Cigar Association of America et al. v. Food and Drug Administration et al.
Stacy L. Ehrlich* and James William Woodlee**
Why It Made the List
Cigar Association of America et al. v. Food and Drug Administration et al. is one of the most recent decisions in a string of industry challenges to aspects of the U.S. Food and Drug Administration’s (FDA’s) implementation of the Family Smoking Prevention and Tobacco Control Act of 2009 (TCA) and one of two challenges currently pending before the U.S. Court of Appeals for the D.C. Circuit. In this case, the plaintiffs, non-profit trade associations that represent cigar manufacturers, importers, distributors, and retailers, objected on numerous grounds to FDA’s so-called “Deeming Rule,” as well as its companion “User Fee Rule,” as applied to cigar and pipe tobacco products. The U.S. District Court for the District of Columbia’s May 15, 2018, memorandum opinion and order on cross-motions for summary judgment addressed only a subset of these claims, finding largely in favor of the government on the merits, while at the same time scolding FDA for what Judge Amit Mehta described as a “grossly unfair exercise of agency authority.”
Upon its effective date, the TCA immediately subjected to FDA’s authorities under Chapter IX of the Federal Food, Drug, and Cosmetic Act (FFDCA or Act) cigarettes, cigarette tobacco, roll-your-own tobacco, smokeless tobacco, and components, parts, and accessories of such products. The TCA further provided, that for other categories of “tobacco products,” FDA may issue regulations “deeming” them to be subject to Chapter IX’s tobacco product authorities. On May 10, 2016, FDA issued a final rule deeming all other products meeting the statutory definition of “tobacco product” (except accessories of such “deemed” products) to be subject to Chapter IX of the Act (Deeming Rule). At the same time, FDA promulgated a separate rule (User Fee Rule) that assessed user fees on manufacturers and importers of cigars and pipe tobacco but not on other newly deemed products such as e-cigarettes.
On July 15, 2016, the three plaintiff trade associations—the Cigar Association of America, Inc. (CAA), the International Premium Cigar and Pipe Tobacco Retailers Association (IPCPR), and Cigar Rights of America (CRA)—filed a challenge to the Deeming Rule as applied to cigar and pipe tobacco products and to the User Fee Rule. Filed in the U.S. District Court for the District of Columbia, the lawsuit asserted that, as applied to cigars and pipe tobacco products: (1) the TCA’s premarket review requirements are arbitrary and capricious in violation of the Administrative Procedure Act (APA); (2) the imposition of user fees on manufacturers and importers of cigars and pipe tobacco, but not other newly deemed tobacco products like e-cigarettes, is an illegal tax, in excess of statutory authority, a violation of the APA, and a violation of the Fifth Amendment; (3) FDA’s Final Regulatory Flexibility Analysis did not properly quantify the costs of the rule or identify significantly less costly alternatives to the rule, a violation of the Regulatory Flexibility Act; (4) FDA’s decision to regulate all cigars rather than exempting premium cigars was arbitrary and capricious in violation of the APA; (5) FDA’s warning label requirements for cigars and pipe tobacco products are arbitrary and capricious in violation of the APA and violate the First Amendment; (6) FDA’s decision to treat retailers who blend or repackage pipe tobacco or cigars as manufacturers subject to establishment registration and product listing requirements is arbitrary and capricious in violation of the APA; and (7) FDA’s decision to regulate pipes as components or parts of a tobacco product is arbitrary and capricious in violation of the APA.
On February 13, 2017, Plaintiffs filed a summary judgment motion with respect to all counts in their Complaint. On March 17, 2017, FDA filed for an extension to respond based on the change in administration and the new leadership personnel at the Department of Health and Human Services (HHS). FDA also committed to extend and defer enforcement of all compliance deadlines under the Deeming Rule for cigar and pipe tobacco products for three months to allow new FDA and HHS leadership additional time to more fully consider issues raised by the Deeming Rule.
On May 11, 2017, Dr. Scott Gottlieb was sworn in as the new FDA Commissioner. On July 28, 2017, FDA announced a new “comprehensive plan for tobacco and nicotine regulation.” Among other things, the announcement included extensions of certain compliance deadlines for deemed tobacco products. FDA did not, however, extend the deadlines for compliance with the packaging and advertising warning requirements established by the Deeming Rule. The Agency also announced that it would publish an Advance Notice of Proposed Rulemaking (ANPRM) regarding “whether and how to regulate premium cigars.” In light of this announcement, the plaintiffs withdrew their summary judgment motion and agreed to stay litigation of certain counts in the Complaint. On October 3, 2017, the plaintiffs filed a new motion for partial summary judgment, accompanied by a motion for a preliminary injunction on enforcement of the warning label requirements.
