund for the paid courses. The case moved forward after a lower court denied Touro’s summary judgment motion.

On appeal, the court agreed that Salvador had a chance to correct Touro’s mistake by disclosing his university was not based in the Philippines. Touro admissions staff assumed the university was an accredited institution.

However, the court said Salvador contributed to the mistake by failing to supply his transcripts until months after his admission. If the transcripts were supplied sooner, the error would have been caught.

The court ultimately reversed the lower court’s decision and granted Touro Law’s motion to dismiss all claims.

This case is Leodegario D. Salvador v. Touro College, et al., case no 102913/12, NY Supreme Court Appellate Division

 

No Liability Insurance Coverage for Defective Additive to Women’s Supplement Tablets

supplementThe Wisconsin Supreme Court ruled that a defective ingredient included in recalled health supplement tablets did not amount to “property damage” as covered under a commercial general liability insurance policy.

The court reversed an appellate court decision, ruling that the insurance companies were not required to cover the claims against two drug additive manufacturing companies.

Wisconsin Pharmacal (Pharmacal) supplies daily probiotic supplements to a major retailer.  Included in the supplement are various ingredients including the probiotic bacteria species Lactobacillus rhamnosus (LRA).

The ingredients for the supplement were supplied by Nebraska Cultures of California, Inc. (Nebraska Cultures) and Jeneil Biotech, Inc. (Jeneil), who were insured by The Evanston Insurance Co. (Evanston) and the Netherlands Insurance Co. (Netherlands), respectively.

Wrong additive supplied

The LRA Nebraska Cultures and Jeneil provided was actually Lactobacillus acidophilus (LA), rather than LRA.  The retailer notified Pharmacal that the supplement contained LA instead of LRA, which Pharmacal confirmed through its own independent testing.  As a result, the supplement was recalled and Pharmacal destroyed the tablets containing the defective LA ingredient.

Pharmacal sued Nebraska Cultures and Jeneil, and its respective general liability insurers, Evanston and Netherlands for various tort and contract claims.  Nebraska Cultures and Jeneil moved to bifurcate the proceedings pending the circuit court’s determination on whether the insurance policies provided coverage for the loss of the defective supplement.  The insurance companies, Evanston and Netherlands, moved for summary judgement claiming that the insurance policies did not cover the defective supplement.

The Circuit court granted summary judgement for the insurers, but the court of appeals reversed finding the insurance policies did provide coverage for Pharmacal’s loss because the defective product constituted property damage and exclusions under the policy did not apply.

No coverage from liability insurance

The Supreme Court reversed again finding that the commercial general liability policy applied to physical injuries to tangible property caused by a defect in the product, but not to the product damaged itself.

The court wrote that the sole purpose of the damage to property clause is to “cover the risk that the insured’s goods, products, or work will cause bodily injury or damage to property other than the product…of the insured.”

The court further determined that the appeals court erred in not conducting an integrated systems analysis, which would have determined whether the damage caused by the defective ingredient could be separated out, treating the product as a unified whole.  If the defective ingredient could be separated out, the damage would constitute damage to property other than the defective component, which would be covered under the insurance policy.

The court found that in this case, the defective ingredient included in the supplement made a unified whole product, and damage to the whole product as an integrated system, in this case, damaged the tablets themselves and was not covered under the insurance policies.

Jeneil attempted to assert that packing and shipping materials associated with the tablets suffered physical injury constituting damages coverable by the policy.  The court rejected the argument, writing that no physical damage occurred to the shipping materials.

Exclusions further negates coverage

The court also determined that even if the defective supplement tablets were eligible as a damaged product under the insurance policies, the exclusions in the policies would negate the coverage.  In examining the exclusions of the insurance policies, the court wrote that a “diminution in value, even of worthlessness, is not the same as loss of use” and an inadequate product that fails to perform as intended is not property damage.  The court found that the insurance policies did not provide a clause for coverage for loss of use of property, and so the damaged tablets were not covered.

The court further referenced an insurance policy exclusion that precluded loss of use as damages arising out of the insured’s negligent failure to perform its contractual obligations for coverage.

The court found that because there was no property damage caused by the incorporation of the defective LA ingredient, and because the exclusions in the insurance policy would negate coverage, Netherlands and Evanston were not responsible to cover the loss alleged by Pharmacal against Nebraska Cultures and Jeneil.

