Nigen Biotech, L.L.C. v. Ken Paxton

Case: 14-10923 Document: 00513213635 Page: 1 Date Filed: 09/30/2015
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
United States Court of Appeals
Fifth Circuit
FILED
No. 14-10923 September 30, 2015
Lyle W. Cayce
Clerk
NIGEN BIOTECH, L.L.C., a Utah limited liability company,
Plaintiff - Appellant
v.
KEN PAXTON, in his official capacity as the Attorney General for the State
of Texas,
Defendant - Appellee
Appeal from the United States District Court
for the Northern District of Texas
Before DAVIS, JONES, and CLEMENT, Circuit Judges.
EDITH H. JONES, Circuit Judge:
A manufacturer and distributor of over-the-counter dietary
supplements, Isodrene and The HCG Solution, appeals the district court’s
order dismissing its constitutional and state law claims against the Attorney
General of the State of Texas on the sole basis of state sovereign immunity.
We conclude that it is at least partially correct that NiGen’s claims are not
barred from federal jurisdiction on the basis of Ex parte Young; federal
jurisdiction plainly exists over most of the constitutional claims pled; and
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NiGen has standing to sue. Accordingly, we affirm in part, and vacate and
remand in part for further proceedings.
BACKGROUND
NiGen makes and sells dietary supplements, two of which contain the
“individual amino acid building blocks” of prescription-drug ingredient hCG. 1
The company labels the packages of these products with the term “hCG,” which
the Attorney General of the State of Texas (the “AG” or the State) determined
was “false, misleading, or deceptive” in violation of the Texas Deceptive Trade
Practices Act (“DTPA”) because, among other reasons, “the claim is trying to
mimic claims that FDA considers off-label for the prescription drug.” In
October 2011, the AG sent letters to this effect to NiGen and its retailers,
including CVS, Walgreens, and Wal-Mart, intimating that formal enforcement
was on the horizon for both NiGen and the retailers. The retailers pulled the
products from their shelves in Texas and other states, allegedly costing NiGen
millions of dollars in lost revenue.
NiGen filed suit in December 2011 under 42 U.S.C. § 1983, alleging
violations of its rights under the First Amendment, Fourteenth Amendment
Due Process and Equal Protection Clauses, the Commerce Clause, and the
Supremacy Clause. The company also alleged a state law claim of tortious
interference with existing business relations. NiGen sought 1) a declaration
that its labeling did not violate federal law and that it was entitled to use
“HCG” on its labels; 2) preliminary and permanent injunctive relief; 3) money
damages; and 4) costs and attorneys’ fees.
1 hCG is an acronym for human chorionic gonadotropin hormone, a protein found in
pregnant women that is an ingredient in prescription drugs sold under the brand names
Novarel, Ovidrel, and Pregnyl.
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The AG moved for dismissal, alleging both jurisdictional and pleading
defects. As for the jurisdictional claims, the AG argued that the plaintiff
lacked Article III standing because the only injury to NiGen was the result of
third-party action; that the “federal statutory claim” was non-justiciable
because NiGen asked for a declaration that its labeling did not violate FDA
law, though the AG was never attempting to enforce federal law; and that state
sovereign immunity barred the money damages and state law claims. The
AG alternatively averred that NiGen’s claims fail to state a claim as required
by Federal Rule of Civil Procedure 12(b)(6). Substantial briefing and pretrial
motions preceded the submission of these motions to the court in July 2012.
For reasons not apparent in the record, the district court did not rule for
almost two years. Then, despite the plethora of jurisdictional issues before it,
the court dismissed the entire case as barred by state sovereign immunity.
NiGen seasonably appealed.
STANDARD OF REVIEW
We review the trial court’s jurisdictional determinations de novo.
Fontenot v. McCraw, 777 F.3d 741, 746 (5th Cir. 2015). “The question of
whether state defendants are entitled to sovereign immunity is likewise
reviewed de novo.” Moore v. La. Bd. of Elementary & Secondary Educ.,
743 F.3d 959, 962 (5th Cir. 2014); see also Hale v. King, 642 F.3d 492, 497 (5th
Cir. 2011) (per curiam). We review the court’s rulings on Rule 12(b)(6)
motions de novo and must determine whether the pleaded facts state plausible
claims that are cognizable in law. Bell Atl. Corp. v. Twombly, 550 U.S. 544,
570, 127 S. Ct. 1955, 1974 (2007). Federal courts may analyze arguments
that question our jurisdiction in any order. In this unusual situation, all of
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the jurisdictional arguments must be addressed for NiGen’s suit to proceed in
federal court.
