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In a significant victory for the Food and Drug Administration, a federal appeals court has ruled that the agency has the right to demand restitution for consumers from companies that sell unapproved drugs. In its 42-page opinion in United States v. Lane Labs-USA Inc., a unanimous three-judge panel rejected the argument that the FDA cannot demand restitution because the federal Food Drug and Cosmetic Act does not expressly provide for such a remedy. “Whether or not Congress specifically contemplated restitution under the FDCA, the ability to order this remedy is within the broad equitable power granted to the district courts to further the economic protection purposes of the statute,” 3rd Circuit Judge Marjorie O. Rendell wrote in an opinion joined by Judges Maryanne Trump Barry and Edward R. Becker. The decision upholds a ruling by U.S. District Judge William G. Bassler of the District of New Jersey that required Lane Labs to pay $109 million in restitution to consumers who purchased products that contained shark cartilage and were pitched as treatments for cancer and HIV. For the FDA, the ruling is a significant endorsement of its practice in recent years to demand not only injunctions, but also disgorgement of profits and restitution. In the appeal, Lane Labs was supported by an amicus brief from the Washington Legal Foundation that urged the court to reverse Bassler on the grounds that restitution is not authorized anywhere in the text of the FDCA. WLF attorneys Daniel J. Popeo and Richard A. Samp, along with attorney Jeffrey A. Lamken of Baker Botts in Washington, D.C., argued that the FDCA gives courts the power to “restrain” violations, but does not allow for “backward-looking monetary relief.” Allowing courts to order restitution, they argued, is inconsistent with the FDCA’s structure which “provides carefully calibrated remedies for each type of violation, including restitution for other violations but not the violations at issue here.” Bassler’s ruling, they argued, “reflects a mode of statutory construction that has a dangerous tendency to expand judicial authority at the expense of the policy judgments Congress itself has made.” Rendell disagreed and found that a pair of decisions from the U.S. Supreme Court “has mapped out the contours of a district court’s equitable powers in much more expansive terms.” In its 1946 decision in Porter v. Warner Holding Co., the Supreme Court was faced with the question of whether the Emergency Price Control Act of 1942 allowed the Office of Price Administration to seek restitution to tenants who had been charged excessive rents. The justices held that although the law did not explicitly grant the power to order restitution, such power was within a district court’s equitable jurisdiction. Rendell found that, based on the “clear and sweeping language” in Porter, “it would appear that a district court sitting in equity may order restitution unless there is an explicit statutory limitation on the district courts equitable jurisdiction and powers.” And in the 1960 decision in Mitchell v. Robert de Mario Jewelry Inc., Rendell said, the Supreme Court “not only reinforced its ruling in Porter, but expanded its scope as well.” In Mitchell, the secretary of labor brought an action under the Fair Labor Standards Act to enjoin discrimination against three employees who sought to recover unpaid wages. The suit also demanded reimbursement of wages lost by the employees who were victims of the discrimination. The high court held that the secretary had the right to demand the wage reimbursement because “when a statutory provision gives the courts power to ‘enforce prohibitions’ contained in a regulation or statute, Congress will be deemed to have granted as much equitable authority as is necessary to further the underlying purposes and policies of the statute.” Rendell found that, when read together, the Porter and Mitchell decisions “charted an analytical course that seems fairly easy to follow.” The combined lesson of the two decisions, Rendell said, is that a district court sitting in equity may order restitution “unless there is a clear statutory limitation on the district court’s equitable jurisdiction and powers,” and that restitution is permitted “only where it furthers the purposes of the statute.” In the years since Porter and Mitchell, Rendell found that only one other appellate court has addressed the question of whether the FDA has the right to seek restitution and concluded that it did. In its 1999 decision in United States v. Universal Management Services Inc., the 6th Circuit upheld a restitution order imposed on a company that marketed electric gas grill lighters equipped with finger grips as pain reliving devices without obtaining FDA approval. The Universal Management court held that nothing in the FDCA precludes a district court from ordering restitution and that it was an appropriate remedy to make victims whole. Since then, the FDA has increasingly used its newfound power. Just two months after Universal Management was decided, the FDA’s suit against Abbott Laboratories settled with the company agreeing to pay $100 million. In October 2000, Wyeth-Ayerst agreed to pay $30 million in disgorgement as part the remedial measures implemented under a consent decree. And in May 2002, Schering-Plough paid $500 million for equitable disgorgement as part of a consent decree. The trend set off a flurry of criticism from legal commentators who argued that Porter and Mitchell do not, or should not, authorize courts to order restitution or disgorgement under the FDCA. But Rendell found that the commentators and the WLF were taking too narrow a reading of Porter and Mitchell. “Their central claim is that awarding restitution under the FDCA would rewrite or improperly expand the remedies available under the statute,” Rendell wrote. “They argue that the ability under [the FDCA] ‘to restrain violations’ contemplates only forward-looking remedies and that this mandate excludes restitution.” But Rendell found that those arguments “were considered and rejected by the Supreme Court in Porter and Mitchell,” and “essentially replicate the positions of the justices who wrote in dissent in each case.” Under a proper reading of Porter and Mitchell, Rendell found that the FDCA must be read to allow restitution. “Since Congress has placed no unambiguous restriction on equity jurisdiction under [the FDCA], the arguments of amicus and other commentators are little more than entreaties that we ignore or overrule Porter and Mitchell, neither of which we have the power to do,” Rendell wrote. Rendell found that the commentators made “a fundamental error” when analyzing whether restitution is available. “They view this primarily as a question of what remedies are provided by the FDCA rather than, as we have emphasized, a question of the scope of the express legislative grant of equitable power,” Rendell wrote. Bassler, she said, “did not ‘discover’ an implied remedy, but rather exercised the equitable power that Congress explicitly granted to it under the FDCA.”

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