It’s been a few years since we talked about the conundrum facing pharmacies if they suspect prescriptions are medically unnecessary or improper. Back in 2015, two cases were decided within days of each other that allowed claims to go forward suggesting that a pharmacy could be potentially liable for both filling suspect prescriptions (see here) and for not filling suspect prescriptions (see here). Hence “damned if you do (question a prescription) and damned if you don’t.” We obviously have issues with both decisions as our prior posts explain. We don’t like the creation of new, ill-defined duties and we don’t like anything that creeps around in learned intermediary territory. But this is also a state-by-state issue and we have found other states not willing to make the leap to find that pharmacies have a duty to monitor patients or warn about excessive prescriptions. See Hernandez v. Walgreen Company, 2015 Ill. App. LEXIS 986 (Ill. App. Ct. Dec. 28, 2015). So, there is no bright line regarding what a pharmacy should do and it certainly seems at a minimum that pharmacies in different states are going to have to follow different rules – interesting when you consider the vast majority of prescriptions are filled by large national chains.

While the overarching question remains unanswered, a recent Seventh Circuit decision took a closer look at the substance of a “damned if you don’t” case that made it all the way to trial and found that most of it shouldn’t have survived summary judgment.

In Mimms v. CVS Pharmacy, Inc., — F.3d —, 2018 WL 2126720, *1 (7th Cir. May 9, 2018), plaintiff was a pain management physician who prescribed, among other things, opioids. On several occasions, CVS pharmacy employees informed customers that they would not fill Dr. Mimms’s prescriptions leading Dr. Mimms to sue CVS for alleged defamation. Id.   By the time the case went to trial it was based on four statements allegedly made by CVS employees:

  • “CVS doesn’t fill Dr. Mimms’[s] prescriptions or prescriptions for any other pill mills.”
  • “Dr. Mimms went to jail.”
  • “Dr. Mimms has been … or will be arrested.”
  • “Dr. Mimms is under DEA investigation.”

Id. Defendant moved for summary judgement on all four statements which was denied. Id. Defendant moved for judgment as a matter of law as to the first three statements at the conclusion of plaintiff’s case at trial. That too was denied and a verdict was entered in favor of plaintiff. Id.

Under Indiana law, to prove defamation, plaintiff had to establish that the speakers acted with actual malice. That is that they either knew their statements were false or had serious doubt as to their truth. Id. The district court found that plaintiff had met its burden regarding knowledge of falsity by showing that “CVS’s corporate office had concluded an investigation of Mimms and had not stopped stores from filling his patients’ prescriptions.” Id. In other words, the court imputed the knowledge of the principal to its agent which it is not permitted to do. Id. at *2 (citing New York Times v. Sullivan, 376 U.S. 254, 287 (1964)). Plaintiff had to prove that the employees themselves knew their statements were false or had serious doubts about their truth, which he did not do. Plaintiff pointed to emails from corporate officers to store supervisors asking supervisors to remind employees that company policy is not to make derogatory statements when refusing to fill prescriptions. Id. But there was no evidence that the email was sent to any of the speakers and more importantly it contained no information that would have informed speakers about the truth or falsity of their statements. So, plaintiff had no evidence from which a reasonable juror could conclude that the first three statements were made with actual malice. The court granted judgement as a matter of law as to those statements.

There was, however, some evidence that created a genuine dispute as to whether the speaker of the fourth statement – plaintiff was under DEA investigation – doubted its veracity. Id. So, while that statement would have survived summary judgment, the court found that CVS is entitled to a new trial based on erroneous trial rulings. At trial CVS was not allowed to offer evidence that Dr. Mimms’s former clinic had been subpoenaed for records of his prescriptions. That evidence CVS argued went to whether the statement was in fact true – a complete defense to defamation. Id. at *3. Even though Mimms had left the clinic at the time the subpoena was issued, “the fact that the DEA was seeking records for Mimms’s patients shortly after he left the practice supports CVS’s claim that Mimms was under investigation.” Id. CVS was also prohibited from introducing a transcript from a criminal trial in which a Health and Human Services agent testified that he investigated Mimms with a DEA agent. The Seventh Circuit found that the unduly prejudicial portions of the transcript could be redacted. It also concluded that the district court unnecessarily relieved plaintiff of his stipulation not to assert a hearsay objection to the transcript at trial. CVS relied on that agreement in deciding not to seek live testimony of the agent. Id. Finally, CVS was prohibited from offering evidence that Mimms’s professional reputation was already tarnished. While prejudicial, of course, the state of plaintiff’s reputation in a defamation action is critical to the issue of damages. Not allowing the evidence was an abuse of discretion. Add it all up and CVS is entitled to a new trial – one that feels like it should be drastically different than the first one.

 

This post comes from the non-Reed Smith side of the blog.

As we noted yesterday, we aren’t much for New Year’s resolutions.  But this blogger was recently invited to the home of friends who have a slightly different tradition.  On New Year’s Eve, as you leave their home, you are invited to take a slip of paper from a basket sitting by their front door.  On each paper is written a random word.  What you do with the word is up to you.  I was told some people tape them to their computer monitor or tack them on a bulletin board.  Others tuck them in their wallets or purses.  The idea is simply to contemplate the word.  What does it mean?  What does it mean to you?  Does it make you want to do something or not do something?  It is more about reflection than resolution.  Maybe that reflection will lead to something positive – maybe not.  But we find the exercise intriguing.  The idea that just one ordinary, everyday word might have a profound impact.  We are only day 5 into the New Year, but having a 5-minute daily time out to “contemplate” has so far been very relaxing.  If nothing else comes of it, that would still be a win.

And speaking of wins . . . . let’s talk about Hernandez v. Walgreen Company, 2015 Ill. App. LEXIS 986 (Ill. App. Ct. Dec. 28, 2015).  Here a single word made all the difference as well – duty.  Actually the lack thereof is what is important.  Suit was brought on behalf of the estate of the decedent who died allegedly from methadone intoxication.  Id. at **2.  Plaintiff sued the decedent’s doctor who had prescribed the methadone for back pain and the pharmacies that had filled the prescriptions.  Id.

Continue Reading No Pharmacy Duty, No Pharmacy Liability

On Friday, we posted about a Florida court that allowed negligence claims against a pharmacy that did nothing more than fill prescriptions as they were written (Oleckna).  As you can imagine, we had some reservations about the ruling.  Well, those reservations were driven home when we happened upon another recent pharmacy liability case, this one in Indiana – Kadambi v. Express Scripts, 2015 U.S. Dist. LEXIS 13607 (N.D. Ind. Feb. 5, 2015).

If we call Oleckna a “damned if you don’t” case, then Kadambi is the example of “damned if you do.”  Which leaves the question – what is a pharmacy to do?

Plaintiffs in Kadambi are an endocrinologist, Dr. Kadambi, and 8 of his patients for whom he prescribed human growth hormone (HIGH).  While plaintiffs allege that the prescriptions were medically necessary, the defendant pharmacies refused to fill HIGH prescriptions from Dr. Kadambi because they believe the prescriptions might violate federal law making it a “crime to knowingly distribute HIGH” for improper purposes.  Id. at *3.  Defendants alleged that they had a good faith belief that Dr. Kadambi was prescribing HIGH for non-medically acceptable reasons and/or that he was affiliated with organizations that advocate
off-label use of HIGH.  Id. at *4.

Plaintiffs advanced essentially two causes of action against the pharmacies – violation of Indiana’s statute governing pharmacies and defamation.   While the court dismissed the statutory claim, it allowed the defamation action.  We’ll go through the court’s ruling, but our real interest lies in the fact that both Kadambi and Oleckna are moving forward.

Continue Reading The Flip Side of Pharmacy Liability

A pharmacy case from Florida caught our eye this week.  We still have fresh in our minds the survey that Bexis posted a few days ago of state laws limiting the liability of non-manufacturing sellers of prescription medical products.  It was an impressive collection, as Bexis-prepared surveys tend to be, and it covered the potential liability (or lack thereof) of distributors, suppliers, pharmacies, etc.  You know, anyone in the chain who did not manufacture the drug or device and who typically would have no role in developing the product or its warnings. It comes up a lot for us in the context of removal jurisdiction, where plaintiffs fraudulently join local or non-diverse defendants in an attempt to prevent removal to federal court.  The plaintiffs never—and we mean never—actually pursue claims against the local defendants, and we routinely resist their motions to remand cases to state court with arguments that there are no viable claims against mere pass-through sellers of pharmaceutical products and medical devices.

In this regard, the result in Oleckna v. Daytona Discount Pharmacy, No. 5D13-3057, 2015 WL 477841 (Fla. Dist. Ct. App. Feb. 6, 2015), is not helpful because it allows negligence claims against a pharmacy that did nothing more than fill prescriptions as they were written.  In Oleckna, the patient was being treated for stress, and his doctor prescribed Xanax and narcotic pain medication over a period of two years.  Id. at *1.  The patient, sadly, died allegedly “due to combined drug intoxication” of the prescribed medications, and his estate sued the physician who wrote the prescriptions and a pharmacy who filled many of them—allegedly more than 30 prescriptions.  Id. 

Continue Reading Florida Court Races to Questionable Conclusion on Pharmacy Liability

We usually represent manufacturers, not pharmacies, in personal injury cases, so why should we care whether pharmacies can be on the hook? Well, if the pharmacy’s presence in the case prevents federal diversity jurisdiction, then solid case law shielding the pharmacy from liability will be crucial to our argument that the pharmacy was fraudulently/improperly joined. That is why we have blogged about pharmacy cases, including here and here, for example. Plus, the world is better off with a little less sloppy liability.

Now be prepared to argue that position in Washington state, because today’s case, Long v. Rite Aid Headquarters Corp., 2019 WL 1370442 (Wash. Ct. App. March 25, 2019), will be of service to the legion of defense hacks. The court held that when physicians prescribe medications for their patient, “it is the physician – a learned intermediary – and not the pharmacist who has the duty to advise the patient of potential adverse effects.” The pharmacy “had neither a general common law nor a statutory duty to warn” the plaintiff about the potential adverse side effects of a prescribed medication. It is a straightforward, unsurprising ruling, but the convoluted course of Washington law made it a little bit more complicated.

