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We have had some time now to ruminate over the South Carolina Supreme Court’s opinion in State of South Carolina ex rel. Wilson v. Ortho-McNeil-Janssen Pharmaceuticals, Inc., No. 2012-206987, 2015 WL 775094 (S.C. Feb. 25, 2014).  In Wilson, the state attorney general brought an enforcement action against the manufacturer of the atypical antipsychotic Risperdal under the state’s Unfair Trade Practices Act (having the dysphonius acronym “SCUTPA” in the opinion) and recovered $327 million in civil penalties. Although the Supreme Court reduced the award to $136 million, it mainly affirmed a verdict that, in our view, has multiple problems.  What problems?  Well, how about a nine-figure civil penalty for “deceptive” conduct when the state neither alleged nor proved that a single person was deceived or that the conduct had any adverse impact on anyone?  We call that a problem, but we’ll get back to that particular point in a moment.

Those who read our 2014 Ten Best column and those who dialed into our teleseminar in January on those cases know a little about Risperdal and the various states’ lawsuits against the drug’s manufacturer.  What happened was that the FDA asked all manufacturers of atypical antipsychotics to review data on diabetes, which resulted in a new warning on diabetes being added to the labels.  The FDA also required a Dear Healthcare Provider Letter, which the manufacturer of Risperdal sent, but the letter included information that was technically off label.

That resulted in an FDA warning letter in April 2004 stating that the DHCP Letter was “false or misleading” in violation of the FDCA, which in turn resulted in the manufacturer sending a corrective DHCP Letter.  Wilson, 2015 WL 775094, at **5-6.  That seems to be when various state attorneys general and their contingent-fee lawyers took interest.  Two of our Ten Best cases of 2014 were state false claims act cases arising out of these events where the states of Louisiana and Arkansas recovered very large judgments against this manufacturer.  Both verdicts were reversed on appeal, which was good news.

The Wilson case in South Carolina is decidedly bad news, maybe even a candidate for our 2015 Ten Worst, although it’s too soon to tell (Bexis doesn’t let us in on the lists until early December).  South Carolina sued not under a state false claims act, but under the state’s Unfair Trade Practices Act, and the state made two distinct claims: (1) that the Risperdal labeling itself was unfair and misleading, presumably because it did not include sufficient information on diabetes (the Labeling Claim) and (2) that the company’s first DHCP Letter (aka Dear Doctor Letter or “DDL”) was unfair and misleading for reasons the FDA stated in its warning letter (the DDL Claim).  When you add up each alleged statutory violation—each copy of the DHCP Letter, each sales follow up, each product sample with the “misleading” package insert—even modest per-violation penalties can add up to very large numbers very fast.

That’s what happened in Wilson, and here is why we think it’s a problem.  First, it is difficult not to notice the court’s anti-industry tone.  Sure, we have a defense-side point of view, but the court seemed pained even to admit that Risperdal is an effective treatment that has helped millions of people.  Id. at *7 (“[O]ur review of the extensive record compels us to acknowledge that Risperdal has been an effective drug.”). The opinion speaks of the manufacturer “thwarting” the FDA, “taking control” of the messaging surrounding the new diabetes warning, and engaging in “deceptive efforts” to protect market share. Id. at **5-6.  We understand that the standard of review called for resolving all disputes of fact in favor of affirming the judgment, but that does not fully explain the court’s gratuitous disparagement of the manufacturer of this life-improving and potentially life-saving product.  But it was only a taste of things to come.

Second, as prefaced above, the court applied a legal standard that excused the state from pleading or proving either causation or actual harmi.e., that the allegedly misleading conduct had any impact on anyone. The manufacturer argued, with substantial justification, that this was a prescription drug and that prescribing physicians were well aware of the risk of diabetes.  Id. at *10.  To the extent that either the labeling or the DHCP Letter did not sufficiently explain that risk and related risks, it is highly doubtful that it made any difference to any prescribing physician (aka the learned intermediary).  Id.  That point fell on deaf ears, with the court drawing a sharp distinction between a civil action brought by a private citizen and an enforcement action brought by the AG under South Carolina’s statute:

In an action brought by a citizen . . . , SCUTPA requires that a private claimant suffer an actual loss, injury, or damage, and requires a causal connection between the injury-in-fact and the complained of unfair or deceptive acts of practices. . . .Conversely, an enforcement action brought by the Attorney General has no such actual impact requirement.