 

The case is Wisconsin Pharmacal Co. LLC v. Nebraska Cultures of California Inc. et al., case numbers 2013AP613 and 2013AP687, in the Supreme Court of Wisconsin.

Florida Supreme Court Rules Smoker with Lung Cancer Entitled to Punitive Damage Claims

engle punitive damages pic 2

The decision is a victory for “Engle progeny” plaintiffs, who were allowed to file individual lawsuits against the tobacco companies.

The Florida Supreme Court has allowed a widow of a man who died from lung cancer to seek punitive damages on strict liability and negligence claims in her Engle progeny wrongful death lawsuit against R.J. Reynolds Tobacco Co.

The decision resolved an appellate court split on the issue, now allowing individual members of the Engle class action to seek punitive damages on all claims properly raised.

The decision is a victory for “Engle progeny” plaintiffs, who were allowed to file individual lawsuits against the tobacco companies when the Florida Supreme Court decertified the original Engle class and overturned the $145 billion verdict.

The court permitted individual members to use the jury findings from the class action ruling, maintaining a res judicata effect for individual member’s cases.

Progeny plaintiff damage claims

Lucille Soffer brought her individual wrongful death action against R.J. Reynolds asserting the four causes of action pled in the Engle class action of negligence, strict liability, fraud by concealment, and conspiracy to commit fraud.  Soffer amended her complaint to add a demand for punitive damages.

During the jury charge conference, RJ Reynolds asserted, and the trial court agreed, that the jury should be instructed that only the fraudulent concealment and conspiracy counts could be considered for punitive damages based on the procedural posture of the Engle case.

In the Engle class action, plaintiffs initially sought punitive damages on the fraud charges, and later asked for leave to amend the complaint to include punitive damages for negligence and strict liability.  The court denied the motion as untimely.

The trial jury did not award punitive damages based on its jury instructions, but a judgment of $2 million was entered for Soffer.  She appealed, asserting the court erred in prohibiting punitive damages on the negligence and strict liability counts.

The First District Appeals Court upheld the trial court decision, finding that Engle progeny plaintiffs “wear the same shoes” as the Engle plaintiffs and could not bring other claims and remedies that had not been timely asserted as part of the Engle class action.

The Second District heard a similar Engle progeny case, but it determined that while Engle progeny plaintiffs benefit by the res judicata effect of the Engle class action findings, they are not precluded from seeking a remedy barred as untimely for “mere procedural deficiencies.”

Florida Supreme Court resolves District Court split

Soffer appealed the First District Court’s ruling, and the Florida Supreme Court found in her favor.  The Court ruled that Soffer, and all Engle progeny plaintiffs may seek punitive damages on all properly pled counts in individual actions.

The court stated that the trial court’s denial of the motion to amend in the Engle class action was not based on the merits of the request, but was based on the procedural posture at the time since the request was untimely.

Further, the procedural posture changed once the court vacated the entire punitive damages award of $145 billion, the related findings on punitive damages were vacated along with it, entitling each progeny plaintiff to punitive damages in his individual lawsuit.

The court also stated that a demand for punitive damages is not a “separate and distinct cause of action,” rather it is dependent on the existence of an underlying claim.

Progeny entitled to punitive damage claim

Finally, the court reasoned that since the burden to establish entitlement to punitive damages is on the plaintiff to prove by clear and convincing evidence that the defendant’s conduct causing the damage was either intentional or grossly negligent, claiming punitive damages does not vary depending on the underlying legal theory of the claims.

The ourt ruled that its decision on the res judicata effect of findings addressed in Engle have no application to claims for punitive damages sought by Engle progeny plaintiffs, and that there was “simply no basis to conclude that the procedural posture of Engle would bar an Engle progeny plaintiff.

The case is Lucille Ruth Soffer v. R.J. Reynolds Tobacco Company, case no. SC13-139, in the Supreme Court of Florida.

Taxotere Chemotherapy Drug Maker Failed To Disclose Risk of Permanent Hair Loss

taxotere hair loss

Sanofi-Aventis used misleading marketing to indicate that temporary hair loss could occur, but would grow back.

Cancer survivors around the country are filing lawsuits against drug manufacturer Sanofi-Aventis for its failure to warn about the risk of permanent hair loss with the use of its chemotherapy drug Taxotere.

