Antitrust Law Daily Wrap Up, ADVERTISING—2d Cir.: Decongestant class action partially revived, (Jul 31, 2026)

By Justin Marcus Smith, J.D.

The Second Circuit also decided to join sister circuits in holding that the indirect purchaser rule applies to civil RICO actions.

In MDL about the labeling of over-the-counter phenylephrine (PE) as a nasal decongestant, the Second Circuit affirmed in part that the FDCA expressly preempted the majority of the consumers’ state law claims and that they lacked a cause of action to bring their RICO claim. The FDCA's “expansive” express preemption provision foreclosed the consumers’ state law claims. Looking more deeply with respect to the monograph PE drugs, the defendant manufacturers followed the FDA’s prescribed labeling requirements by designating them decongestants. It was not possible to sue the manufacturers for mislabeling the monograph drugs insofar as they complied with FDA labeling specifications that required the decongestant labeling. However, the Second Circuit vacated dismissal as to the labeling claims about brand-name oral PE products approved through the FDCA’s New Drug Application process on the basis that the “changes-being-effected” (CBE) process for these drugs permitted the manufacturers to update efficacy. The court remanded to the district court the question of whether the CBE regulation's effect on the express and implied preemption of the state law claims regarding these drugs. The court also vacated dismissal of the “Maximum Strength” labeling claims for further preemption analysis on remand. The Second Circuit also affirmed dismissal of the consumer plaintiffs’ civil Racketeer Influenced and Corrupt Organizations Act (RICO) claim and affirmed denial of a pharmacy’ motion for reconsideration. The court remanded the claims for further proceedings (Yousefzadeh v. Johnson & Johnson Consumer Inc., No. 24-3296-cv (2d Cir. Jul. 30, 2026)).

Background. Consumers and entities brought nearly 100 cases against retailers and manufacturers of OTC cough and cold medicines containing over-the-counter PE, a putative decongestant. The purchasers alleged the defendants knew that PE was ineffective as a nasal and sinus decongestant but produced, marketed, and sold products containing PE to consumers anyway.

The “initial streamlined” consolidated complaint brought claims that were representative of the underlying actions: claims under the New York General Business Law and a claim under RICO.

The defendants moved to dismiss on the basis that (1) the Food, Drug, and Cosmetic Act (FDCA) preempted the state claims; (2) the plaintiffs lacked standing to assert the RICO claim; and (3) that the FDCA precluded the RICO claim.

The federal district court in Brooklyn, New York court granted dismissal, holding that the federal Food, Drug, and Cosmetic Act (FDCA) preempted the consumers’ state law claims and the consumers did not have standing to bring their civil RICO claim (In re: Oral Phenylephrine Marketing and Sales Practices Litigation, No. 23-md-3089-BMC (E.D.N.Y. Oct. 29, 2024)) (see Advertising, Oct. 31, 2024).

The district court entered judgment in November 2024 dismissing all claims in all underlying cases in the MDL, including the Lanham Act claim of Newton’s Pharmacy, Inc. (NPI), a claim omitted from the “initial streamlined” consolidated complaint. The district court also denied NPI’s subsequent motion for reconsideration which sought relief from dismissal of its Lanham Act claim with prejudice.

FDCA preemption. The Second Circuit held the FDCA expressly preempted the consumer plaintiffs’ claims except as to the “Maximum Strength” claims and the claims about brand-name new drug application (NDA) drugs.

In analyzing FDCA preemption, the court tackled two initial questions: (1) whether the federal government instituted requirements applicable to the oral PE nasal decongestants at issue; and (2) whether the consumer plaintiffs premised their state law claims on state law requirements different from, in addition to, or otherwise not identical with those federal requirements.

The answer to the first question was easy. The FDA monograph and NDA requirements applied to the PE decongestants. The crux of the consumers’ state law claims was that the defendant manufacturers misled them by labeling, advertising, and marketing oral PE products as effective for nasal decongestion. The consumers said they were deceived into buying products they would not have bought had they known the truth about oral PE inefficacy.

As for the labeling claims, the nasal decongestant monograph requires indication of product purpose. The defendant manufacturers satisfied that requirement, but the consumers nevertheless claimed that the PE products could not be labeled as effective nasal decongestants without disclaimers. That was a problem because the state laws the consumers invoked differed from, were in addition to, or were not identical with the federal requirements. The expansive FDCA express preemption provision barred the labeling claims. That the labeling may have been false was not persuasive. The manufacturers did not misbrand when they labeled the products’ purpose as decongestion. The court cited to prior decisions.