DISCUSSION
The district court concluded that state sovereign immunity barred
NiGen’s entire suit and therefore pretermitted analysis of the AG’s other
arguments. The district court cited Aguilar v. Texas Department of Criminal
Justice for the broad proposition that “a suit against state officials that is in
fact a suit against a State is barred regardless of whether it seeks damages or
injunctive relief.” 160 F.3d 1052, 1053 (5th Cir. 1998) (quoting Pennhurst
State Sch. & Hosp. v. Halderman, 465 U.S. 89, 102, 104 S. Ct. 900, 909 (1984)).
This is deficient not least because shortly thereafter the opinion acknowledges
the availability of Ex parte Young suits to enforce federal law. 2 Rather than
fully defend the district court’s reasoning, the AG resurrects its original
arguments against federal jurisdiction and raises new ones.
A. State Sovereign Immunity
The several states of our union retained those aspects of sovereignty that
the people did not explicitly assign to the federal government. 3 Since the
judicial article does not “create new and unheard of remedies,” Hans v.
Louisiana, 134 U.S. 1, 12, 10 S. Ct. 504, 506 (1890), the sovereign states cannot
be sued without their consent. See Papasan v. Allain, 478 U.S. 265, 276,
106 S. Ct. 2932, 2939 (1986). As a result, “Federal courts are without
2 Moreover, Aguilar itself was filed not against an individual state officer acting in
his official capacity, but against the Texas Department of Criminal Justice, a state agency
that shares the sovereign immunity of the State of Texas.
3 Alden v. Maine, 527 U.S. 706, 713, 119 S. Ct. 2240, 2246-47 (1999); see also In re
New York, 256 U.S. 490, 497, 41 S. Ct. 588, 589 (1921) (discussing state sovereign immunity
as “the fundamental rule of which the amendment is but an exemplification”).
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jurisdiction over suits against a state, a state agency, or a state official in his
official capacity unless that state has waived its sovereign immunity or
Congress has clearly abrogated it.” Moore, 743 F.3d at 963. Texas has not
consented by statute, and § 1983 does not abrogate state sovereign immunity.
Quern v. Jordan, 440 U.S. 332, 340, 99 S. Ct. 1139, 1145 (1979).
“A suit is not ‘against’ a state, however, when it seeks prospective,
injunctive relief from a state actor . . . based on an alleged ongoing violation of
the federal constitution.” K.P. v. LeBlanc, 729 F.3d 427, 439 (5th Cir. 2013).
Under the doctrine articulated in Ex parte Young, 4 209 U.S. 123, 28 S. Ct. 441
(1908), a state official attempting to enforce an unconstitutional law “is
stripped of his official clothing and becomes a private person subject to suit.”
K.P. v. LeBlanc, 627 F.3d 115, 124 (5th Cir. 2010). “Suits by private citizens
against state officers in their official capacit[ies] are not, therefore,
categorically barred.” Fontenot, 777 F.3d at 752. NiGen sued the Attorney
General in his official capacity, satisfying the first requirement of Ex parte
Young.
Certain of NiGen’s claims fail, however, to the extent they request
retrospective money damages. A claim for money damages “seek[s] to impose
a liability which must be paid from public funds in the state treasury.”
Edelman v. Jordan, 415 U.S. 651, 663, 94 S. Ct. 1347, 1356 (1974). As the AG
correctly points out, the Eleventh Amendment bars federal court jurisdiction
over such claims.
4 Although the doctrine is universally associated with Ex parte Young, the central
conceit can be traced further back. See, e.g., United States v. Lee, 106 U.S. 196, 197, 1 S. Ct.
240, 241 (1882).
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Further, NiGen’s state law claim for tortious interference with contract
fails to establish federal jurisdiction because the Ex parte Young doctrine only
reaches alleged violations of federal law. McKinley v. Abbott, 643 F.3d 403,
406 (5th Cir. 2011); see also Pennhurst State Sch. & Hosp., 465 U.S. at 106,
104 S. Ct. at 911.
A final prerequisite of Ex parte Young is that “the relief sought must be
declaratory or injunctive in nature and prospective in effect.” Saltz v. Tenn.