The drug, commonly referred to as docetaxel, is a part of a family of drugs referred to as taxanes, which are used as chemotherapy agents that prevent cancer cells from growing and dividing.  Taxanes are used for the treatment of breast cancer, lung cancer, advanced stomach cancer, head and neck cancer, and metastatic prostate cancer.  There are several brands of taxanes that exist, including several generic forms.

The Taxotere lawsuits claim Sanofi-Aventis failed to warn patients and physicians of the increased risks of permanent hair loss, or permanent alopecia, even after treatment ends.  Sanofi-Aventis designed Taxotere to have an increased potency as compared to other taxanes, claiming that it was novel and merited for patent protection.  Because of its market exclusivity, Sanofi-Aventis was able to restrict competition and earn billions of dollars in revenues.

Marketed as superior to other chemo drugs

The manufacturer marketed Taxotere as superior to other treatments because of its increased potency.  The increased potency leads to an increased toxicity that is directly related to the increased adverse side effects, including permanent hair loss.

Although alopecia is a common side effect related to chemotherapy, Sanofi-Aventis used misleading marketing to indicate that temporary hair loss could occur, but would grow back.

One lawsuit alleges that Sanofi-Aventis knew of the increased risk of permanent hair loss because it disclosed the risks to patients and regulatory agencies in other countries, but failed to disclose the information in the United States.

Manufacturer aware of risk

Sanofi-Aventis further failed to disclose the results of additional studies it conducted that provided new facts about the risks associated with Taxotere use.

Research findings published by the National Cancer Research Institute found that 10-15 percent of patients who received Taxotere suffered from permanent hair loss.  Another study found that severe alopecia – an emotionally distressing side effect among female patients – was a reported complication of treatment with the drug.

The lawsuit states the Taxotere manufacturers “prayed on one of the most vulnerable group of individual’s at the most difficult time in their lives” and earned billions of dollars of revenues at the expense of “unwary cancer victims simply hoping to survive their condition and return to a normal life.”

Safer options available

The lawsuits state that if Sanofi-Aventis had properly warned patients and physicians of the increased risk of permanent alopecia by using Taxotere during chemotherapy, they would have been prescribed a different chemotherapy drug called Taxol, which is more effective than Taxotere, and does not result in permanent hair loss.

At this time, there has not been a recall of Taxotere, however the U.S. Food and Drug Administration acknowledged that Taxotere can result in permanent hair loss and required that the manufacturer place a warning on the label in December 2015.

Individual lawsuits have been filed, but there has not been any large group settlements involving Taxotere.  It is likely that the individual lawsuits will be combined in a multi-district litigation (MDL) case.

Grounds for filing a Taxotere permanent alopecia lawsuit include;

  • Failure to warn because Sanofi-Aventis failed to label its product or warn patients or physicians about the risks of permanent alopecia.
  • Fraudulent misrepresentation because Taxotere manufacturers falsely represented that it rigorously tested the drug and determined it was safe for its intended use.
  • Misleading marketing because Sanofi-Aventis was aware that Taxotere increased the risk of permanent alopecia, but made false and misleading statements that it was a superior drug as compared to other similar drugs, which do not cause permanent hair loss.
  • Concealed knowledge of hair loss risk because Sanofi-Aventis did not disclose the information they had on the drugs risk for permanent hair loss in the United States, although they included the warnings to patients and regulatory agencies in other countries.

 

Marijuana Legalization To Bring State Millions in Revenue, Advocates to Tell NJ Budget Committee

NJ Marijuana reformMarijuana legalization and taxation could bring significant job growth and economic development

Leading advocates for the reform of marijuana laws will testify before the New Jersey Assembly Budget Committee today about the economic benefits that would result in our state from the legalization, regulation and taxation of marijuana for adults. Based on the success of legalization in four other states — Colorado, Washington, Oregon and Alaska — New Jersey could reap similar economic benefits if it adopted similar public policies.

Two members of the coalition New Jersey United for Marijuana Reform (NJUMR) with long, well-known records of public policy work in Trenton, Bill Caruso and Lynn Nowak, will attest to the additional revenue and economic activity New Jersey could generate from legalization, independent of the benefits to civil rights, civil liberties, public policy, public safety and law enforcement.

New Jersey United for Marijuana Reform is a partnership of public safety, medical, civil rights, faith, political and criminal justice reform organizations and individuals committed to changing New Jersey’s laws to legalize, tax, and regulate marijuana for adults. NJUMR believes its time to move away from our failed approach to marijuana, and build a safe, controlled and regulated system. It works to reform New Jersey’s marijuana laws because fairness and public safety demand nothing less. Learn more at www.njmarijuanareform.org.

