Just two days ago, Bexis lowered the boom on the Third Circuit’s recent decision in Cottrell v. Alcon Labs, ___ F.3d ___, 2017 WL 4657402 (3d Cir. Oct. 18, 2017).   In a 2-1 decision, the Cottrell court permitted the plaintiffs to proceed on the notion that making eye drop drips bigger than they have to be is a consumer protection violation.  To Bexis’s eyes, that decision was blind to the lack of standing, the absence of any “substantial economic injury,”  and the FDA’s non-approval of eye drop drips of the “smaller” size plaintiffs claim it is somehow illegal not to make under state law.  It turns out that there is someone else out there even more unhappy with the Cottrell decision than Bexis: the defendant.  Now we have the defendant’s Petition for Rehearing and Rehearing En Banc,  https://www.druganddevicelawblog.com/wp-content/uploads/sites/30/2017/11/Cottrell-rehearing-petition.pdf which makes an insightful and compelling case for undoing the panel’s decision.

 

Two preliminary matters are worthy of comment before we tell you what the Petition said. First, we have been so unkind about the Third Circuit’s error in the Fosamax case that we managed to attract the attention of the excellent CA3 blog.   In that blog, the author wondered whether our dissection of Fosamax was perhaps a bit more violent than necessary.  The author also wondered whether we were coming close to accusing the court of bad faith.  Yes to the former, but definitely No to the latter.  As we told the CA3 blog, we took issue with what we saw as bad reasoning, but never-ever thought there was any bad faith.  (The CA3 blog was generous enough to print our disclaimer.  Thanks for that.)  By and large, we are mighty proud of our home circuit.  We know several of the judges, and every one of them is honorable, hard-working, and much smarter than we are.  Sometimes we are not going to agree with the court’s decisions.  Luckily for us we work in a profession and live in a country where debate and criticism are allowed.  Second, succeeding on a petition for rehearing and rehearing en banc is not easy.  When we clerked for Ninth Circuit Judge William Norris, it seemed there was a presumption against such petitions.  Who wants to admit they were wrong?  And yet we remember one time our judge was on a panel where things strayed from the norm.  Another member of the panel (who will remain unnamed) loved to decide cases before oral argument and draft a memorandum disposition rather than a bench memorandum.  This judge prided himself on having almost no backlog.  He pushed for deciding a particular contract dispute via a mere memorandum disposition, not a published opinion, because he saw the issues as being too obvious and insignificant for the Federal Reporter.  And so a memo dispo issued.  But then the losing party filed a petition for rehearing that was not only insistent, but it made a lot of sense.  We met with our Judge in his chambers to talk it over.  The telephone rang.  It was the third member of the panel, who began by saying, “Bill, I think maybe we got one wrong.”  The two judges confabbed, and then set about persuading the third to change his mind and change the outcome.  It took some arm-twisting, but in the end, justice was done.  A mistake led to a proud moment.  By the way, the Ninth Circuit Judge who called our Judge was Anthony Kennedy.  He is now on the U.S. Supreme Court.  So whenever we hear criticisms of Justice Kennedy for fence-sitting, or for grounding some of his opinions in “the right to define one’s own concept of existence, of meaning, of the universe, and of the mystery of human life” or, much worse, international law, we recall his extraordinary integrity and modesty, and how he was supremely interested in getting things right.

 

Back to the Cottrell Petition. The main points in favor of revisiting the Third Circuit’s decision are that it is contrary to Finkelman v. National Football League, 810 F.3d 187 (3d Cir. 2016), it “radically expands Article III standing,” and that it directly conflicts with Eike v. Allergan, Inc., 850 F.3d 315 (7th Cir. 2017).  Moreover, the plaintiff’s inherently speculative theory of injury in fact was rejected by federal courts in Massachusetts and Missouri.  (When a court comes out with a more pro-plaintiffy position than courts in Massachusetts and Missouri, that’s really saying something.)  That theory was also rejected by the district court in Cottrell.  And then the Third Circuit reversed that rejection.  

