Law firm gave inaccurate advice on FDA-compliant labeling – $200,000 Settlement

The claim was by a start-up food science company on the west coast. The compa­ny hired a large D.C. law firm to review its ingredients la­bels for a proprietary, physician-formulat­ed supplement aimed at upper respiratory infections. The prod­uct did not require a physician prescription, which made it a potential competitor to more expensive prescription supplements.

The law firm was supposed to review the company’s own (first) draft labels for compliance with Food and Drug Adminis­tration regulations on listing and enumer­ation of ingredients. The law firm advised the client to make specific changes in the labels. The company followed the law firm’s advice and proceeded with its first production run of the supplement includ­ing the new labels.

After the company’s first marketing ef­fort commenced, a downstream marketing consultant alerted the company that the labels were not in compliance with FDA regulations such that the product could not be distributed nationally. The com­pany went to a second D.C. law firm, who agreed the second-draft labels were in­correct. The entire first production run of packaged product had to be retrieved from distributors and destroyed. The second law firm rewrote the labels to comply with FDA requirements.

The first law firm resisted a claim for legal malpractice largely because the law firm understood the label review work to be informal and a courtesy due the company because a relative of the company CEO was a lawyer in the non-FDA department of the law firm. The le­gal work was supposedly billed at lower rates than normal. After several months of inconclusive negotiation, the parties submitted the dispute to Retired D.C. Superior Court Judge Joan Zeldon of The McCammon Group, Richmond, for mediation.

Zeldon used an effective tool of meet­ing with each side in person before the day of the mediation. Shortly after the start of mediation, the law firm acknowl­edged the drafting error and the nego­tiation turned to damages. A settlement number was extremely difficult to reach because the company was new; had no profits; and with still trying to raise money from investors. The company al­leged that the flawed advice from the first law firm destroyed its credibility with na­tional distributors; impeded its interna­tional marketing; and delayed its reaching revenue milestones needed for the next se­ries of investor funding. The company lost nearly 18 months of distribution and sales owing to the first law firm’s error.

After a full day of mediation, Zeldon recommended, and the parties agreed to, a settlement of $200,000 including payment by the law firm of most mediation fees. The law firm was apparently self-insured and paid by wire transfer within two days.

[17-T-049]

Type of action: Legal Malpractice, Labelling error not complying with FDA regulations

Injuries alleged: Damage to new company’s reputation with national distributors and inves­tors after first production run of product had to be recalled and destroyed

Name of mediator: Judge Joan Zeldon (Ret.)

Date resolved: January 2017

Verdict or settlement: Settlement

Amount: $200,000

Attorney for plaintiff: John Lopatto III, Alexandria