For more info, contact: Allison Peltzman, ACLU-NJ Acting Communications Director, 973-854-1711.

Zofran Multidistrict Litigation Allowed to Proceed Despite Motion to Dismiss

belly of pregnant woman and vitamin pills in the hand

Amid increased warnings that the anti-nausea drug Zofran may be linked to serious birth defects when used during pregnancy, a federal panel last year created a special multidistrict litigation docket for victims to use as an avenue for compensation from the drug’s maker, GlaxoSmithKline (GSK).

With hundreds of lawsuits already filed, GSK filed a request last month to have the lawsuits against it thrown out of court before families even had a chance to prove their case. The federal judge overseeing the Zofran birth defect lawsuits denied GSK’s attempts to keep the cases out of court as premature at best.

Loath to Dismiss

GSK had argued the families’ state law claims were preempted by federal law under the U.S. Supreme Court decision in Wyeth v. Levine, which held that federal regulatory clearance of a medication does not shield the manufacturer from liability under state law. U.S. District Judge F. Dennis Saylor IV said that he was “loath to dismiss” the claims without giving the families the chance to develop the facts of their respective cases through discovery.

Zofran, manufactured by GlaxoSmithKline and first approved by the FDA in 1991, is intended for extreme cases of nausea, such as with cancer medications or following surgery. It was not FDA-approved for use during pregnancy. However, it has increasingly been prescribed to expectant mothers for morning sickness since its initial approval. GSK was fined a record $3 billion in 2012 by the federal government for illegally promoting Zofran for such unapproved purposes. GSK earned more than $1.5 billion per year in sales, and it is evident the $3 billion fine had little overall impact on the pharmaceutical giant.

The families affected by Zofran usage argued on January 6 that because the FDA hasn’t approved Zofran to treat morning sickness, only GSK has control over the relevant evidence of the foreseeable risks of using Zofran while pregnant.

  • Even though parties have not yet initiated discovery, the families said they have reason to believe GSK has evidence about the link between Zofran and alleged birth defects.
  • This includes several animal studies conducted by the pharmaceutical company in Japan after the company launched sales of the drug in the U.S. One of those studies, the families said, revealed the same cardiac birth defect alleged by many of the complaints.

Proceeding With Discovery

In its January motion to dismiss, GSK argued that the FDA’s negative response to a citizen petition requesting that the agency reclassify the pregnancy risk for Zofran demonstrates the FDA had already made a decision about the validity of the Zofran warnings. Judge Saylor disagreed, stating,

“In effect, GSK argues that the court need not consider evidence of how the FDA might have answered a change request, because the petition response itself contains the actual answer. GSK’s position, however, is problematic . . .”

In short, the standard of “clear evidence” involves a fact-based evaluation, so Judge Saylor felt the court should not rule on a motion to dismiss “without giving the plaintiffs some opportunity to develop the facts, whatever those facts may be.”

“If — as plaintiffs allege — GSK was in exclusive possession of information not previously submitted to the FDA indicating the need for a new or strengthened warning, that information would presumably be included in a [change being effected] request,” Judge Saylor said. “That information could not, however, have been submitted by a citizen petition, as no citizen (according to plaintiffs) had access to it.”

Hundreds of families have joined the multidistrict litigation against GSK, and now they all will have the opportunity to proceed with their claims.

The case is In Re: Zofran (Ondansetron) Products Liability Litigation, Case Number 1:15-md-02657, in the U.S. District Court for the District of Massachusetts.

Consumers Seek Class Action Status for iPhones Disabled by Error 53

Faulty security software on iPhone 6 models led consumers to file a class action complaint against Apple, Inc. The issue left consumers without a phone or any data stored on the device.

Four named plaintiffs allege Apple was negligent in the way their concerns were handled after installing a software update on their new iPhone 6 in 2015.iphone-error-53

The complaint names the issue “Error 53.” Error 53 is the message customers received after their phones crashed.

This message was connected to the Touch ID security sensor on iPhone 6, iPhone 6s, iPhone 6 Plus, and iPhone 6s Plus smartphones.

Apple sends customers unavoidable notifications of device software updates. Once consumers completed the update, and the device began to reload, the phones crashed and displayed the error 53 message.

