Today’s case is not our usual fare.  But we’ve never seen this kind of appeal succeed before, so we’re going to spare a few minutes for something a little odd but important.

First of all, the patient and the medical device manufacturer are on the same side – they’re both plaintiffs in Alcresta Therapeutics, Inc. v. Azar, 2018 U.S. App. LEXIS 33961 (D.C. App. Dec. 3, 2018).  Because in this suit, the medical device manufacturer and the patient are aligned in their desire to get the patient access to the device.  Defendant is the Secretary of Health and Human Services.  And the issue is the billing code, or lack thereof, assigned by HHS to the device.

The device, Relizorb, is a cartridge containing an enzyme that predigests fats in enteral formula.  So the device is designed to be used with enteral feeding via a stomach tube for people with illnesses who have difficulty digesting and absorbing essential fats.  Id. at *2.  Relizorb is expensive and is not needed by all enteral feeding patients.  Id. at *6-7.  Feeding tube systems consist of many different parts that are not pre-packaged together, but that are coded and priced together by the HHS as an “enteral feeding supply kit.”  Id. at *2.  Many other products used for enteral feeding are priced and coded separately.  HHS determined, however, that Relizorb should be coded as part of the supply kit rather than separately.  Id.  That decision has led Medicare and private insurers to deny reimbursement for Relizorb which in turn has prevented the patient from getting Relizorb and the manufacturer from selling it.  So, they sought a preliminary injunction ordering HHS to assign the device a temporary billing code that doesn’t treat Relizorb as a component of the enteral feeding supply kit allowing it be separately priced.

The district court denied the injunction and the only issue on appeal was whether plaintiffs had demonstrated irreparable injury.  Id. at *5.  That, and of course, whether they had standing to challenge HHS’s coding determinations.  HHS argued that coding decisions are not determinations of the reimbursement rates and that the only way plaintiffs should be allowed to proceed is to challenge a specific reimbursement denial through the Medicare appeals process.  Id. at *7.  But, in this instance, the coding decision dictated the reimbursement rate.  HHS had no evidence that it made any separate pricing determination separate from the coding decision.  Therefore, both the patient and the manufacturer had standing because they demonstrated “they are harmed by a lack of opportunity to obtain reimbursement that is caused at least in significant part by HHS’s coding determination” and a new, independent billing code would redress that harm.  Id. at *8.  The new billing code wouldn’t set the reimbursement rate, but it would allow the agency to set a reimbursement rate for the device.

A similar argument prevailed on irreparable harm.  The patient-plaintiff cannot afford to buy Relizorb without insurance reimbursement and the manufacturer-plaintiff can’t sell Relizorb because patients cannot get insurance reimbursement.  Id. at *10.  The detriment to the manufacturer threatened to put it out of business.  For the reasons noted above on standing, plaintiffs demonstrated a sufficient connection between the HHS coding decision and their irreparable harm “that success on the merits would meaningfully redress those injuries.”  Id. at *11.

This may be a rare situation, but important for our clients, and therefore us, to be aware of.

 

We sometimes sit around trading stories about the dumbest lawsuits we have ever seen. Our personal favorite is a class action that the Drug and Device Law Spouse defended years ago seeking damages against a national shipping company because items sent by “Second Day Air” did not always go in an airplane.  The packages arrived as promised, but the plaintiffs were shocked, shocked to learn that items sent from San Francisco to Palo Alto were carried in an ordinary (and Earth-bound) truck.  There is also the one about the guy who sued his dry cleaner for $67 million after the cleaner lost his pants.  It was reported that the cleaner showed up in court and tendered the trousers—cleaned and pressed.  The plaintiff was unimpressed.

Many cite the famous McDonald’s coffee spill case of the 1990s as a dumb and frivolous lawsuit, but at least that plaintiff suffered a serious injury—third degree burns that required skin grafts and an extended hospital stay. It was uncontested that the coffee drinker had standing to sue, regardless of what you think about the ultimate allocation of fault.

We cannot say the same for the plaintiff in a class action that an MDL judge in New Jersey dismissed last year for lack of standing, which the Third Circuit has now affirmed. In In re Johnson & Johnson Talcum Powder Products Marketing, Sales Practices and Liability Litigation, No. 17-2980, 2018 WL 4225028 (3d Cir. Sept. 6, 2018), the plaintiff used the defendants’ talcum powder, which worked exactly as it was supposed to without any ill effect.  She did not allege any defect in the product; she did not allege any injury or disease; she did not allege any increased risk of injury or disease; and did not allege any fear of developing any injury or disease in the future. Id. at *2.  She also allegedly used up the product. Id. In other words, there was no durable good or remaining product that she claimed she could not use.  Whatever she purchased, she used it until it was gone. Id.

