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- [00:00]
LPL Financial Representative
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- [01:06]
IBM Representative
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- [01:51]
Holly Frome
Welcome to the Votes and Verdicts podcast hosted by Bloomberg Intelligence, the investment research arm of Bloomberg lp. In this podcast series, we talk about the intersection of business policy and law. My name is Holly Frome. I'm an analyst with Bloomer Intelligence covering consumer and industrials litigation. Today's podcast will focus on litigation facing Bayer's Monsanto unit over its weed killer roundup. I'm delighted to be joined today by Gail Mullen, partner and co chair of the Business and Corporate Law section of Whiteford law. Mr. Mullen advises clients on regulatory compliance, square, corporate governance, securities and government investigations. He's practiced before regulatory agencies such as the sec, fda, EPA and finra, and other agencies and counsels clients on compliance and enforcement matters involving various areas of law. Thank you so much for joining us today. Israel.
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Gail Mullen
Thank you, Ali. It's good to be here.
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Holly Frome
So, jumping right into today's topic, Bayer has been sued by over 100,000 consumers who say it's wheat, caramel or car killer Roundup causes non Hodgkin's lymphoma. Bayer has faced billions in jury verdicts since 2018. In 2020, it agreed to pay around $11 billion to resolve around 100,000 cases. And though Bayer withdrew Roundup with glycosate from the residential market in 2023, there are still about 67,000 cases pending. And any residential user who allegedly gets sick in the future from roundup used before 2023 could still sue. So Bayer filed a petition to the U.S. supreme Court seeking to have it review a $1.25 million verdict out of Missouri state court in a case called Monsanto vs. Durnel. The Missouri court found that state failures warn things were not preempted by federal pesticide law, otherwise known as wfra. There's a circuit split among federal courts of appeal on this issue. And the Supreme Court agreed to hear the Durnel case earlier this year and heard arguments on April 27. It's decision on the appeal may come in June. So Mr. Mulley, can you explain what questions the Supreme Court is deciding?
- [03:49]
Gail Mullen
Sure. The plaintiffs say that Monsanto should have warned and Monsanto says that EPA approved its label without a cancer warning. And they say federal law then blocks the state based claim. And so the federal courts of appeals, as you correctly point out, is divided on that question. Who's right? The Supreme Court passed on the question once in 2022, but this time they decided to take it up.
- [04:21]
LPL Financial Representative
Interesting.
- [04:21]
Holly Frome
So you said that there are two preemption theories before the court and they are not equally strong. What are they and which is stronger?
- [04:29]
Gail Mullen
You know, that's a great question. The two theories are these. Express preemption asks whether a state failure to warn verdict counts as a labeling requirement that's different from the federal label. The second theory is implied conflict preemption and that asks whether Monsanto could even have added the warning without breaking federal law. In my opinion, the weaker one is the express theory. And that's so because of the court's 2005 decision in Bates vs. Dow. And in my opinion, that leaves room for state claims that mirror the federal standard. I think the implied theory is stronger and I think it's where the case will come out.
- [05:20]
Holly Frome
On that first theory, the federal statute says a product is misbranded if its warning is inadequate. The EPA hasn't pursued Bayer for misbranding and has said that the product is actually not misbranded. So how can a state jury vote for failure to warn the equivalent to the federal misbranding standard?
- [05:38]
Gail Mullen
And Holly, that's exactly the difficulty with the express theory. Edit cuts against Bayer fifra, the federal Insecticide, Fungicide, and Rodenticide Act. Its own definition of misbranding includes a label that lacks an adequate warning. So if you look at a state duty to warn standard, a state duty to warn doesn't automatically add something to federal law. It could enforce the same standard. But the Bates case protects that overlap. And it held that a state claim survives if it runs parallel to the federal requirement, rather than adding it to that requirement. So in my opinion, Monsanto can't win on the text of the express clause by itself. It also needs another argument, and that argument is impossibility.