No Warranty to the Rescue

Once the message appeared the device went into a Recovery Mode similar to a home computer; However, this did not work.  Each time the recovery was complete the message popped up. The complaint refers to this process as an “endless loop. . . that rendered the device useless or “bricked.“

Consumers contacted representatives to have the phones repaired to no avail. Consumers were told by Apple representatives that their disabled phones were not covered under warranty and was a user created problem for having hardware issues fixed at unauthorized repair services.

Some consumers explained that this issue was not with hardware, the issue was with the device’s software codes. Others explained their phones had either not been repaired by a third party service or not repaired at all and the software disabled the phone anyway.

The only option offered by Apple representatives was buy a new phone. Consumers filed several state law claims including negligence, false advertising, and unfair competition.

Although the number of users affected by this issue is unknown, the named plaintiffs are seeking class action status.

This case is Lusson et al. v. Apple, Inc Case No 3:16-cv-00705, California Northern District.

The plaintiffs are respresented by Darrell L. Cochran, Jason P. Amala, Loren A. Cochran, Kevin M. Hastings and Christopher E. Love of Pfau Cochran Vertetis Amala PLLC and Timothy A. Scott of the Law Offices of Timothy A. Scott APC.

Arizona Adopts Learned Intermediary Doctrine in Drug-Induced Lupus Case

drug induced lupusThe Arizona Supreme Court has reinstated a case brought by a young woman against Medicis Pharmaceutical Corporation for her diagnoses of drug-induced lupus that is allegedly a side effect from the acne medication Solodyn.

The court for the first time recognized the learned intermediary doctrine, which states that a manufacturer satisfies its duty to warn end users by giving appropriate warnings to the prescribing physician.

Amanda Watts completed her first round of treatment as a minor when she was prescribed the medication for 20 weeks. Two years later, Watts was prescribed the medication again for another 20 weeks.

Upon initially receiving Solodyn, Watts did not receive the full prescribing informational materials that indicated the long-term use of the medication had been associated with “drug-induced lupus like syndrome, autoimmune hepatitis, and vasculitis.”

No drug-induced lupus warning

Watts only received a “MediSAVE” card from her medical provider stating the safety of using the medication longer than 12 weeks was unknown.  Watts also received an insert that warned patients should consult a doctor if symptoms did not improve within 12 weeks.

After taking the medication for a second time, she was hospitalized and diagnosed with drug-induced lupus and hepatitis as side effects of Solodyn. Watts has recovered from the hepatitis, but doctors expect her to have lupus for the rest of her life.

Watts sued Medicis for consumer fraud and product liability under the Consumer Fraud Act (CFA) for the misrepresentation and omission of material information on the MediSAVE card.  She also sued Medicis for failure to warn her of the defective and unreasonably dangerous nature of long-term use of the medication.

Learned intermediary doctrine adopted

A trial court granted Medicis’ motion to dismiss.  The court of appeals vacated the dismissal and remanded the case.  The court found that the learned intermediary doctrine (LID) was no longer viable and incompatible with the Uniform Contribution Among Tortfeasors Act (UCATA).

The UCATA allows a tortfeasor to seek contribution from other tortfeasors, specifying how liability is apportioned among the them.  The court of appeals also found that the CFA was applicable to the case.

The Arizona Supreme Court granted review because the legal issues in the case are of “statewide importance and likely to recur.”  The high court had never before addressed the learned intermediary doctrine, but joined the majority of other states in adopting the Third Restatements expression of the LID.

The supreme court found the reasoning of the lower appeals court, that the LID was incompatible with the UCATA, to be flawed. The court wrote that the LID and the UCATA address two distinct issues and are not in conflict with each other.

The LID addresses whether a manufacturer satisfied its duty to warn a product user by properly warning the learned intermediary.  The UCATA specifies comparative liability given a determination that multiple parties are at fault.

Product liability claim revived

The court vacated the trial court’s dismissal of Watt’s product liability claim and remanded for further proceedings, finding that Watt had properly alleged that Medicis breached its duty to warn if it gave inadequate or defective warnings to Watt’s prescribing physician about the use of Solodyn for more than 12 weeks.

The court found that the LID could apply if Medicis can establish that it provided complete and adequate warnings to the prescribing providers.

The high court affirmed the appeals court finding that the CFA was applicable to the case because prescription pharmaceuticals are considered merchandise under the act.

