Jerome Stevens Pharmaceut. v. Food & Drug Admin.

• Decision Date: 08 April 2005
• Docket Number: No. 04-5238.,04-5238.
• Citation: 402 F.3d 1249
• Parties: JEROME STEVENS PHARMACEUTICALS, INC., Appellant v. FOOD & DRUG ADMINISTRATION, et al., Appellees
• Court: U.S. Court of Appeals — District of Columbia Circuit

402 F.3d 1249

JEROME STEVENS PHARMACEUTICALS, INC., Appellant v. FOOD & DRUG ADMINISTRATION, et al., Appellees

No. 04-5238.

United States Court of Appeals, District of Columbia Circuit.

Argued March 17, 2005.

Decided April 8, 2005.

Appeal from the United States District Court for the District of Columbia (No. 02cv01939).

Samuel H. Israel argued the cause for appellant. With him on the briefs were John P. Halfpenny and Russell J. Gaspar.

Thomas M. Bondy, Attorney, U.S. Department of Justice, argued the cause for appellees. With him on the brief were Peter D. Keisler, Assistant Attorney General, Kenneth L. Wainstein, U.S. Attorney, and Mark B. Stern, Attorney.

Before: SENTELLE, HENDERSON and ROGERS, Circuit Judges.

ROGERS, Circuit Judge.

The Food and Drug Administration ("FDA") posted on its website trade secrets and confidential information contained in a New Drug Application ("NDA") filed by Jerome Stevens Pharmaceuticals, Inc. ("JSP") for Unithroid, a levothyroxine sodium ("LS") drug used to treat thyroid diseases. FDA also extended the NDA approval deadline, allowing JSP's competitors to continue marketing their unapproved LS drugs for three years after Unithroid had been approved. JSP filed a six-count complaint against FDA, including two counts under the Federal Tort Claims Act ("FTCA"), 28 U.S.C. §§ 2671-2680 (2000), for misappropriation of trade secrets and breach of a confidential relationship, and one count under the Administrative Procedure Act ("APA"), 5 U.S.C. § 706 (2000), for the arbitrary and capricious extension of the NDA deadline. The district court dismissed the complaint for lack of subject matter jurisdiction under Rule 12(b)(1) of the Federal Rules of Civil Procedure, and JSP appeals the dismissal of Counts I, II, and VI. We conclude that the district court properly dismissed the APA claim in Count VI but erred as a matter of law in ruling that the tort claims in Counts I and II were barred by the discretionary function and intentional tort exceptions to the FTCA. Accordingly, we affirm the dismissal of Count VI, reverse the dismissal of Counts I and II, and remand the case to the district court for further proceedings.

I.

The court reviews the district court's dismissal of the complaint de novo and "accept[s] all of the factual allegations in [the] complaint as true." Sloan v. U.S. Dep't of Housing & Urban Dev., 236 F.3d 756, 759 (D.C.Cir.2001) (second alteration in original) (quoting United States v. Gaubert, 499 U.S. 315, 327, 111 S.Ct. 1267, 113 L.Ed.2d 335 (1991)) (internal quotation marks omitted).

JSP is a small New York company that manufactures Unithroid, an orally administered LS tablet used to treat thyroid diseases. On August 14, 1997, FDA announced that, although doctors had been prescribing LS tablets to millions of patients since the 1950s, they were considered "new drugs" because "no currently marketed orally administered levothyroxine sodium product ha[d] been shown to demonstrate consistent potency and stability." 62 Fed.Reg. 43,535, 43,538 (Aug. 14, 1997). Accordingly, FDA required LS manufacturers to submit NDAs for FDA approval by August 14, 2000, and allowed the continued marketing of unapproved LS tablets until that date. See id. FDA stated that after the NDA deadline, any unapproved orally administered LS drug would be "subject to regulatory action." Id.

On October 19, 1999, JSP filed an NDA for Unithroid. Pursuant to FDA requirements, the NDA contained JSP's "trade secrets and confidential information for the manufacture of safe, stable, and effective LS," Compl. ¶ 28, including "[t]he order in which Unithroid's ingredients are added together; the steps that the additions go through in the formation of Unithroid's tablets; and the processing of the active ingredient, levothyroxine sodium," id. ¶ 19. On April 26, 2000, FDA extended the August 14, 2000 approval deadline by one year to allow manufacturers additional time to conduct studies and to prepare applications. 65 Fed.Reg. 24,488, 24,489 (Apr. 26, 2000).

On August 21, 2000, FDA approved Unithroid, making it the first orally administered LS drug to be approved under the new requirements. The next day, without JSP's knowledge or consent, FDA posted on its website JSP's trade secrets and confidential information for manufacturing Unithroid. On December 18, 2000, upon discovering FDA's disclosure of its trade secrets, JSP demanded that the information be removed immediately from FDA's website. After repeated requests, FDA removed some of the information on January 12, 2001, and the remaining information on January 23, 2001. Consequently, JSP's trade secrets were available to the public on FDA's website for five months.