 

Remember that the Cottrell plaintiffs did not claim that the medications caused them physical harm or were ineffective in treating their eye conditions, or that the defendants misrepresented or omitted any information about the medications or the number of doses expected.  Rather, the plaintiffs simply insist that smaller eye drops would have cost them less.  How is that any different from the Third Circuit’s earlier, controlling Finkelman case, where the plaintiffs had purchased two Super Bowl tickets on the resale market for $2,000 each, and contended that the National Football League had violated New Jersey’s ticket law by not offering at least 95% of tickets to the general public and instead withholding most tickets for league insiders?  The plaintiff in Finkelman alleged that the NFL’s conduct had caused him injury by reducing the supply of tickets, thereby driving up the cost of tickets on the resale market.  The Third Circuit in Finkelman held that the plaintiff lacked standing because the injury was wholly speculative.  Sure, maybe the NFL’s withholding of tickets increased prices on the resale market, but “it might also be the case that it had no effect on the resale market,” and indeed tickets might even have been more expensive in plaintiff’s hypothetical resale market, as members of the general public may have greater incentives than league insiders to resell at high prices.  (We have to admit that, as residents of Philadelphia, where the local team has the best record in the entire NFL, the availability of Super Bowl tickets is a much, much bigger issue to us right now than the size of eye drops.)

The Petition makes the point that, just as in Finkelman, other market effects might have produced a result very different from what the plaintiffs theorized.  In Cottrell, the plaintiffs essentially presumed that the defendants price their products solely according to volume, such that “changing the eyedropper size would not change the price of the medicine, while extending the useful lifespan of each bottle, driving down [the plaintiffs’] aggregate costs.” But it is just as likely that use of smaller drops would prompt use of different sized containers, or that smaller drops would result in a higher price – because of more doses – for the same container.  Who knows?  All we do know is that the allegations of the complaint do not “affirmatively and plausibly” add up to an “injury” caused by the defendant’s conduct.  

The Petition nicely captures the absurdity of the Third Circuit’s analysis, under which consumers suffer Article III injury from “unfairness” whenever they “walk into a supermarket and buy a product — from toothpaste, to ketchup, to deodorant, to hairspray — so long as they can then conceive of a way that the product might be dispensed more efficiently.”  The Petition also nicely exposes the weakness in the Third Circuit’s effort to distinguish away the Seventh Circuit decision in Eike.  According to the Cottrell majority, Eike “seemed to begin its standing analysis with a determination that the plaintiffs had ‘no cause of action.’” But while it is true that the Seventh Circuit did (correctly) conclude that the plaintiffs had “no cause of action,” the Seventh Circuit also separately held that there was no Article III injury, without ever suggesting a causal connection between the two.  Eike, 850 F.3d at 318.  The Seventh Circuit got it fundamentally right when it held that the fact that a seller does not sell the product that you want, or at the price you’d like to pay, is not an actionable injury; “it is just a regret or disappointment.” 

As residents in, and fans of, the Third Circuit, the Cottrell decision certainly is cause for “regret and disappointment.” We called this post a “second look” at the eye-drop litigation.  It is the second look we have taken at the Cottrell case.  We hope that the Third Circuit takes a second look.      

 

 

Last month we brought you word of an excellent result (preemption) in a ridiculous case − a class action claiming that the drops in eye-drops are too big.  That decision was in accord with an earlier decision likewise dismissing such claims on preemption grounds. See Thompson v. Allergan USA, Inc., 993 F. Supp.2d 1007 (E.D. Mo. 2014) (discussed here).

However, there is another ground on which these bottom-feeding actions have been dismissed – lack of sufficient injury to support standing.  After all, the concept of some sort of ideal “price” for a product, above which it is improper to charge is a will-o-wisp, apparently knowable only to plaintiff-side experts (just ask them, they’ll tell you).  This is called “benefit of the bargain” by such experts.  Courts tend to use a different description – “absurd.”

[Plaintiff] received the drug she was prescribed, the drug did the job it was meant to do . . ., and it caused no apparent physical injuries. Under such circumstances, there could be no ascertainable loss. . . .  The Court believes Plaintiffs’ proposed liability theory, which requires no demonstrable loss of any benefit, would lead to absurd results and holds that Plaintiffs fail to state a claim as a matter of law.

In re Avandia Marketing Sales Practices & Products Liability Litigation, 639 F. Appx. 866, 869 (3d Cir. 2016) (citations and quotation marks omitted), affirming, 100 F.Supp.3d 441, 446 (E.D. Pa. 2015), also holding  “absurdity is inherent in the nature of Plaintiff’s claimed loss” because it was “based only on the idea that [the product] is inherently worth some unspecified amount less than whatever Plaintiff might have paid for it”).

