INSIGHT: Multiple CBD Class Actions Stayed Pending FDA Regulatory Action

Already this year, federal courts in California and Florida have stayed three putative class actions against cannabidiol (CBD) companies on primary jurisdiction grounds. These judges are deferring action within the cases until the Food and Drug Administration (FDA) completes its initial decision-making on regulating CBD. But the application of primary jurisdiction across the country to CBD class actions has not been uniform, nor is it guaranteed.

The growth in the CBD product market comes amidst increasing attention from regulators and private litigants. In November 2019, the FDA sent a flurry of warning letters concerning open questions about CBD product safety and the agency’s oversight.

During the Covid-19 public health emergency, the FDA has placed increased attention on products, including some containing such as CBD, that claim market effectiveness in treating or preventing. Perhaps because of this unexpected effort, the agency has yet to provide meaningful and clear guidance about how it plans to regulate the legal labeling and sale of CBD products.

Meanwhile, private plaintiffs have launched a new wave of class action lawsuits against CBD companies. This creates the risk that courts will determine the future of CBD labeling laws, rather than federal or state regulatory authorities. Primary jurisdiction provides courts the opportunity to stay a case pending initial determinations at the applicable agency.

What Is Primary Jurisdiction?

Primary jurisdiction is a longstanding prudential court doctrine. It allows courts to stay or, less commonly, dismiss matters pending initial decision-making within the competence of an administrative agency. Clark v. Time Warner Cable (9th Cir. 2008).

The primary jurisdiction doctrine’s purpose is to allow the courts to avail themselves of the agency’s expertise, protect the integrity of the applicable regulatory scheme, and promote uniformity. Greenfield v. Yucutan Foods LP (S.D. Fla. 2014).

Courts examine a number of factors in determining whether to wait on agency action before advancing its determination of the case. One important consideration—which has particular relevance to CBD—is whether the issue involved requires expertise or uniformity in its administration. See Syntek Semiconductor Co. v. Microchip Tech Inc. (9th Cir. 2002) (noting that factors include “(1) the need to resolve an issue that (2) has been placed by Congress within the jurisdiction of an administrative body having regulatory authority (3) pursuant to a statute that subjects an industry or activity to a comprehensive regulatory authority that (4) requires expertise or uniformity in administration.”).

How Does Primary Jurisdiction Apply to CBD?

In announcing the agency’s issuance of 15 warning letters in November 2019, the FDA reported that it would provide an update to its regulation of CBD products “in the coming weeks.” A few months prior, the agency held a public hearing regarding regulatory pathways for CBD products. Former FDA Commissioner Dr. Scott Gottlieb proposed an expedited regulatory review of CBD-containing products.

In a report to Congress earlier this year, the FDA noted its ability to regulate the “vast proliferation of CBD consumer products” has been far outstripped by the market’s growth.

As of June, the agency reported that it has made “substantial progress” on potential CBD regulations but has not provided a timeline for clear regulatory action.

In the absence of a clear federal classification and regulatory system involving CBD products, many companies have faced lawsuits regarding CBD product, and such litigation is expected to increase over the next year. Such suits often allege either that the CBD contained in the product is inaccurately labeled or that CBD products, particularly CBD-containing food and beverage products, are illegal to sell per the FDA’s November 2019 announcements.

At least three cases have stayed proceedings while the FDA continues to deliberate and makes its initial determinations as to uniform, federal CBD product labeling requirements. Snyder v. Green Roads of Florida LLC (S.D. Fla. 2020); Colette v. CV Sciences Inc. (N.D. Cal 2020); Glass v. Global Widget LLC (E.D. Cal. June 15, 2020).

While these cases involved differing allegations, they each relied on similar reasoning to apply primary jurisdiction. This rationale included:

• The need for consistent uniform guidance regarding CBD products, especially if the FDA concludes that some or all CBD products are food additives, supplements or nutrients that can be safely marketed to the public;
• The FDA’s proposed regulatory action appeared to be a proper exercise of its regulatory authority as it regulates, among other items, food additives, supplements and nutrients;
• The 2018 Farm Bill explicitly recognized the FDA’s authority to regulate products containing cannabis-derived compounds, including hemp-derived products;
• The FDA’s expertise is needed regarding open questions the agency has posed over CBD product safety; and
• The FDA has expressed an active interest in regulating the manufacture and marketing of CBD products.

With these reasons in mind, federal courts in Florida and California have stayed cases on primary jurisdiction grounds until the FDA concludes its decision-making process regarding the marketing and labeling of CBD-containing products.

Takeaway

Even with strong precedent in favor of applying primary jurisdiction, CBD companies cannot rely solely on forthcoming FDA regulations for a litigation stay on primary jurisdiction grounds. Instead, they must be sure to link the forthcoming rulemaking to the issues in the case.

For example, a different judge in the Southern District of Florida found that the primary jurisdiction did not apply because the challenged claims did not correspond to the FDA’s prospective rulemaking regarding CBD labeling. This case alleged that the amount of CBD on the labeling of CBD-containing products was inaccurate. Potter v. Potnetwork Holdings Inc. (March 30, 2020).

The court declined to apply a stay as the forthcoming FDA actions were unlikely to change the food labeling requirements at issue, namely whether the products’ labeling could misstate the amount of CBD it contained.

Accordingly, CBD companies facing class action lawsuits regarding product labeling during this time of regulatory uncertainty have a reasonable chance of succeeding in a motion to stay on primary jurisdiction grounds. But they must be sure to tie anticipated FDA rulemaking to the claims at issue before the court.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

Author Information

David T. Biderman is a partner in Perkins Coie LLP’s San Francisco and Los Angeles offices, focuses his practice on mass tort litigation and consumer class actions. He heads the firm’s Mass Tort and Consumer Litigation group.

Barak Cohen is a partner in Perkins’s Coie LLP’s White Collar & Investigations practice, lead for commercial litigation in the firm’s Washington, D.C., office, and chair of Perkins Coie’s Cannabis industry group, which he helped establish. He represents companies in high-stakes investigations and litigation, with a special focus on the cannabis industry.

Julie Hussey is a partner at Perkins Coie LLP in the firm’s San Diego office. She is a trial attorney noted for her achievements in the defense of consumer class action litigation matters regarding false and misleading advertising and high-stakes product liability litigation in jurisdictions across the U.S.

Tommy Tobin is an associate in Perkins Coie LLP’s Seattle office, where he focuses on complex commercial litigation and class action matters involving statutory, constitutional and regulatory issues in a range of industries, including food and beverage, healthcare, and pharmaceuticals. He regularly writes articles on food law and policy issues and is co-chair of the American Bar Association’s Food, Cosmetics, and Nutraceuticals Committee.