Reversing the Fourth Circuit Court’s decision to extend the WSLA to civil offenses, the Supreme Court unanimously held in that the WSLA only applies to criminal offenses, meaning the WSLA does not suspend the statute of limitation for an individual action brought under the FCA.  The Supreme Court further held that the False Claim’s Act’s first-to-file bar applies only while related claims are active.  Once the first filed case is settled or dismissed, the bar does not apply.

In 2005, the whistleblower, Carter, filed a qui tam complaint alleging that his former employer fraudulently charged the U.S. government for water purification services inadequately or fraudulently performed during the Iraq War.  Nearing trial, the complaint (Carter I) was dismissed under the first-to-file rule based on an earlier filing with similar claims in United States ex rel. Thorpe v. Halliburton Co., No. 05-cv-08924 (C.D. Cal., filed Dec. 23, 2005).

POM Wonderful produces, markets, and sells a variety of pomegranate products, including a pomegranate-blueberry juice blend.  Much to POM Wonderful’s chagrin, Coca-Cola, through its Minute Maid brand, created a product to compete with POM Wonderful’s pomegranate-blueberry juice blend.  The label of this product prominently displays the words “pomegranate blueberry” in all capital letters on two separate lines, and below those lines, in much smaller type, the phrase “flavored blend of 5 juices.”  Below that phrase, in even smaller type, is the phrase “from concentrate with added ingredients – then a line break “and other natural flavors.”  The label also displays a vignette of blueberries, grapes, and raspberries in front of a halved pomegranate and halved apple.

The problem with the aforementioned label – in POM Wonderful’s view – is that Coca-Cola’s pomegranate-blueberry juice blend consists of 99.4% apple and grape juices (which are less expensive than pomegranate and blueberry juices), and only 0.3% pomegranate juice, 0.2% blueberry juice, and 0.1% raspberry juice.  So not only is Coca-Cola competing for POM Wonderful’s pomegranate-blueberry juice market share, it is doing so with a product that consists of only 0.5% pomegranate and blueberry juice.

Based on the foregoing, POM Wonderful sued Coca-Cola under Section 43 of the Lanham Act, which allows one competitor to sue another for unfair competition arising from false or misleading product descriptions.  POM Wonderful alleged that that the use of the label in question is deceptive and misleading to consumers because it causes them to believe Coca-Cola’s juice consists predominately of pomegranate and blueberry juice, when it in fact consists predominately (99.4%) of less expensive apple and grape juices.

The district court granted partial summary judgment to Coca-Cola on POM Wonderful’s Lanham Act claim because, according to the court, the FDCA precludes challenges to the name and label of Coca-Cola’s juice blend, and in fact expressly permits some aspects of the label.  The Ninth Circuit affirmed, reasoning that Congress entrusted the Food and Drug Administration (FDA) with authority to regulate juice labels, and that for a court to interject would risk undermining the FDA’s expert judgment and authority in that area.

On appeal, the Supreme Court reversed and remanded the Ninth Circuit’s decision, holding that competitors are permitted to bring Lanham Act claims, such as POM Wonderful’s, challenging food and beverage labels regulated by the FDCA.

The Court based its decision on principles of statutory interpretation.  First, it reasoned that this was not a pre-emption case because it concerned two federal statutes – as opposed to a federal statute and state statute.  Second, the Court rejected Coca-Cola’s argument that the FDCA should control because it is more specific than the Lanham Act, and sided with POM Wonderful’s contention that a court should give full effect to both statutes unless there is an “irreconcilable conflict.”

Not only did the Court not find an irreconcilable conflict, it found that the Lanham Act and FDCA are complementary of one another.  The FDA uses the FDCA and its regulations to protect public health and safety.  The Lanham Act, on the other hand, protects commercial interests against unfair competition.  This allows competitors to utilize their market expertise, in a way the FDCA does not, to protect their interests on a case-by-case basis.  Thus, in the Court’s view, the Lanham Act and FDCA were designed to work together, each with its own mechanism to enhance protection of competitors and consumers.