The plaintiff took an antibiotic for a tooth abscess. The label for the antibiotic warned that the antibiotic could cause diarrhea (no surprise there) but if that happens, the patient should not take antidiarrheal products. In the long case, the patient did develop diarrhea, did take Imodium, an antidiarrheal product, and did become exceedingly ill – so much so that doctors ended up performing an ileostomy and removing the plaintiff’s large colon. The plaintiff sued doctors, hospitals, and the pharmacy. The pharmacy filed a motion to dismiss.

The plaintiff claimed that the pharmacy breached the accepted standard of care when its pharmacists failed to warn her of the adverse side effects of the antibiotic. She relied on a Washington law requiring the pharmacist to “directly counsel the patient or patient’s agent on the use of drugs or devices.” The law also requires the pharmacist to “determine the amount of counseling that is reasonable and necessary under the circumstance[s].” To support her argument, the plaintiff hired an expert pharmacist to opine that Washington’s phramacy counseling requirement “at a minimum must include the most significant warnings of the drug.”

The pharmacy cited Washington’s adherence to the learned intermediary doctrine. Under that doctrine, even if pharmacists have “a duty to accurately fill a prescription, and to be alert for clear errors and mistakes,’ pharmacists do not “have a duty to question a judgment made by the physician as to the propriety of a prescription or to warn customers of the hazardous side effects associated with a drug.”

The Long court seemed to be with the defense position all the way. It reasoned that the duty to warn about potential adverse side effects must be the sole obligation of the prescribing physician because the physician “may often have a valid reasons for deviating from the drug manufacturer’s recommendations based on a patient’s unique condition.” Additionally, excessive warnings by a pharmacist “could cause unfounded fear and mistrust of the physician’s judgment, jeopardizing the physician-patient relationship and hindering treatment.” How refreshing to see a court acknowledge the dangers of over-warning

Moreover, a pharmacist lacks the necessary knowledge concerning a patient’s medical background “to question the physician’s judgment regarding the appropriateness of each customer’s prescription.” For example, physicians sometimes prescribe medications for an off label use. That can be completely appropriate. It can be within the standard of care. Should a phramacist butt in, mindful of FDA restrictions against off label marketing, or mindful of plaintiff attorney efforts to demonize off label use, and “counsel” the plaintiff against off label use? That would be absurd.

The only reason the Long case takes a long time to read is because Washington’s laws regarding pharmacy duties have changed over time, and the plaintiff cleverly exploited the confusion. But the Long court made short work of the plaintiff’s arguments, sorted things out, and arrived at the inevitable, correct result. The Long court even rustled up a Ninth Circuit opinion that held that the plain language of the Washington law “restricts a pharmacist’s role to counseling concerning the safe and effective administration of the medication, and does not impose any regulation to explain medical risks.”

When even the Ninth Circuit is against a plaintiff, it’s all over but the shouting. The Long court dismissed the case against the pharmacy.

How many of us entered law school dreaming of following the paths of Brandeis, Marshall, etc. in the field of constitutional law? How many of us now can go weeks, or even months, without reading a Supreme Court case? Paying off student loans led many of us to work for law firms where there was far less available to do in constitutional law than in, say, commercial disputes, securities, or product liability law. But we’re not mooning over the path not taken. Somewhere in that perineum between law school graduation and partnership, we learned that while constitutional law gets the headlines, it can also be in some ways, a less satisfying practice area. We don’t merely mean that it doesn’t pay as much, at least not reliably. The problem with constitutional law is that it turns too much on the predilections of a few judges, and turns too little on rules and realities. Statutory interpretation or antitrust analysis or a Daubert dispute demand rigor. Perhaps there is rigor in unwinding the doctrinal wanderings of First or Fourth Amendment law (and their “penumbras”), too, but politics and prejudice seem to take positions at the head of the line in those flashy areas. (There is currently an abortion case before the Supreme Court that asks whether a precedent set way, way back in 2016 should be overturned. Question: what has changed? Answer: politics and the makeup of the nine solons who get to tell us what the constitution means.).

Every once in a while, constitutional law intersects with other legal battlegrounds in interesting ways. Our blog, for example, has had multiple occasions to discuss the tension between the First Amendment and regulatory/judicial restraints on drug and device marketing. Now comes a brilliant, nervy law review article that examines this issue and makes some exciting proposals. The article is by Florida law professor Lars Noah, it appears in the Fall 2019 edition (volume 92) of the Temple Law Review, and is entitled, “Does the U.S. Constitution Constrain State Products Liability Doctrine?” The article is insightful and blessedly brief, so you should check it out yourself. We won’t step on too many of the article’s points, but here is a preview that we hope will inspire you to take a look at the article before you draft your next summary judgment brief.

Professor Noah begins by focusing on the dreadful decision by the New Jersey Supreme Court in the Perez case holding that the learned intermediary doctrine, which limits the duty to warn when selling prescription drugs and devices, did not apply whenever manufacturers had engaged in direct-to-consumer (DTC) advertising. The article boldly suggests that the rule announced in Perez might run afoul of the Constitution. After all, in cases such as Virginia State Board of Pharmacy and Thompson v. Western States Medical Center, the Supreme Court has applied the first amendment to limit government efforts to bar truthful and nondeceptive pharmaceutical advertising.

(The article reminds us that Perez involved a contraceptive. The New Jersey court apparently believed that the product “did not qualify as a therapeutically important product,” and seemed willing to carve out another exception to the learned intermediary doctrine for “lifestyle” drug and devices, whether or not directly advertised to consumers.)

Professor Noah points out that the DTC exception in Perez “plainly singles out for unfavorable treatment defendants that engage in commercial speech simply because some of the judges in that state have no use for the practice.” That sounds like content-related discrimination (both speaker- and topic-based) against certain speech.

The article does not confine itself to the Perez issue. It explores whether constitutional protection should extend to the marketing of certain products that implicate certain rights. Contraceptives – such as the product at issue in Perez – would be among those products, something we’ve noted here on the Blog. An analogy is drawn to the First Amendment’s requirement of tolerating some defamatory falsehoods in order to avoid chilling valuable speech. Why shouldn’t other fundamental rights (think of some of the most controversial SCOTUS opinions, such as Griswold, Roe, and Heller) require tolerating the “sale of certain arguably defective products lest suppliers become spooked about distributing even nondefective versions that individuals have a right to use“?

That is not an absolute principal; there aren’t that many absolutes in constitutional law. Professor Noah proposes that “Constitutional regard for ensuring the availability of certain products would not entirely insulate sellers, just as authors and publishers remain subject to defamation lawsuits, but it would necessitate imposing a higher pleading standard on plaintiffs. In order to really safeguard constitutionally valuable products, even allegations of negligence would not suffice, instead, courts should have to recognize a regulatory compliance defense.”

The article concludes that “[t]he time may have come to extend the U.S. Supreme Court’s drive to constitutionalize the domain of speech torts into the field of products liability.” That notion is intriguing not only because of its potential scope and consequences, but also because it is grounded in precedent and logic. At a minimum, we should ponder possible constitutional dimensions before we put the finishing touches on our dispositive motions.

Today’s guest post, about a bottom-ten RICO third-party payor action from (no surprise) the Ninth Circuit, is by long-time friend of the blog (and blogger in his own right), Jonah M. Knobler, of Patterson Belknap.  We named one similar case, Kaiser Foundation Health Plan, Inc. v. Pfizer, Inc., 712 F.3d 21 (1st Cir. 2013), as our #1 worst of the worst for 2013, and a secondIn re Avandia Marketing, Sales Practices & Product Liability Litigation, 804 F.3d 633 (3d Cir. 2015), was our #4 worst case of 2015.  This case involves a different drug and a different defendant, but a similarly miserable result.  As always our guest posters are 100% responsible for their views, so Jonah deserves all of the credit (and any of the blame) for what follows.

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When Congress enacted the Racketeer Influenced and Corrupt Organizations Act (RICO) in 1970, its express intent was taking on the Mafia.  Among the furthest things from its mind was policing the labeling and promotion of FDA-regulated prescription medications.  Yet here we are, 50 years later, defending a succession of RICO suits alleging that pharmaceutical companies engaged in “racketeering” by misstating a prescription drug’s safety or efficacy.

Most courts have dismissed these suits at the very threshold for lack of proximate causation.  Last week, however, the Ninth Circuit breathed new life into this misguided liability theory, holding that proximate cause does not bar patients’ or insurers’ RICO claims against pharma companies for “omitt[ing] [to] mention … a drug’s known safety risk.”  Painters & Allied Trades Dist. Council 82 Health Care Fund v. Takeda Pharms. U.S.A., __ F.3d ____, 2019 U.S. App. LEXIS 35844, at *4 (Dec. 3, 2019).  Painters comes dangerously close to transforming RICO—a law meant to take down La Cosa Nostra—into a federal product-liability regime, contrary to the guidance of Congress and the Supreme Court.

By way of background, the first part of this post discusses how the Supreme Court has construed RICO, focusing on its element of proximate cause.  The second part explains how the Supreme Court’s proximate-cause principles should apply to pharmaceutical RICO claims.  The third and last part discusses Painters and explains how the Ninth Circuit deviated from those governing principles.

Part I: The Supreme Court And RICO Proximate Cause

As noted, Congress’s clear purpose in enacting RICO was fighting “criminal enterprises such as the Mafia and its many petty imitators.”  United States v. Masters, 924 F.2d 1362, 1367 (7th Cir. 1997).  Senator Hruska of Nebraska, who proposed the bills that eventually became RICO, explained that “the evil to be curbed” was “organized crime”—that is, “mobsters” who employ “threats of violence, extortion, and similar techniques.”  Sedima v. Imrex Co., 473 U.S. 479, 514 (1985) (Marshall, J., dissenting).  RICO was ultimately enacted as part of the Organized Crime Control Act of 1970, whose preface stated that “it was the declared purpose of Congress ‘to seek the eradication of organized crime in the United States….’”  United States v. Turkette, 452 U.S. 576, 588 (1981) (quoting Pub. L. 91-452, 84 Stat. 923).  References to the Mafia and “organized crime” in RICO’s legislative history are legion.

