Reconsideration of Honey Bunches of Oats false advertising claims denied

A court found that consumers failed to show why a reasonable consumer would believe Honey Bunches of Oats was sweetened primarily by honey.

In a memorandum opinion and order, a court denied consumers’ motion for reconsideration of their claims that Post Consumer Brands, LLC used deceptive packaging and advertising that led consumers to believe that Honey Bunches of Oats was sweetened primarily by honey. The court found that emphasizing the imagery of bees and honey on a product that contained honey and tasted like honey, was not deceptive (Lima v. Post Consumer Brands, LLC, October 2, 2019, Burroughs, A.).

Labeling. Two consumers purchased Honey Bunches of Oats with Almonds under the belief that the cereal was sweetened exclusively or primarily with honey. The consumers relied on television commercials and the product branding and packaging that emphasized the presence of honey. The consumers claimed that the packaging and marketing led them to expect that honey was a prominent ingredient. The consumers did not look at the ingredient list, which disclosed that honey is the cereal’s fifth most prominent sweetener. The consumers filed a putative class action against Post, alleging that the advertising and packaging of Honey Bunches of Oats was deceptive. Post filed a motion to dismiss and the court granted the motion (see Health Law Daily, Aug. 16, 2019). The consumers then filed a motion for reconsideration.

Consumer protection claims. The consumers argued that whether Post’s packaging was ambiguous was a determination of law that should not have been made at the motion to dismiss stage. They further argued that the issue of whether the consumers were reasonable to think that honey was the predominant sweetener should have been left to the jury. The court noted that it did not consider the factual matter of whether the consumers were misled by the packaging, but instead considered whether the allegations made it plausible that on a full factual record, a factfinder could reasonably regard the label as having the capacity to mislead.

The consumers further argued that they should not have had the burden of pleading why they concluded that honey was a sweetener, as opposed to a flavor. The court held that it was permissible for Post to use the images of honey and bees because honey was a characterizing flavor and the cereal included honey as an ingredient. Had the cereal not contained honey, then Post would have been required to include sufficient cautionary language explaining that it was naturally or artificially flavored. Because the cereal did contain honey, the burden shifted to the consumers to plead why the packaging and marketing would lead a consumer to believe that the cereal was not only honey flavored and contained honey, but also that honey was the primary sweetener. The consumers failed to plead why they believed honey was a sweetener and not only a flavor.

Express warranty claims. The consumers argued that the court failed to consider that an express warranty can be created through the packaging’s words and images. The court noted that it was explicit in its analysis of the use of the Honey Bunches of Oats brand name and the imagery on the packaging to determine whether Post made an express warranty. The court held that the consumer failed to demonstrate that the court’s analysis depended on a misinterpretation of law.

Request for leave to replead. The consumers asked the court to give them leave to amend to include a survey the consumers conducted relating to consumer impression of the packaging at issue. The consumer pointed to their opposition to the motion to dismiss, which contained a request that “if the Court believes any aspect of Post’s motion should be granted for a reason that has not previously been subject of amendment, Plaintiffs request leave to amend.” The court cited the circuit court in finding that “a passing request for contingent leave to file an amended complaint, made in opposition to a motion to dismiss, is insufficient, in and of itself, to bring a post-judgement motion for reconsideration within the orbit” of the requirement that courts freely give leave to amend.

CVS-Aetna merger approved, subject to divestiture of PDP business

The federal district court in the District of Columbia has concluded that the proposed consent judgment allowing the merger of CVS Health Corporation and Aetna, Inc. is in the public interest. The merger may go forward under the condition that CVS divest Aetna’s individual Medicare prescription drug plan (PDP) business to WellCare Health Plans, Inc. The court considered objections to the merger raised by industry, consumers, and states, and concluded that the divestiture will effectively remedy the harm to the PDP market and will not be rendered ineffective due to the proposed judgment’s failure to address effects in markets adjacent to the PDP market (U.S. v. CVS Health Corporation, September 4, 2019, Leon, R.).

In response to the proposed merger between CVS and Aetna, the United States simultaneously filed a complaint and a proposed consent judgment in 2018. Under the terms of the proposed consent judgment, CVS would divest Aetna’s individual Medicare prescription drug plan (PDP) business to WellCare Health Plans, Inc. A number of parties including members of industry, consumer groups, and state regulatory bodies (amici) opposed the proposed consent judgment and filed briefs stating their concerns. As part of its review under the Tunney Act, the court conducted a hearing with witnesses from parties and amici.