The Court’s Ruling
On May 15, 2018, Judge Mehta granted in part and denied in part the parties’ cross-motions for partial summary judgment and denied the plaintiffs’ motion for a preliminary injunction as moot. The opinion addressed four aspects of the Deeming Rule to which the plaintiffs objected, but a number of other claims in the case remain outstanding.
The Warning Requirements
First, the court held that the Deeming Rule’s warning requirements do not violate the FFDCA, the APA, or the First Amendment. The court rejected the plaintiffs’ arguments that FDA failed to make the findings required by the TCA and the APA to justify promulgating the warning requirements. The court instead concluded that the Agency made findings specific to the importance and efficacy of the health warnings, noting “multiple pages devoted to ‘the effects of larger health warnings on cigars and pipe tobacco’” and FDA’s “extrapolat[ion] from its experience with other tobacco products – particularly cigarettes – to reach its determination that the health warnings are appropriate for the public health and likely to affect cigar and pipe tobacco usage.” The court therefore concluded that requiring warning labels for cigar and pipe tobacco products, “despite limited research studies specific to those newly deemed products, was not arbitrary and capricious” and met the rulemaking requirements of the TCA.
Judge Mehta also rejected the plaintiffs’ First Amendment challenges to the warning requirements. The court first concluded that the warning statements are “purely factual” and “uncontroversial,” and thus the court found that the commercial speech at issue triggered analysis under the “relaxed standard of review” set forth in Zauderer v. Office of Disciplinary Counsel. The Zauderer standard applies “when the government uses a disclosure mandate to achieve a goal of informing consumers about a particular product trait,” provided “that the reason for informing consumers qualifies as an adequate interest.” To withstand Zauderer scrutiny, the disclosure requirements need only be “reasonably related to the [government’s] interest” and not so “unjustified or unduly burdensome” as to chill protected commercial speech.
The court was unpersuaded by the plaintiffs’ argument that the sheer size, format, and duplication of the warnings transform the requirement from compelled disclosure to a restriction on speech that the court must evaluate under the intermediate scrutiny standard set forth in Central Hudson. Plaintiffs asserted that the warnings are so large as to obscure a company’s ability to communicate with customers. Judge Mehta, however, pointed to the fact that cigar manufacturers still retain 70 percent of cigar packages and 80 percent of advertisements in which to communicate their messaging.
Applying the Zauderer standard, the court initially found that FDA identified a substantial government interest to “help consumers better understand and appreciate the risks and characteristics of tobacco products” and “to help correct current misperceptions about the newly deemed products,” including cigars. Citing the D.C. Circuit’s recognition in Pearson v. Shalala that the “government has a substantial interest in ‘promoting the health, safety, and welfare of its citizens,’” and stating that “there is no dispute that ‘tobacco products are dangerous to health when used in the manner prescribed,’” the court concluded that the government’s interest in health warnings on packaging and advertising of cigar and pipe tobacco products is substantial.
Next, the court concluded that the warning requirements are reasonably related to the government’s substantial interest: “Stated simply, providing accurate warnings about the health risks of cigar use in a size, format, and manner that consumers will readily notice and retain satisfies the ‘means-end fit’ requirement under Zauderer.” Judge Mehta also rejected the plaintiffs’ argument that the warning requirements are so unduly burdensome as to chill protected speech. The court observed that “cigar manufacturers and importers can still effectively communicate their desired message – whether that be the sense of the product’s ‘luxury and distinction’ through its ‘designs, symbols, and trademarks’ or information about the product’s ‘country of origin, seed varietal, [or] process of manufacture’ . . . on the remaining 70 percent of cigar packaging and 80 percent of cigar advertisements.”
