Everything the FDA does is a violation of the Administrative Procedure Act

The FDA is a frequent target of litigation by companies and stakeholders who disagree with the agency’s decisions and rulemaking. But according to an analysis by AgencyIQ, the agency is frequently being targeted by litigants claiming that many of its actions – even minor, routine actions common in drug development – violate the Administrative Procedure Act. We decided to dig in to demonstrate just how common this argument has become, and how it applies to almost everything the FDA does.

“Everything is Securities Fraud”

There’s something of a maxim in the financial services sector that “everything is securities fraud.” The phrase, which was popularized by Bloomberg “Money Stuff” columnist MATT LEVINE, refers to the idea that companies frequently find themselves under legal scrutiny for almost any conceivable action for allegedly violating securities laws.

Or as Levine succinctly explained in an April 2024 blog post:

1. Sometimes a public company does a bad thing, or has a bad thing happen to it.
2. News of the bad thing comes out and the stock drops.
3. Shareholders sue, saying “you didn’t tell us about the bad thing in advance, so we bought the stock thinking there was no bad thing, but then we found out that there was a bad thing. We were defrauded; we overpaid for the stock because of your lies.”

Life sciences companies are certainly aware of this theory, as they are frequently a target of lawsuits alleging securities fraud. In any given week, law firms typically release half a dozen press releases touting opportunities for investors in a particular company’s stock to join a securities fraud lawsuit over a wide range of issues. To sample just a few from our inbox this month:

• A company’s clinical-stage asset was less effective than investors were led to believe, and therefore the regulatory and commercial prospects of the asset (which failed) were overstated and misleading;
• A company’s clinical trial was halted, but the company did not fully disclose the circumstances under which it would be halted, and therefore its prior statements were materially false and misleading; and
• A company’s drug turned out to not be as effective at treating a disease as hoped, and therefore FDA was unlikely to approve it. The company’s statements were therefore “were materially false and misleading at all relevant times.”

So, from an investor’s perspective, almost any regulatory event could trigger a securities fraud suit. Your company’s drug fails its Phase 2 study – securities fraud. Your company’s biologic receives a narrower approval than was originally hoped – securities fraud. Your company engages in actual fraud against the FDA – definitely securities fraud.

That isn’t to say that these securities fraud allegations and lawsuits are ultimately successful, but they are time-consuming and onerous for companies to deal with.

Everything FDA does violates the Administrative Procedures Act

We mention all this because we want to introduce you to a regulatory counterpart to the “everything is securities fraud” case, and that is “everything the FDA does is a violation of the Administrative Procedure Act.” Before we explain our theory, here’s some background on the Administrative Procedure Act (APA) of 1946 and its purpose.

The Administrative Procedure Act (APA) is the cornerstone of how federal regulators regulate, setting the rules for how rulemaking is to take place. The APA’s scope includes formal rulemaking, informal rulemaking and the adjudication of violations.

One of the most important sections of the APA relates to the process of rulemaking. As a general principle, the APA sets requirements for how rules are published to ensure those beholden to those rules are aware (or could reasonably be made aware) of a new rule, and of the obligations the rule imposes. To fulfill this principle, the APA requires either that a rule be published in the Federal Register – the official journal of the federal government – or alternatively, that a government agency provide personal service or “actual notice” to “persons subject” to the rulemaking.

A second key benefit of this prominent publication principle is that it encourages – or at the very least allows – participation by interested parties. When a proposed rule is published, regulatory agencies must provide “interested persons an opportunity to participate in the rule making through submission of written data, views, or arguments with or without opportunity for oral presentation.” Then, once a rule is finalized, the APA requires that it not go into effect for at least 30 days.

There are also some notable exceptions to the APA’s notification requirement, which does “not apply to interpretative rules, general statements of policy, or rules of agency organization, procedure, or practice.” It also doesn’t apply in cases where public notice would be “impracticable, unnecessary, or contrary to the public interest.”

So, how does “everything” violate the APA?

Because the APA is prescriptive about the requirements for rulemaking, it also means that any failure by a regulator to follow those requirements can result in an action being found illegal. And increasingly, litigants are citing this argument in attempts to have courts throw out conceivably any administrative action they disagree with, including those actions not traditionally perceived as “rulemaking.”

While most people might think an agency “rule” or “rulemaking” is synonymous with a “regulation” – and especially one published in the Federal Register and labeled as such – that is not actually the case, according to the APA. Under the APA statute (5 U.S.C. § 551), a “rule” is defined as: “[T]he whole or a part of an agency statement of general or particular applicability and future effect designed to implement, interpret, or prescribe law or policy or describing the organization, procedure, or practice requirements of an agency and includes the approval or prescription for the future of rates, wages, corporate or financial structures or reorganizations thereof, prices, facilities, appliances, services or allowances therefor or of valuations, costs, or accounting, or practices bearing on any of the foregoing.”

As far as definitions go, the definition of “rule” is expansive. It can be all or part of something; it can be general or specific; it can implement or interpret either law or policy.