Next, the consumer plaintiffs contended the defendant manufacturers had a duty to update the labels of their monograph drugs without FDA approval in light of new scientific evidence that tended to discredit oral PE as a nasal decongestant under the “changes-being-effected” (CBE) process. The court distinguished how the FDCA and the regulations did not allow the defendant manufacturers to update the labels of their monograph drugs under the CBE process, as is possible and potentially necessary for brand-name NDA drug manufacturers to avoid liability. The FDA can and does impose additional labeling requirements in certain circumstances, but it declined to do so for OTC monograph drugs alleged to be ineffective. The monograph drug manufacturers’ only obligation was to conform to the monograph, not to update their labels to reflect new scientific evidence under the CBE process. The court accordingly affirmed dismissal of the monograph drug labeling claims. The court acknowledged the dismissal might seem unfair insofar as the FDA eventually confirmed oral PE does not work as a decongestant, only after the manufacturers allegedly made $12 billion in sales after becoming aware of that, but it was up to the FDA to make changes to labeling requirements.

The court reached essentially the same holding for the claim that the manufacturers were liable for failing to disclose PE inefficacy in marketing and advertising materials. The FDA monograph also preempted the state law marketing and advertising claims. There was no misbranding to the extent the advertising only recommended use for decongestion. The failure-to-disclose claims could not end-run the federal labeling regulations to require the labeling of the PE drugs as ineffective nasal decongestants when the federal monograph required precisely the opposite.

In contrast, the court vacated dismissal of the plaintiffs’ state law claims as to brand-name NDA drugs. The CBE process was available here. Brand-name NDA holders could independently update their PE drug labeling under 21 C.F.R. § 314.70(c)(6)(iii). The district court did not consider availability of the CBE process for brand-name NDA drugs. The court remanded for the district court to consider the effect of the CBE regulation on the express and implied preemption of the consumer plaintiffs’ state law claims about NDA drugs. The savings clause of 21 U.S.C. § 379r(e) did not save the consumer plaintiffs’ six New York state law claims because none of them sounded in product liability.

As for “Maximum Strength” claims, the FDCA did not require anything. The defendant manufacturers voluntarily and on their own accord placed the “Maximum Strength” statements on their products. The statements were not obligatory; hence they were indeed subject to the misbranding requirements. The monograph or approved NDAs could not rescue them. The court cited to precedent. The court vacated dismissal of the Maximum Strength claims and remanded to determine whether (1) state law duties were identical to those under the FDCA misbranding provision and thus are not expressly preempted; (2) whether the Maximum Strength claims were impliedly preempted; and (3) for other such proceedings as the district court may deem appropriate.

Civil RICO. The court held the indirect purchaser rule barred the consumer plaintiffs’ civil RICO claim. Although this was a matter of first impression in the Second Circuit, the court said the three federal courts of appeal that have explicitly considered whether the indirect purchaser rule applies to civil RICO have held it does. The Second Circuit had previously observed that consumers sufficiently removed from the racketeer cannot recover under RICO. The chain of liability cannot be infinite. The court explained its reasons at length in the context of Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977); policy; proximate causation; and RICO enforcement considerations. In sum, the court said it was inclined to interpret civil RICO in parallel with antitrust law and to join sister circuits in holding that the indirect purchaser rule applies to civil RICO actions.

NPI reconsideration. Applying abuse of discretion review to the denial of reconsideration in dismissal of NPI’s Lanham Act claim, the court affirmed. Relief under Fed. R. Civ. P. 60(b)(6) requires extraordinary circumstances. NPI did not point to controlling decisions or date the district court overlooked, and the court did not abuse its discretion. NPI had “many opportunities” to preserve or raise its Lanham Act claim but chose not to do so. NPI actually stipulated that the motion to dismiss, if successful, would resolve the litigation in its entirety.

The Case is No. 24-3296-cv.

Judge: Chin, D.

Attorneys: Bryan F. Aylstock (Kreis & Overholtz PLLC) for Sandra Yousefzadeh. Jason Zarrow (O'Melveny & Myers LLP) for Johnson & Johnson Consumer Inc.

Companies: Johnson & Johnson Consumer Inc.

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