That was essentially how the Seventh Circuit reacted to these same eye drop allegations in Eike v. Allergan, Inc., 850 F.3d 315 (7th Cir. 2017) (discussed here).  We described the absurd theory that the plaintiffs were pursuing in our Eike post, and because we’re lazy, we’ll simply repeat that here:

The plaintiffs sued pharmaceutical manufacturers of eye drops used for the treatment of glaucoma because the drops were bigger than they needed to be.  The theory is that the plaintiffs were paying more than they would have if the drops were smaller.  The plaintiffs alleged no conspiracy among the defendants.  This was not an antitrust case. . . .  Nor did the plaintiffs allege any misrepresentations.  Rather, the plaintiffs simply sought, because they thought it would be less expensive, a smaller dose product that nobody made.

The Seventh Circuit essentially agreed: “The fact that a seller does not sell the product that you want, or at the price you’d like to pay, is not an actionable injury; it is just a regret or disappointment − which is all we have here, the class having failed to allege ‘an invasion of a legally protected interest.’”  850 F.3d at 318 (citations omitted).  Accord Carter v. Alcon Laboratories, Inc., 2014 WL 989002, at *4-5 (E.D. Mo. March 13, 2014) (also dismissing identical claim for lack of any cognizable injury).

Apparently, however, the inherent triviality of that claim is no deterrent to today’s class action lawyers, who seem to have nothing better to do than measure the comparative value of eye drop drips.  After several attempts, they seem to have found a couple of judges credulous enough to allow one of these non-injury cases to survive – at least on the standing/injury issue.  That’s today’s case, Cottrell v. Alcon Labs, ___ F.3d ___, 2017 WL 4657402 (3d Cir. Oct. 18, 2017).   Looking to the “scientific consensus on eye drop size,” the majority is willing to let plaintiffs proceed on the notion that making eye drop drips bigger than they have to be is a consumer protection violation.  Id. at *2.  They may proceed even though “no defendant has reduced their products’ drop sizes,” and thus there is no competing product, priced at any price, against which to ascertain the plaintiffs’ purportedly “substantial economic injury.”  Id.  Nor does it appear that the FDA has ever approved – or even had submitted to it – eye drop drips of the “smaller” size plaintiffs claim it is somehow illegal not to make under state law.

The standing question focused on “injury in fact,” and as the party bringing the claim, plaintiffs had the burden of proving standing.  Id. at *4.  To find standing here, the majority (conceding that the district court’s no-standing analysis had “some persuasive appeal”) went deep into the weeds – breaking “injury in fact” into various “components.”  Id. at *5.  The first was a “legally protected interest.”  Conveniently, this allowed the Cottrell majority to base their result on something that prior precedent had “not defined” or even “clarified whether [it] does any independent work in the standing analysis.”  Id.  Presto!  A clean slate on which to build a standing castle in the air.  “[W]hether a plaintiff has alleged an invasion of a ‘legally protected interest’ does not hinge on whether the conduct alleged to violate a statute does, as a matter of law, violate the statute.” Id.  Impressive – this is a holding that the merits don’t matter. We’ll come back to that.

The second aspect of Cottrell’s drawing on a clean slate is “that financial or economic interests are ‘legally protected interests’ for purposes of the standing doctrine.”  Id. at *6.  Well, duh.  That seems like a platitude.  Third, “legally protected interests” can be created by statute, including a state statute.  Id.  That also sounds platitudinous – except Cottrell separates that proposition from any injury.  That comes in the fourth factor – that “interest must be related to the injury in fact” as opposed to being “a byproduct of the suit itself.”  Id.

Having set up this thicket on its clean slate, the court’s actual analysis of the injury requirement’s application to overly large eye drop drips takes only a paragraph:

Plaintiffs claim economic interests: interests in the money they had to spend on medication that was impossible for them to use.  They seek monetary compensation for Defendants’ conduct that they allege caused harm to these interests.  Plaintiffs’ claimed interests arise from state consumer protection statutes that provide monetary relief to private individuals who are damaged by business practices that violate those statutes.  These claims fit comfortably in categories of “legally protected interests” readily recognized by federal courts.

Id. (citing Cantrell v. City of Long Beach, 241 F.3d 674, 684 (9th Cir. 2001)).  Wow!  At that level of generality, any claim that anything for any reason should have been made differently or priced differently confers standing.  That no such alternative product exists is of no bearing.  This breathtakingly broad holding means that the amount of harm to the “economic interest” being undefinable has no bearing.  That the “business practices” at issue were a consequence of the FDA-approved design of the product has no bearing.  These are presumably “merits questions” that court already divorced from standing by putting that rabbit in the hat in its “first” stroke on the blank slate – that merits don’t matter.