Yet, in Sedima v. Imrex Co., 473 U.S. 479 (1985), a bare majority of the Supreme Court held that RICO suits do not require a substantive “organized crime nexus.”  Id. at 494.  While the majority voiced its “concern over the consequences of an unbridled reading of the statute,” it found “no room in the statutory language”—as opposed to the legislative history—to demand a Mafia link.  Id. at 481, 495.  As the dissenters feared, this opened the door to RICO’s deployment against “legitimate businesses in ordinary commercial settings,” an outcome Congress plainly did not intend.  Id. at 506 (Marshall, J., dissenting).

Seven years later, however, the Court narrowed RICO’s sweep in a different way.  In Holmes v. SIPC, 503 U.S. 258 (1992), the Securities Investor Protection Corporation (SIPC) alleged that the defendant, Holmes, had engaged in a fraudulent stock-manipulation scheme.  That scheme caused broker-dealers who were SIPC members to become insolvent, such that they could not meet their financial obligations to their customers.  Their insolvency, in turn, triggered the SIPC’s duty under the Securities Investor Protection Act to advance funds to reimburse the broker-dealers’ customers.  The SIPC sued Holmes under RICO, asserting that his fraudulent stock manipulation had injured it in the amount of the funds it was required to reimburse.  See id. at 262-63.

Because of Sedima, the suit’s lack of an organized-crime nexus was no barrier.  But the Holmes Court found another reason to toss the SIPC’s claim:  proximate cause.  RICO’s private-right-of-action provision states that “any person injured … by reason of a violation … may sue.”  18 U.S.C. §1964(c) (emphasis added).  Read literally, “by reason of” would seem to require only but-for causation.  And Holmes’ scheme was indeed a but-for cause of the SIPC’s losses.  This time, however, the Court took an approach unlike the one it took in Sedima:  noting the “unlikelihood that Congress meant to allow all factually injured plaintiffs to recover,” it held that a RICO claim requires “not only … ‘but for’ cause,” but “proximate cause as well.”  Id. at 266, 268 (emphasis added).

Of course, the devil is in the details.  As Holmes noted, “proximate cause” is a concept that takes on “many shapes,” depending on the context.  Id. at 268; see also Lexmark Int’l, Inc. v. Static Control Components, Inc., 572 U.S. 118, 133 (2014) (noting that “[t]he proximate cause inquiry … take[s] various forms” and that the particular form “is controlled by the nature of the statutory cause of action”).  When most lawyers think of proximate cause, it probably calls to mind Mrs. Palsgraf and foreseeability.  But “[a] plaintiff must make a different showing of proximate cause—one that is often more difficult to make—when bringing suit under the RICO statute than when bringing a common-law cause of action.” Lerner v. Fleet Bank, N.A., 459 F.3d 273, 278 (2d Cir. 2006).  Specifically, Holmes held, RICO proximate cause requires a “direct relation between the injury asserted and the injurious conduct alleged.”  503 U.S. at 269.  The aim of this directness requirement is “to prevent … intricate, uncertain inquiries from overrunning RICO litigation.”  Anza v. Ideal Steel Supply Corp., 547 U.S. 451, 460 (2006).

This notion of a “direct relation” encompasses several related ideas.  Most important is the number of “step[s]” in the causal chain leading from the defendant’s violation to the plaintiff’s injury.  Holmes, 503 U.S. at 271-72.  “The general tendency … is not to go beyond the first step” in that chain.  Id.  In other words, proximate cause is ordinarily lacking if the immediate “cause of [the plaintiff’s] asserted harms … is a set of actions … distinct from the alleged RICO violation.”  Anza, 547 U.S. at 458; see also BCS Services v. Heartwood 88, LLC, 637 F.3d 750, 756 (7th Cir. 2011) (generally no proximate cause where “the defendant’s conduct and the plaintiff’s injury are separated by intermediate pairs of cause and effect”).

Holmes’s “direct relation” requirement also considers whether “other, independent factors” not attributable to the RICO violation may have contributed to the plaintiff’s injury.  503 U.S. at 269; see also Anza, 547 U.S. at 459 (direct relation lacking where plaintiff’s damages “could have resulted from factors other than [defendant’s] fraud”).  This question is closely connected with the length of the causal chain, because the more “steps” between act and injury, the more uncertainty enters into the picture, and “the more difficult it becomes to ascertain” what portion of the harm is “attributable to the violation.”  Holmes, 503 U.S. at 269.

It follows that the “direct relation” concept is also related to the simplicity or intricacy of the plaintiff’s damages model.  “[M]assive and complex damages litigation,” Holmes cautions, “not only burden[s] the courts, but … also undermine[s] the effectiveness of treble-damages suits.”  Id. at 274.  In this respect, RICO’s directness requirement resembles the concept of antitrust standing, which bars claims where assessing damages would require “massive evidence and complicated theories.”  Assoc. Gen. Contractors v. Cal. State Council of Carpenters, 459 U.S. 519, 542-33 (1983) (cited with approval in Holmes and Anza).

A final “consideration … relevant to the RICO ‘direct relationship’ requirement is whether better situated plaintiffs would have an incentive to sue.”    Hemi Grp., LLC v. City of New York, 559 U.S. 1, 11-12 (2010); see also Holmes, 503 U.S. at 269-70.  Where there are other ways “to vindicate the law,” a RICO suit by a remotely injured plaintiff is simply not worth the effort, as “the need to grapple with” thorny problems of causation and damages is “unjustified by the general interest in deterring injurious conduct.”  Id.

In Holmes, the SIPC’s claim did not satisfy this “direct relation” test.  The causal chain went “beyond the first step”:  Holmes’s stock manipulation left the broker-dealers insolvent, and “that intervening insolvency”—not Holmes’s conduct—was the immediate trigger of the SIPC’s duty to reimburse the broker-dealers’ customers.  Id. at 271.  That extra step introduced causal uncertainty into the mix, for the broker-dealers might have become insolvent in part for reasons other than Holmes’s scheme: “say, [their own] poor business practices.”  Id. at 272.  For that reason, permitting the SIPC to sue “would open the door to ‘massive and complex damages litigation.’”  Id. at 274.  And the courts “would be shouldering these difficulties” for naught, because “the broker-dealers … could be counted on to bring suit for the law’s vindication.”  Id. at 273.

Since Holmes, the Court has twice found RICO proximate cause lacking for similar reasons.  In Anza, it found the requisite “direct relation” absent where the plaintiff’s causal theory had multiple steps; some of its alleged injury “could have resulted from factors other than [the defendants’] … fraud”; calculating damages would have required “complex” and “speculative” proceedings; and “the State c[ould] be expected to pursue appropriate remedies.”  547 U.S. at 458-61.  And most recently, in Hemi, the Court found no “direct relation” where “[m]ultiple steps … separate[d] the alleged fraud from the asserted injury”; “independent factors” might have “account[ed] for” some portion of the alleged harm; and “[t]he State” could vindicate the law instead.  559 U.S. at 9-12, 15.

The upshot is this:  even if RICO doesn’t require a substantive nexus to organized crime, the statute’s “direct relation” requirement limits RICO’s reach to cases with causal theories akin to what one might see in a Mafia case.  Mobsters act through unsubtle tactics like extortion, assault, kidnapping, arson, and murder.  Those tactics inflict immediate and obvious harm on their victims—harm that can be proven through direct evidence, without resorting to fancy econometrics.  Holmes and its progeny teach that, even if RICO claims may stray substantively outside the Mafia sphere, RICO causal theories must remain just that straightforward.

Part II: RICO Proximate Cause in Pharma Cases

So how should these principles apply to pharma cases?  The template for pharma RICO suits is well-established: the plaintiff is either a patient or, more commonly, a “third-party payor” (TPP), such as a health insurance company or union-affiliated welfare benefit fund.  The plaintiff alleges that the pharmaceutical defendant misrepresented the safety or efficacy of its medication by promoting it for an off-label use, concealing a health risk, or both.  Because traditional personal-injury damages are unavailable under RICO, the plaintiff claims economic loss:  but for the manufacturer’s violation, it would not have paid for the drug (or would have paid less for it).  To make such claims economically viable, these suits are almost always brought as putative class actions.  Often, the claimed damages rise into the hundreds of millions or billions of dollars, even before trebling.

The fraudulent schemes alleged in these suits are anything but straightforward.  The plaintiff generally describes a multi-pronged effort, consisting of misleading “detailing” (direct, in-office presentations) to prescribers; financing of biased clinical research and slanted publications in medical journals; paying “key opinion leaders” in the medical community to talk up the drug; conducting publicity campaigns to counter unfavorable press; and other forms of supposedly misleading promotion or advertising.  Eventually, the plaintiffs allege, the sum total of these efforts “corrupts the medical discourse,” trickling down to the plaintiffs’ own physicians or those of their beneficiaries.  Those physicians then write prescriptions that they should not have written, and the plaintiffs ultimately pay for them.

The vast majority of courts have agreed that “allowing [plaintiffs] to move forward” on such a theory “would present precisely the types of problems the Holmes Court sought to avoid” through its directness requirement.  Ironworkers Local Union No. 68 v. AstraZeneca Pharms. LP, 585 F. Supp.2d 1339, 1344 (M.D. Fla. 2008), aff’d, 634 F.3d 1352 (11th Cir. 2011); see also Sidney Hillman Health Ctr. of Rochester v. Abbott Labs., 192 F. Supp.3d 963, 967-70 (N.D. Ill. 2016), aff’d, 873 F.3d 574, 575-78 (7th Cir. 2017); Sergeants Benevolent Ass’n Health & Welfare Fund v. Sanofi-Aventis U.S., L.L.P., 20 F. Supp.3d 305, 323 (E.D.N.Y. 2014), aff’d, 806 F.3d 71 (2d Cir. 2015); Employer Teamsters-Local Nos. 17/505 Health Welfare Trust Fund v. Bristol Myers Squibb Co., 969 F. Supp.2d 463, 473-76 (S.D. W. Va. 2013); In re Bextra & Celebrex Mktg., Sales Practices & Prods. Liab. Litig., 2012 U.S. Dist. LEXIS 111446, at *218-24 (N.D. Cal. Aug. 2, 2012); UFCW Local 1776 v. Eli Lilly & Co., 620 F.3d 121, 134 (2d Cir. 2010); In re Yasmin & Yaz (Drospirenone) Mktg., Sales Practices & Prods. Liab. Litig., 2010 U.S. Dist. LEXIS 80758, at *22-27 (S.D. Ill. Aug. 5, 2010); In re Schering-Plough Corp. Intron/Temodar Consumer Class Action, 2009 U.S. Dist. LEXIS 58900, at *86-93 (D.N.J. July 10, 2009), aff’d, 678 F.3d 235 (3d Cir. 2012); Se. Laborers Health & Welfare Fund v. Bayer Corp., 655 F. Supp.2d 1270, 1280-84 (S.D. Fla. 2009), aff’d, 444 F. App’x 401, 410 (11th Cir. 2011); Dist. 1199P Health & Welfare Plan v. Janssen, 784 F. Supp.2d 508, 523-25 (D.N.J. 2011); UFCW Cent. Pa. & Reg’l Health & Welfare Fund v. Amgen, Inc., 400 F. App’x 255 (9th Cir. 2010); In re Actimmune Mktg. Litig., 614 F. Supp.2d 1037, 1051 (N.D. Cal. 2009), summarily aff’d, 464 F. App’x 651 (9th Cir. 2011).