Despite rejecting the plaintiffs’ challenges to the warning requirements, Judge Mehta strongly criticized FDA’s “grossly unfair exercise of agency authority” by maintaining the effective date of the warning requirements as August 10, 2018, after issuing on March 21, 2018, an Advance Notice of Proposed Rulemaking (ANPRM) seeking comment with respect to numerous aspects of FDA’s regulation of premium cigars. The court delivered the following harsh words for the government:
The sheer breadth of the ANPRM begs the obvious question: Might the FDA in the near future do away with the health warning requirements for premium cigars? And yet another: Why is the agency insisting that the premium cigar industry expend millions of dollars to conform to regulatory mandates that might be rescinded only months after their effective date? The FDA provides no satisfactory response to either question. Whatever the answers, one thing is certain: Requiring the premium cigar industry to incur substantial compliance costs while the agency comprehensively reassesses the wisdom of regulation, before the warnings requirements go into effect, smacks of basic unfairness. In the court’s view, the prudent course would be for FDA to stay the warnings requirement as to premium cigars. The court’s displeasure with the FDA’s handling of the status of premium cigars, no doubt, provides little consolation to the industry. But the court can do no more. Its hands are tied by both the law and the posture of the case.
In this regard, the court also noted that the plaintiffs did not directly challenge the fact that FDA delayed aspects of the Deeming Rule in other contexts (e.g., the deadline for marketing applications for deemed “new tobacco products” on the U.S. market on the August 8, 2016, effective date of the Deeming Rule) but did not do the same for the premium cigar warning statements, providing an apparent invitation for the plaintiffs to mount such a challenge.
The User Fee Rule
The court also rejected the plaintiffs’ objections to the User Fee Rule, holding that, in requiring payment of user fees by domestic manufacturers and importers of cigars and pipe tobacco, but not e-cigarette firms, the User Fee Rule does not violate the TCA or the Fifth Amendment. Rather, upon applying step one of the familiar analysis from Chevron U.S.A. Inc. v. NRDC, the court found FDA’s decision not to impose user fees on e-cigarette firms compelled by the language of the TCA, which expressly requires assessments to domestic manufacturers and importers of cigars and pipe tobacco, but not those of e-cigarettes, “despite evidence that Congress was aware of their existence at the time it passed the TCA.” The court concluded that “[t]he statutory text could be no clearer: The agency was compelled to assess user fees only on the six classes of tobacco products enumerated in the statute.” (Covering its bases, the court also analyzed the issue under step two of Chevron, finding FDA’s decision “reasonable” based on its interpretation of the text of the TCA.) The court likewise dismissed the plaintiffs’ assertion that excepting e-cigarette firms from payment of user fees converts the user fee obligations into a tax because “the User Fee Rule does no more than that commanded by Congress.” Finally, the court denied the plaintiffs’ Fifth Amendment equal protection claims that characterized the User Fee Rule as “naked economic favoritism,” identifying a number of “rational” reasons that could explain why Congress opted to limit FDA to assessing user fees on only domestic manufacturers and importers of the six classes of tobacco products enumerated in the user free provision of the TCA.
Designation of Retail Establishments that Blend Pipe Tobacco as Manufacturers
Finding in favor of the plaintiffs on this count, the court held that the process by which the Agency designated tobacco retailers who blend pipe tobacco in stores as subject to the establishment registration and product listing requirements of 21 U.S.C. § 387e violated the APA. In the rulemaking process, FDA failed to find that the act of blending pipe tobacco constitutes the “manufacture, preparation, compounding, or processing of a tobacco product,” that triggers the § 387e’s registration and product listing requirements. This provision defines the relevant terms as follows:
The term “manufacture, preparation, compounding, or processing” shall include repackaging or otherwise changing the container, wrapper, or labeling of any tobacco product package in furtherance of the distribution of the tobacco product from the original place of manufacture to the person who makes the final delivery or sale to the ultimate consumer or user.
Rather, the Agency found only that retailers who blend pipe tobacco are subject to these requirements based on the separate definition of “tobacco product manufacturer” found in 21 U.S.C. § 387(20), which includes “any person, including any repacker or relabeler, who . . . manufactures, fabricates, assembles, processes, or labels a tobacco product.”
Importantly, however, although the court disagreed with FDA’s stated technical basis for asserting that the registration and product listing requirements applied to such retailers, the court left open the possibility that, when applying the proper definitions, FDA could appropriately require compliance by such retailers. The court remanded to the Agency to determine only whether the act of blending pipe tobacco constitutes the “manufacture, preparation, compounding, or processing of a tobacco product,” including relabeling and repackaging, as set forth in 21 U.S.C. § 387e. While the Agency could ultimately reach the same conclusion when applying the applicable statutory definitions, FDA has not yet revisited this issue in rulemaking as required by the court.
