Why Private Membership Associations Fail FDA Scrutiny

 In this episode of the KLF Deep Dive, Darshan Kulkarni deconstructs a persistent and dangerous myth circulating in life sciences and investment circles: the Private Membership Association (PMA). While often marketed as a "contract-based loophole" to evade FDA oversight and civil liability, the reality in federal court is starkly different. Darshan examines the constitutional limits of "freedom of association" and analyzes key case law—including Little v. Q Lasers—to demonstrate why PMAs are viewed by judges as red flags rather than legal shields. If you are advising clients on regulatory shortcuts, this is a must-listen briefing on maintaining professional integrity and statutory compliance. 

Transcript

Darshan 0:00

So today we're going to tackle this persistent myth that's been going on in the corporate law world. Keeps resurfacing in the life sciences, in alternative health, and even in some investment circles. So here's what this myth says. If you run your business or transactions through something called a private membership association, a PMA, you can shield yourself from FDA oversight, and in some cases, even civil or criminal liability. Now that sounds tempting, right? A contract-based loophole that allegedly keeps regulators out. But like every court that has looked into this issue, PMAs simply don't work that way. So if you're advising a client, you're asking them to rely on it, you're not protecting them. You may be walking them into enforcement. So why does this matter for corporate lawyers? Let's be practical. If you are a corporate lawyer and your client comes to you with a PMA, here's the message. By itself, it will not immunize you. PMAs cannot and do not cancel statutory duties in many cases. They cannot remove FDA jurisdiction. This has come up multiple times, and the courts have basically said that this does not block courts from hearing claims. If you pitch PMAs as a solution, you're not giving legal advice, you may be actually selling snake oil. Clients deserve compliance strategies that hold up in real life, not fantasies that collapse at the first motions hearing. Let's start with why the PMA itself seems appealing. First, the language in a PMA contract is kind of grandsounding. They invoke like the first and the 14th Amendment, they talk about freedom of association, they promise to put members outside the jurisdiction of federal and state agencies. Some even claim that members can waive malpractice rights or HIPAA protections. And this is all under the idea of what happens inside the association stays inside the association. Look, this is in Vegas, and even Vegas doesn't work this way. Let's be clear. You're gonna find consultants, you're gonna find self-styled legal advisors, and even some lawyers that pitch these as ironclad shields. They're gonna sell you this dream, this dream of opting out of regulation with a simple signature. Entrepreneurs may already be frustrated with compliance costs. They may be skeptical of government oversight. This is the target audience. This message is seductive. Then, there's always a grain of truth buried in the pitch. Let's be clear. The Constitution does protect freedom of association. Members of private clubs can set rules for themselves, but that's where the truth ends. Private agreements do not necessarily override public law. So why don't they work? And here's the key point the Food, Drugs, and Cosmetics Act is a federal statutory law. Congress wrote it to regulate drugs, devices, and food for the protection of public health, and no private contract can exempt a party from its scope. This has come up multiple times, and courts have repeatedly said intended use defines FDA jurisdiction. For devices meant to diagnose, treat, cure, or prevent disease, it's a medical device under the FDCA. It doesn't matter if you intend to sell it to members instead of customers. It doesn't matter if you label your distribution a private association instead of a business. The law still applies.

SPEAKER_00 3:31

Enjoying our content? We'd love to hear more. Please like, comment, share, and find more.

Darshan 3:39

Let's talk about a couple of examples. Instrup the Atlas Global. The defendants argued that because one of the plaintiffs had signed a PMA and therefore signed onto the paperwork, her claims were outside the jurisdiction of the court. The court looked at it and they disagreed. PMA language was about health treatment and alternative therapies. This case was about a promissory note and misrepresentation. The PMA simply did not apply. The note was enforceable and the securities' claims were live. The court then added that even if the PMA had said otherwise, private contracts do not strip courts of jurisdiction. That's a fundamental principle. Parties cannot opt out of the rule of law. Then let's talk about the Little and the Lasers case. Robert Little, also known as Larry Little, who ran Q Lasers, tried to sell unapproved medical lasers through a PMA and claimed that the FDA could not touch him. The Eighth Circuit Court of Appeals simply didn't buy it. They affirmed the Food, Drugs, and Cosmetics Act applies to any person. This includes associations. Devices sold through a PMA are still considered adulterated and misbranded if they do not have FDA clearance. The court was blunt. Selling through a PMA does not exempt you from FDA rules. If anything, it highlights that you knew that your products wouldn't pass a regulatory scrutiny and that you were trying to skirt the law. Then there was the South Dakota injunction or Q lasers. Little faced a permanent injunction. The court ordered him to stop distributing devices and to destroy existing inventory. They wanted to make him pay restitution to purchasers and submit to ongoing FD inspections. The PMA defense did not help him there either. It hurt him. It showed willfulness, it showed evasion, and that made the penalties harsher. This is a continuing pattern. From Utah to the Eighth Circuit to South Dakota, the rulings all seem to go in the same direction. Judges are rejecting PMA defenses outright. They don't view them as shields, they view them as red flags. And when courts see PMAs invoked, what they actually see is an attempt to evade federal law. And that makes the defendant's case worse, not better. For those who are listening, how many of you have had a client show up and ask for a PMA contract and ask if it solves your compliance problem? And when you told them no, how did they react? Let's talk about this openly because the myth survives in silence. So here's the bottom line. PMAs sound good, they sell well, but they tend to fail in court. Private contracts do not override public health law, and relying on them isn't just risky, it's reckless. A safer, smarter, more professional approach is to build compliance into your business model. If your client is looking for shortcuts, redirect them. If you're looking for certainty, talk about compliance. When it comes to FDA advertising, promotion, clinical research compliance, reach out to the Kilkani Law Firm because loopholes don't protect clients. The law does. Call, click, click or email.