For starters, there is well more than one “step” in the causal chain leading from the alleged wrongdoing to the alleged injury.  Here is how that chain looks in a typical TPP claim:

  • First, the manufacturer makes false or misleading statements about its drug to the medical community.
  • Second, members of the medical community accept those statements as truth and propagate them until they “corrupt the medical discourse.”
  • Third, based on that corrupted knowledge base, the TPP’s pharmacy benefit manager (PBM)—the large outside company that manages most TPPs’ prescription drug plans—recommends adding the drug to the TPP’s formulary.
  • Fourth, the TPP accepts the recommendation of its PBM to place the drug on formulary, rendering use of the drug eligible for reimbursement.
  • Fifth, the TPP sets the premiums that it collects from its members at a level that anticipates fewer prescriptions of the drug than actually end up being written.  See Teamsters Local 734 Health & Welfare Trust Fund v. Philip Morris, 196 F.3d 818, 824 (7th Cir. 1999) (“[I]nsurers [may] collect only for [their] net outlay …; but there will be such a net outlay only if the insurers’ actuaries are not calculating rates correctly.”).
  • Sixth, based on the same corrupted knowledge base, physicians in the TPP’s network choose to prescribe the drug for the TPP’s beneficiaries, instead of a less expensive drug or (less commonly) no drug at all.
  • Seventh, those patients choose to fill their prescriptions. See Jane E. Brody, The Cost of Not Taking Your Medicine, N.Y. Times, Apr. 17, 2017 (noting that 20–30% of prescriptions go unfilled).
  • Eighth, if the drug has one or more generic equivalents, the pharmacist fills the prescription with the drug that is the subject of the lawsuit, rather than the cheaper generic version.
  • Ninth, the patients take the drug and fail to receive the advertised health benefit or experience bodily injury.  See Sidney Hillman, 873 F.3d at 577 (noting that TPPs suffer no cognizable RICO injury by paying for a medication that “helped the patient”).
  • Tenth, those patients submit their prescription claims for payment or reimbursement by the TPP.
  • Eleventh, the TPP reimburses those prescriptions—and, because it did not set its premiums high enough back at Step Five, it suffers a net out-of-pocket loss after considering both sides of the ledger.

This causal chain, involving various independent actions by multiple parties, is even lengthier and more attenuated than the one the Supreme Court held fatally indirect in HolmesSee, e.g., Eli Lilly, 620 F.3d at 134 (“Plaintiffs’ theory of liability rests on the independent actions of third and even fourth parties, as physicians, PBMs, and PBM Pharmacy and Therapeutics Committees all play in a role in the chain between [the manufacturer] and TPPs.”); Bristol Myers Squibb, 969 F. Supp.2d at 475 (“Between Defendants’ alleged misleading marketing and Plaintiffs’ prescription reimbursements lies a vast array of intervening events….”).  “Because [this] theory of causation requires us to move well beyond the first step, that theory cannot meet RICO’s direct relationship requirement.”  Hemi, 559 U.S. at 10.  The chain may be slightly shorter in patient cases, as opposed to TPP cases, but no matter:  that chain, too, goes “well beyond the first step.”  Id.

Just as important as the number of intervening links is the nature of those links—especially the physician’s prescribing decision.  In rejecting claims like these, courts have stressed that prescribing decisions are “multifaceted and individualized,” Sanofi-Aventis, 806 F.3d at 92, and are “influenced by a number of things … [besides] representations by [the] manufacturer,” AstraZeneca, 585 F. Supp.2d at 1344.  This includes years of study and training, word-of-mouth, first-hand clinical experience with the drug, independent literature, and patient-specific medical history.  See AstraZeneca, 634 F.3d at 1362-63 (“The prescription choice the physician makes is … an individualized medical judgment bottomed on a knowledge of both patient and palliative…. The physician learns about a drug through multiple sources, only one of which might be the drug manufacturer’s promotions and literature.” (cleaned up)); Sidney Hillman, 873 F.3d at 577 (“[S]ome physicians … might have changed [their prescribing practices] in response to information that [the manufacturer] did not influence.  The medical literature contains not only double-blind clinical studies but also case studies and even anecdotes that affect physicians’ prescribing practices.  For some physicians, these may have dominated over anything [the manufacturer] did.”); Eli Lilly, 620 F.3d at 135 (“[The manufacturer] was not, however, the only source of information on which doctors based prescribing decisions.  An individual patient’s diagnosis, past and current medications being taken by the patient, the physician’s own experience prescribing [the drug], and the physician’s knowledge regarding the side effects of [the drug] are all considerations that would have been taken into account….”).

The physician’s prescription decision—to say nothing of all the other intervening steps—makes it “difficult[] … to ascertain” what portion of the plaintiff’s out-of-pocket costs are “attributable to the [defendant’s] violation, as distinct from other, independent factors.”  Anza, 547 U.S. at 458; see Sidney Hillman, 873 F.3d at 577 (noting the “difficulties” of “[d]isentangling the effects of the improper promotions from the many other influences on physicians’ prescribing practices”).  And the need for such a “complex assessment” “implicates [the] fundamental concerns expressed in Holmes.”  Anza, 547 U.S. at 459; see AstraZeneca, 585 F. Supp.2d at 1344 (finding that the “highly complex damages assessment” in a pharma RICO suit “strongly weighs against a finding” of directness).

But wait!  Couldn’t an expert economist come up with a statistical model that purports to isolate and quantify the influence of the challenged practices on prescribing rates?  Indeed, when pharma RICO cases have survived motions to dismiss, the plaintiffs have usually proffered such a model—almost always a methodologically questionable regression analysis.  As Bexis has noted, such models essentially propose “an aggregate trial by formula that deprives the defendants of contesting the individual merits of any of the thousands—heck, millions—of individual claims at issue.”  Such models, moreover, answer only part of the question:  even if they could isolate and quantify the influence of improper promotion on prescribing, they shed no light on (for example) how many of those prescriptions actually helped or hurt the patients who received them; what drug (if any) would have been prescribed for each patient but for the alleged fraud; or how much that alternative drug would have cost.  See Sidney Hillman, 873 F.3d at 577.  And in all events, the very fact that Ph.D.-level statistical analyses must be brought to bear, in and of itself, is proof that the causal theory in these cases is not “direct.”  See SEIU Health & Welfare Fund v. Philip Morris Inc., 249 F.3d 1068, 1074-75 (D.C. Cir. 2001) (“Reliance on aggregate statistical proof … compounds the difficulties and does not alter the speculative [and indirect] nature of the claimed damages.”).

If that weren’t enough, in pharma RICO cases, there are always “better situated plaintiffs [with an] incentive to sue,” Hemi, 559 U.S. at 11-12—or, at minimum, less problematic ways than RICO for the same plaintiffs to “vindicate the law,” Holmes, 503 U.S. at 269-70; see Ore. Laborers-Emprs. Health & Welfare Trust Fund v. Philip Morris, Inc., 185 F.3d 957, 964 (9th Cir. 1999) (noting that the question is not who is the best RICO plaintiff, but whether there are better ways to “promote ‘the general interest in deterring injurious conduct’”).  The federal and state governments both have a strong interest in ensuring that pharmaceutical companies label and promote their products properly, and neither has hesitated to vindicate that interest under the FDCA, False Claims Act, and other theories.  See, e.g., Sidney Hillman, 873 F.3d at 578 (“Public prosecution avoids these problems [of causation and damages], so [Defendant’s] criminal conviction [for misbranding] and $1.6 billion [penalty] were the proper remedies.”).  Moreover, physically injured patients routinely bring state-law product-liability claims against pharmaceutical companies that allegedly mislabel or falsely promote their products.  Those suits already serve to “deter[] [the] injurious conduct” at issue, rendering RICO claims superfluous.  Holmes, 503 U.S. at 269; see Ore. Laborers, 185 F.3d at 964, 966 (“Although the smokers cannot recover under … RICO …., they can seek recovery under other state law theories for personal injury and the associated medical costs….  [This] weigh[s] in favor of barring plaintiffs’ [RICO] claims.”); Bayer, 655 F. Supp.2d at 1283-84 (“The existence of [a product-liability] MDL demonstrates that … patients who suffered physical injury … are able to ‘vindicate the law … without any of the problems attendant upon [RICO] suits.’”).

In sum, the theories asserted in pharma RICO cases have far too many steps in their causal chain, and those steps are far too individualized.  For that reason, isolating the harm caused by the defendant and calculating the plaintiff’s damages are nightmarishly difficult, if not impossibly speculative.  Again, “[t]he element of proximate cause recognized in Holmes is meant to prevent these types of intricate, uncertain inquiries from overrunning RICO litigation.”  Anza, 547 U.S. at 460.  That’s why courts have overwhelmingly rejected these suits.

Part III: Critiquing Painters

The complaint in Painters largely hewed to the template described above.  Like many other pharma RICO cases, it arose out of a product-liability MDL containing numerous personal-injury suits.  See In re Actos (Pioglitazone) Prods. Liab. Litig., 274 F. Supp.3d 485, 503 (W.D. La. 2017).  The plaintiffs were a union-affiliated welfare benefit fund (Painters) and a handful of individual patients.  They alleged that the pharmaceutical defendants had “engaged in a decade-long scheme” to “sell the diabetes medication Actos … while concealing the bladder cancer risks associated with Actos from consumers, prescribers, third-party payors, and the [FDA].”  Second Am. Compl. ¶1.  The plaintiff sought class certification and treble damages “for the consumers and [TPPs] who were tricked into purchasing and/or reimbursing Actos prescriptions.”  Id. 