The court also affirmed that Watt’s has an actionable claim because Medicis misrepresented Solodyn on the MediSAVE card by stating the safety of use of the drug for longer than 12 weeks was unknown, even though they were aware that extended use could cause drug-induced lupus.

The case is Amanda Watts v. Medicis Pharmaceutical Corporation, Case number CV-15-0065-PR, in the Supreme Court of the State of Arizona.

 

Feds Mount A Broad Legal Attack on Health Benefits of Cannabidiol

cbd-oil-merchant-services-300x230

The FDA, FTC, Customs, and the DEA have all contributed to this “chill” in the CBD marketplace.

By Robert T. Hoban, cannabis business law attorney, Hoban & Feola, LLC,

Cannabidiol (CBD), which is one of many non-psychoactive substances contained in the plant species, Cannabis sativa L, has received a great deal of attention in recent months. CBD has entered the marketplace in many places and in many forms. Is it legal? Is it scheduled?

Many botanical hemp extractors market and sell CBD in all 50 states. The legality and the wisdom of these practices are the subject of great debate in the cannabis industry, which encompasses both industrial- botanical hemp and the ganja-marijuana dispensary regulatory systems.

What is Cannabidiol?

Most people have heard of a chemical called THC, which is the ingredient in marijuana that gets users high. But recently, attention has shifted to another compound in marijuana called CBD — and for good reason.Evidence of CBD’s medical benefits continues to grow. Unlike THC, CBD does not cause a high. Research shows cannabidiol is an

  • Antiemetic (Reduces nausea and vomiting)
  • Anticonvulsant (Suppresses seizure activity)
  • Antipsychotic (combats psychosis disorders)
  • Anti-inflammatory (Combats inflammatory disorders)
  • Anti-oxidant (Combats neurodegenerative disorders)
  • Anti-cancer (Combats tumor and cancer cells)
  • Anxiolytic/Anti-depressant.

Fundamentally, CBD is not specifically defined under the Federal Controlled Substances Act (the “CSA”); it simply has not been expressly addressed under federal law. However, the DEA has taken the position that CBD is a Schedule I Controlled Substance as defined under the CSA. Without an express provision under the CSA, it is questionable whether the DEA has any sort of authority to take this position.

But more importantly, in the case of Hemp Indus. Ass’n v. DEA, 333 F.3d 1082 (9th Cir. 2003), the DEA attempted to initiate rules and interpretations concerning certain cannabinoid constituents of marijuana that were not expressly set forth under the CSA or the DEA’s own regulations (at the time). Tthe Ninth Circuit Federal Court of Appeals struck down its efforts, stating that: “[t]he petition requesting that we declare the rule to be invalid and unenforceable is GRANTED.” Hemp Indus. Ass’n v. DEA, 333 F.3d 1082 (9th Cir. 2003). In short, an agency – such as the DEA – is not permitted to change a legislative rule retroactively through the process of disingenuous interpretation of the rule to mean something other than its original meaning.

Nonetheless, we have seen a deliberative and wide ranging effort on behalf of the federal government to “chill” the CBD marketplace. Perhaps this is because there is a general lack of understanding (scientific, legal and practical) on behalf of the federal government and its various relevant agencies as to CBD as a general matter? Perhaps the federal government has a real concern for CBD products intended for human consumption?

The FDA

The FDA posted an online forum in May, 2015, labeled Marijuana: Questions and Answers (this was later updated/amended in July, 2015). See http://www.fda.gov/NewsEvents/PublicHealthFocus/ucm421168.htm.

Interestingly, this Q&A came at a time when our law firm had been able to secure a large scale national retailer for placement and sales of CBD products nationwide. This put a pause on this effort. Nonetheless, in this forum, the FDA addressed three “questions” that dealt with CBD. Importantly, the FDA addressed the following:

Can products that contain cannabidiol be sold as dietary supplements?

In this informal Q&A, the FDA summarily announced that CBD products are excluded from the dietary supplement definition under section 201(ff)(3)(B)(ii) of the FD&C Act, though questions remain whether all of the factors under that section of the FD&C Act have been satisfied to exclude CBD products from the definition of a dietary supplement.