The Court noted that neither the Lanham Act nor the FDCA forbids or limits Lanham Act claims challenging FDCA-regulated labels.  Because the Lanham Act and FDCA have coexisted since the Lanham Act’s passage in 1946, the Court reasoned that if Congress felt Lanham Act suits interfered with the FDCA, it would have enacted a provision addressing the issue at some point in the last 70 years.

Finally, the Court addressed the Government’s argument that POM Wonderful was not permitted to bring a Lanham Act claim challenging the name of Coca-Cola’s product because FDA regulations specifically authorize the names of juice blends.  POM Wonderful was, however, free to challenge all other aspects of the label. The Court rejected this argument because it assumes the FDCA and its regulations provide a ceiling on the regulation of food and beverage labeling, which is not the case since the Lanham Act actually complements and works with the FDCA to protect competitors and consumers.

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¹ See, e.g., Stewart v. Beam Global Spirits & Wine, Inc., No, 11-5149, 2014 WL 29208086 (D.N.J. June 27, 2014) (denying class certification in lawsuit against seller of Skinnygirl Margarita for misleading marketing campaign that said the drink was “all natural” and a “healthy alternative to other commercial Margarita products.”).

In the case before the high Court, employee of a contractor mutual fund advisor, Jackie Lawson felt forced to resign in 2007 after notifying the SEC about irregularities on the books of a Fidelity mutual-fund group.  According to her, the irregularities likely affected the fees that the company was charging its clients.  Two years before Lawson’s claim, Jonathan Zang resigned under similar circumstances after he notified the SEC of statements made by the same company that he found were misleading to clients and to the public.

The U.S. Court of Appeals for the First Circuit found that both whistleblowers were not covered under whistleblower protections because they were not employees of the defendant (mutual fund) company, but employees of (mutual fund advisor) subcontractors of the company. In a 6-3 decision, the Supreme Court concluded that both the text of §1514A and the legislative history of SOX make clear that the whistleblower provision “shelters employees of private contractors and subcontractors just as it shelters employees of the public company.”

Assessing the import of § 1514A, the Supreme Court found that “[t] he ordinary meaning of ‘an employee’ in this proscription is the contractor’s own employee.” The Court noted that “[i]f, as we hold, ‘an employee’ includes employees of contractors, then grammatically, the term also includes employees of public company officers and employees.” But, the Court observed that as a practical matter, “[f]ew housekeepers or gardeners . . . are likely to come upon and comprehend evidence of their employer’s complicity in fraud.”

Finding that the text of SOX itself, along with its purpose, favored such interpretation, SCOTUS ultimately held that SOX extends protection to private companies and contractors that work with publicly traded companies.

The Court rejected defendant employers’ argument that the language of SOX was intended to apply only to outside contractors engaged to administer retaliation in avoidance of the SOX provision à la George Clooney’s character as an “ax-wielding specialist” in the movie Up in the Air.

The ruling could have a ripple effect on the mutual-fund industry since most public mutual-fund companies do not employ their own personnel, instead opting for the use of contractors.  The attorney for the whistleblowers expressed satisfaction with the ruling, stating that a loophole in the Act was closed by SCOTUS’ ruling.

In dissent, Justice Sotomayor (joined by Justices Kennedy and Alito), described the ruling as “a stunning reach,” and criticized the majority decision as not reflective of “the statute Congress wrote.”

In Lawson, SCOTUS focused on the meaning of the version of § 1514A(a) in effect in 2002.  Subsequently, the section has been amended by Congress, most recently in 2010 as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”).  Dodd-Frank added a whistleblowing bounty program as well as new provisions prohibiting any employer from retaliating against “a whistleblower” for providing information to the SEC or making disclosures required or protected by Sarbanes-Oxley and other securities laws.