Dep’t of Emp’t Sec., 976 F.2d 966, 968 (5th Cir. 1992). Notably, in the trial
court, the AG did not move to dismiss NiGen’s federal claims for declaratory
and injunctive relief on the grounds that they failed to request prospective
relief. Now, on appeal, the AG argues for the first time that even the
injunctive and declaratory claims are ineligible for Ex parte Young because the
plaintiff does not allege an “ongoing violation of federal law.” It is true that a
complaint must allege that the defendant is violating federal law, not simply
that the defendant has done so. 5 See Green v. Mansour, 474 U.S. 64, 71-73,
106 S. Ct. 423, 427-29 (1985). The State argues that whatever “smattering of
present tense language” is in the complaint does not suffice to allege an ongoing
violation of federal law. Assuming arguendo that the AG has not waived this
argument by failing to raise it in the district court, 6 we are unpersuaded, for
the Supreme Court has explained that courts generally conduct a
“straightforward inquiry into whether [the] complaint alleges an ongoing
This requirement is similar but not identical to the Article III minimum for standing
5
to request an injunction, which requires ongoing harm or a threat of imminent harm. See
City of Los Angeles v. Lyons, 461 U.S. 95, 105, 103 S. Ct. 1660, 1667 (1983).
See Union Pac. R.R. Co. v. La. Pub. Serv. Comm’n., 662 F.3d 336, 342 (5th Cir. 2011)
6
(state did not waive Eleventh Amendment immunity defense by not raising it in the district
court, where it defended the suit on the merits).
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violation of federal law.” Verizon Md., Inc. v. Pub. Serv. Comm’n., 535 U.S.
635, 645, 122 S. Ct. 1753, 1761 (2002) (alteration in original). NiGen points
to the complaint’s straightforward allegations, of which there are many, that
the AG’s continued refusal (now after nearly four years) to justify its
threatening letters still inflicts, inter alia, an unconstitutional restraint on its
commercial speech, punishment without due process, and other constitutional
violations. These allegations are sufficient to demonstrate the ongoing nature
of the alleged unconstitutional conduct, which a federal court could remedy
through prospective relief.
B. Federal Question Jurisdiction
The parties also join issue over this court’s subject matter jurisdiction,
yet all of NiGen’s claims except for tortious interference are brought under
§ 1983, a federal statute, and allegedly arise under the U.S. Constitution. “A
suit arises under the law that creates the cause of action.” Am. Well Works
Co. v. Layne & Bowler Co., 241 U.S. 257, 260, 36 S. Ct. 585, 586 (1916).
The AG argues that all of the federal claims here are really defenses to
its threatened DTPA enforcement action. According to the well-pleaded
complaint rule, federal jurisdiction is absent when the federal issue appears in
the guise of an anticipated defense. E.g., New Orleans & Gulf Coast Ry. Co.
v. Barrios, 533 F.3d 321, 328 (5th Cir. 2008). And in an action for declaratory
judgment, the inquiry is inverted: Since a declaratory judgment action is
inherently anticipatory, the federal issue must form part of the hypothetical
well-pleaded complaint that the declaratory judgment defendant would have
filed but for the anticipatory action. See Skelly Oil Co. v. Phillips Petroleum
Co., 339 U.S. 667, 671, 70 S. Ct. 876, 879 (1950).
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To the extent that NiGen seeks as its first cause of action a declaration
that “its use of the letters ‘HCG’ on its packaging and labeling has not violated
any federal law, and that Plaintiff is entitled to use the letters ‘HCG’ on its
packaging and labeling for Isodrene and The HCG Solution,” the company’s
allegations plainly assert a defense to a not-yet-commenced state enforcement
action. Although the question whether NiGen’s product and labelling
comport with federal FDA law may become a defense in such an enforcement
action, this is hardly a sure thing; the State’s letters principally alleged
potential violations of state deceptive trade practices law. This court’s recent
decision in Singh v. Duane Morris LLP, 538 F.3d 334, 338 (5th Cir. 2008) set
out a four-part test, determining that a federal court may exercise jurisdiction
over a state law cause of action when: “(1) resolving a federal issue is
necessary to the resolution of the state-law claim; (2) the federal issue is
actually disputed; (3) the federal issue is substantial; and (4) federal
jurisdiction will not disturb the balance of federal and state judicial
responsibilities.” The party asserting jurisdiction has the burden to prove all
of these elements. NiGen’s stand-alone pleading for declaratory relief plainly
does not satisfy the first three tenets on the present state of the record.