True to form, the alleged chain of causation was anything but simple.  First, to “deceive the FDA” into approving Actos, the defendants allegedly promoted a sham medical “hypothesis” to “explain away” certain troubling test results.  Id. ¶¶29-33, 48-50.  Later, after approval, the defendants allegedly “resisted … label changes” desired by the FDA and “convince[d] the FDA,” using “numerous ‘experts,’” that cancer warnings were unnecessary.  Id. ¶61-63.  Meanwhile, the defendants allegedly “instruct[ed] [their] sales force to pitch [a misleading] message” about Actos’s safety profile in face-to-face meetings with prescribers.  Id. ¶62.  They allegedly decided not to “conduct[] market research on possible label language around bladder cancer,” lest they “risk public awareness.”  Id. ¶ 67.  They allegedly “conspired … to misrepresent the data” on Actos’ safety in medical journal publications.  Id. ¶85.  They allegedly “generat[ed] scientific materials about Actos, which despite the appearance of independence, were designed to persuade doctors to prescribe Actos.”  Id.  ¶40.  They allegedly refused to “issue[] a Dear Doctor Letter to warn the medical community of the risk of developing cancer while taking Actos.”  Id. ¶92.  And they allegedly “misrepresent[ed] and conceal[ed] the ties between Defendants and other enterprise participants.”  Id. ¶239.

Painters, the TPP plaintiff, claimed that the defendants’ alleged campaign of deception “caused [it] to make payments for Actos that, absent the fraud, would never have occurred.”  Id. ¶134.  It did not point to any actual instances where misleading statements were made to any of Painters’ beneficiaries or their physicians—let alone to Painters itself.  Nor did it allege that any of its beneficiaries actually developed bladder cancer, or that Actos failed to treat their diabetes satisfactorily.  The individual plaintiffs alleged that they paid out-of-pocket for a portion of their Actos prescriptions and that they “never would have purchased and ingested the drug” but for the defendants’ violations.  Id. ¶151.  Only one of the individual plaintiffs alleged that she read and relied on the Actos label.  ¶139.  None of them alleged that they actually developed bladder cancer or that Actos failed to treat their diabetes.

In a brief order, the district court dismissed the plaintiffs’ RICO claims with prejudice, “find[ing] persuasive” the many decisions that have held proximate cause lacking in “highly similar case[s].”  No. 2:17-cv-07223 (C.D. Cal.), ECF No. 140 (filed Feb. 1, 2018).  In a published, unanimous opinion, the Ninth Circuit reversed.  In so doing, it aligned itself not with the long string of decisions cited above—which includes two unpublished Ninth Circuit decisions—but with a pair of outlier decisions from the First and Third Circuits.

The Ninth Circuit acknowledged RICO’s “direct relation” requirement.  But in applying it, the Ninth Circuit did not focus on the many steps in the plaintiff’s causal chain, as Holmes, Anza, Hemi, and its own prior precedent command.  See Canyon Cnty. v. Syngenta Seeds, Inc., 519 F.3d 969, 981 (9th Cir. 2008) (“Under [Holmes and] Anza, courts must scrutinize the causal link between the RICO violation and the injury….  Where the violation is not itself the immediate cause of the plaintiff’s injury, proximate cause may be lacking.”).  Instead, Painters found the directness requirement met because (1) “sell[ing] more Actos” to TPPs and patients was the goal of the alleged scheme; and (2) it was “foreseeable” that TPPs and patients would be harmed by the scheme.  2019 U.S. App. LEXIS 35844, *17, *30-31 (emphasis added).

The Supreme Court, however, has specifically rejected both intent and foreseeability as yardsticks of RICO proximate cause.  Start with intent.  In Anza, the Second Circuit had found proximate cause satisfied because the plaintiff was the “intended victim of the [defendant’s] scheme.”  Ideal Steel Supply Corp. v. Anza, 373 F.3d 251, 257-64 (2d Cir. 2004) (emphasis added).  The Supreme Court reversed, criticizing the lower court’s reasoning “that because the [defendants] allegedly sought to [harm the plaintiff], it [was] immaterial whether they took an indirect route to accomplish their goal.”  Anza, 547 U.S. at 460 (emphasis added).  Anza warned that “[a] RICO plaintiff cannot circumvent” the directness requirement by alleging that “the defendant’s aim” or “motive” was to injure him.  Id.  And in Hemi, the Supreme Court again stressed that “the intended consequences of the defendant’s unlawful behavior” are not relevant to “the directness of the relationship between the conduct and the harm.”  559 U.S. at 12; see also SEIU, 249 F.3d at 1074 (noting that courts have “rejected the contention that [the defendant’s] specific intent … is sufficient” to establish directness).

The Supreme Court has also expressly rejected the argument that “RICO’s proximate cause requirement turn[s] on foreseeability.”  Hemi, 559 U.S. at 12.  More recently, in a Fair Housing Act case, the Supreme Court invoked its RICO precedents in holding that “foreseeability alone is not sufficient to establish proximate cause.”  Bank of Am. Corp. v. City of Miami, 137 S. Ct. 1296, 1305 (2017).  A foreseeability test, the Court warned, “would risk [t]he ‘massive and complex damages litigation’” that the proximate cause requirement is supposed to prevent.  Id. at 1306; see also Conrail v. Gottshall, 512 U.S. 552-53 (1994) (“If one takes a broad enough view, all consequences of [a violation], no matter how far removed in time or space, may be foreseen. Conditioning liability on foreseeability, therefore, is hardly a condition at all.”).

So much for an immediate causal nexus.  What about the “difficult[y] [of] ascertain[ing] damages?”  Painters, 2019 U.S. App. LEXIS 35844, at *18-19.  Without any explanation, the Ninth Circuit dubbed itself “not persuaded that it is so difficult here that Plaintiffs should be denied the opportunity to prove their damages.”  Id.  But it is hard to square this with binding precedent.  In Anza, for example, a New York City business sued its chief competitor in the local market, alleging that the competitor’s failure to charge sales tax allowed it to undercut the plaintiff’s prices and steal its local New York City customers.  547 U.S. at 454.  The Supreme Court ordered this claim dismissed on the pleadings, observing that the required damages assessments would be too “complex,” “intricate,” and “speculative” for a RICO claim.  547 U.S. at 459-60.  But calculating a single business’s lost sales in a duopolistic local market would be a walk in the park compared to modeling the damages suffered by the nationwide patient and TPP classes in Painters.  Just for example, the Ninth Circuit acknowledged that the fact-finder would have to determine which “alternative drug” each patient who received Actos would have been prescribed in the but-for world and whether that drug would have “cost less than Actos” at the relevant time.  2019 U.S. App. LEXIS 35844, at n.7.  If the Anza plaintiff was properly “denied the opportunity to prove [its] damages,” it’s perplexing why the Ninth Circuit thought the Painters plaintiffs deserved that “opportunity.”  Cf. Canyon Cnty., 519 F.3d at 982 (“[C]ourts need not allow RICO plaintiffs leeway to continue on with their case in an attempt to prove an entirely remote causal link.”).

What about the concern that physicians’ prescription decisions are too multifaceted and individualized?  The Ninth Circuit was not concerned about that: “since Actos was a prescription drug,” the court reasoned, it was “perfectly foreseeable that physicians who prescribed Actos would play a causative role in Defendants’ alleged fraudulent scheme.”   2019 U.S. App. LEXIS 35844, at *30-31.  Again, that is not how the “direct relationship” requirement works.  Again, consider Anza: in that case, it was “perfectly foreseeable” to the defendant that, by shirking sales tax and undercutting its competitor’s prices, some of its competitors’ customers would jump ship.  But that was not good enough: “Businesses,” the Anza Court noted, “lose and gain customers for many reasons, and it would require a complex assessment to establish what portion of [plaintiff’s] lost sales were the product of [defendant’s] decreased prices.”  547 U.S. at 459.  As discussed above, that same observation applies in spades to physicians’ decisions whether to prescribe a particular drug.  Notably, the Ninth Circuit has faithfully followed Anza’s approach in non-pharma RICO cases.  See Canyon Cnty., 519 F.3d at 983 (finding no proximate cause where intermediate steps in the causal chain might have “numerous alternative causes,” such that “the proceedings required to evaluate the [plaintiff’s] injury would be speculative” and “intricate”).

The Ninth Circuit was also willing to overlook the physician’s role in the causal chain because “physicians [are] not … the ones paying for the drugs they prescribe.”  2019 U.S. App. LEXIS 35844, at *31.  In other words, physicians aren’t injured by the RICO violation, so their intervening role doesn’t count.  For starters, it’s far from clear that physicians suffer no injury from a scheme like the one alleged.  See Sidney Hillman, 873 F.3d at 576 (“Physicians affected by [improper] promotions thus may lose business and revenue.”).  More importantly, under Supreme Court and Ninth Circuit precedent, the question is not who is the first injured party; it is whether the plaintiff’s injury requires more than one “step” to bring about.  A causally remote injury does not magically become “direct” just because no one else in the causal chain has been injured yet.  See Canyon Cnty., 519 F.3d at 983 (holding that RICO proximate cause bars claims where “[t]he asserted [causal] link … is … attenuated,” even if “the [plaintiff’s] injury is not ‘derivative of an injury suffered by any other party’”).