The court concluded that the proposed consent judgment is in the public interest, although it did reject the government’s assertion that the court may only consider harms alleged in the complaint. The amici briefs raised three primary objections to the merger. First, that Aetna’s divestiture to WellCare will not effectively remedy the harm to the PDP market, because the divestiture leaves the PDP market overly concentrated and WellCare will not be as strong a competitor in the PDP market as Aetna was. On this point, the court found the evidence from CVS and the Government to be more persuasive. That evidence included testimony that the PDP market is already highly competitive, because plans can be easily compared, and the market is only moderately concentrated. The moderate concentration in the PDP market has neither prevented WellCare from competing in the market, nor prevented price competition from driving premium prices down, in recent years.

Amici also argued that the proposed final judgment’s failure to address effects in markets adjacent to the PDP market will undercut the effectiveness of the divestiture remedy and harm the public. For example, CVS could raise the price of its pharmacy benefit manager (PBM) services when selling the services to health insurance competitors. Such an action could threaten the success of the proposed divestiture remedy because WellCare, which both competes against CVS in the PDP market and contracts with CVS for PBM services, would be vulnerable to such a tactic. But CVS presented more persuasive evidence that substantially undermines this theory. Rival PBMs try to underbid CVS and CVS’s PBM oftentimes competes against its own customers because health insurance companies can move PBM services in house if they consider CVS’s price for contract services too high. That evidence strongly suggests that, if CVS were to raise its PBM prices, customers like WellCare could simply switch to a less expensive PBM or stop contracting for those PBM services altogether.

Finally, amici argued that the proposed final judgment without modification will harm HIV and AIDS patients in need of affordable, quality healthcare. But the court concluded that the record did not establish that the judgment will likely result in CVS gaining the ability to steer patients away from their current healthcare providers (such as the AIDS Healthcare Foundation). The Foundation uses a different PBM and maintains its own pharmacies, therefore it is unlikely that CVS will be likely to steer patients away from the Foundation.

In the Department of Justice press release announcing the settlement, Assistant Attorney General Makan Delrahim of the Antitrust Division expressed pleasure with the decision, noting that the judgment provides a “comprehensive remedy” that “protects seniors and other vulnerable customers of individual PDPs from the anticompetitive effects that would have occurred if CVS and Aetna had merged their individual PDP businesses.”

American Antitrust Institute (AAI) statement. “AAI strongly disagrees with the merits of the court’s opinion,” said AAI President Diana Moss. “On most points, the court simply accepted piecemeal evidence introduced by the DOJ and CVS. The opinion discounts the showing by amici that the remedy will fail to preserve competition in PDP markets and that the merger raises significant vertical concerns ignored by the DOJ in its complaint. The opinion’s statement that ‘[N]otwithstanding CVS’s significant market share, the evidence showed that CVS must compete vigorously to retain its PBM customers’ is divorced from sound economics.”

Court imposes 10-month deadline for pre-market tobacco applications

A federal district court in Maryland has set a deadline of 10 months for tobacco product manufacturers to submit pre-market applications and a one year deadline for FDA approval. The court previously concluded that the FDA violated the Administrative Procedure Act (APA) when it released guidance in 2017 extending the compliance deadline for the “Deeming Rule” which brought new tobacco products under the purview of the Family Smoking Prevention and Tobacco Control Act. Rather than remanding the issue to the FDA to determine a timeline for compliance or accepting the plaintiffs’ request of a four-month deadline for applications, the court accepted the FDA’s recommendation of a 10-month deadline. The court found that it has the authority to impose such a deadline under the extraordinary circumstances of the case, in which prompt action is necessary to combat the public health crisis caused by the rise in youth e-cigarette use (American Academy of Pediatrics v. FDA, July 12, 2019, Grimm, P.).

FDA tobacco rule compliance extensions

On May 10, 2016, the FDA issued the “Deeming Rule,” bringing approximately 25,000 new tobacco products, including various cigars, e-cigarettes, pipe tobacco products, and hookah within the purview of the Family Smoking Prevention and Tobacco Control Act. The Deeming Rule went into effect 90 days after its publication (see FDA clears the air, ‘deems’ e-cigarettes, hookah tobacco, cigars worthy of regulation, Health Law Daily, May 10, 2016). In May 2017, the FDA extended the compliance deadline by three months. In August 2017, the FDA extended the timelines to submit tobacco product review applications for deemed tobacco products that were on the market as of August 2016. In May 2019, the district court ruled that the FDA’s August 2017 compliance deadline extension violated the Administrative Procedure Act, as it was done without following notice and comment requirements. The court vacated the August 2017 Guidance and asked the parties to brief the court on potential remedies, given that the application deadlines in the Deeming Rule and May 2017 Guidance had passed.