Pipes as Components or Parts
Finally, the court concluded that the Agency’s designation of pipes as “components or parts” of a tobacco product, as opposed to “accessories” not subject to the Deeming Rule, does not violate the APA. In the Deeming Rule, FDA opted to regulate components and parts of the newly deemed tobacco products, but not their accessories, because “accessories, unlike components or parts, are expected to have little direct impact on the public health.” Rejecting the plaintiffs’ argument that a component or part must be “integrated with a product made of tobacco,” the court observed that “[a]n empty pipe is a ‘component’ of a delivery system for pipe tobacco, even though it is sold separate from the pipe tobacco itself,” similar to other regulated products like cigarette filters and paper, and that “pipes are ‘fundamental’ to the delivery and consumption of pipe tobacco.”
This case is far from over. On June 27, 2018, plaintiffs filed an appeal to the D.C. Circuit with respect to its warning label claims and filed a motion to stay enforcement of the warning requirements pending a decision on the appeal. On July 5, 2018, the district court issued an order enjoining FDA from enforcing the cigar and pipe tobacco warning requirements until 60 days after the final disposition of the appeal. Judge Mehta concluded that the issues appealed by the plaintiffs present “serious legal questions” as to the constitutionality of FDA’s warnings regime, particularly in light of the Supreme Court’s June 2018 decision in National Institute of Family and Life Advocates v. Becerra, which held that a compelled disclosure must be “no broader than reasonably necessary” in order to survive First Amendment scrutiny under Zauderer. The court additionally determined that the plaintiffs will likely suffer irreparable harm absent injunctive relief pending appeal, including loss of First Amendment freedoms and unrecoverable financial harm. In granting the injunction, the court reiterated that FDA’s insistence that the entire cigar industry meet the warning requirements while the Agency seeks additional information regarding the regulation of premium cigars is “a grossly unfair exercise of agency authority.”
Ultimately, the case resulted in at least a substantial delay in FDA’s implementation of its packaging and advertising warning regulations as applied to cigars and pipe tobacco. It also delayed for now enforcement of establishment registration and product listing requirements as applied to retailers who blend pipe tobacco in their stores. While the government prevailed on the remaining counts adjudicated at this stage, the plaintiffs will continue to challenge other aspects of the Deeming Rule and prosecute their pending appeal in the hopes of avoiding the costly and restrictive requirements of the TCA and FDA’s implementing regulations.
* Stacy L. Ehrlich is a partner in the Washington, DC, law firm Kleinfeld Kaplan & Becker LLP. Her practice focuses on representing pharmaceutical, food, dietary supplement, cosmetic, tobacco product, and medical device companies on regulatory matters.
** James William Woodlee is a partner at Kleinfeld Kaplan & Becker LLP. His practice focuses on counseling and advocating on behalf of food, dietary supplement, cosmetic, pharmaceutical, medical device, tobacco, and consumer product companies on regulatory and advertising law matters.
 315 F. Supp. 3d 143 (D.D.C. 2018).
 An appeal of Nicopure Labs, LLC v. Food and Drug Administration et al, is currently pending before the D.C. Circuit [covered in last year’s edition].
 21 U.S.C. § 387a(b).
 The TCA defines “tobacco product” to mean “any product made or derived from tobacco that is intended for human consumption, including any component, part, or accessory of a tobacco product (except for raw materials other than tobacco used in manufacturing a component, part, or accessory of a tobacco product).” 21 U.S.C. § 321(rr).
 21 U.S.C. § 387a(b).
 Deeming Tobacco Products to be Subject to the Federal Food, Drug, and Cosmetic Act, as Amended by the Family Smoking Prevention and Tobacco Control Act; Restrictions on the Sale and Distribution of Tobacco Products and Required Warning Statements for Tobacco Products, 81 Fed. Reg. 28,974 (May 10, 2016).
 See 21 C.F.R. part 1143.
 See 21 U.S.C. § 387f(d)(1).
 471 U.S. 626, 651 (1985).
 467 U.S. 837 (1984).
 See 21 U.S.C. § 387s.
 See Cigar Association of America v. FDA, 317 F. Supp. 3d 555 (D.D.C. 2018).
 __ U.S. __, 138 S.Ct. 2361 (2018).