What a frivolous lawsuit that no intelligent and scrupulous lawyer ever should have filed, right? Well, not exactly.  The district court’s order dismissing the case and the Third Circuit’s opinion affirming that result are clearly correct.  And, “frivolous” is probably a fair description.  Be that as it may, this class action was not a random misfire conceived in the minds of attorneys who didn’t know any better.  This class action was a deliberate and calculated attempt to test the limits of Article III standing and to stretch even further the wrongly decided opinion on standing in Cottrell v. Alcon Laboratories, the Third Circuit opinion that we ranked as the fourth worst drug and device decision of 2017.  That was the opinion where the Third Circuit held that purchasers of eye drops had standing to sue, even when the product labeling was indisputably accurate and the product worked exactly as expected.  How then did the eye drop purchasers suffer any compensable injury?  The bottle dispensed drops that were too big, allegedly resulting in the users paying more than they should have.  We are being charitable in our description of Cottrell.  In fact, the allegations of injury there were too speculative to support standing, as other another Circuit has found and as we have explained here, here, and here.

But at least the plaintiffs in Cottrell attempted to plead an economic injury.  The plaintiff in the J&J Talcum Powder case wanted to take Cottrell one step further by establishing standing to sue while affirmatively pleading no injury at all.  She and her lawyers lost.  The plaintiff in J&J alleged that she suffered an economic injury because, had she been informed that using baby powder could lead to an increased risk of ovarian cancer, she would not have purchased the powder in the first place. Id. at *2.  In other words, she had buyer’s remorse and sincerely wished she had not purchased the product after she consumed it with no harm or worry. Id. at *1.

Those facts did not allege an economic injury. As the Third Circuit explained, there are generally three ways to plead an economic injury.  A plaintiff can allege an “alternate product theory” by alleging that, but for the defendant’s conduct, he or she would have purchased an alternative, less expensive product.  A plaintiff can also allege a “premium price theory,” under which he or she claims that wrongful advertising of a product as “superior” induced the plaintiff to pay an unfair premium.  Finally, a plaintiff can allege that he or she was deprived of the “benefit of the bargain” and did not get what he or she paid for.

The plaintiff’s allegations missed all of these theories. She did not allege that any cheaper alternative existed, and she did not identify any unlawful “premium” paid for her powder. Id. at *2-*3.  As for the “benefit of the bargain,” she alleged only that she was promised that the baby powder was “safe,” when it allegedly was “unsafe” because of an increased risk of ovarian cancer. Id. at *3.

Let’s keep one thing straight. We do not believe there is any reliable scientific evidence that talcum powder can cause ovarian cancer, and we reported on a California court finding exactly that here.  But even taking the plaintiff’s allegations as true, conclusory allegations of purchasing an “unsafe” product did not establish an economic injury sufficient to support Article III standing.  Distinguishing Cottrell, the Third Circuit held that “a plaintiff must do more than offer conclusory assertions of economic injury in order to establish standing.  She must alleged facts that would permit a factfinder to value the purported injury at something more than zero dollars without resorting to mere conjecture.” Id. at *4.

Having used the product, and having failed to allege any injury or even an increased risk or fear of injury, the plaintiff did not have the facts. So what did she offer instead?  A promise of “models for calculating damages and restitution that are linked to her theory or relief and are based on the evidence in the case.” Id. at *6.  Aha, the experts will take care of it all in “models.”  Forgive us for being skeptical, but also give the Third Circuit credit for insisting that a plaintiff still must allege facts:

[E]ven at the pleading stage, a plaintiff must set forth sufficient factual allegations that, if proven true, would permit a factfinder to determine that she suffered at least some economic injury.  . . .

[Plaintiff] fails to allege even that the Baby Powder provided her with an economic benefit worth one penny less than what she paid. We must, therefore, conclude that she received the benefit of her bargain and has suffered no economic injury.

Id. at *7.  The Third Circuit also ruled that an alleged increased risk to others did not count because the plaintiff’s “references to Baby Powder being unsafe to others are not relevant to determining whether [she] has standing herself.” Id. at *8 (emphasis in original).

The Third Circuit found the plaintiff lacked standing to sue for restitution and injunctive relief for similar reasons: Her restitution claim rested on mere conjecture, and her claim for injunctive relief made no sense because she was not at risk of suffering an economic injury.  We don’t blame the plaintiffs’ lawyers for trying to stretch Cottrell beyond the breaking point, but in the end they did not succeed.  The Third Circuit summed it up this way:  “[Plaintiff’s] wish to be reimbursed for a functional product that she has already consumed without incident does not itself constitute an economic injury within the meaning of Article III.”  Amen.