We’ve seen this sort of credulous avoidance of merits questions before in class actions before.  Remember how courts for decades misinterpreted Eisen v. Carlyle & Jacqueline, 417 U.S. 156 (1974), to find that class certification can’t look at the merits?  That was finally interred once and for all in Wal-Mart Stores, Inc. v. Dukes, 564 U.S. 338, 351 & n.6 (2011), but now we see it popping up again on this supposed standing blank slate.

It’s not really a blank slate, however.  The Third Circuit, and many other courts, have held that TwIqbal “plausibility” requirements apply to the analysis of standing questions.  “With respect to 12(b)(1) motions in particular, the plaintiff must assert facts that affirmatively and plausibly suggest that the pleader has the right he claims.”  In re Schering Plough Corp. Intron/Temodar Consumer Class Action, 678 F.3d 235, 244 (3d Cir. 2012) (applying TwIqbal pleading requirements to standing analysis in RICO drug pricing class action).  TwIqbal “teach that standing cannot rest on mere ‘legal conclusions’ or ‘naked assertions.’”  Finkelman v. National Football League, 810 F.3d 187, 194 n. 55 (3d Cir. 2016) (citation and quotation marks omitted).

Because Lujan mandates that standing “must be supported in the same way as any other matter on which the plaintiff bears the burden of proof,” it follows that the TwomblyIqbal facial plausibility requirement for pleading a claim is incorporated into the standard for pleading subject matter jurisdiction.  Lujan, 504 U.S. at 561.  Therefore, we join many of our sister circuits and hold that when evaluating a facial challenge to subject matter jurisdiction under Rule 12(b)(1), a court should use TwomblyIqbal’s “plausibility” requirement, which is the same standard used to evaluate facial challenges to claims under Rule 12(b)(6).

Silha v. ACT, Inc., 807 F.3d 169, 174 (7th Cir. 2015) (citing Schering Plough along with many other cases).  “Just as the plaintiff bears the burden of plausibly alleging a viable cause of action, so too the plaintiff bears the burden of pleading facts necessary to demonstrate standing.”  Hochendoner v. Genzyme Corp., 823 F.3d 724, 730 (1st Cir. 2016) (Iqbal citation omitted) (also providing string citation of TwIqbal standing cases).

Along these lines, we also point out that the sole citation in Cottrell supporting its one-paragraph injury in fact analysis, Cantrell, supra, is a Ninth Circuit case, and the Ninth Circuit is the only circuit that does not follow TwIqbal in standing cases. See Maya v. Centex Corp., 658 F.3d 1060, 1068 (9th Cir. 2011) (cited as lone exception in Silha).

Having thus improperly insulated the inherently ridiculous nature of the alleged injury from TwIqbal inspection on standing questions – without even mentioning TwIqbalCottrell then disagrees with Eike for precisely that reason.  To do so, Cottrell splits another hair – distinguishing business practices that are “unfair” under a consumer protection statute from those “that are fraudulent, deceptive, or misleading.”  2017 WL 4657402, at *6.

The plaintiffs in Eike explicitly alleged that the defendants’ practices in manufacturing and selling eye medication were “unfair”. . . .  The Court was obliged to take these allegations as true for purposes of the standing inquiry.

Id.

That is, to be charitable, garbage. “Unfair” by itself is your classic legal conclusion.  Under TwIqbal, legal conclusions have to be accompanied by some factual basis to survive dismissal.  Eike rightly pointed out that, in the absence of any allegation of anything false or misleading about how these products were marketed, an “unfairness” allegation amounted to mere “dissatisfaction with the defendants’ products or their prices.”  2017 WL 4657402, at *6 (describing Eike).

Having thus improperly given the plaintiffs’ inherently implausible theory on “legally protected interest a TwIqbal free pass, Cottrell also waved it through the other injury in fact factors it created.  Most interestingly – because of the dissent – Cottrell attempted to distinguish a prior standing precedent, Finkelman, supra.

[Plaintiffs’] pricing theory is far less speculative than . . . the theory of financial harm we rejected in Finkelman . . ., [where t]he plaintiff claimed that this policy reduced the number of tickets available in the resale market.  Under the basic economic principle of supply and demand then, the policy resulted in an inflated ticket price in the resale market, according to the plaintiff.  We rejected plaintiff’s theory, as the plaintiff pled no facts to support their assertion that [defendant’s] policy would actually reduce the number of tickets in the resale market.