The term “rulemaking” is similarly broad. While in practical terms rulemaking often takes place in the pages of the Federal Register, the APA, breaking the term into two words, defines “rule making” as any “agency process for formulating, amending, or repealing a rule.”

Read broadly – as the APA often is – rules and rulemaking can therefore be construed to apply to almost any agency action. Toss aside the regulatory actions that are obviously rules, such as documents entitled “Final Rule,” and you’re left with a lot of actions made by regulatory agencies which look suspiciously similar to an action defined under the APA as a “rule” and developed under a “rulemaking” practice.

Is every FDA action really a potential violation of the APA? Consider the following:

A review of recent FDA-related litigation, in fact, turns up arguments to this effect on a near-constant basis. A sampling of recent court cases involving FDA that we have come across, to help make the point:

Source: AgencyIQ analysis

The cases above demonstrate that the APA can be used to contest almost any action a regulator makes. What is perhaps most noteworthy is the mundane nature of many of the lawsuits, which tend to focus on the FDA’s quotidian actions. Running through some examples from these cases:

• The FDA approved a generic drug.
• The FDA tweeted advice to not ingest a horse dewormer to combat Covid-19.
• The FDA leveraged adverse event data to fine-tune its safety plan for a drug.
• The FDA counted the number of amino acids in a drug, and determined that the number 8 was less than the number 40.
• The FDA authorized use of a vaccine for children during a pandemic.
• The FDA found that a drug was no longer in shortage.
• The FDA decided the risk controls imposed on a drug were too onerous and relaxed them.

If everything is potentially a violation of the APA, what does that mean for FDA and the life sciences industry?

The point isn’t that FDA loses all APA-related claims. In fact, it has historically prevailed in many – even most – of those cases. But as with federal securities law, when a claim can be made, it very often will be made by entities hoping to reverse a particular action or specific policy. And while plaintiffs are often unsuccessful, these lawsuits tend to have a chilling effect on otherwise normal actions. For example, the FDA might be less forthcoming with data about drug shortages if it believes that its publication of the information could violate the APA.

It’s worth noting that the consequences of violating the APA’s rulemaking provisions are not trivial. Under 5 U.S.C. § 706(2)(A), courts are empowered to hold rules as unlawful and set them aside if they are “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law,” or if they have been made “without observance of procedure required by law.” So, when the FDA loses one of these cases, it must often unwind its actions and start over.

In evolving legal environment, the risk of APA-related claims is higher for regulators. Until recently, Courts generally deferred to agency decision making under the Chevron legal doctrine, finding that regulators’ judgments were acceptable as long as it did not violate statute or explicit Congressional intent. However, the recent Supreme Court case of Loper Bright Enterprise v. Raimondo explicitly overturned Chevron on the basis that the APA “requires courts to exercise their independent judgment in deciding whether an agency has acted within its statutory authority, and courts may not defer to an agency interpretation of the law simply because a statute is ambiguous.” This significant change in legal doctrine could result in many more challenges to FDA regulatory actions, as judges are newly empowered to “exercise independent judgment” in interpreting the appropriateness of statute. For both regulators and regulated industry, this could mean that APA lawsuits represent a higher level of threat to agency policy at a time in which regulators will need to spend more time and resources actively defending their policies in court, or face an increased pressure to justify them up front.

For the life sciences industry and public health stakeholders alike, this environment of regulatory uncertainty could be deeply problematic. Scrutiny of regulatory actions is warranted, and regulators aren’t kings. But increased use of the APA to force scrutiny of regulatory actions means that nearly all regulatory actions – big and small, favorable and unfavorable – could be under threat. So, while a company might benefit from using the APA to fight against a regulatory policy it dislikes, another actor could use the same authority to challenge approval of one of its drugs, or to fight a policy it favors.

The FDA may also find itself facing an increasing number of APA claims in the future, slowing its ability to act. Another Supreme Court case from last term, Corner Post v. Board of Governors of the Federal Reserve System, found that a six-year statute of limitations for challenging federal agency action under the Administrative Procedure Act does not begin “until the plaintiff is injured by final agency action,” thereby opening up decades of prior agency rulemaking to renewed process-oriented litigation. This cycle of litigation could prove challenging for the FDA (and other regulators) to adjust to. If every potential regulatory action could result in a lawsuit, either now or far in the future, the agency’s legal staff is likely to want to more carefully scrutinize its actions and implement new steps and checks that could slow more routine actions – especially in a post-Chevron and post-Corner Post world.

The bottom line: Many routine regulatory actions taken by the FDA are triggering legal actions under the APA, with scrutiny going far beyond major regulations and policies. If this approach becomes more common, it is likely to hamstring the agency’s ability to act in ways that could have downstream implications for drug developers and public health advocates alike.

To contact the author of this analysis, please email Alexander Gaffney ( agaffney@agencyiq.com)
To contact the editors of this analysis, please email Kari Oakes ( koakes@agencyiq.com) and Laura DiAngelo ( ldiangelo@agencyiq.com).