The Racketeer Influenced and Corrupt Organizations Act (RICO) allows any person “injured in his business or property by reason of” racketeering activity to bring a civil suit for damages. 18 U. S. C. §1964(c). However, the statute forbids suits based on “personal injuries.” But are economic harms resulting from personal injuries “injuries to ‘business or property?’”
Yesterday, in Medical Marijuana, Inc. v. Horn, the U.S. Supreme Court, in a 5–4 opinion written by Justice Barrett and joined by Justices Kagan, Sotomayor, Gorsuch, and Jackson, answered that question in the affirmative. Justices Thomas and Kavanaugh wrote dissenting opinions, the latter joined by the Chief Justice and Justice Alito.
Attempting to alleviate his chronic pain, Douglas Horn purchased and began taking “Dixie X,” advertised as a tetrahydrocannabinol-free (“THC-free”), non-psychoactive cannabidiol tincture produced by Medical Marijuana, Inc. However, when his employer later subjected him to a random drug test, Horn tested positive for THC. When Horn refused to participate in a substance abuse program, he was fired. Horn then brought his RICO suit.
The U.S. Court of Appeals for the Second Circuit, reversing the U.S. District Court for the Western District of New York, held that Horn had been “injured in his business” when he lost his job and rejecting the “antecedent-personal-injury bar,” which several circuits had adopted to exclude business or property losses that derive from a personal injury. Affirming the Second Circuit, the Supreme Court held that the civil RICO statute did not categorically bar that form of recovery.
Interestingly (and the subject of the dissents, particularly that of Justice Thomas, who asserted that cert. had been improvidently granted), the Court did not address issues deemed outside of the question presented, including whether Horn suffered a personal injury when he consumed THC, whether the term “business” encompasses all aspects of “employment,” and what “injured in his . . . property” means for purposes of §1964(c). Thus, the majority opinion encompasses several assumptions, the verification of which will be the subject of the Court’s ultimate remand to the Second Circuit.
The essence of the opinion is derived from the dictionary, and a debate over how its definitions should be read informs the split among the Justices. Justice Barrett’s majority opinion starts with the American Heritage Dictionary and the “ordinary meaning of ‘injure’”: to “cause harm or damage to” or to “hurt.” While the statute precludes recovery for injury to the person, its business or property requirement operates with respect to the kinds of harm for which the plaintiff can recover, not the cause of the harm for which he seeks relief. For example, a gas station owner beaten in a robbery cannot recover for his pain and suffering. But if injuries from the robbery force him to shut his doors, he can recover for the loss of his business. A plaintiff can seek damages for business or property loss, in other words, regardless of whether the loss resulted from a personal injury.
Rejecting Medical Marijuana’s (and the dissenters’) view of what “business or property” should mean under RICO, Justice Barrett, in a delightfully written paragraph, remarks that:
Medical Marijuana tries valiantly to engineer a rule that yields its preferred outcomes. (Civil RICO should permit suit against Tony Soprano, but not against an ordinary tortfeasor.) But its textual hook—the word “injured”—does not give it enough to go on. When all is said and done, Medical Marijuana is left fighting the most natural interpretation of the text—that “injured” means “harmed”—with no plausible alternative in hand. That is a battle it cannot win.
It didn’t.
With respect to the remand, Justice Barrett noted that RICO’s “direct relationship” requirement is a constraint on civil RICO claims and, given the complications in the factual underpinnings of the case, that requirement might prove to be an insurmountable barrier to Horn’s succeeding. Horn himself “concedes that he faces ‘a heavy burden on remand.'”
The second case decided yesterday shows that if the Court is indeed going to be unanimous, it will not be succinct. Justice Alito’s 46-page discourse on behalf of a unanimous Court in Food and Drug Administration v. Wages and White Lion Investments, L.L.C. proves that point. I shall argue that Justice Alito’s lengthy opinion indirectly provides much useful guidance to patients, providers, and payers with respect to likely challenges to administrative actions, especially in the health care space, in the current Trump administration.
The issue in the case concerned whether the FDA lawfully denied respondents authorization to market certain electronic nicotine-delivery system products, known as electronic cigarettes, “e-cigarettes,” or “vapes.” These products come in a variety of flavors that particularly appeal to young people, and they pose unique risks. While the FDA has always had authority to determine whether a manufacturer could market a new drug, the FDA gained particular jurisdiction to regulate tobacco products under the Family Smoking Prevention and Tobacco Control Act of 2009 (TCA). The TCA barred the FDA from banning all regulated tobacco products outright, but it blocked marketing any “new tobacco product” without FDA authorization. The TCA requires the FDA to deny such an application unless an applicant shows that its product “would be appropriate for the protection of the public health.” To determine this, the FDA must consider, among other things, “the risks and benefits to the population as a whole.”