Id. at *9.  Since a “reduced size” of the eye drop drip (produced by a different sized hole in the tip) was the “only change from the status quo” that plaintiffs’ theory in Cottrell required in the majorities eyes, it was less “speculative” than the too-remote theory in Finkleman, and thus “sufficient to satisfy the injury-in-fact requirement.”  Id. at *10.

The dissent saw things differently.  Finkleman was dispositive (“I believe that Finkelman all but decides this case”).  Cottrell, 2017 WL 4657402, at *12 (dissenting opinion).  “We properly recognized that markets operate in complex ways.”  The market forces in Finkleman “made clear that any potentially unlawful conduct by the [defendant] did not necessarily result in higher prices to the plaintiff” and “concluded that we have no way of knowing whether [defendant’s] withholding of tickets would have had the effect of increasing or decreasing prices on the secondary market.”  Id.

[F]or purposes of analyzing economic injuries in the context of marketwide effects, we cannot do precisely what the plaintiffs here ask of us:  isolate and change one variable while assuming that no downstream changes would also occur.  These cases . . . reflect courts’ skepticism about plaintiffs’ ability to satisfy the case or controversy requirement of Article III by relying on such imaginative economic theories.  Thus, contrary to the Majority’s assertion, the plaintiffs’ pricing theory does in fact depend on exactly the sort of presumption rejected by us and by other courts − namely, the presumption that no other aspects of the market would change once the defendants’ conduct did. . . .  Finkelman makes clear that [standing analysis] distinguishes “between allegations that stand on well-pleaded facts and allegations that stand on nothing more than supposition.” . . .  The plaintiffs . . . ask us to assume certain facts about other actors’ behavior − exactly the sort of assumption that cannot be proven at trial. Accordingly, I would reject the plaintiffs’ alleged economic injury as overly speculative and untenable under existing precedent.

Id. at *13 (multiple citation footnotes omitted).

The Cottrell dissent goes on to discuss multiple reasons why plaintiffs’ attenuated economic assumptions are “a particularly bad fit for the market for pharmaceuticals.”  Id.

  • Pharmaceuticals are not priced “by volume;” “unit-based pricing is too one-dimensional for the [pharmaceutical] marketplace.”
  • Pharmaceutical pricing is “value-based”; “measured in part by effective doses.”
  • This pricing “shift . . . sever[s] the link between volume and price upon which the plaintiffs’ alleged injury depends.”
  • “[T]he price of each bottle could actually increase if each bottle provided more doses.”
  • Because plaintiffs’ assumption “does not reflect market conditions and pressures in the pharmaceutical industry,” it would “draw an unreasonable inference about the downstream consequences of” the design change they are demanding.
  • “[U]nreasonable” inferences cannot be accepted “at face value.”

Id. at *13-14 (dissenting opinion).

The dissent is of the view that the majority’s decision conflicts with Finkleman.  We agree, but go further.  We think the entire construct in Cottrell conflicts with prior Third Circuit precedent applying TwIqbal in standing cases because of its holding that the merits – and thus the facts that must be pleaded to establish the “plausibility” of the claim on the merits – don’t matter in standing cases.  Cottrell thus represents, with In re Fosamax (Alendronate Sodium) Products Liability Litigation, 852 F.3d 268 (3d Cir. 2017), the second abrupt pro-plaintiff lurch by the Third Circuit this year, which is less surprising than it might seem, considering the both of the judges in the majority in Cottrell also decided Fosamax.

About the only good thing that can be said about Cottrell is that it did not purport to decide that preemption issue that has also defeated these half-baked dropper drip size allegations.  Id. at *11.  That argument is that design changes affecting the dosage of medication delivered – which is necessarily what plaintiffs’ drop size allegations depend on – are “major” changes that require prior FDA approval, and thus are “impossible” to carry out with the immediacy that state law demands. See Gustavesen v. Alcon Laboratories, Inc., ___ F. Supp.3d ___, 2017 WL 4374384, at *5 (D. Mass. Sep. 29, 2017), and Thompson, 993 F. Supp.2d at 1013-13, as discussed in our prior posts.

Our day job has been keeping us busy, so busy with depositions, motions, delayed flights, and assorted drama that we have not posted in more than a month.  After such a long layoff, we had hoped to return with a vengeance, a “the North remembers” sort of vengeance.  Instead, we get fair market value, Current Procedural Terminology codes, and a Daubert challenge to a defense expert accountant.  Eh.  The decision is in a False Claims Act case about Medicare fraud and kickbacks, about which we care and have even spent some billable time.  But the reason we are writing about U.S. ex rel Lutz v. Berkeley Heartlab, Inc., No. 9:14-cv-00230-RMG, 2017 U.S. Dist. LEXIS 107481 (D.S.C. July 12, 2017), is because the rejection of opinions offered by the expert in this case undercuts the damages claims we see in other cases.