In disregarding the physician’s role, Painters also relied on Bridge v. Phoenix Bond & Indemnity Co., 553 U.S. 639 (2008).  But Bridge does not hold that intervening links in a RICO plaintiff’s causal chain do not matter.  Rather, it holds that an intervening link may “be discounted” if—and only if—it operates in a purely mechanistic fashion and introduces no uncertainty into the causal theory.  Sidney Hillman, 192 F. Supp.3d at 970; see Lexmark, 572 U.S. at 139-40 (observing that a causal chain that “includes [an] intervening link” may be deemed direct in “unique circumstances” where that step operates “automatically”).  The Bridge plaintiffs’ causal theory went roughly like this: (1) the defendants lied to Cook County to gain access to a series of county-run contests; (2) the county selected the contest winners; and (3) the defendants won some prizes that otherwise would have gone to the plaintiffs.  True, there was one intervening link in this chain: the county’s selection of prizewinners.  Crucially, however, the prizes were “allocate[d] … ‘on a rotational basis’ in order to ensure that [they were] apportioned fairly among” all participants.  Bridge, 553 U.S. at 639 (emphasis added).  The only intervening step, in other words, was neither volitional nor multifaceted; it was 100% deterministic.  Thus, it presented none of the concerns underlying RICO’s “direct relation” requirement.  As discussed above, the multiple intermediate steps in a pharma plaintiff’s causal chain are very different; doctors, for example, do not prescribe medications on a “rotational” basis.  See Sergeants Benevolent Ass’n Health & Welfare Fund v. Sanofi-Aventis U.S. LLP, 20 F. Supp.3d 305, 322-23 (E.D.N.Y. 2014) (“In this case, [unlike Bridge], the intervening acts which interrupt the causal chain … cannot be readily predicted…. [T]he prescribing decisions of physicians are based on so many factors as to defy any efforts to categorically attribute them to a particular cause.”).

Painters’ treatment of the physician’s intervening role leaves much to be desired.  But at least the court gave reasons for disregarding it.  By contrast, Painters did not even discuss the fact that the plaintiffs’ causal chain—unlike in most pharma RICO cases—involved deception of the FDA itselfSee 2019 U.S. App. LEXIS 35844, at *5 (“[P]laintiffs allege that Defendants convinced the FDA that studies revealing that Actos increased the risk of bladder cancer were wrong.”); Second Am. Compl. ¶¶ 48-50, 61-63 (defendants allegedly “deceive[d] the FDA” into approving Actos and “convince[d] the FDA” that warnings were unnecessary).  For one thing, the FDA’s decisions are at least as complex and multifaceted as those of prescribing physicians.  But more fundamentally, the Supreme Court has held that causal theories involving “fraud on the FDA” are off-limits, because allowing private plaintiffs to pursue such claims would “skew[]” the FDA’s “delicate” balancing of regulatory objectives.  Buckman Co. v. Plaintiffs’ Legal Comm., 531 U.S. 341, 348 (2001).  Of course, RICO claims arise under federal law, so they cannot technically be “preempted” like the state-law claims in Buckman, but that should not change the outcome.  See Se. Laborers, 444 F. App’x at 407, 410 n.4 (“As with its [state-law] claim, [Plaintiff] may not rely on a … fraud-on-the-FDA theory of causation for its RICO claim.”).

But perhaps the most telling sentence in Painters is this one:  “If we were to hold … that prescribing physicians’ and [PBMs’] decisions … sever the chain of proximate cause …, drug manufacturers would be insulated from liability for their fraudulent marketing schemes….”  2019 U.S. App. LEXIS 35844, at *31-32 (emphasis added).  In other words, we must find proximate cause, despite Supreme Court and Ninth Circuit precedent, because the unpopular pharmaceutical industry must be punished for its presumed misdeeds.  Of course, this rationale assumes its conclusion—i.e., that there should be RICO liability for inaccurately labeling or promoting a prescription drug.  It also fails to acknowledge that there are many ways of deterring wrongdoing by the pharmaceutical industry other than a treble-damages claim under a federal statute designed to combat violent mobsters.  Notably, during the tobacco-litigation frenzy of the 1990s, the Ninth Circuit held that physically injured consumers’ ability to bring state-law product-liability claims against manufacturers “weigh[ed] heavily in favor of barring” RICO claims.  Ore. Laborers, 185 F.3d at 964.  Apparently, the rules have changed.

Finally, absent from Painters is any discussion of the drawbacks of opening up RICO—“the litigation equivalent of a thermonuclear device,” Miranda v. Ponce Fed. Bank, 948 F.2d 41, 44 (1st Cir. 1991)—to uninjured patients and insurers.  Federal courts are already overwhelmed with product-liability litigation; removing the requirement of physical injury and adding the incentives of treble damages and attorney’s fees will make this problem far worse.  Cf. Laborers Local 17 Health & Benefit Fund v. Philip Morris, Inc., 191 F.3d 229, 240 (2d Cir. 1999) (finding no proximate cause in insurer’s RICO case against tobacco company, and noting that “rul[ing] otherwise could lead to a potential explosion in the scope of tort liability”).  Additionally, requiring the pharmaceutical industry to pay huge treble-damage awards to sprawling classes of uninjured patients and insurers may have “grave health policy consequences,” including “higher priced name brand drugs” and “fewer innovative drugs.”  In re Darvocet, Darvon & Propoxyphene Prods. Liab. Litig., 756 F.3d 917, 946 (6th Cir. 2014).  Finally, as noted above, introducing the blunt instrument of RICO to pharmaceutical litigation threatens to “skew” the FDA’s  regulatory balancing act in ways Congress could never have envisioned when it enacted the FDCA.  Buckman, 531 U.S. at 348.  Suffice it to say, extending RICO liability to its conceptual limit is not the unalloyed good that Painters appears to assume.

Conclusion

It’s been said a million times before:  “the civil provisions of RICO are the most misused statutes in the federal corpus of law.”  Goldfine v. Sichenzia, 118 F. Supp.2d 392, 394 (S.D.N.Y. 2000) (cleaned up).  As relevant here, RICO was not intended as a “surrogate for garden-variety [tort] actions properly brought under state law,” Midwest Grinding Co. v. Spitz, 976 F.2d 1016, 1022 (7th Cir. 1992), or as a “federal products liability scheme complete with treble damages and attorney fees,” Summit Props. v. Hoechst Celanese Corp., 214 F.3d 556, 557 (5th Cir. 2000).

By adopting the “direct relation” requirement, the Supreme Court tossed out a lifeline to lower courts adrift in a sea of civil RICO claims that Congress did not anticipate or intend.  That requirement, again, was meant to cabin RICO’s scope to disputes with simple, black-and-white causal theories—similar to those in Mafia cases, the prototypical application of RICO.  By stretching that “direct relation” test beyond recognition to punish the pharmaceutical industry, Painters not only spurned the Supreme Court’s lifeline; it affirmatively urged on the floodwaters.

So what now?  Perhaps the en banc Ninth Circuit will see things differently.  Perhaps the Supreme Court will step in and reinvigorate RICO’s proximate-cause requirement, as it did in Anza and Hemi.  Perhaps Congress could be convinced to amend RICO to bar suits involving FDA-regulated drugs and medical devices, the way it prohibited RICO suits involving regulated securities transactions when they got out of control in the 1990s.  In the meantime, however, pharmaceutical and medical-device companies should brace for the onslaught of bogus “racketeering” claims that Painters has invited.

When we discuss the learned intermediary rule, it is typically in the context of protecting our drug and device manufacturer clients. If a manufacturer warned the doctor, it discharged its duties, and a plaintiff should not be able to claim that he or she was not directly warned. We do not often represent pharmacies, but we’d usually just as soon see them escape liability as well, if only to keep them out of the case and keep them from wrecking federal diversity. Thus, we have often written about cases that shut down failure to warn claims against pharmacies – see here and here, for example.

Illinois was already on the correct side of the ledger, refusing to put pharmacies on the hook for failure to warn. That same legal position was applied, and perhaps even slightly extended, in Urbaniak v. American Drug Stores, LLC, 2019 IL App. (1st) 180248 (Ill. App. March 25, 2019). In Urbaniak, the plaintiff had taken Reglan for six years to treat gastroparesis. Unfortunately, the plaintiff developed tardive dyskinesia and dystonia. The prescribing physician admitted that he was unaware of the risk that a patient might develop these movement disorders from long-term ingestion of Reglan. The plaintiff sued that doctor for medical malpractice and separately settled. One might think that is where the tale ends.

It did not end that way here. The plaintiff also sued the pharmacy, and the central issue in that case was whether the pharmacy could be liable for failing to issue an oral warning to the plaintiff about the medical risks associated with the long-term ingestion of Reglan. Why an oral warning? We’ll get to that point. It is a major weakness in the plaintiff’s case. Another weakness was that the plaintiff wanted to prove that the pharmacy should have known the risks about which the doctor was clueless, should have deduced that the doctor was clueless, and should have stepped into the breech and warned the patient.

That seems a trifle ambitious. It also seems more than a trifle wrong.

(Why did the plaintiff not sue the manufacturer? Dunno. Perhaps the plaintiff used a generic version. Or perhaps the plaintiff saw the learned intermediary rule as an insurmountable barrier against manufacturer liability. If the latter, then what happened in Urbaniak becomes even a little more interesting.)

In February 2009, after the plaintiff began taking Reglan, the Food and Drug Administration approved a black box warning for the drug. The black box warning addressed tardive dyskinesia directly. For the six years he took Reglan, the plaintiff had all of his prescriptions filled at the same pharmacy. When dispensing Reglan, the pharmacy distributed a medication guide to consumers. The medication guide for Reglan provided warnings and other information about the drug, including the warning about tardive dyskinesia. But the pharmacy never orally warned the plaintiff about the risks associated with taking Reglan longer than 12 weeks. Do you see where this is going?

Why would the pharmacy butt in and nag the plaintiff? That must be what the pharmacy thought when it moved for summary judgment on the claims against it. The pharmacy argued that it had no duty to warn the plaintiff or his doctor about the risk of developing tardive dyskinesia and dystonia as a result of taking Reglan for longer than 12 weeks. The trial court agreed and entered summary judgment in the pharmacy’s favor. The plaintiff appealed.

The Illinois appellate court reasoned that the learned intermediary doctrine obligates drug manufacturers to warn only physicians about the potential risks of a drug, and then physicians are required to use medical judgment to determine which warnings to provide to patients to whom the drug is prescribed. The duty to warn of side effects is not placed on the pharmacist, it is placed on the prescribing physician. A pharmacist owes just a duty of ordinary care in practicing his or her profession.