The respondents in the case had petitioned for judicial review of the FDA’s denial orders under the Administrative Procedure Act (APA). The Fifth Circuit, sitting en banc, held that the “FDA had acted arbitrarily and capriciously by applying application standards different from those articulated in its predecisional guidance documents regarding scientific evidence, cross-flavor comparisons, and device type. The court expressed particular concern about the FDA’s failure to review marketing plans it previously deemed critical. It also rejected the FDA’s argument that any errors were harmless.”
Reversing the Fifth Circuit, the Supreme Court first declined to reach the argument that the FDA erred in evaluating the respondents’ applications under standards developed in adjudication rather than standards promulgated in notice-and-comment rulemaking. Instead, the Court concluded that the denial orders were sufficiently consistent with the FDA’s predecisional guidance—as to scientific evidence, comparative efficacy, and device type—and thus did not run afoul of the so-called “change-in-position doctrine,” which provides that “[a]gencies are free to change their existing policies as long as they provide a reasoned explanation for the change,” “display awareness that [they are] changing position,” and consider “serious reliance interests.”
This doctrine asks whether an agency changed existing policy and, if so, whether it displayed awareness of the change and offered good reasons for it. Here, the new policy that led to the rejection of the respondents’ applications was “sufficiently consistent” with the agency’s predecisional guidance regarding scientific evidence. It was also consistent with the TCA’s provision that “well-controlled investigations” or other “valid scientific evidence,” if found “sufficient,” may support a finding that a new tobacco product is “appropriate for the public health.”
However, there was still a “harmless error” issue for the Court to decide. And that related to the Fifth Circuit’s rejection of the FDA’s claim of harmless error regarding the agency’s change of position on marketing plans. The FDA did not dispute that despite assuring manufacturers that marketing plans would be “critical” to their applications, it ultimately did not consider the respondents’ marketing plans. The FDA argued that this was harmless because it had issued denials to manufacturers other than the respondents that were based upon marketing plans indistinguishable from those of the respondents. While the Fifth Circuit applied an incorrect standard of review under governing precedents, doing it correctly “presents a difficult problem, requiring reconciliation of the so-called remand rule developed in SEC v. Chenery Corp., 318 U. S. 80, 88, 93–95, with the APA’s instruction that reviewing courts must take ‘due account’ of ‘the rule of prejudicial error’ that ‘ordinarily appl[ies] in civil cases,’ Shinseki v. Sanders, 556 U. S. 396, 406 (quoting 5 U. S. C. §706).”
The Court continues, “The most natural interpretation of the APA’s language is that reviewing courts should adapt the ‘rule of prejudicial error’ applicable in ordinary civil litigation (also known as the harmless-error rule) to the administrative-law context, which, of course, includes the remand rule.” However, the Court has acknowledged that a remand may be unwarranted in certain cases when an agency’s decision “is supported by a plethora of factual findings, only one of which is unsound, because a remand would be pointless.” Given the fact that both the FDA and the Fifth Circuit might have been in error with respect to the harmless error question, and that the FDA has not asked the Court to decide the harmless error question at this point in the case, the Supreme Court vacated the Fifth Circuit’s holding and remanded the case to it so that the Circuit Court “can decide the question afresh” under the correct reading of the caselaw requirements described by the Supreme Court.”
One recognizes the importance of the FDA’s consideration of marketing a tobacco product directed at young people. But perhaps more importantly, I suggest that the Court’s decision offers grounds for useful observations about the many changes in regulatory position and various rulemaking determinations (or lack thereof) being made by various administrative agencies during the current administration. Many of these events are occurring in the food and drug and health care coverage and reimbursement spaces. The length and depth of this unanimous opinion with respect to the FDA’s responsibilities when it has changed position or otherwise might be challenged under the APA for having acted arbitrarily or capriciously suggests the intensity and precision of what federal courts will require in administrative law challenges. In this decision, the agency largely prevailed, though the facts of the case occurred during the previous administration. The court challenges in the current administration are just beginning to take shape as the regulatory environment is radically changing.
Even during the Supreme Court’s current term, at the beginning of a new presidential term, we shall see—and many of my readers will bring—regulatory challenges that will be guided by what the Court held yesterday.