Then, on February 9, 2016, the FDA sent a number of warning letters out to companies with dietary supplement products containing CBD oil. In all of these letters, the FDA took issue with disease claims made by the companies for the products, which is no surprise. However, of more novel interest, is that in all but two of these letters, the FDA identified CBD Oil as a non-permissible dietary ingredient due to its previous investigation as New Drug in one or more New Drug Applications The FDA has not previously issued warning letters taking issue with CBD Oil as a dietary ingredient, although this is consistent with the FDA’s previous guidance issued as described above.

State Laws

Furthermore, this is consistent with many individual states, which have acted under their respective laws to prohibit CBD sales and enforce against such producers or sellers (e.g., state-based CSA provisions, unique criminal code provisions addressing cannabis constituents, or state-based medical marijuana laws or restrictive CBD-only laws). State law compliance is an issue too-often overlooked by many CBD producers and sellers, as the primary focus tends to be federal law. States have taken concerted measures to interrupt the CBD marketplace.

Customs Seizures

There has been an increase of activity concerning imported hemp material with the U.S. Customs and Border Patrol (“Customs”). We dealt with a spike in hemp import seizures beginning in August, 2015, which has led to a number of administrative actions related thereto. Many of these seizures by the Customs were unannounced and, interestingly, no records of the confiscation could be found. These seizures mostly resulted in returning the product to its international sender and a finger-pointing scenario where Customs and the private carriers or Customs agents would provide no information about the shipment’s whereabouts.

Then, the seizures by Customs began to follow a normal, adopted procedure-based pattern of confiscation, where the recipient was notified by the Customs of the seizure. At first, Customs took the position that the import was an illegal dietary supplement and attempted to have the FDA exercise jurisdiction accordingly. But the FDA did not appear to take on this added responsibility and the seized shipments were able to be released.

The strategy appeared to have shifted in Fall, 2015, whereby the Customs would seize the product, test for the presence of THC (without regard to amount), and attempt to have federal law enforcement exercise jurisdiction. Upon information and belief, federal law enforcement did not appear to take a more active role with the Customs.

Thus, without any assistance from other agencies, the Customs acted on its own, and issued its first CBD policy statement in November, 2015, which states: “[i]f the product contains tetrahydrocannabinols (THC) and causes THC to enter the human body, it is an illegal substance and may not be imported into the U.S.” See https://help.cbp.gov/app/answers/detail/a_id/1751/~/importing-hemp-products-into-the-u.s.

Ironically, this Customs policy cites the DEA’s October 2001 policy related to industrial hemp, which was rendered void by the above-mentioned Hemp Indus. Ass’n case law. Before this November, 2015 transition in policy, Customs’ former position (in practice) was that hemp and CBD products containing less than .3% THC were permissible in accordance with relevant case law. Customs has taken this position despite the fact that naturally occurring cannabinoids are not unlawful under the CSA. See Hemp Indus. Ass’n. v. DEA, 357 F.3d 1012 (9th Cir. 2004).

What does all of this mean?

None of this is surprising. And it should not be taken lightly. In fact, the best conservative practices would dictate a pause in sales and production until the issue is resolved. But the cannabis industry has always proceeded in the face of risk and adversity. That said, what does this mean for the CBD industry?

Let’s start with the FDA. Its analysis as set forth in the Q&A and the February 9th letters is incomplete and does not render this issue a “final decision” by the FDA. Instead, the law dictates, pursuant to the FD&C Act, that the conclusion it has reached can be conclusively determined only if substantial clinical investigations have been instituted and for which the existence of such investigations has been made public. No such substantial clinical investigations have been instituted, nor made public to date. Instead, the FDA has summarily announced that these are “substantial clinical investigations.”

But more importantly, the FDA duly notes that, “[t]here is an exception if the substance was “marketed as” a dietary supplement or as a conventional food before the new drug investigations were authorized,” and further invites, “[i]nterested parties [to] present the agency with any evidence that they think has bearing on this issue.” See http://www.fda.gov/NewsEvents/PublicHealthFocus /ucm421168.htm.

This begs the question of whether CBD was marketed as a dietary supplement prior to the subject IND application. And it is important to note that following the above-referenced Q&A, the CBD industry provided substantial evidence and information indicating that CBD was, in fact, marketed and sold as a dietary supplement for many years prior to the IND application at issue.