The AG more generally contends that all of NiGen’s claims are
essentially anticipatory defenses to the threatened enforcement action, hence
all are barred. We disagree with this proposition. A number of cases have
held that where a plaintiff in NiGen’s position seeks both declaratory and
injunctive relief, the Wycoff rule 7 does not prevent that plaintiff from
7 Public Service Comm’n. of Utah v. Wycoff Co., 344 U.S. 237, 248, 73 S. Ct. 236, 242-
43 (1952)(looking to whether federal jurisdiction exists over threatened action, not the
defense, in a claim for declaratory relief).
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establishing federal jurisdiction. In A&R Pipeline Corp. v. Commissioner,
State of Oklahoma, 860 F.2d 1571 (10th Cir. 1988) the court, when faced with
an analogous case, sustained federal jurisdiction:
We express no opinion concerning the dicta in Wycoff and its
progeny because this suit is not based solely on a claim for
declaratory judgment but also includes a claim for injunction.
...
The district court’s jurisdiction to resolve the pipeline’s claim for
injunction extends to enable the court also to resolve the issues
raised by the declaratory judgment action.
We reached a similar conclusion in Braniff International, Inc. v. Florida
Public Service Commission, 576 F.2d 1100 (5th Cir. 1978). In that case we
stated:
We hold that where a party seeks injunctive and declaratory relief
based upon the unconstitutionality of a state statute where there
are no other concrete impediments to a proper exercise of federal
question jurisdiction, the mere fact that the constitutional claims
might be raised before a state administrative body charged with
enforcement of the statute does not alone deprive the court of
jurisdiction.
Regardless of the ultimate merit of NiGen’s claims, with the sole
exception of the stand-alone declaratory judgment cause of action, there is
federal question jurisdiction over the constitutional claims NiGen asserts
under § 1983.
C. Standing
The State also challenges NiGen’s standing to bring this suit. It is true
that “a plaintiff must demonstrate standing separately for each form of relief
sought.” Friends of the Earth, Inc. v. Laidlaw Envtl. Servs. (TOC), Inc.,
528 U.S. 167, 185, 120 S. Ct. 693, 706 (2000). To have standing to sue, the
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plaintiff must demonstrate injury in fact that is fairly traceable to the
defendant’s conduct and that would be redressed by a favorable judicial
decision. Lujan v. Defenders of Wildlife, 504 U.S. 555, 560, 112 S. Ct. 2130,
2136 (1992). However, the complaint need only “allege facts from which it
reasonably could be inferred,” Warth v. Seldin, 422 U.S. 490, 504, 95 S. Ct.
2197, 2208 (1975), that it is “likely, as opposed to merely speculative, that the
injury will be redressed by a favorable decision,” Lujan, 504 U.S. at 61,
112 S. Ct. at 2137 (internal quotation marks omitted).
The injury-in-fact and traceability requirements are not disputed here.
The AG has again taken a different tack on appeal and for the first time
challenges redressability. We must address this contention as it goes to
federal jurisdiction and cannot be waived, but the fact that it is late-raised
reduces the credibility of the AG’s argument and disserves the efficiency of the
judicial process.
In challenging redressability, the AG cites Lujan, which observed that
standing to challenge government action “depends considerably upon whether
the plaintiff is himself an object of the action (or forgone action) at issue.”
504 U.S. at 561, 112 S. Ct. at 2137 (denying standing, in part because the only
entities whose actions could redress the plaintiff’s alleged injury were
nonparties that would not be bound by the judgment). Further, in Simon v.
Eastern Kentucky Welfare Rights Organization, the plaintiffs complained that
an IRS revenue ruling allowed favorable tax treatment for hospitals that
treated indigents only in their emergency rooms (instead of also admitting
them to inpatient care). 426 U.S. 26, 33, 96 S. Ct. 1917, 1922 (1976). The
Supreme Court held that even an order forcing the IRS to change its policy
would not necessarily result in the hospitals admitting indigent patients. Id.