Lutz involves allegations that the defendants overbilled Medicare in connection with blood tests.  One part of the alleged scheme was that the defendant labs charged high processing and handling fees.  (We will ignore the issues of FCA materiality and causation that seem to flow from the absence of evidence of Medicare payment on processing and handling charges.) From what we can tell, the defendant’s expert opined that these fees were consistent with the fair market value—a defined term under the, aptly named, Stark Act—and did not represent kickbacks to referring physicians.  He offered a “charge-based methodology” to conclude that the fees were consistent with fair market value because physicians allegedly expected to recover for time spent on processing handling, not just for the actual blood draw.

“[I]t is no secret that the sticker price of services listed in physician bills and hospital chargemasters are totally unmoored from the reality of arm’s-length transactions actually taking place in the marketplace.” Id. at *12.  We think you can see where we are going with this.  In product liability cases, economic damages related to medical care, past and future, are typically based on amounts incurred.  The collateral source rule is often used offensively to create a windfall of the difference between the amount on the bills and the portion of that amount anybody ever paid or will pay.  We have called this “phantom damages.”  In FCA, RICO, and consumer protection cases, for instance, the plaintiff’s theory of price gouging or other impropriety sometimes relies on the list price of a drug or the amounts appearing on bills, regardless of what typically gets paid.  Although in the context of granting a challenge to an expert for healthcare providers that wanted the charges to matter, the Lutz decision supports the more typical defense position.

Actual transactions, not just bills, are a better indicator of fair market value because “physicians deliberately set their fees higher than the amount they either expect to receive or do in fact receive to ensure that no money is left on the table.” Id. at *16.  The court identified a number of decisions, from various types of cases, recognizing that “physicians’ billed charges do not necessarily reflect the market value of physician services.” Id. at **17-18 (citing cases).  So, the next time you have a case where the plaintiff says her damages include the total of all her medical bills and the only support she needs is her expert mouthing that “the charges were all reasonable and necessary,” think about whether Lutz and the cases it cites help you push back.  That was our return:  brief, a little bloody, and with the promise of more to come.

California rejected another attempt by the class action bar to extend the already questionable fraud-on-the-market theory from Basic v. Levinson, 485 U.S. 224 (1988), a securities class action, to what amount to failure to warn claims for consumer products or, as we’ve seen before, drugs and medical devices.  This time the class action plaintiffs’ bar was focused on e-cigarettes.  See In re NJOY, Inc., Consumer Class Action Litig., 2016 U.S. Dist. LEXIS 24235 (C.D. Cal. Feb. 2, 2016).  A handful of hopeful consumers claimed that they were misled by an e-cigarette’s labeling and were not warned about its ingredients or risks.  Id. at *3.  As is often the case with these types of class action claims, however, the plaintiffs did not allege an injury—well, at least not a physical injury.  They suffered no side effects.  They had no physical ailments.  The risks didn’t affect them.

Continue Reading California Rejects Class Certification for Claims Alleging Misrepresentations and Deficient Warnings But No Method to Establish Damages

The collateral source rule rarely sits well with defense attorneys.  To us, it runs counter to a core purpose of tort law, which is to compensate plaintiffs for damages actually suffered.  Under the collateral source rule, a defendant’s liability for a plaintiff’s financial damages is not reduced by any payments that the plaintiff receives as to those very same damages from a third-party source.  So the plaintiff gets a double recovery—once from the collateral source and once from the defendant.  This happens most often in connection with a plaintiff’s medical bills.  While the plaintiff’s insurance pays all or most of those bills, the defendant remains liable to plaintiff for the entire amount.

There are policy reasons for the rule, and the Louisiana Supreme Court recently laid them out in Hoffman v. 21st Century North Am. Ins. Co., 2015 WL 5776131 (La. Oct. 2, 2015), a decision that addresses an attempt to expand the collateral source rule:

The most oft-cited reason is that the tortfeasor should not gain an advantage from outside benefits provided to the victim independently of any act of the tortfeasor.  We have also recognized the collateral source rule promotes tort deterrence and accident prevention.  Finally, absent such a rule, the reasoning goes, victims would be dissuaded from purchasing insurance or other forms of reimbursement available to them.

Id. at *2.  OK.  We get it, and we can live with it.  We’ve become somewhat numb to the effects of the rule.

