Not too long ago we offered considerable criticism of certain aspects – specifically the treatment of Pennsylvania consumer fraud claims – in Sheet Metal Workers Local 441 Health & Welfare Plan v. GlaxoSmithKline, PLC, ___ F. Supp.2d ___, 2010 WL 3527601 (E.D. Pa. Sept. 7, 2010) (“SMW I”). It turns out that the Rule 12 decision in SMW I was only prologue to the main event. Several weeks later, the court outright denied class certification in the same litigation. Sheet Metal Workers Local 441 Health & Welfare Plan v. GlaxoSmithKline, PLC, 2010 WL 3855552, slip op. (E.D. Pa. Sept. 30, 2010) (“SMW II”).
You might expect that, as defense attorneys, we’d think a lot more highly of SMW II than we did of SMW I.
You’d be right. We agree with Lord Palmerston: We have no permanent friends, or permanent enemies, only permanent interests – those of our clients. Thus, we have no quarrel with any particular judge, we’d much rather praise any judge. Our critiques are limited to legal reasoning and outcomes. We have no problem with either in SMW II.
That being said, we’re not going to delve too deeply into large portions of SMW II. A lot of it’s antitrust-specific economic analysis, involving a comparison between what actually happened in the real world versus what supposedly might have happened in this shadowy “but for world” postulated by the plaintiffs’ economic expert. Antitrust economics is rather outside of our sweet spot, so as to that we can only hope that our colleagues for whom this kind of thing is a hanging slider over the middle of the plate eventually explain it to us.
However, SMW II does involve class actions, consumer fraud claims, and allegations about drug marketing. That means there are things in it that are relevant to what we do. We’ve extracted five take home points from the opinion that we think are worthy of comment.
One of the things that immediately struck us about SMW II is how long the class certification motion had been pending. The opinion candidly admits that right up front. 2010 WL 3855552, at *2 (“Plaintiffs’ class certification motion has been long pending”). How long is “long”?
How about more than four years?
According to the opinion’s “procedural history,” this case, which involves “secondary purchasers” (as opposed to “primary purchasers” who bought the drug directly from the defendant), was filed in late 2004. Plaintiffs moved for class certification a year and a half later in June, 2006. Three years after that, the certification motion was still pending when the litigation was reassigned to the current judge. The SMW II decision issued in September, 2010 – four years and three months after the motion was filed, and almost six years after the initial complaint. 2010 WL 3855552, at *4.
Ordinarily, that kind of delay in determining class certification would have us banging our heads against the wall in frustration. We’ve blogged several times before about the perverse doctrine of class action tolling of the statute of limitations. That’s because we don’t think that plaintiffs should get any benefit from filing meritless pleadings – which is what an unsuccessful class action is. Here, if class action tolling were to apply (and it does in federal antitrust, although not in most states), the mere filing of this meritless class action would give every putative member of the meritless class an extra six years to sue individually. Yuck.
But sometimes delay can be beneficial to defendants.
It goes back to that point we made about permanent interests.
One thing that happened during the long delay (and in fact caused part of it), was Third Circuit issuing a really good class action decision that we’ve already blogged about – In re Hydrogen Peroxide Antitrust Litigation, 552 F.3d 305 (3d Cir. 2008). As readily acknowledged in SMW II, Hydrogen Peroxide clamped down hard on class certification, and required that plaintiffs seeking certification actually meet their burden of proof, even if there was an overlap with the “merits” of the case:
The United States Court of Appeals for the Third Circuit recently clarified the legal standard for class certification and explained the meaning of the “rigorous analysis” called for by Rule 23. Hydrogen Peroxide did not alter substantive law but clarified that the trial court’s proper task in deciding whether to certify a class [is to] resolve factual disputes by a preponderance of the evidence and make findings that each Rule 23 requirement is met or is not met, having considered all the relevant evidence and arguments presented by the parties.
2010 WL 3855552, at *5 (several citations to Hydrogen Peroxide and accompanying quotation marks omitted)
So for once delay benefitted a defendant. While the class certification motion hung fire, the Third Circuit – in a decision that the plaintiffs couldn’t possibly avoid (because it was an antitrust case) – tightened the standards for certifying classes. The black swan came home to roost.
We note that, before denying certification on other grounds, SMW II held that the class was adequately represented by both the class representatives and class counsel. 2010 WL 3855552, at *8. While we’re not fond of losing any aspect of class certification, losing this battle – while still winning the war – has its benefits. Here’s why.
