United States v. Cal. STEM Cell Treatment Cntr., Inc., 2024 U.S. App. LEXIS 24525 (9th Cir. 2024), is not, strictly speaking, a product liability case at all. But it hits several of our personal sweet spots. For example, it is from the Ninth Circuit, where we clerked for Judge Norris. It involves another of our old employers, the United States Attorney's Office in the Central District of California. So the Cal. STEM case takes us on a trip down memory lane. Further, the case turns on FDA enforcement of its regulations and whether the product at issue constitutes a drug. We occasionally bump into that issue in our current work for paying clients. The cherry on top is that the official opinion of the Ninth Circuit breaks down into different portions authored by different judges. Plus, there are a lot of weird acronyms. What's not to love about this case?
The defendant in the case purported to treat folks with a stem cell slurry mixture called stromal vascular fraction (SVF). SVF is a liquefied mixture of cells and cell debris derived from fat tissue. Under a microscope, it looks a bit like honeycomb. But that is where the resemblance ends. SVF does not seem in the least bit sweet or yummy. The SVF was created by extracting (via liposuction) fat tissue from a patient and breaking it down (centrifuge, etc.) to concentrate the portion containing stem cells. The resulting SVF was then administered to the patient. For example, the defendant injected SVF directly into a patient's knee to treat osteoarthritis. This sort of procedure goes by the rubric of regenerative medicine. As you might imagine, such treatment is hardly free from controversy with respect to safety and efficacy.
The FDA filed a civil lawsuit against the defendant, alleging that the defendant's SVF treatments were human cells, tissues, and cellular based products (HCT/Ps). Such products, according to the FDA, constituted drugs that had not been approved, were improperly manufactured, and were inadequately labeled. The FDA sought injunctive relief. The same buzzwords that plaintiffs in product liability cases now seem to find irresistible — adulteration and misbranding — reared their ugly heads in the Cal. STEM case. After a bench trial, the district judge found for the defendant, concluding that the SVF treatments were not drugs and, even if they were, the "same surgical procedure" (SSP) regulatory exception applied because the defendant removed HCT/Ps from a patient and then implants them into the same patient during the same surgical procedure. That was a dream result for the defendant.
But the Ninth Circuit is where defendant dreams go to die, and that is what happened here. The appellate court held that under the plain words of the regulations, the SVF treatment was a drug. The definition of "drugs" is quite broad: "articles intended for use in the diagnosis, cure, mitigation, treatment, or prevention of disease." The defendant did not really dispute that a literal reading of such broad language put them in the soup (or slurry?), but argued that such breadth could lead to absurd results. That may be so, said the Ninth Circuit, but there are plenty of cases applying the broad definition of "drugs," and there was nothing particularly absurd about including SVF treatments as drugs. Even if SVF was a biologic, a product can be both a drug and a biologic under the regulation.
In a last effort to fend off the FDA's interpretation of SVF as a drug, the defendant invoked the major questions doctrine, which, when applicable, requires an agency to point to clear congressional authorization for the power claimed by the agency. But the Ninth Circuit held that the major question doctrine was inapplicable here, because this case did not present a matter of extreme economic and political significance, nor did it represent a sudden assertion or transformative expansion of agency authority. In any event, some recent legislation suggests that Congress does, indeed, presuppose that FDA regulates stem cell therapies.
The Ninth Circuit held that the SSP exception did not apply because the removed HCT/P is the fat tissue, not the cells implanted for implantation. They are not "the same." There was a lot of processing in between the extraction and the injection. The fat tissue was significantly altered. Believe it or not, the court's interpretation of sameness – or in this case, not sameness – revolves around the word "such." The regulation's exception includes the word "such" when discussing the same surgery scenario. Looking to Black's Law Dictionary, the court reasoned that "such" refers back to something already mentioned – an antecedent. What was removed was fat tissue. What was later injected was something different. The court concluded that "a surgical procedure cannot qualify for the SSP exception if it involves more than minimal manipulation of HCT/Ps." Such was the case here. Goodbye exception.
The judge who wrote the court's opinion holding that SVF was a drug wrote a concurrence, on different grounds, as to why the SSP exception did not apply. After examining the text, structure, purpose, and history of the regulation, she would hold that the SSP exception was ambiguous. Faced with such ambiguity, the court owed Auer deference to the FDA's reasonable interpretation of the SSP exception as not applying to the defendant's treatments. (For those of you who have imperfect recollection of your old Administrative Law class, Auer deference applies when an agency interprets its regulations, whereas the recently overruled Chevron deference applied when an agency interpreted statutes.)
The case was reversed and remanded for further proceedings.
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