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at 43, 96 S. Ct. at 1926. The Court held that “unadorned speculation will not
suffice to invoke the federal judicial power.” Id. at 44, 96 S. Ct. at 1927; see
also Allen v. Wright, 468 U.S. 737, 758, 104 S. Ct. 3315, 3328 (1984) (IRS’s
failure to enforce tax disadvantage against discriminatory private schools
would not necessarily redress harm to students in segregated public schools).
These cases, however, turned on remedying conduct that was not
initially directed at the plaintiffs themselves. Here, the AG sent threatening
letters not only to NiGen’s retailers in Texas but also to the company itself.
As NiGen cogently explains, “these letters harmed NiGen directly because they
amounted to a preliminary injunction against the lawful sale of NiGen’s
products. NiGen’s retailers removed the products from their shelves only as
a direct result of receiving the threatening letters from the Attorney General.”
NiGen Reply Br. at 17. Further, because “NiGen itself continues to be
effectively enjoined from selling its products,” a favorable court decision “would
allow NiGen to again sell its products freely in Texas, whether directly,
through its prior retailers, through other retailers, etc. It would allow NiGen
to repair its damaged relationship with its retailers that has resulted from the
Attorney General’s conduct. This is not speculative and is not dependent on
the actions of third parties.” Id. at 17-18. As the Supreme Court has noted,
where a plaintiff’s complaint alleges a continuing violation or the imminence
of a future violation, a prayer for injunctive relief satisfies redressability.
Steel Co. v. Citizens for a Better Env’t, 523 U.S. 83, 108, 118 S. Ct. 1003, 1019
(1998).
Other court decisions cited by the Attorney General have found the
“chain of forward causation” to be broken for redressability purposes, but they
are distinguishable. For example, in Frank Krasner Enterprises, Ltd. v.
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Montgomery County, the owner of an expo venue refused to grant a lease to a
plaintiff gun vendor because of a law withdrawing local subsidies for shows
where guns were sold. 401 F.3d 230, 232 (4th Cir. 2005). The Fourth Circuit
held that even if the law were enjoined, the non-party owner might still decline
to do business with the gun seller. Id. at 236. The court emphasized the
absence of a case granting standing to a plaintiff that challenged a
government’s decision not to subsidize a third party. Id. at 235-36.
Similarly, in Glanton ex rel. ALCOA Prescription Drug Plan v. AdvancePCS
Inc., 465 F.3d 1123, 1125 (9th Cir. 2006), the plaintiffs were beneficiaries of a
mismanaged ERISA drug plan. But the court held that even if their suit
against the manager’s misdeeds succeeded, it would not follow that the
sponsors of the plan would reduce the price of the plaintiff’s benefits;
consequently, the court could not redress their alleged injury. Id. at 1127.
Of a similar nature is Pritikin v. Department of Energy, 254 F.3d 791, 799-801
(9th Cir. 2001), in which the plaintiffs sued one federal agency on their claim
that it had to fund another, with no guarantee that a favorable judgment would
in fact cause the funding to occur.
None of these cases sought, like NiGen’s, to lift a yoke of alleged
unconstitutional conduct from the plaintiff’s own shoulders. None of them
involved government enforcement threats against third parties. Were NiGen
to succeed here and nullify the threats, the likelihood of NiGen’s success in
returning its products to store shelves in Texas, given the normal marketplace
incentives, is much greater than in these other cases. We make no predictions
about the outcome of this case except to acknowledge that if NiGen succeeds in
enjoining the AG’s conduct, which would require a retraction of the offending
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letters and/or the instigation of procedurally adequate enforcement measures,
NiGen could again conduct business as usual.
The district court did not rule on the AG’s Rule 12(b)(6) motion for failure
to state a claim. For two reasons, we remand this ordinarily legal question to
that court. First, nearly four years have passed since the delivery of the AG’s
letters, and we cannot be certain that the facts concerning this case are the
same as they were when suit was filed. Second, the dismissal motion seems
to rely on discovery and matters outside the pleadings, suggesting that the
entire record must be consulted, which is the province of summary judgment
rather than a 12(b)(6) motion. The district court is the better venue for this
analysis in the first instance.
CONCLUSION
For the foregoing reasons, the judgment of the district court is
AFFIRMED insofar as it dismissed NiGen’s claims for money damages, for
state law violations, for retrospective relief, and for declaratory relief against
a threatened enforcement action; the judgment is REVERSED insofar as it
dismissed NiGen’s constitutional law claims; and the case is REMANDED for
further proceedings.
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