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Holly Frome
So can you explain the difference between express preemption versus implied conflict preemption?
- [06:44]
Gail Mullen
Sure. Express preemption, Holly, is words on the page. Congress wrote a clause that says that states can't impose labeling requirements just different from federal ones. And so the fight is over what that sentence reaches. So that's express preemption. What do the words on the page say? And how do you apply the requirement that states not impose different labeling requirements? Implied conflict preemption, by contrast, is about what really happens. Implied conflict preemption is about the reality. And implied conflict preemption asks whether a company could actually obey state and federal law at the same time. If a state jury says you have to add a warning, but federal law says you can't change the label without the sign off from the agency, then the company is caught between two different bodies of law, two different sovereigns, the federal sovereign and the state sovereign. That's, in my opinion, the stronger ground because it doesn't depend on taking apart the words on the page in a single clause. It depends on whether or not compliance under that too sovereign regime was even possible.
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Holly Frome
Right. So the express preemption provision, that's something that, know, I think we've seen in other statutes. So we've seen it in the Medical Device act, and as you mentioned, it's in this, the FIFA act, and it was analyzed in Bates vs Dow. And in that case, and as well as the Medical Device act, they're talking about how a state requirement will not be preempted if it's parallel to the federal law. So that's why I think you know what's what. You know, I agree with you that this is the, the more interesting, I guess, stronger argument is that there's this regulation out there that prevents Monsanto from changing the warning without EPA approval. But you frame this argument, this implied or possibility argument, as a fault line between two of the court's pharmaceutical decisions, Wyeth versus Levine, which I believe was 2009 and Plavier versus Mensing, which I think was from 2011. Can you walk us through the difference between those cases that pork and which side is Bayer trying to land on here?
- [09:22]
Gail Mullen
And Holly, I think that frames the argument very precisely and it really turns on what does the word different mean and how would that apply here in the context of labels? And so in WITH versus Levine and then Pleva versus Minsing, to see the gaps, I think we have to understand with first. So you look at with Wyeth is a brand name drug maker that could strengthen its own label on its own initiative. So in that case, the court said there was no impossibility. And in that case they let the failure to warn claim, the state based claim, proceed. In Pleva, the Pliva, a generic maker, was locked into a brand label by federal law. It could not on its own change it. And so in the Pleva case, they won and they won on preemption. So it seems to me that Monsanto wants to be the generic. It wants to be the Pleva case. It wants to say it was locked on to the EPA approved label, could not add a cancer warning on its own. And that's where the strength of that argument lies. The plaintiffs, on the other hand, want Monsanto to be the brand. A company that could have asked to strengthen the label and chose not to. And so the gap between with and Cleaver is whether or not a failure to warn claim can proceed because the company in with a drug maker, could you strengthen the label on your own? Or is it more like the Pleva case? Is it a generic maker who's locked into a particular brand label by federal law? That's the disconnect that the Supreme Court has to solve.
- [11:29]
Holly Frome
Yeah, it seems to fall squarely between those two cases. So that's why, you know, it's been, it's not so easy to predict which way the judges will lead it if they're going to decide based on impossibility preemption. But what do you think is the single fact that decides which of those two cases Bayer resembles most?
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Gail Mullen
You know, in my opinion, it's whether or not Monsanto ever asked the EPA to add a cancer warning. In the WIF case, the test was whether there was clear evidence that the agency would have rejected the stronger warning. So if Monsanto could have, but did not ask to add a cancer warning, then I think that the needle falls more in favor of not being locked into a particular warning. If Monsanto never asked, then there's no and then There could be no clear evidence of refusal and the company looks like the brand name maker in the Wyeth case and not locked in to the generic in Pleva, in my opinion, the case will turn on that fact. It's that hinge of the impossibility argument.