We recently blogged about new United States Supreme Court certiorari grants of interest. One of those cases, Smith v. Bayer Corp., No. 09-1205, involves whether there’s collateral estoppel effect in a denial of class certification after the plaintiffs decamp to another jurisdiction and try for a second bite of the certification apple. We’re very aware of that issue, since Bexis had a hand in winning it in In re BridgeStone/Firestone, Inc. Tires Products Liability Litigation, 333 F.3d 763 (7th Cir. 2003), the first appellate case to apply collateral estoppel in this fashion.
Although the class representative in a class action has about as much control of what’s going on as does a wooden lady mounted on the prow of a ship, the nominal plaintiff is important to collateral estoppel. Since the nominal plaintiffs won’t be the same – only both of them being in the same class – any successful application of collateral estoppel has to establish “privity” (this time meaning a sufficient basis for one person protecting another’s interest) between the first, losing class representative and the one seeking the second bite at the apple. Otherwise due process would preclude a finding of collateral estoppel.
How to do that? A court’s finding of adequacy of representation. A judicial holding (as in SMW II) that class rep number one adequately represented the class satisfies due process. That’s what the Rule 23(a)(4) adequacy requirement is designed to do, establish the constitutional basis for a representative action. But the same finding also justifies a finding of privity for collateral estoppel, as class rep number two will then be a member of a putative class denied certification despite class rep number one’s adequate representation. The adequacy finding is grounds for binding absent class members to the initial certification denial through collateral estoppel.
If the defense side wins in Smith v. Bayer (not a sure thing, of course), then the collateral estoppel effect of class certification denials would be established throughout the country. Class plaintiffs, and class counsel who, as in SMW II, claim to be adequate representatives (that would be all of them) and who win that position in court but lose certification on other issues (hopefully close to all of them), should not then be able to turn around and take the diametrically opposite position – no privity due to inadequate representation – in a second suit. We’ve blogged elsewhere about the doctrine of judicial estoppel, which was created precisely to prevent that sort of opportunistic flip flop.
So where there’s a chance that the same class action could be peddled in different jurisdictions, watch for affirmative findings of adequacy of representation. They could be quite useful to defendants who win the first round.
As we mentioned, a lot of the opinion in SMW II is about antitrust economic calculations that don’t show up much in the sandbox where we play. We have our third-party-payer cases, too, but there the predominance issue turns on the individualized prescription decisions of innumerable treating physicians, as we’ve discussed here, here, and here, among other places.
But the antitrust allegations in SMW are designed to take the prescriber out of the picture by focusing on the unavailability of any alternative drug that could be prescribed. We’ve seen that before. Fraud on the FDA claims sought to do the same thing by claiming the drug would never have been approved, and thus available for a prescriber to prescribe.
In antitrust, however, sham litigation claims (sometimes) have legs, so in SMW II, there’s a lot of discussion of how pioneer drug pricing responds (or doesn’t) to the introduction of generic competition, and even more about the asserted behavior of “brand loyalists” (people who aren’t persuaded to switch by lower prices). We won’t go into all that. Instead, we’ll be relentlessly superficial and direct your attention to a similarity that the plaintiffs’ expert in SMW II has with those we encounter – an inclination to change an opinion in a New York minute if that’s what the lawyer who engaged them wants them to do.
That happened in SMW II, and it contributed to the plaintiffs losing class certification. The plaintiffs’ expert “retreated” in response to the defendants’ criticism, and that cost them with the court:
[Plaintiffs’ expert] retreats from the position that generic entry causes brand prices to decrease. In her reply, [the expert] avoids addressing the criticisms raised by dismissing “whether the prices of [the drug] would have declined, or would not have risen at previous rates of increase after entry of [a] generic” . . . claiming that this is an “ultimately [ ] empirical question that the proposed analysis will address”. . . . This is in stark contrast to [the expert’s] original conclusion that common data and methods were at her immediate disposal to show the “[p]rices paid by brand loyal customers were most likely higher than they would have been absent the foreclosure.”
2010 WL 3855552, at *24 (emphasis added). See also Id. (same expert “abandoned her previous assertion that brand prices in the but-for world would decrease with generic entry”).
Expert flip flops are important after Hydrogen Peroxide because courts are now allowed – indeed, required – to go behind an expert’s mere assertions on a motion for class certification. The expert’s inconsistencies in SWM II killed her credibility with the judge:
Faced with her own admissions that brand prices were lower in the actual rather than the but-for world, [the expert] attempts to justify this price differential. . . . [The expert] asks this court to accept, without evidence, that delaying generic entry encouraged [defendant] to maintain high prices . . . and as a result, brand loyalists incurred no damages. Although it is a creative argument, I am not swayed by [the expert’s] effort to salvage her contention that injury to brand loyalists is susceptible to common proof.