Dietary supplement ingredients subject to scrutiny

Sarah Syed, director of marketing at CV Sciences, one of the larger CBD companies in the industry stated that, “[i]t is our opinion, which is broadly shared by the marketplace, that CBD has been marketed as a dietary supplement prior to commencement and public notice of any substantial clinical investigations instituted on CBD…thereby rendering the IND preclusion inapplicable.” See https://www.newcannabisventures.com/cv-sciences-responds-to-fda-warnings-issued-to-8-marketers-of-cbd/. Importantly, a number of other dietary supplement ingredients have similarly been subject to the same scrutiny and yet continue to be sold as dietary supplements –red yeast rice, trans-resveratrol, P5P, NAC and DHEA. Id.

Thus, as a practical matter, this announcement by the FDA is premature; is part of a larger discussion; has failed to identify the date of the particular IND (and its applicants); and, there is no information to suggest that the IND clinical investigations applicable here preempt the ability to market, sale, and produce CBD as a dietary supplement at all. In short, while an important guidance document, the Q&A posting and corresponding position noted in the February 9th letters, does not have the effect of a final determination on this issue.

More importantly, the FDA has made no determination or assertion that CBD products are illegal or in any way run afoul of the Controlled Substances Act (CSA). As was established by the Ninth Circuit in 2004, the sale, production and distribution of CBD oils/products derived from imported raw material industrial hemp, such as those produced and sold are not in violation of the CSA. See Hemp Indus. Ass’n. v. DEA, 357 F.3d 1012 (9th Cir. 2004). In fact, this case stands for the proposition that naturally occurring cannabinoids are not unlawful under the CSA.

Last, under the FDA guidelines, there are a variety of categories in which a product can be placed and registered. This current FDA position addresses the category of “dietary supplements” only. It does not appear that the FDA has taken a position as to the sale or marketing of CBD products as a constituent of hemp, a food product, cosmetic product, other FDA classification, or the like.

Why is this happening?

Fundamentally, this is a very broad attack on the CBD industry. The FDA, FTC, Customs, and the DEA have all contributed to this “chill” in the marketplace. It is surely intentional. But what is the purpose? Is it the stigma associated with “marijuana?” Is it a fundamental lack of understanding concerning the difference between hemp and marijuana? It is probably a combination of these factors.

Regardless of the reason, it would appear that this is a concerted effort to chill the CBD marketplace on all fronts. The perhaps-legitimate confusion and concern expressed by these federal and state agencies about CBD can largely be cured by an act of Congress. And the solution is the Industrial Hemp Farming Act of 2015, which amends the CSA to exclude industrial hemp from the definition of “marihuana.” See https://www.congress.gov/bill/114th-congress/senate-bill/134. Further, it defines “industrial hemp” to mean the plant Cannabis sativa L. and any part of such plant, whether growing or not, with a delta-nine tetrahydrocannabinol concentration of not more than 0.3 percent on a dry weight basis.

Maybe these agencies simply want Congress to act? The industry certainly does. And the Industrial Hemp Farming Act of 2015 is the one size fits all answer to many of these questions.

In the meantime, these issues are complex and present a measurable amount of risk. It is strongly advised that you should consult with an attorney prior to marketing or distributing such products to ensure compliance with all applicable laws (including, but not limited to, FDA, FTC, CSA, and applicable state laws).

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Robert (“Bob”) Thomas Hoban of Hoban & Feola, LLC in Denver, Colorado, is an AV® Preeminent™ rated attorney and seasoned full-service commercial practitioner. He is also Principal and Owner at Solana Business Solutions, which offers comprehensive consulting, management, regulatory, and product solutions services for the entire commercial cannabis industry – serving both THC and CBD business models.  Hoban & feola serves cannabis industry clients in thirteen U.S. state and abroad.

His law firm represents the largest players in the marijuana industry across ten states and many of the nation’s largest hemp producers, suppliers, and manufacturers.  Bob is recognized as one of the leading commercial cannabis practitioners nationwide; representing private and publicly held clients in numerous states and abroad. He was identified as one of the, “Five Pot Lawyers to Watch in 2015” by MarijuanaStocks.com [http://marijuanastocks.com/marijuana-stocks-5-pot-lawyers-watch-2015/].

Bob is a member of the Colorado Department of Agriculture’s Hemp Regulation Advisory Committee, and also the Department of Revenue’s MED Rulemaking Committee.  He is a founding Board Member for the National Cannabis Chamber of Commerce.

Bob has litigated nearly every aspect of Colorado’s Marijuana Code and closed over 300 marijuana-related business transactions across the country. Marijuana and hemp-based business operations, related litigation and regulatory counsel are a specialty.