Meanwhile, following FDA approval and anticipating increased demand for Unithroid, JSP doubled its staff and invested $2 million in expanding its facilities. On November 17, 2000, JSP filed a petition asking FDA not to extend the NDA deadline a second time, asserting that it was prepared to supply the entire market for LS drugs. Nonetheless, on July 13, 2001, FDA announced that because "it will take time for the millions of patients taking unapproved [LS] products to switch to approved products, and for manufacturers of approved products to scale up their production and to introduce this increased production into the distribution chain," manufacturers with NDAs pending by August 14, 2001, could continue marketing their unapproved LS tablets for an additional two years. 66 Fed.Reg. 36,794, 36,794 (July 13, 2001). Following this announcement, Abbott Laboratories "flooded the retail market" with Synthroid, its unapproved LS tablet. Compl. ¶ 47. "Having lost de facto market exclusivity due to FDA's publication of its secrets and FDA's extensions of compliance deadlines," JSP was forced to lay off half its workforce and to destroy excess Unithroid worth up to $30 million. Id. ¶ 48.

On October 2, 2002, JSP filed a six-count complaint against FDA in the district court. Counts I and II alleged that, by disclosing JSP's trade secrets and confidential information, FDA misappropriated JSP's trade secrets and breached its confidential relationship with JSP. Counts III and IV alleged that FDA's disclosure of JSP's trade secrets violated procedural and substantive due process. Counts V and VI alleged that FDA's disclosure of JSP's trade secrets and its extensions of the NDA deadlines were arbitrary and capricious under the APA. The complaint sought more than $1.3 billion in compensatory damages "for [JSP's] injuries resulting from [FDA's] misappropriation of [JSP's] trade secrets and breach of FDA's confidential relationship with [JSP]," Compl. ¶ 118, and declaratory relief for the remaining claims.

FDA filed a motion to dismiss for lack of subject matter jurisdiction under Rule 12(b)(1), which the district court granted. See Jerome Stevens Pharm., Inc. v. FDA, 319 F.Supp.2d 45, 47 (D.D.C.2004) ("JSP"). The district court construed Counts I and II as alleging injuries caused solely by FDA's extensions of the NDA deadlines, and ruled that the tort claims in those counts were barred by federal sovereign immunity because the deadline extensions fell within both the discretionary function and intentional tort exceptions to the FTCA. Id. at 50-52. The district court ruled that Counts III, IV, and V failed to present a live case or controversy because FDA had already removed JSP's trade secrets from its website. Id. at 52-54. Finally, the district court ruled that Count VI was barred by the APA's presumption that agency enforcement actions are not subject to judicial review. Id. at 54-57. JSP appeals the dismissal of Counts I, II, and VI.

II.

The FTCA "grants federal district courts jurisdiction over claims arising from certain torts committed by federal employees in the scope of their employment, and waives the government's sovereign immunity from such claims." Sloan, 236 F.3d at 759; see 28 U.S.C. §§ 1346(b), 2674 (2000). The grant of jurisdiction and waiver of sovereign immunity are subject to several exceptions, including the discretionary function exception and the intentional tort exception. See 28 U.S.C. § 2680. The discretionary function exception bars claims "based upon the exercise or performance or the failure to exercise or perform a discretionary function or duty on the part of a federal agency or an employee of the Government, whether or not the discretion involved be abused." Id. § 2680(a). The intentional tort exception bars "[a]ny claim arising out of assault, battery, false imprisonment, false arrest, malicious prosecution, abuse of process, libel, slander, misrepresentation, deceit, or interference with contract rights." Id. § 2680(h).

To determine whether the discretionary function exception applies, the court must engage in a two-part inquiry. Gaubert, 499 U.S. at 322-23, 111 S.Ct. 1267; Macharia v. United States, 334 F.3d 61, 65 (D.C.Cir.2003). First, the court must determine whether the challenged action involves "an element of judgment or choice," or whether federal law "specifically prescribes a course of action for an employee to follow," leaving the employee "no rightful option but to adhere to the directive." Gaubert, 499 U.S. at 322, 111 S.Ct. 1267 (quoting Berkovitz v. United States, 486 U.S. 531, 536, 108 S.Ct. 1954, 100 L.Ed.2d 531 (1988)) (internal quotation marks omitted); Macharia, 334 F.3d at 65. Second, the court must determine whether the challenged action is "of the kind that the discretionary function exception was designed to shield" — that is, actions "based on considerations of public policy." Gaubert, 499 U.S. at 322-23, 111 S.Ct. 1267 (quoting Berkovitz, 486 U.S. at 536, 537, 108 S.Ct. 1954) (internal quotation marks omitted); Macharia, 334 F.3d at 65.

JSP's complaint challenges both FDA's disclosure of JSP's trade secrets and FDA's extensions of the NDA deadlines in favor of JSP's competitors. The parties appear to agree that the disclosure of trade...