We confess, we saw it first on 360 – but we had to put our two cents in. The plaintiffs’ inability to plead fraud with particularity has just gutted a high profile Actimmune suit. (360 calls it an “MDL” but our commenters say it’s not, and since the opinion itself doesn’t mention anything about an MDL, we won’t either; we’ve revised this post accordingly.)

As regular readers might remember, the Actimmune case involves allegations of off label promotion notable in that the FDA brought criminal charges against the company’s CEO. He was convicted of fraud but acquitted of misbranding charges based on the off-label promotion allegations. Judge Patel dismissed the Actimmune plaintiffs’ first attempt at a complaint in In re Actimmune Marketing Litigation, 614 F. Supp.2d 1037 (N.D. Cal. 2009). As we discussed here, plaintiffs failed to plead a variety of RICO elements with sufficient plausibility under Twombly/Iqbal.

Well, the Actimmune plaintiffs (your usual purely economic loss class action – no allegation that the drug (or the promotion) actually injured anybody) ditched RICO altogether and brought essentially the same claim under various consumer fraud statutes, most importantly California’s.

Last week, they lost again – mostly. See Actimmune Marketing Litigation, No. 3:08-cv-02376-MHP, slip op. (N.D. Cal. Nov. 6, 2009). We’ll get to the substance in a minute, but first we have to comment that the opinion contains one of the more humorous typos that we’ve encountered lately – at least we assume it’s a typo. Discussing the defendant’s press release, the opinion states:

For example, on August 28, 2002, the day that the October 2000 study’s results were released, [the defendant] distributed a press release proclaiming that the study showed that [the drug] “reduces morality by 70% in Patients with Mild to Moderate [IPF]” and that “[the drug] is the only available treatment demonstrated to have clinical benefit in IPF….

Slip op. at 5 (emphasis added). We assume that the word should be “mortality” – otherwise the defendant must have been running some very interesting clinical trials.

Okay, enough fun – back to work.

By far the most important ruling in the opinion is how the California consumer fraud statute interacts with federal pleading – specifically Rule 9(b), requiring that fraud be pleaded with particularity. Plaintiffs argued that a recent California Supreme Court decision, In re Tobacco II Cases, 46 Cal. 4th 298 (2009), had gutted a 2004 voter initiative and let consumer fraud plaintiffs sue in certain circumstances even if they couldn’t identify the offending statement that they supposedly relied upon. As stated in the Actimmune slip opinion:

Further, under the UCL, plaintiffs do “not need to demonstrate individualized reliance on specific misrepresentations to satisfy the reliance requirement.” Tobacco II, 46 Cal. 4th at 327 (emphasis added). . . . In sum, “a plaintiff must plead and prove actual reliance to satisfy the standing requirement of section 17204 but . . . is not required to necessarily plead and prove individualized reliance on specific misrepresentations or false statements where . . . those misrepresentations and false statements were part of an extensive and long-term advertising campaign.” Id.

Slip op. at 13. Plaintiffs therefore argued that they could get away without pleading anything about who relied on what.

Judge Patel essentially said, “sorry, but you’re in federal court, and you still have to plead fraud with regularity under this court’s rules”:

Although Tobacco II altered the pleading requirements for a UCL plaintiff seeking to represent a class of similarly situated individuals, it did not relieve class representatives from the burden of satisfying Rule 9(b) when their allegations sound in fraud. As is discussed at length below, plaintiffs’ claims under the fraudulent prong of the UCL — which are predicated entirely on misstatements made by defendants — unmistakably sound in fraud and thus must be pled with specificity.

Slip op. at 13 (emphasis added). That’s the main take away from this latest Actimmune opinion – regardless of Tobacco II, in federal court plaintiffs still have to plead fraud with particularity in cases brought under the California consumer fraud statute – at least where the plaintiff is alleging some sort of misstatement.

Because the plaintiffs hadn’t plead their consumer fraud claims under Rule 9(b) with any more particularity than the RICO claims the court had previously found “implausible” under Twombly/Iqbal, those claims got bounced. Slip op. at 16-24. There’s a lot of case-specific discussion which we’ll leave to our readers. Suffice it to say that plaintiffs’ inability to plead fraud with specificity under Rule 9(b) infected all of their claims (consumer fraud (all three statutory prongs), statutory false advertising, Legal Remedies Act, and unjust enrichment) under California law.

We do note Judge Patel’s favorable disposition of our pet peeve, the fact-free FDCA violation claim – “[plaintiffs] must at a minimum, however, identify the statutory or regulatory provisions that defendants allegedly violated.” Slip op. at 23.

Plaintiffs also sought to claim under the consumer fraud statutes of 39 other states. Slip op. at 25. They did not have an in-state representative for 34 of those states, resulting in dismissal. Id. There’s no extended explanation; we presume that territoriality is the bedrock reason – that you can’t sue under a state consumer protection statute without being a resident, or at least alleging a transaction in the state.

For two other states, the plaintiffs alleged an in-state plaintiff – but hadn’t bothered to plead the elements of any claim under the the state statute. Slip op. at 26. Seems a little strange, but that’s what apparently happened.

Of the three remaining states, two (Ohio and Georgia) required reliance. Thus the plaintiff’s Rule 9(b) problems sank those claims as well. Id. Finally, the court turned to Missouri law and concluded that “Missouri courts have interpreted the [statute]in the broadest conceivable manner, absolving plaintiffs of any showing of reliance.” Id. The court thought that plaintiffs might have pleaded enough if they didn’t have to plead reliance at all, but wasn’t sure because Missouri law hadn’t been briefed, so it asked for additional briefs, specifically on whether one of the plaintiffs had a claim under that one state’s law. Slip op. at 27.

The court also indicated that, if a Missouri law claim were all that’s left, it would transfer that claim to a federal court in Missouri. Id.

All the fraud-based consumer fraud claims, and those for the unrepresented states, were dismissed with prejudice – no third bite at the apple on properly pleading fraud. Plaintiffs were given one more try at a couple of California consumer fraud theories that didn’t have to involve fraud, but were warned not to come back with the same old misrepresentation claims that they had twice failed to plead. Slip op. at 28.

There might not be much left of this case.