The issue in Urbaniak was not whether the pharmacy had a generalized duty to warn the plaintiff about the dangers of Reglan, because it did so in writing. (Remember the medication guide?). Rather, the issue is whether the pharmacy had a specific duty to advise the plaintiff orally about the risks of the prolonged ingestion of Reglan or to advise the prescribing physician about the risks of taking Reglan long term. That makes the Urbaniak case slightly different from prior Illinois cases. It makes Urbaniak weirder. We think it also makes Urbaniak easier.

The plaintiff argued that it is “highly unusual” for a black box prescription warning to have a time limitation – 12 weeks in this case – and that the pharmacy should have told both the prescribing doctor and the patient “about the 12 week warning so they could have evaluated whether to continue the drug.” The plaintiff argued that the pharmacy owed a duty “to be aware of the black box time limitation, to make sure that the refill does not exceed the limitation, and if it does, discuss that issue with the doctor or patient.”

The appellate court sensibly concluded that such a rule would require pharmacies to inquire into the doctor’s judgment about, at a minimum, the duration of prescriptions when side effects could develop from long-term use. Such a rule would run afoul of Illinois court decisions that have “consistently declined to impose upon a pharmacy, any duty to monitor patients, make medical decisions, or to warn a physician or a patient of ‘excessive’ prescribed doses.” Illinois law imposes “no duty on a pharmacist to warn the customer or notify the physician that drugs are being prescribed in dangerous amounts, that the customer is being overmedicated or that various drugs in the prescribed quantities could have an adverse effect.”

Again, the pharmacy did warn the plaintiff about the dangers of taking Reglan for longer than 12 weeks. It just did so in writing. The plaintiff argued that the pharmacy should have been done orally, as well. That is not a theory of liability the appellate court would accept. The plaintiff admitted that he never read the medication guide given to him with his prescription. The plaintiff seemed to want a nanny at every turn. He demanded that the pharmacy should have waded further into the situation. But, according to the appellate court, “the learned intermediary doctrine dictates that pharmacists stay out of the physician-patient relationship.”

(Some of you might be thinking that Urbaniak smells like assumption of the risk, contributory negligence, or a break in the failure to warn claim inasmuch as the plaintiff either 1) read the warning and accepted the tardive dyskinesia risk without any questions, 2) read the warning, discussed it with the doctor he later sued, and accepted the risk, or 3) never read the medication guide at all. All of that points to personal responsibility, which this plaintiff threw away with the medication guide.)

Moreover, the pharmacy had no reason to know that the doctor was ignorant of the effects of the drug for which he wrote a prescription. It is not as if the pharmacy was saddled with an “independent duty to inquire into the doctor’s pharmaceutical competence.” It is the doctor’s duty to know what he is prescribing and it is the pharmacy’s duty to give the patient what the doctor orders.

There is another way to style the plaintiff’s claim in Urbaniak. To fit within Illinois precedents, the plaintiff tried to make the case that Reglan should be considered contraindicated for anyone after 12 weeks of use. Consequently, per this line of reasoning, the pharmacy was required to speak up about such contraindication. But contraindications ”speak in terms of specific patients and specific treatments. Reglan was not specifically contraindicated for the plaintiff for any articulable reason. The plaintiff presented with no allergy and there was no concern about the interaction of multiple drugs in this case.”

The pharmacy simply had no duty to speak.

 


Way back in law school we learned that a plaintiff suing for negligence must satisfy four elements:  (1) duty, (2) breach, (3) causation, and (4) injury.  Every one of these elements can be a battleground.  Even what seems like the simplest inquiry – whether the plaintiff was injured – can be controversial.  We have seen cases where a plaintiff alleged increased chance, and consequent  fear, of injury.  Is that enough?  Psychological injuries present a host of difficulties.  Remember the “zone of injury” cases?  Some injury issues manage to be at once both straightforward and intractable.  One of the all-time great movies about litigation, The Fortune Cookie, centered around that great bugaboo of small-time litigation – soft tissue injury.  Not everyone who dons a neck-brace is really hurt. 

 

The element of breach can also be knotty.  Was the defendant insufficiently careful?  How much care is reasonable?  What is the standard of reasonableness?  Reasonable person?  Reasonable riveter?  Reasonable podiatrist?  When we sat on a jury in a med-mal case a couple of months ago, pretty much the only issue in play was whether the doctor had paid close enough attention to his patient’s hemoglobin levels.   Some jurors wanted to throw up their hands, exasperated at the impossibility of knowing what a doctor should do.  Theoretically, the breach element drops out in strict liability cases.  Fault should not matter.  But when the claim is strict liability failure to warn, negligence principles creep back into the case.  It can be hard for a defendant to win summary judgment on breach.  Courts are quick to throw that issue to the jury.  And then, like the jury we sat on, some poor fact-finders will want to throw the issue right back.

 

More often, it is the causation element that constitutes summary judgment bait.  In this blog, we have spilled a lot of web-ink on the causation issue, whether it be medical causation (did this drug or device hurt the plaintiff?) or warning causation (would a different warning in the label have steered the doctor away from this product?).  If the doctor did not even read the label, our clients win.  Some commentators say that there are five, not four, elements, because causation actually involves separate questions of but-for causation and proximate causation.  That latter item has given rise to quasi-philosophical musings.  Maybe something played a role in the causal chain, but is it so remote or obscure that putting the defendant on the hook for damages would be unfair?  Maybe Donny was a dolt to leave a lit candle on the dresser in his rental apartment, but should he be on the hook if a burglar broke in, knocked the candle onto the rug, and set the place ablaze?  Proximate causation, in the views of some, can boil down to whether it was reasonably foreseeable that the breach of the duty of care would cause this particular harm.  But evaluating foreseeability can almost seem like an epistemological exercise.  Whose perspective counts?  What are the sources of foreseeability?  We’ve always thought that foreseeability was a fuzzy criterion, because it can be altered by so many things – including court opinions.  Now that we know how clumsy burglars can be, thanks to F. Supp. or Law360 or the Philly Inquirer or Eyewitness News, shouldn’t we be extra-careful about leaving lit candles behind?  (Similarly, in Fourth Amendment jurisprudence, the notion of reasonable expectation of privacy seems mercurial.  Don’t SCOTUS pronouncements themselves shape such expectations?  Once we read how cops can identify marijuana grow-rooms via thermal imaging, doesn’t our expectation of privacy somehow diminish?  But we digress.)   

 

If proximate cause turns, at least in part, on foreseeability, so does the first negligence element, duty.   Today’s case, Martinez v. Walgreen Co., 2018 WL 3241228 (S.D. Texas July 3, 2018),  is about the scope of duty.  Maybe the Martinez case will end up being one for the law books.  Even though the defendant in Martinez is not a drug or device company, we feel duty-bound to report on it.  The defendant was a pharmacy, and the claim was the pharmacy dispensed the wrong prescription to its customer.  The medication incorrectly given to the customer allegedly caused the customer to experience hypoglycemia, which adversely affected his ability to drive (blurry vision, dizziness, etc.), which resulted in a series of auto wrecks that killed the occupants of other vehicles.  Those other drivers/passengers happened to be in the wrong place at the wrong time.  The estates of those victims sued the pharmacy for dispensing the wrong drug.  Even assuming that the pharmacy was negligent and that such negligence caused the terrible injuries, and assuming that the pharmacy owed a duty to its own customer to get the prescription right, did the pharmacy owe a duty of care to the people in the cars struck by its customer?    

 

The federal court, applying Texas law, said No, and granted summary judgment to the pharmacy.  In Texas, pharmacists are considered health-care providers and owe their customers a duty of care.  That much is clear.  But Texas courts have not recognized a general common-law duty for health-care providers towards third parties for injuries that may be the result of the provider’s negligence to the patient.  So far, so bad for the plaintiff.  Nevertheless, Texas has recognized a duty for medical professionals towards third parties in very limited circumstances when the breach of a duty to the patient gives rise to a reasonably foreseeable harm to an identifiable person or class of persons as a consequence of that breach.  For example, if a medical facility housing a criminally insane patient – one who presented a clear danger to the public – failed to control that patient and permitted him to shoot someone, the facility could be liable for breach of the facility’s duty to control the patient.  Is that a good analogy to what happened in Martinez?  Perhaps the best case that plaintiffs cited was one in which a Texas court held that a doctor who failed to warn a patient who had a known history of drug abuse not to drive while under the influence of Quaaludes and the patient then drove and injured third party motorists.  Pretty close, right? 

 

But Texas courts over the years have considerably reined in the duty to third parties.  Thus, physicians have no duty to warn epileptic patients not to drive and mental health professionals have no duty to warn third parties about specific threats (the law might be different elsewhere).  Texas courts have also ruled that pharmacists have no duty to warn about the potential side-effects of medication.  Against this not entirely consistent or clear legal backdrop, the Martinez court asked the following question:  “Under Texas law does a pharmacist owe a duty to unconnected third parties for the negligent prescription of medication?”  The court answered that question in the negative because “In order for a third-party duty to arise, the breach of the health-care provider’s duty to the patient must create a reasonably foreseeable consequence to an identifiable party or class.  Here, Plaintiffs are not identifiable third parties.”  The defendant pharmacy had no duty to control its customer’s behavior or to warn him about side effects.  To find a duty to the plaintiffs, the court would have to find that “a pharmacist has a general duty to the public for negligent provision of medication.  The Texas Supreme Court has never held that such a duty exists, and thus, this Court, Erie-bound cannot so find now.”  Well, that sort of respect for Erie is eerily refreshing, isn’t it?

 

The plaintiffs still did not give up.  They argued that the pharmacy’s dispensation of the wrong medicine violated a statute and that, therefore, this was a case of negligence per se.  The negligence per se doctrine simply means that a defendant’s violation of a statute removes the need for a jury to assess whether the defendant was careless.  The statute itself sets the bar for due care.  But what that means is that negligence per se answers the breach question –  “negligence per se does not impose a duty.”  It is the absence of duty in the Martinez case that puts the plaintiff out of court.   It is the absence of duty in the Martinez case that puts that case in our blog. 

 

 

We’ve seen stories lately that an increasing trend towards online sales of prescription drugs could become as much of a threat to retail drugstores as online shopping generally has become to department stores.  For non-prescription drugs, that future is already here – just Google “OTC Drugs Online” and check out the results.  Or you can go to your favorite general online marketplace and search for the name of a commonly used OTC drug.