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Holly Frome
So I don't think they asked, but they do need agency approval. So that argument just. Justice Gorsuch asked Bayer's lawyer how the company can claim it's impossible to add a warning when the EPA at one point permitted a cancer warning or permitted Bayer to modify its label. And Bayer called those. Bayer had said that the EPA said, Bayer's lawyer said that the EPA said that those were implementation mistakes. So in other words, the EPA implemented its regulations incorrectly. Do you think based on these facts, they could still claim impossibility if they were, you know, the EPA never went after them for modifying the label on
- [13:34]
Gail Mullen
a song, you know, and that's a tough one. It's a tough one because the answer does seem to concede that a warning may have once been on the table and the moment that the warning was achievable. The impossibility story is harder to tell. I think that question was one of the clearest moments of and you can tell a little bit from questions that are asked. You certainly can't tell everything and sometimes you guess and gets wrong in the context of appellate arguments. But if compliance was truly impossible, why did the EPA at one point allow a cancer warning? Again, Bayer's answer is fair and probably right that that might have been an implementation in congruence from the agency that the EPA misapplied its own rules. That answer could be accurate and it seems fair. But it does concede that a warning may have at once been on the table. And the minute that you show that that warning was achievable, even if for a moment it's really hard to continue the through line of impossibility. And I think that that's why that, that question deserves some special attention here.
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Holly Frome
Right. So I think what's interesting though is that it's the answer, you know, whether this, whether they could add a warning or whether, or whether the EPA would have forbidden it. It's, it's changed from administration to administration. So even, you know, the lawyer purveyor said to Justice Gorsuch, well, you know, the positions of the administration have changed. And he somehow spot you that because they have changed. So I think, you know, it's interesting to as, you know, the manufacturers put in a position where they could be in trouble depending on which administration is, you know, in office. So I think that's, that's also another, you know, question that remains open is, you know, if it's, if it's, if it depends, if the answer depends on which administration is in office, that's going to be a problem. But you pointed out that Justice Gorsuch also, he dealt with this when he dealt with something similar when he was on the 10th Circuit, I believe, and he dealt with a case the impossibility argument was raised. What was that case, and why does it matter now?
- [16:07]
Gail Mullen
Holly, I think you brought it up first, and I think you were right to. If you. Well, first, I will acknowledge that elections do have consequence, regardless of the side of the aisle, that one prefers elections definitely have consequence. And the EPA under one administration is different than dealing with the EPA during another administration. We'll set aside whether that should be the case for another call. But you had brought up medical devices. And back in 2015, as you correctly recall, on the 10th Circuit, then Judge Gorsuch wrote an opinion in Kaplinger versus Medtronic. Different statute, medical devices, but a nearly identical preemption clause in both. And the same core problem that the court has to sort out. And that problem is this. How can a state require a company to change a label that federal law forbids it to change without agency approval? That's a tough question. So how can a state require a company to change a label that federal law forbids it to change without agency approval was tackled in the Caplinger vs Medtronic case. Then Judge Gorsuch called this the, the main problem, the central conundrum to this. In that case, I think it's fair to say that he read the federal preemption clause pretty broadly. So when you see now Justice Gorsuch pressed Bayer's lawyer about the cancer warning the EPA once permitted, it wasn't just him improvising from the bench. What I saw was a testing of that same central question identified over 10 years ago. So the federal circuits have been circling this problem for a long time. The difference may be now is that regardless of how Justice Gorsuch decides to answer it, he probably has the votes on the Supreme Court to answer that question for industry.
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Holly Frome
Interesting. So if, if the court rules in favor of Monsanto on one of these theories, what exposure remains for Monsanto and for other companies whose pesticide products allegedly injure a user?
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Gail Mullen
I think it's important to say here we have two different statutes. The one was a device statute, not fifra. This is the first time to My recollection that it's been addressed in the context of fifra, the fifra, the Federal Insecticide, Fungicide and Rodenticide Act. But your question is, if the court rules in favor of Monsanto, then what exposure still remains. And a win here on labeling should not be seen, in my opinion, as a win on everything. Even if Monsanto wins, even if Monsanto's view prevails, plaintiffs who used the product before 2023 could probably still sue. And that's because the EPA's separate authority over how a pesticide is sold and used doesn't necessarily go away. And the ruling here would be about warnings and not about whether the product was defectively designed. So even if the headline is in the Durnel case that Monsanto has a win, I don't think that it's fair to say that the litigation is over.