Continue Reading Should We Expand the Collateral Source Rule? No Thanks.

Is there a tougher federal district judge than Stephen Wilson in Los Angeles?  By “tougher,” we do not mean in the usual sense when applied to judges: handing out long criminal sentences – though that certainly does apply to Judge Wilson.   No, we mean in the sense of not suffering fools gladly.  (To borrow a phrase from the movie Rounders, if you are in court for a case for more than a few minutes and you cannot spot the fool, odds are that it is you.)  Judge Wilson, like Judge Rakoff in SDNY or Judge Posner on the 7th Circuit or Judge Kozinski on the 9th Circuit, has a sharp mind and sharp pen (or keyboard).  If he thinks your theory is wrong, he will say so.  If he thinks you are dumb, he will say so.  Sometimes Judge Wilson can come across as a wee bit impatient. When we were a prosecutor in C.D. Cal. (as Judge Wilson had been several years before us), Judge Wilson was the first judge we encountered who imposed strict time limits during trial.  If he decided that a witness examination had gone on long enough, he would halt the examination on the spot.  We remember a guilty plea in front of Judge Wilson that took place the day before trial was scheduled.  Guilty pleas can be messy affairs.  Some people, no matter how overwhelming the evidence, have a hard time admitting that they did the crime.  And yet, such admission is an essential part of the guilty plea.  Often, the defendant stumbles over the admission.  It can take some goading, some reassuring whispers from defense counsel, and simply some time before the defendant can bring him or herself to utter the magic words.  In our case, the defendant hemmed and hawed a little too much.  Judge Wilson said that there was not enough there for a valid guilty plea, he rejected it, ordered the parties to show up the next day for jury selection, and then called the next case.  It seemed to happen in an instant.  There was panic.  We had already told our witnesses that the case would plead out and that they did not need to come to the federal courthouse the next day.  For all we knew, our case agent was already well outside the jurisdiction, on a protection detail or going undercover.  On the other side of the ledger, the defendant knew what the result at trial would be, and wanted at least to get a couple of points off the sentencing guidelines for acceptance of responsibility.  Somehow the defendant and his lawyer got their act together and returned to court near the end of the day and performed the requisite guilty plea allocution, and all was right with the world.   Judge Wilson’s demonstration of impatience had worked.

Continue Reading Cymbalta Class Certification Denied Again

As anyone can tell from our class action scorecards (federal and state), plaintiffs have not done very well lately – lately being the last couple of decades – with class actions involving alleged injuries caused by prescription medical products.  Between the general predominance of individualized issues in personal injury cases and the specific focus on the actions of prescribing physicians in prescription-only product cases (thanks to the learned intermediary rule), plaintiffs have suffered defeat after defeat.  While things aren’t perfect, all in all successful class actions for purported prescription medical product injuries are pretty rare.

Each defeat drives the class action purveyors further towards the margins, and recently, in In re Avandia Marketing, Sales Practices & Products Liability Litigation, 2015 WL 1736976 (E.D. Pa. April 16, 2015), one of the more marginal class action damages theories we’ve seen was swept away.

In Avandia, the would-be class representative did not claim to be injured in the slightest – either by the drug’s risks or by deprivation of the drug’s benefits.  As stated in the opinion, “Plaintiff received the drug she was prescribed, took the drug, and alleges neither that the drug failed to do its job (controlling Plaintiff’s blood sugar levels) nor that she was injured by taking the drug.”  Id. at *3.  The only damages that the plaintiff (and supposed class) sought were of the existential variety – some difference in subjective “worth” beyond what was reflected in the purchase price of the drug, purchase price being how value is necessarily determined in a free-market economy.  The complaint itself, doubtless to suppress the numerous individualized issues bubbling below the surface, was appallingly generalized and superficial.  The court observed:

Plaintiff does not allege when or for how long she took Avandia or how much she paid for it; nor does she identify the prescribing physician or allege any facts regarding her medical treatment.  Plaintiff also does not allege that Avandia was ineffective in treating her Type II diabetes, whether she took or would have taken another drug instead of Avandia, or the cost of such other drugs.  Plaintiff seeks damages “equal to the difference between the actual value of Avandia and the value of Avandia had it been as represented by Defendant.”

Id. at *1 (quoting complaint).

