United States: A Word To The Wise – Locate Your FDA-Mandated Agents With Care

Last Updated: May 7 2019
Article by James Beck

This message is directed primarily to our overseas readers, and those who represent non-United States drug and medical device companies. Under FDA registration regulations, non-United States manufacturers (and other regulated companies) that import their regulated products into this country are required to appoint a domestic "agent" for regulatory purposes:

(i) Registration of foreign establishments

(1) Every person who owns or operates any establishment within any foreign country engaged in the manufacture, preparation, propagation, compounding, or processing of a drug or device that is imported or offered for import into the United States shall. . . .

(A) upon first engaging in any such activity, immediately submit a registration to the [FDA] that includes–

(i) with respect to drugs, . . . the name of the United States agent of each such establishment . . . who imports or offers for import such drug to the United States for purposes of importation; and

(ii) with respect to devices, . . . the name of the United States agent for the establishment . . . who imports or offers for import such device to the United States for purposes of importation. . . .

21 U.S.C. §360(i) (emphasis added). The corresponding FDA regulations are 21 C.F.R. §207.69(b) (for drugs), and 21 C.F.R. §803.58(a) (for devices).

Our advice is that, overseas manufacturers (and others required to register) ought to consider the product liability consequences of where they locate their FDA regulatory agents, in addition to all the other criteria that go into making these decisions.

The reason is personal jurisdiction, and the occasion for this advice is the recent decision in Vaughan v. Olympus America, Inc., ___ A.3d ___, 2019 WL 1549345 (Pa. Super. April 10, 2019), underscoring that the location of an overseas company's FDA-mandated agent is a place where such companies can, and will, be sued. Vaughn involved a duodenoscope described as being "designed for reuse on multiple patients" so that it "must be disinfected – or 'reprocessed' – after each use." Id. at *1. Various reusable devices have, in the last couple of years, been targeted by plaintiffs alleging sterilization-related claims.

Critically, for the overseas defendant in Vaughn, it used a Pennsylvania subsidiary as its FDA-registered "agent." From a personal jurisdiction standpoint, that a meant that the agent was indisputably "at home" in Pennsylvania. The relevant principal place of business was in Pennsylvania – in Lehigh County, not particularly close to (or far from) Philadelphia. Id. As readers might have guessed by now, the plaintiff in Vaughn was a blatant litigation tourist. Everything having to do with the use of the device, the pertinent medical treatment, and the claimed injuries took place in North Carolina. Id. at *1, 8.

The court in Vaughn reversed the jurisdictional dismissal of the overseas defendant, and also the forum non conveniens transfer of the rest of the case to North Carolina. That's unfortunate because the case was, of course, filed in Philadelphia rather than in the county where the Pennsylvania subsidiary was actually located. What's worse is the lack of any definitive precedent to say the result in Vaughn is necessarily incorrect on the jurisdictional issue.

The effect of "agency" allegations on personal jurisdiction is murky. In Daimler AG v. Bauman, 571 U.S. 117 (2014), the Ninth Circuit below had allowed general personal jurisdiction on the basis of a breathtakingly broad and vacuous claim of parent-subsidiary "agency" that purportedly existed, and created jurisdiction over the parent, anytime "the subsidiary 'performs services that are sufficiently important to the foreign corporation that if it did not have a representative to perform them, the corporation's own officials would undertake to perform substantially similar services." 571 U.S. at 134 (quoting opinion below). The Supreme Court criticized that agency theory:

[It] stacks the deck, for it will always yield a pro-jurisdiction answer. . . . The Ninth Circuit's agency theory thus appears to subject foreign corporations to general jurisdiction whenever they have an in-state subsidiary or affiliate, an outcome that would sweep beyond even the "sprawling view of general jurisdiction" we rejected [in a prior case].

Id. at 136 (citation to Bauman Ninth Circuit dissent omitted). However, Bauman did not ultimately decide any agency issue, because (as everyone knows) even allowing the aggregation of jurisdictional contacts, the defendants were not "at home" as Due Process required for general jurisdiction.

The Ninth Circuit's extremist assertion of jurisdictional agency in Bauman has fallen by the wayside in the wake of the Supreme Court's criticism. See Ranza v. Nike, Inc., 793 F.3d 1059, 1071 (9th Cir. 2015) (recognizing that "[t]he Supreme Court invalidated this test" in Bauman). However, the Supreme Court in Bauman noted that:

Agency relationships . . . may be relevant to the existence of specific jurisdiction. [A] corporation can purposefully avail itself of a forum by directing its agents or distributors to take action there.

571 U.S. at 135 n.13 (citations omitted). Bauman "therefore embraces the significance of a principal-agent relationship to the specific-jurisdiction analysis, though it suggests that an agency relationship alone may not be dispositive." In re Chinese-Manufactured Drywall Products Liability Litigation, 753 F.3d 521, 531 (5th Cir. 2014). By no means does Bauman support allegations of agency as creating "general jurisdiction," 571 U.S. at 135 n.13, particularly if the result would be "exorbitant" and "unacceptably grasping" assertions of jurisdiction over any plaintiff's claims by multiple states. Id. at 138-39.

But Vaughn was not about multi-state general jurisdiction, or even some sort of "loose and spurious" equivalent masquerading as "specific" jurisdiction. Bristol-Myers Squibb Co. v. Superior Court, 137 S. Ct. 1773, 1781 (2017). Nor was Vaughn a case of a plaintiff making broad, vague, and factually unsupported agency allegations. Cf. Williams v. Yamaha Motor Co., 851 F.3d 1015, 1024 (9th Cir. 2017) (agency allegations devoid of facts showing "right to control" "fail to make out a prima facie case for any such agency relationship").

Rather, Vaughn involved a formal, FDCA-mandated form of agency that cannot be asserted as a basis for jurisdiction in multiple states. See 21 C.F.R. §207.69(b) (overseas applicant "must designate a single United States agent"); 21 C.F.R. §803.58(a) (referring to designation of "a U.S. agent" or "the U.S. agent"). Thus, Vaughn is not a reprise of the off-the-deep-end assertion of what purports to be "specific" jurisdiction in Hammons v. Ethicon, Inc., 190 A.3d 1248 (Pa. Super. 2018), discussed here, an opinion that OKed a theory of jurisdiction that would allow a potentially unlimited number of non-case-specific business contacts and relationships to create the functional equivalent of general jurisdiction for plaintiffs from any number of states.

Since we can't dismiss the specific jurisdiction agency analysis in Vaughn (as opposed to the forum non conveniens part of that opinion) as plainly wrong, or plainly contrary to the jurisdictional policies articulated by the United States Supreme Court, we repeat the advice we offered at the beginning:

Be careful. Don't stumble into a place where you really don't want to be.

Non-United States, FDA-regulated entities need to consider (in addition to all the regulatory and practical considerations), the jurisdictional ramifications of where their statutorily mandated American "agents" are located. That place, for the reasons enunciated in Vaughn, is likely to become a focus for litigation – particularly product liability litigation – involving the overseas entity's products. Some states have better, and some states have worse, litigation environments. There's a reason that the North Carolina plaintiff in Vaughn came to Pennsylvania. There may well be reasons, Dear Readers, that you (or your clients) might want the opposite result.

This article is presented for informational purposes only and is not intended to constitute legal advice.

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