2010 WL 3855552, at *25. Ouch.
With Hydrogen Peroxide and the increasing trend in federal courts generally to apply Daubert standards to expert testimony offered in support of class certification, the same approaches that we use to attack expert testimony in other circumstances are now wide open for use in opposing class actions.
Sometimes we think that a court is telegraphing its position on a motion that has yet to be made. While that can be bad for our side (we’re reminded of how preemption got forced to the forefront in the Zyprexa litigation), sometimes they can be good.
When a judicial hint is favorable, by all means take it. We see that in SMW II. The opinion mentions that, early on, another judge (since returned to private practice) granted class certification to a different, “direct purchaser” class. 2010 WL 3855552, at *3. Oops, we screwed up our Roman numerals. We’ll have to call that decision “SMW 0.” Predictably, “[t]he plaintiffs rely heavily on the role of direct purchaser class certification in making their own case.” Id. at *25.
That was not a good idea (for the plaintiffs, that is). Remember, that during the extensive delay the Third Circuit issued its Hydrogen Peroxide decision. Well, the court had this to say about SMW 0:
Finally, the direct purchaser plaintiff class certification decision was issued prior to the Third Circuit’s decision in Hydrogen Peroxide, which undoubtedly raised the standard for plaintiffs seeking to certify a class in an antitrust action such as this one.
[Defendant] has convinced me that significant flaws in the plaintiffs’ expert evidence necessitate that I deny their class certification motion. Although the rigorous analysis of the end-payor plaintiffs’ expert reports demanded by Hydrogen Peroxide was not, and should not have been, undertaken [in SMW 0]. . . . [Defendant] did not raise these claims in relation to the direct purchaser class. Nor did [it] move for reconsideration of the direct purchaser class certification decision following issuance of the decision in Hydrogen Peroxide. Nothing in this opinion should be interpreted to invite them to do so now.
2010 WL 3855552, at *22 (emphasis added).
Of course that’s a hint, even though the opinion carefully seeks maintains plausible deniability. Unlike many other pretrial matters, interlocutory class certification decisions may be revisited at any time. Rule 23(c)(1)(C) explicitly provides that “[a]n order that grants . . . class certification may be altered or amended before final judgment.” “Under Rule 23(c)(1), District Courts are required to reassess their class rulings as the case develops.” Barnes v. American Tobacco Co., 161 F.3d 127, 140 (3d Cir. 1998) (affirming decertification of class). We don’t see any reason why Hydrogen Peroxide shouldn’t be applied to any litigation that remains pending in the District Court.
Thus, the opinion recognizes that the direct purchaser class in SMW 0 was certified under improperly loose standards that have since been overturned by the Third Circuit in Hydrogen Peroxide. Nice hint. Unless that part of the Wellbutrin litigation has been settled or otherwise reached a stage where Rule 23(c)(1) does not apply, we would expect to see a decertification motion pop up in the near future. Take the hint.
A class certification in the hand is worth two in the bush. Having put the SMW 0 certification back in play in SMW II, and lost anyway, plaintiffs should soon be facing the consequences.
As mentioned above, we win most of our third-party-payer class actions on the independent – and individualized – conduct of prescribing physicians. SMW II illustrates another individualized end user factor to keep in mind. Different putative class members insured under different insurance policies will have different co-payment and other terms that can turn the “fact of injury” into an individualized issue. With respect to “end users” (that’s the patients who actually take a drug), SMW II held:
I find [defendant’s] criticism of the plaintiffs’ inability to exclude certain uninjured insured consumers is valid. [Defendant] claims three subsets of consumers in the proposed class would not be injured because of the nature of their respective insurance plans: (1) consumers who first purchased [the drug] in generic form and who do not pay co-insurance; (2) generic switchers who pay the same co-payment and no co-insurance for both generic and branded drugs; and (3) brand loyalists who pay the same co-payment and no co-insurance whether or not a generic version is available.
2010 WL 3855552, at *26. That plaintiffs could not construct a viable class definition to exclude these categories of “uninjured” end users was an alternative ground for denying certification. Id. at *28.
Although SMW II stuck to antitrust, and did not address consumer fraud or unjust enrichment claims directly, id. at *4 n.5, these kinds of injury-by-copayment claims have been asserted in end user class actions where antitrust claims are not present. Thus, this same rationale that SMW II utilized for finding fact of injury to be an individualized issue can have use outside of the antitrust arena.