Continue Reading Illusory Economic Loss Theory Held “Absurd” – Class Action Dismissed

The district court’s order denying class certification in Rahman v. Mott’s LLP, 2014 U.S. Dist.  LEXIS 167744 (N.D. Cal. Dec. 3, 2014), is a nail-biter in the same sense as the movies Argo and Captain Phillips.  We know the outcomes will be good because history tells us that the hostages leave Iran safely and the captain of the seized container ship Alabama will be rescued unharmed by the modern-day superheroes known as Seal Team 6.  But man, it sure was tense getting there.  If your heart was not beating quickly when the hostages were faking their way through the Tehran airport or when the Navy commandos were leveling their rifles at the ever-more-desperate Somali pirates, you are not human.

We at the Drug and Device Law Blog are human, and although we knew that the outcome of Rahman would be good (because the district court said it would be at the beginning of the order), we had to get through some tense moments to get there.

The lawsuit is one of the sillier cases that we have seen:  The plaintiff filed a class action alleging that an apple juice seller violated California’s Unfair Competition Law (UCL) by printing “No Sugar Added” on the label.  Id. at *2.  Why is that silly?  Because there was no sugar added.  The statement was completely true, yet it purportedly formed the basis for a class action claiming consumer fraud.  Before you bite your nails to the nub in frustration, bear in mind that the phrase “no sugar added” is regulated under the FDCA.  Under the regulations, a food seller can include “no sugar added” on a product’s label only if the product meets certain conditions, including that “the food that it resembles and for which it substitutes normally contains added sugars.”  Id. at **5-6 (citing 21 C.F.R. § 101.60(c)(2)(iv)).  Apparently, you can put “no sugar added” on the label of a frozen desert, but not a frozen pizza, because ice cream “normally contains added sugar” and pizza does not.  You also have to state on the label that the product is not “low calorie” or “calorie reduced.”  Id. at *5 (citing 21 C.F.R. § 101.60(c)(2)(v)).

Continue Reading Apple of Our Eye—Class Cert. Denied

We don’t discuss damages much, except to fulminate about punitive damages.  Why is that?  We’re not entirely sure, but to some extent not discussing damages means not discussing losing.  We “win” for our clients when we prevail on liability, and that’s what we like to do most.  Getting into damages means that we didn’t achieve our primary goals in litigation, which are to win all the cases we can and settle the rest.

But not every case is a good case.  Sometimes, particularly in real (not made up “parallel claims”) manufacturing defect cases, there simply isn’t a good defense on the merits.  Give credit to the other side’s skill, too.  They can often make hay with bad cases.  Even when our side doesn’t think there’s liability, there can still be damages.

Continue Reading Of Phantom Damages, Collateral Sources, and Windfalls

We have another case in which a plaintiff claimed that a pharmaceutical company is under a duty to supply its drug.  We blogged about the other one here.  These cases are interesting.  They tend to illustrate how, in litigation, you can claim almost anything.  In Bartlett, for instance, the plaintiff claimed that a company should stop selling its drug to avoid liability.  In these cases, it’s the opposite.  The defendant must sell its drug to avoid liability.  It’s no wonder
that in all these cases the plaintiffs have lost.

In this recent case, Schubert v. Genzyme Corp., Case No. 2:12CV587DAK (D. Ut. Sept. 4, 2013), the defendant, Genzyme, manufactured a drug called Fabrazyme, an enzyme replacement that is used by patients who have difficulty metabolizing their lipids.  Genzyme experienced a shortage of the drug after it found a virus contamination at its manufacturing facility.  So Genzyme rationed its supply to the market.  The plaintiff’s husband received only about 70% of his ordinary dose and eventually died.  Slip Op. at 2-3.  Afterward, plaintiff sued and claimed that the defendant failed to use reasonable care to ensure an adequate supply of Fabrazyme.

Unfortunate as the circumstances of this and other cases like it may be, the court reached the only conclusion it could.  Genzyme was under no affirmative duty to supply the drug.  While Utah, like many jurisdictions, will at times impose a duty and perhaps liability upon a defendant who has acted and brought about certain consequences (called malfeasance), it will not do so for a mere failure to act (nonfeasance) absent some sort of special relationship.  And plaintiff’s negligence claim, at bottom, was about a failure to act, whether she claimed that Genzyme didn’t supply the drug at all or didn’t supply enough:

[T]he court finds no distinction between the duty of a company that exits the market altogether and a company that does not supply enough product to meet full market demand.  In both instances, the harm is the shortage of the medication and it is an act of nonfeasance.  Genzyme should not be penalized for producing as much of the product as it could.

Slip Op. at 9-10.

Continue Reading Schubert v. Genzyme Corp.: Drug Manufacturers Are under No Affirmative Duty to Sell Their Drugs