Remedy

The court concluded that the case presented “extraordinary circumstances” that called for more than simply vacating the guidance and remanding the issue to the FDA (as was requested by manufacturers). It imposed a 10-month deadline for submissions and a one-year deadline for approvals, as suggested by the FDA. The plaintiffs had requested a four-month deadline for submissions, but the court rejected that solution because of the record from the FDA demonstrating that a four-month deadline would prevent them from timely approving or denying applications and could clear the market of e-cigarette products, thus creating a risk that adult smokers would switch from e-cigarettes to combustible tobacco products. The FDA also presented evidence that it plans to accelerate the premarket review requirements for the products that are most attractive to youth, such as flavored products.

The court concluded that without a deadline for filing, manufacturers would be unlikely to move forward with applications, because the record showed a purposeful avoidance by the industry of complying with the premarket requirements despite entreaties from the FDA that it can do so, and it establishes a shockingly low rate of filings.

States likely to succeed in lawsuit challenging contraceptive exemption regulations

Pennsylvania and New Jersey are likely to succeed in proving that the agencies did not follow the Administrative Procedure Act (APA) in creating the contraceptive mandate exemption regulations and that the regulations are not authorized under the Affordable Care Act (ACA) or required by the Religious Freedom Restoration Act (RFRA), held the Third Circuit Court of Appeals. The court also concluded that the States will suffer a concrete and imminent financial injury from the increased use of state-funded services were the regulations to go into effect, and that an injunction would redress that injury. Therefore, it affirmed the district court’s order preliminarily enjoining the rules’ enforcement nationwide (Commonwealth of Pennsylvania V. Trump, July 12, 2019, Shwartz, P.).

State challenges to regulations

As previously reported, the Health Resources and Services Administration determined that health plans covered by the Affordable Care Act (ACA) (P.L. 111-148) must provide contraceptive services. This mandate included a narrow exemption for certain religious organizations. In 2017, President Trump issued an executive order directing the relevant agencies to consider amending regulations to address conscience-based objections to the contraception mandate. These agencies promulgated two interim final rules (IFRs) which expanded the religious exemptions authorizing employers with religious objections to limit employees’ access to health insurance coverage for contraception (see Contraception coverage exemptions extended for objecting employers on religious, moral grounds, Health Law Daily, October 11, 2017).

Pennsylvania and New Jersey (the States) sued seeking to enjoin enforcement of these two new rules. Both have state-funded programs that provide family planning and contraceptive services for eligible individuals and argued that when women lose contraceptive insurance coverage from their employers, they will seek out these state-funded programs and services. The district court granted a preliminary injunction, enjoining the rules’ enforcement nationwide. While the appeal of the order preliminarily enjoining the IFRs was pending, the agencies promulgated two final rules, virtually identical to the interim final rules.

States have standing

The court concluded that the States will suffer a concrete and imminent financial injury from the increased use of state-funded services, and that an injunction would redress that injury. The States are not required to define a specific woman who will be affected by the final rules.

Preliminary injunction granted 

The court held that the States are likely to succeed on their procedural APA claims because the agencies failed to comply with the notice-and-comment requirement and this defect tainted the final rules. The regulation provision of the Health Insurance Portability and Accountability Act of 1996 (HIPAA) does not grant the agencies discretion to proceed by IFR in lieu of notice-and-comment rulemaking and the agencies lacked good cause for dispensing with notice of and comment to the IFRs. The court rejected the agencies’ argument that there was an urgent need to alleviate harm to those with religious objections to the current regulations. It also held that previous notice and comment does not allow agencies to forego notice and comment for a later regulation on similar matters. In addition, the notice and comment provided for the final rules suggest that the opportunity for comment was not a meaningful because the final rules are virtually identical to the IFRs and the IFRs impaired the rulemaking process by altering the agencies’ starting point in considering the final rules.

The court also held that the States were likely to succeed on their substantive APA challenges because neither the ACA nor RFRA authorized the agencies to create exemptions. The unambiguous language of the ACA’s Women’s Health Amendment only authorized the agencies to decide what services would be covered, not who provides them, and RFRA did not require or authorize such broad exemptions, particularly given RFRA’s remedial function that places the responsibility for adjudicating religious burdens on the courts, not the agencies. In addition, the final rules would impose an undue burden on nonbeneficiaries—the female employees who will lose coverage for contraceptive care. The public interest favors minimizing harm to those third parties. Because the current accommodation does not substantially burden employers’ religious exercise and the exemption is not necessary to protect a legally-cognizable interest, the States’ financial injury outweighs any purported injury to religious exercise. Finally, a nationwide injunction is appropriate to provide complete relief (for example, 14 percent of the New Jersey workforce works out of state).