- [20:09]
Holly Frome
Got it. So there's still these other planes out there. You talked about defective design. I always wondered, Bayer had said an oral argument that defective design, that plaintiffs would still have this defective design theory. But I always wondered if impossibility prevents the failure to warn claim because Bayer can't change the label without EPA approval, why wouldn't design defect claims be preemptive as well?
- [20:39]
Gail Mullen
And that's a smart question, and that's one that investors should watch for. And that depends on how the opinion gets written. The court doesn't necessarily have to reach any design defect claims to decide this case. The question presented to the Supreme Court is one that's limited to labeling. Now, the reasoning may be equally applicable across claims, but a manufacturer can't also change a pesticide's formulation without EPA approval. So if it's ruled impossible in this case, or if the ruling points towards impossibility, the same logic that protects the label could protect the design. And so I think for investors listening to the Bloomberg podcast, the thing to watch in Durnel is whether the opinion that actually gets written by the Supreme Court is written pretty narrowly or written in a way that invites a new wave of defenses. If the court takes the path of writing a narrow opinion, which it frequently does, then that settles exactly one claim and arguably other claims like it. A broader opinion could potentially rewrite the company's playbook for the whole product and the defense on the design defect claims. So that really turns Holly on. How does the court write the opinion, and how does that opinion address impossibility? Understanding that you can't change labeling without prior EPA approval, but you also can't change formulation. And so investors should watch for Whether it's a narrow decision or whether it's a bit broader a decision.
- [22:40]
Holly Frome
Got it. So you, you have made the point that this courtroom is only half the board. Tell us about the other half, the farm bill, and what Congress almost did.
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Gail Mullen
You know, the House version of the farm bill originally contained provisions that would have codified nationwide label uniformity and really cut back, curtailed state and local authority over pesticides that provides good predictability for the markets, good predictability for the industry, and uniformity across a category of federally regulated activity. So the House version had those provisions that would have codified nationwide label uniformity on the floor. Those provisions were stripped. So right now there's a legislative path open, but I would argue unresolved. That runs in parallel to the litigation. And so anyone modeling an outcome in this case, the Durnel case at the Supreme Court by itself is only really seeing half of the picture, the other half of the picture of what might happen with the farm bill and whether or not we will see an era of statutory or codified nationwide label uniformity.
- [24:04]
Holly Frome
So you said those uterhorvey provisions were stripped from the House bill. How likely it is, how likely is it that comparable language can come back through the Senate?
- [24:13]
Gail Mullen
I think what I would tell investors is that it's a live issue. I don't know what the headcount would be on votes in the Senate. But the same industry that is litigating this question is also lobbying the House and Senate. And a legislative fix just could do something that the court could not. And that's to reach sale and use authority and not just labels. So I think that the Senate track in this case deserves as much attention as the Supreme Court docket.
- [24:51]
Holly Frome
Interesting. So you said that this decision affects whether a registrant's label compliance history strengthens or weakens a pre action defense for companies downstream. Can you explain for our listeners what that means?
- [25:03]
Gail Mullen
Sure. It's all about the paper trail, the registrant, whether it's the product or the label, the paper trail and the registrant's adherence to that paper trail with the EPA becomes a balance sheet asset or a balance sheet liability. The cleaner the record showing the agency approved the label and declined a stronger warning, the stronger the impossibility defense. And not just for the registrant, but for the distributors and the formulators downstream who also rely on that same label. So after this ruling, investors need to pay attention to the supply agreements, the indemnity terms in this sector, because those can and should be all repriced around. Exactly that question whose compliance history carries the preemption defense and who is exposed if it fails?