When we see something like this, we immediately wonder, “what are the product liability implications?”  We thought we’d take a look.

For this thought experiment, assume that plaintiff X purchased a generic drug online through a large internet marketplace, and now claims to have suffered injury. We’re using generic drugs as an example because preemption would preclude product liability claims against the manufacturer – but if it’s a foreign manufacturer, as is often the case online, well….  But put that aside for the moment, too.

What happens when a plaintiff sues the operator of an online marketplace for injuries caused by a product purchased through that market place?

The plaintiff almost always loses.

Why?  Two reasons.  First, unless the operator actually buys the product and resells it (which happens sometimes, but not a lot), the marketplace isn’t considered a product “seller.”  It’s more like the shopping mall than like any individual store.  Second, a federal statute, the Communications Decency Act, precludes a website operator from being liable for content on its site that is created and uploaded by others.

Both prongs of this defense were recently on display in Oberdorf v. Amazon.com, Inc., 295 F. Supp.3d 496 (M.D. Pa. 2017), which dismissed a non-drug/device product-related personal injury claim brought by plaintiffs who were allegedly injured by a product allegedly bought on the “Amazon Marketplace.”  This “marketplace” is described as:

a vehicle through which third parties may independently offer products for sale.  This service . . . is currently utilized by more than one million third-party vendors.  These third-party vendors decide which products they wish to sell, obtain their stock from manufacturers or upstream distributors, and set their own sales price.  They provide a description (including, perhaps, a photograph) of the product to [the marketplace], which [it] uses to create a listing on its website.

Id. at 497-98 (footnote omitted).  Notably, this is one of the sites where one can currently purchase OTC drugs.

According to Oberdorf, marketplace users “are informed that they are purchasing from an identified third party, and not from [the marketplace] itself.”  Id. at 498.  Except is special cases, the marketplace itself “has no interaction with the third-party vendor’s product at any time.”  Id.  The site’s supervision over its third-party marketers is limited to:  (1) collecting payments, from which it deducts its fee; (2) its platform being the exclusive means of communicating with customers; (3) editorial rights over the contents and appearance of product listings; and (4) imposing rule governing shipping and returns.  Id.

Plaintiffs purchased the product in Oberdorf from a third-party vendor that, once suit was brought, they were “unable to make contact” or serve with process.  Id.  They sued the marketplace  instead

Plaintiffs lost, on the two above-mentioned grounds.  Under Pennsylvania common law, an online retailer was not a “seller” of such products, as that term was used in Restatement (Second) of Torts §402A (1965).  It did not design, manufacture, or sell the product.  Instead of being a store, the online marketplace acted more like “a sort of newspaper classified ad section.”  295 F. Supp.3d  at 501.  Oberdorf compared the marketplace to a product auctioneer that, in Musser v. Vilsmeier Auction Co., 562 A.2d 279 (Pa. 1989), was held not to have attributes of a “seller” that could be subject to §402A strict liability:

Like an auctioneer, [the marketplace] is merely a third-party vendor’s “means of marketing,” since third-party vendors − not [the marketplace] − “cho[o]se the products and expose[ ] them for sale by means of” the Marketplace.  Because of the enormous number of third-party vendors (and, presumably, the correspondingly enormous number of goods sold by those vendors) [the marketplace] is similarly “not equipped to pass upon the quality of the myriad of products” available on its Marketplace.  And because [the marketplace] has “no role in the selection of the goods to be sold,” it also cannot have any “direct impact upon the manufacture of the products” sold by the third-party vendors.

Oberdorf, 295 F. Supp.3d 501 (quoting Musser).

In holding online websites displaying goods sold by others not to be product “sellers” subject to strict liability, Oberdorf appears squarely in the legal mainstream.  In the only state court decision we’ve seen that’s on point, an Ohio trial court held:

[The internet platform] did not in any way modify the [product] purchased by [plaintiff’s decedent].  Nor did [it] distribute the product as the packaging, handling and shipping were performed by [another defendant] and shipped directly to [still another defendant].  {the platform’s] services − allowing the product to be uploaded to its marketplace − were not connected to any aspect of the product which ultimately resulted in the decedent’s death.  Any issues with labeling, concentration, instructions, warnings, etc., were aspects of the product are unconnected to the services [the platform] performed.

Stiner v. Amazon.com, Inc., 2017 WL 9751163, at *6, slip op. (Ohio C.P. Sept. 20, 2017).  That the actual sellers were “a Chinese company . . . not subject to process” or “insolvent” did not justify imposing liability on someone who was not a seller at all.  Id. at *5. See id. at *7-9 (not a seller under state Little FDCA Act or Uniform Commercial Code either).

Similar federal decisions include:  Milo & Gabby LLC v. Amazon.com, Inc., 693 F. Appx. 879, 885 (Fed. Cir. 2017) (online marketer not a product “seller” for purposes of copyright infringement); Fox v. Amazon.com, Inc., 2018 WL 2431628, at *2, 7 (M.D. Tenn. May 30, 2018) (online “information service and system designed so multiple users across the world can access its servers and browse its marketplace at the same time” not a “seller” as defined by Tennessee product liability statute); Erie Insurance Co. v. Amazon.com, Inc., 2018 WL 3046243, at *2 (D. Md. Jan. 22, 2018) (website operator not a “seller” under Uniform Commercial Code”) (fire subrogation case); McDonald v. LG Electronics., USA, Inc., 219 F. Supp.3d 533, 542 (D. Md. 2016), reconsideration denied, 2017 WL 4163348, at *1-2 (D. Md. May 8, 2017) (online marketer not a product “seller” under strict liability or the UCC); Inman v. Technicolor USA, Inc., 2011 WL 5829024, at *6 (W.D. Pa. Nov. 18, 2011) (online auctioneer not a “seller” for §402A purposes); Stoner v. eBay, Inc., 2000 WL 1705637, at *2 (Cal. Super. Nov. 1, 2000) (online auctioneer not “an active participant in the sale of the auctioned goods and services” so as to be liable for copyright infringement).

The second basis for immunity of an Internet website from liability for online sales made by those advertising on the site was federal preemption.  Oberdorf held that all the plaintiff’s tort claims were barred by 47 U.S.C. §230 (the “Communications Decency Act” or “CDA”), which provides that “[n]o provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider.”

[I]t is clear from [plaintiffs’] papers that they are, in fact, attempting to hold [defendant] liable for its role in publishing an advertisement for [the seller’s] product.  In other words, [plaintiffs] are attempting to “treat[ defendant] as the publisher or speaker of … information provided by” the seller.  Therefore, these claims are barred by §230 of the CDA.

Oberdorf, 295 F. Supp. at 502-03 (footnote omitted) (quoting statute).  See also Id. at 503 n.52 (CDA would bar product liability claims had they not already been dismissed).

Once again, Oberdorf appears to be in the strong majority of courts holding that product liability actions brought against non-seller online entities are barred by the CDA.  In general, the CDA “provides immunity to [any] publisher or speaker of information originating from another information content provider.”  Green v. America Online, 318 F.3d 465, 471 (3d Cir. 2003).  The CDA has repeatedly been held to preempt product liability claims against website owners.  See Erie Insurance, 2018 WL 3046243, at *3 (“even if I am incorrect with respect to my conclusion that [defendant] is not a seller . . ., I conclude that the CDA would preclude the claims in any event”); McDonald, 219 F. Supp.3d at 538 (CDA immunized online retailer from warning-based claims); Hinton v. Amazon.com.DEDC, LLC, 72 F. Supp.3d 685, 691-92 (S.D. Miss. 2014) (CDA immunized online retailer from product liability suit over product obtained from third-party through interactive internet site); Inman, 2011 WL 5829024, at *6-7 (CDA precluded all claims against internet retailers for injury from allegedly toxic products purchased online); Doe v. MySpace, Inc., 629 F. Supp.2d 663, 665-66 (E.D. Tex. 2009) (CDA barred strict liability claim); Reyes v. LA VaporWorks, 2017 WL 1717406, at *1-2 (Cal. Super. Feb. 16, 2017) (CDA prevents “plaintiffs in product liability cases [from] seeking to hold interactive computer service providers liable for the failure to prevent or screen” “defective product[s] from allegedly being sold” online); Stoner, 2000 WL 1705637, at *3 (in enacting the CDA “Congress intended to remove any legal obligation of interactive computer service providers to attempt to identify or monitor the sale of such products”); Stiner, 2017 WL 9751163, at *11-14 (“to the extent that §230 is applicable to the instant case, the immunity provided thereunder would further support the finding already made by the court that [defendant] is not a supplier or seller of the [product] and that it cannot be held liable under the specific facts of this case”); cf. Gentry v. eBay, Inc., 121 Cal. Rptr.2d 703, 712-16 (Cal. App. 2002) (CDA precludes action against online auctioneer for allegedly counterfeit products); Gibson v. Craigslist, Inc., 2009 WL 1704355, at *4 (S.D.N.Y. June 15, 2009) (CDA immunizes online website from liability for facilitating sales of “inherently hazardous objects, such as handguns”).

The practical reason why we’re seeing a proliferation of attempts to sue internet platforms was alluded to in both Oberdorf and Stiner – online sales platforms are allowing a plethora of products to be sold by a myriad of manufacturers who, before such technologies, had no way of selling worldwide.  The proliferation of online product retailing is leading to more and more situations where product liability plaintiffs are left with nobody, as a practical matter, for them to sue.  It will be very interesting to see what happens when some plaintiff claims SJS-TENS from some drug purchased online.

Particularly after Bristol-Myers Squibb Co. v. Superior Court, 137 S. Ct. 1773 (2017) (“BMS”), and Daimler AG v. Bauman, 134 S. Ct. 746 (2014), how many of the “more than one million third-party vendors,” Oberdorf, 295 F. Supp.3d at 498, on that particular website, and uncounted others utilizing similar websites worldwide, are likely even to be subject to personal jurisdiction anywhere in the United States?  Moreover, as we have discussed before, the expansive “stream of commerce” jurisdiction theory, which purports to allow suit anywhere that a product happened to injure someone has never commanded a majority on the Supreme Court, and is falling further out of favor after BMS.  With traditional defendants disappearing, it is not surprising to see plaintiffs attempt to sue non-traditional entities, but for now the law is not letting them get away with it.