Id. at *7 (citations omitted, emphasis added). This is the lynchpin of the court’s opinion:  Private citizens have to prove causation and actual harm in a civil action, but the AG bears no such burden in an enforcement action under the same statute. The state has to prove only that the practice had the “tendency to deceive.”  Id. at *10.  We will repeat that for emphasis.  The state can bring an enforcement action and collect potentially hundreds of millions of dollars in civil penalties, and it is “not required to show actual deception or that those representations caused any appreciable injury-in-fact or adversely impacted the marketplace.”  Id. (emphasis added).

That is a low standard indeed.  When we are discussing causation in failure-to-warn claims, we routinely emphasize how the causation element protects against finding “negligence in a vacuum” because it requires the plaintiff to prove that the alleged inadequacy in the warnings actually impacted the physician’s prescribing physician.  This is a critical protection against arbitrary liability, and similar concepts should have come into play in Wilson, as the defendant urged.  The court instead read those requirements right out of the statute.  Maybe that is the law of South Carolina, but we question whether it ought to be.  At this point, it’s up to the South Carolina legislature to fix this, because the state’s highest court certainly isn’t so inclined.

Other major problems that we will highlight relate to the separate claims.  With regard to the Labeling Claim, the manufacturer sold Risperdal with FDA-approved labeling.  Yet, the state was able to exact a gargantuan civil penalty by proving that the labeling understated or did not properly describe certain risks. Put another way, the state government penalized the manufacturer for failing to deviate from labeling regulated and approved by the FDA.  Even in the world of branded prescription drugs, where federal preemption can be difficult to come by, this is a pretty stark example of what should have been implied conflict preemption.

How did the court get around this point?  By relying on Wyeth v. Levine and its holding that FDA-approved warnings are a “floor” up which states could build.  Id. at **19-20.  We have reviewed Wyeth v. Levine a time or two, and it is a stretch, to say the least, to say that the Supreme Court was opening the door to direct state regulation of prescription drug labeling. Sure, the Supreme Court held that FDA regulation of prescription drug warnings did not necessarily impliedly preempt state-law tort claims based on allegedly inadequate warnings.  But those are tort claims brought by individuals who bear real burdens of proof, including the burden of proving that some inadequacy in the warnings actually caused them injury.

The state of South Carolina bore no such burden in Wilson. This was straight up regulation of prescription drug warnings:  Either prepare the warnings the way the state wants or pay a giant penalty, whether or not the warnings actually resulted in any harm, deception, or mischief of any kind. Remember how stridently the court differentiated between an enforcement action brought by the state and a civil action brought by a private citizen when it excused the state from proving causation and injury?  That tells us that the South Carolina Supreme Court itself considered a claim brought by a consumer as different in nature from a claim brought by the state.  Yet, when it came to implied preemption, the court did a 180 and treated claims brought by consumers and the state as the same.  Id. at *20 (“[W]e reject [the defendant’s] argument that Wyeth is inapposite because this case involves an enforcement action by the Attorney General.”)  We cannot come up with an explanation for this internal contradiction. The court’s holding is all the more problematic when considering that the South Carolina statute includes an exception for regulated activity, which the South Carolina Supreme Court brushed aside, again citing Levine and again explaining that the state could penalize the manufacturer for not doing more.  Id. at **13-14.  Needless to say, we disagree.

The DDL Claim has its problems too, but we will keep it brief.  The claim was based on the 2004 FDA Warning Letter, but we believe that letter and others were inadmissible hearsay.  The Arkansas Supreme Court so held in reversing a judgment arising out of these same events and involving the same warning letters, in the case mentioned above.  We believe that was the correct result.  The South Carolina Supreme Court found otherwise in two sentences, where it ruled that the letters actually benefited the defendant with regards to the statute of limitations.  So the defendant gets a little help on limitations, and in return the state gets to show the jury out-of-court statements, by the federal government no less, referring to the defendant’s DHCP letter as “false or misleading” under the FDCA.  Other than that Mrs. Lincoln, how was the play?

There are many other issues, but we have gone on long enough.  With federal preemption and constitutional issues lurking about, maybe this case still has legs and will make its way to the U.S. Supreme Court. That would be a good fight, one that we will follow with great interest.