- [26:01]
Holly Frome
So for an investor trying to determine what the impact is, what's the difference between a narrow informationor and a broad one?
- [26:08]
Gail Mullen
And again that's the main question, right? A narrow win preempts a failure to warn verdict and not a whole lot else. The tale of the pre2023 cases could survive. Design defect theories could survive. And plaintiffs are very adaptive. Plaintiffs are going to adapt to that strategy. That's in a narrow way. If it's more broadly written, one written on impossibility grounds that could potentially reach formulation as well as labeling starts to look a whole lot like an industry. While immunity for EPA approved products and that's a big deal for investors who are trying to price out what exactly does this mean in the market? So a narrow win, you've still got this tale of pre2023 cases, a broad rental, a much broader decision, one that makes impossibility grounds a real defense is, is would start to look a lot like industry wide immunity.
- [27:11]
Holly Frome
So. So beyond Bayer, who else should be paying attention? What other companies or sectors do you think this ruling will reach?
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Gail Mullen
This ruling could potentially reach any company that sells a federally regulated product under an agency approved label. That could extend to pesticides to crop science companies. But the logic of agency approval as a regulatory shield could extend to other registrant industries that operate under a single federal label. Remember that the FIFA is only one of the many programs under USEPA requiring labeling. Require that that holds labeling requirements. And EPA is only one of many federal agencies that have labeling requirements. So how far would it reach, Holly? It could reach any company that sells a federally regulated product under an agency approved label.
- [28:14]
Holly Frome
Wow. Okay, so we're all, we're all going to be watching for this decision. You said you expect a decision by late June. Why that timing?
- [28:23]
Gail Mullen
That timing, Holly? Because the case was argued April 27. It's in my opinion one of the marquee cases. It's one of the biggest cases in administrative law currently pending before this session of the Supreme Court. And the court tends to clear out the highest profile opinions before they recess. And so I would expect that decision in the final weeks of the term.
- [28:50]
Holly Frome
And so you don't have a crystal ball, but you've looked at this very closely where you come out. What's your best read on how the court rules and what should listeners take away and warning us the opinion drops?
- [29:03]
Gail Mullen
Well, we'll see if I'm right or wrong. I don't ordinarily make predictions, but I will say this. My my best prediction is narrow reversal.
- [29:14]
Podcast Producer/Aditya Samani
Why?
- [29:14]
Gail Mullen
Because that's generally what a court writes is a narrow opinion on a case that is reversed. And so I'm going to predict two things, a narrow ruling and a reversal. I think the court rules for Monsanto on express preemption. I think they distinguish debates case rather than overrule it. And I think that they leave the harder impossibility questions for another day. I would put reversal above even odds with a real chance of a remand. But the takeaway the takeaway for investors is the one that survives either way. A win on labeling is not a win on everything. Pre2023 users can still sue, the EPA's sale and use authority survives and the design defect question is still open. And so I would look at the rationale of the court, give that serious consideration. And a third thing, regardless of how this case comes out, it will have applicability across agencies, across industries, and across an entire universe of federally regulated labeling regimes.
- [30:33]
Holly Frome
Fascinating. Well, Dion Moan Partner Weikhard, thank you so much for joining us and sharing your insights Today. We're going to wrap up this episode of Roots and Verdicts. And as always, thank you for listening. If you have any questions about anything we talked about on the episode, please don't hesitate to reach out to us at your convenience. As a reminder, you can find all of our research on the Bloomberg terminal at BI Go. You can find our litigation and Policy dashboard in the terminal at BI lawsgo. And we want to thank our producer Aditya Samani, without whom this podcast would never publish. Thank you for listening and have a great day.
- [31:21]
Gail Mullen
Okay tech leaders, Word on the street is security incidents are dropping way down with Windows 11 PCs built in. Security for the win upgrade to Windows 11 Pro at windows means business.com this coffee shop running smooth thanks to Genius
- [31:39]
Podcast Producer/Aditya Samani
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