Photo of Steven Boranian

Tomorrow is the Fourth of July, also called Independence Day, which is when Americans celebrate the independence of the North American colonies from Great Britain.  We celebrate American independence on July 4 because the Second Continental Congress adopted the Declaration of Independence on that date in 1776, although it was not signed until about a month later.  Everyone knows the preamble (“We hold these truths to be self-evident . . . .”), but the document contains much more, including a list of 27 colonial grievances against the King.  Some are blunt and resentful—for example, “He has plundered our seas, ravaged our coasts, burnt our towns, and destroyed the lives of our people,” and he has enacted “pretend Legislation” and “transport[ed] us beyond Seas to be tried for pretended offenses.”  Other grievances address governance more directly, including that the King “has refused to Assent to Laws . . . necessary for the public good,” has refused to establish “Judiciary Powers,” and has “made Judges dependent on his Will alone for the tenure of their offices.” 

We take this walk through history mainly for the fun of it, but also because many of these grievances echo through the Constitution that was ratified 12 years later, and they still resonate in our legal system today.  Elected officials enact laws “for the public good,” or at least a vision of “good” that is good enough to get the votes.  We also have federal judges, who serve for life, without depending on the will of others “for their tenure.” 

All this comes into play when discussing a federal law that is anything but “pretend Legislation”—the Racketeering Influenced and Corrupt Organizations Act, or RICO.  This federal anti-racketeering statute was enacted to address organized crime (insert your own Sopranos or Goodfellas reference here), but as we have seen all too many times, RICO now encompasses allegations of “racketeering” beyond anything envisioned when the law was enacted. 

There are, however, limits, and we brought you a case earlier this year where the Central District of California dismissed RICO claims against a biopharmaceutical manufacturer.  The plaintiffs had alleged that the defendant engaged in off-label promotion and paid kickbacks to physicians, but the district court ruled that these were not RICO predicate acts.  Nor had the plaintiffs alleged wire fraud or mail fraud—which are RICO predicate acts—with any particularity.  Their vague and non-specific allegations of “deceptive off-label promotion” did not cut it, which led us to observe that the government has learned to allege falsity, but private plaintiffs not so much

The plaintiffs have tried again, but again without success.  The plaintiffs in MSP Recovery Claims v. Avanir Pharmaceuticals, Inc., No. 22-cv-01026, 2023 WL 4162338 (C.D. Cal. May 19, 2023), are assignees of all rights “to recover reimbursement or payment from defendants” on behalf of six health plans, aka third party payers.  These plaintiffs filed a First Amended Complaint that attempted to allege falsity (and thus mail fraud and wire fraud) in three ways, but none worked. 

First, they alleged that the defendant had misled the public by overstating the prevalence of the condition for which its drug was indicated.  But the specific allegations of plaintiffs’ complaint stated that the defendant actually understated the prevalence of the disease.  Moreover, and in any event, the plaintiffs did not allege that the defendant’s prevalence estimates were untrue when they were made.  This is the odd example of a plaintiff pleading fraud with specificity, but the specifics actually demonstrated that there was no fraud.  Id. at *3-*4. 

Second, the plaintiffs alleged that the defendant made false statements about the “scope of FDA-approved uses” of the drug.  This sounds a lot like recycled allegations of off-label promotion, which the district court already ruled was not a RICO predicate act.  It ruled the same way again, noting that the plaintiffs failed to identify any statements that the defendant made regarding FDA-approved uses, let alone false statements.  Id. at *4-*5. 

Third, the plaintiffs argued that the defendants’ alleged conduct—i.e., the already rejected allegations of off-label promotion and kickbacks—caused physicians to make false claims for payment.  The district court rejected this recycled claim too because to “hold otherwise would effectively convert any allegation of off-label promotion and kickbacks into RICO predicate acts so long as those activities result in claims to Medicare.”  Id. at *5.  As the district court further observed, that result would run counter to multiple decisions.  Id. 

The civil RICO claims therefore did not survive, nor did the claim of a RICO conspiracy.  A RICO conspiracy requires either an agreement that is itself a violation of RICO or an agreement to commit two RICO predicate acts.  The plaintiffs did not allege RICO predicate acts, nor did they allege an enterprise beyond “general statements that fail to identify the ‘who, what, when, where and how” of the misconduct charged.”  Id. at *6. 

As we noted in our last post on this case, the best defendants can hope for in a civil RICO case is that courts will test the pleadings with rigor.  This judge did just that, and then did it again.  Continuing our Independence Day theme, we can trace that back to the Declaration of Independence, which envisioned representative government and an independent judiciary.  The Declaration also railed against “pretend Legislation” and “pretended offenses.”  But say what you will about RICO (we know we have a view), you can be sure it is real.