Arkansas has never enjoyed a reputation as a haven for corporate defendants. Far from it. Indeed, after Razorback football, class actions appear to be the state’s favorite sport.
It’s precisely because of these facts that you could have bowled me over with a feather when I read the Arkansas Supreme Court’s recent decision affirming – yes, I said affirming – a trial court’s dismissal of a putative class action in its entirety. Has there been a sea change in this landlocked litigation forum? Who knows? But this decision has some far-reaching pronouncements that may offer some comfort to consumer product manufacturers that find themselves ensnared in consumer fraud litigation there. My friends Beck and Herrmann at Drug and Device Law covered this opinion yesterday, before I could get this post up. But because this decision has implications beyond just drugs and devices, I'm also covering it here.
The facts in DePriest v. AstraZeneca Pharmaceuticals, L.P., 2009 WL 3681868 (Ark. Nov. 5, 2009) are relatively straightforward. As AstraZeneca’s heartburn medicine, Prilosec, was going off patent, the company released another prescription heartburn medicine, Nexium, in the same class as Prilosec, "proton pump inhibitors." Plaintiffs claimed that the defendant falsely marketed Nexium as “new” and “better” than Prilosec, when it was basically the same thing as Prilosec and had similar results. The result of this conduct, plaintiffs alleged, was that the defendant was able to sell more Nexium at higher prices than it otherwise would have been able to do. Plaintiffs alleged a host of theories, including breach of the Arkansas Deceptive Trade Practices Act, the Arkansas Unfair Practices Act, and the Arkansas Medicare Fraud False Claims Act, as well as common law fraud, breach of contract, promissory estoppel and unjust enrichment.
The trial court had dismissed the plaintiffs' third amended complaint, observing that while it "would perhaps make an excellent article in a scientific magazine, . . . it fails as a legal pleading." Undeterred, the plaintiffs twice amended their complaint, which ballooned up to 290 pages. They also moved to recuse the judge -- twice -- for bias, citing the language of his ruling. (My Grandaddy always said not to take a hoe to a snake unless you know you can cut it's head off, or you just might get bitten instead. The idea that lawyers would twice move to recuse a judge on such an obviously flimsy record is nothing short of remarkable.)
The Unfair Practices Act and Medicare False Claims Act do not provide a private right of action, and plaintiffs did not challenge that dismissal on appeal. The real news is the Arkansas Supreme Court's analysis of the DTPA's "safe harbor" provision, which states that the DTPA does not apply to "[a]dvertising or practices which are subject to and which comply with any rule, order, or statute administered by the Federal Trade Commission," as well as "[a]ctions or transactions permitted under laws administered by . . . [a] regulatory body or officer acting under authority of this state or the United States." Ark. Code Ann. sec. 4-88-101(1) & (3).
The court looked to the FDA's approved label for Nexium, which had an analysis of clinical studies showing that the healing rates of Nexium 40 mg were higher than the healing rates of Prilosec 20 mg, and the heartburn resolution rates of Nexium 40 mg were higher than Prilosec 20 mg. The court thus concluded that advertising which summarized this information from the FDA-approved label was squarely within the Arkansas DTPA's safe harbor:
The information included in the labeling of a new drug reflects a determination by FDA that the information is not "false or misleading." By approving information to be included in the drug labeling, the FDA has determined that the information complies with its rules and regulations. Therefore, if the FDA labeling supports the statements made in advertising for an FDA-approved drug, the statements are not actionable under the DTPA.
The Arkansas Supreme Court carried this analysis over to the common law fraud count, holding that "because AstraZeneca's advertisements were in accordance with that labeling, they were thus not false or misleading as a matter of law." Similarly, the court agreed that "'[t]here cannot be any "unjust" enrichment where AstraZeneca's alleged conduct falls within what is permitted by federal law and Nexium's labeling,'" because "[o]ne who is free from fault cannot be held to be unjustly enriched merely because he or she has chosen to exercise a legal or contractual right."
The court also affirmed the dismissal of the promissory estoppel claim because "Appellants cite no authority that a product advertisement constitutes a quasi-contractual 'promise.'"
The real takeaway from DePriest is that Arkansas has now made it clear that where a regulatory agency has approved a factual statement -- even for purposes other than advertising -- that agency's conclusion that the statement is not false or misleading cannot be second-guessed by Arkansas courts in cases challenging the product's advertising. Not under the DTPA, which explicitly provides a safe harbor, but also not under common law fraud or equitable theories like unjust enrichment or promissory estoppel.
This is an important holding, particularly at a time when the federal preemption defense is seen by many commentators to be at its nadir. I never thought I'd say it, but one can only hope that other states with safe harbor provisions in their consumer fraud statutes will follow Arkansas' lead.