RICO

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We all know the phrase “the elephant in the room.” There are some things that do not get mentioned that are so obviously relevant that silence about them, or willful ignorance of them, can be humorous or frustrating. Based on our not-so-extensive research, we see that the origin of the fairly widespread use of this phrase is disputed, possibly dating to Russian fable that was referenced in a Russian novel. Not being terribly invested in the issue, we did not go to the original sources to try to understand the facts. We also are not going to detail all of our prior discussion on why the First Amendment cannot be ignored in evaluating claims of liability based on alleged off-label promotion of approved/cleared drugs and devices. Because of the First Amendment, activities “promoting” an off-label use are not automatically wrongful, like they were once construed to be. Truthful statements are protected commercial speech. False and misleading statements are not. Whether in a criminal case brought by FDA, a False Claims Act case where the United States has intervened, a consumer fraud class, a third-party payor case, a product liability case, or something else, we would think that a presiding court would be wise to go beyond the label “off-label promotion” and see if the liability is supposed to be based on truthful statements or false statements.

The First Circuit decision in In re Celexa and Lexapro Marketing and Sales Practices Litigation, — F.3d –, 2019 WL 364019 (1st Cir. Jan. 30, 2019), does not mention the First Amendment. It makes no attempt to distinguish between purportedly culpable conduct that involved statements that were truthful versus those that were false. Versions of the word “truthful” are missing, “false” only appears in discussing cases under the False Claims Act, and “misleading” appears once. Back when the First Circuit issued its lousy trilogy of Neurontin decisions, before Amarin had played out and FDA effectively acknowledged truthful off-label promotion was lawful, we might have expected such inattention to this distinction. It is hard to justify it now, however. It is also hard to justify how the decision glossed over the underlying facts.

The district court issued a number of decisions before the appeal, including the denial of class certification we discussed here and the granting of summary judgment we discussed here. Only two of the plaintiffs from below perfected their appeal and the appellate decision did a little picking and choosing of what it addressed. We will do the same and focus on the summary judgment part, which was reversed. (The class certification denial was upheld because the class claims were time-barred. If you want to read about American Pipe tolling and how unsealing a FCA complaint where the U.S. had intervened can start the RICO clock, then check out 2019 WL 364019, **8-10.) The remaining plaintiffs sought recovery under RICO and Minnesota state consumer fraud and unfair trade practice statutes, although only RICO is analyzed. The first plaintiff is described by the First Circuit as having “purchased Celexa and Lexapro for her young son from February 2003 through March 2010 on the recommendation of her son’s neurologist.” Id. at *3. We know from the decision below that these were prescriptions to treat autism from age 8 through 15 and that the treating physician testified that the drugs were effective in the boy’s case. The second plaintiff was a union health fund that included pediatric use of Celexa and Lexapro on its formulary, but had paid for a small portion of pediatric claims for all indications submitted for Celexa from 1999 to 2004 (16/72, 22%) and for Lexapro from 2002 to 2015 (31/234, 13%). Id. at *2 & n. 8-9. Each sought reimbursement—an unknown amount for the first plaintiff and about $26,000 for the second—and RICO penalties for paying for these prescriptions under the theory that defendants had promoted the use of Celexa and Lexapro for depression in patients under 18 and that payment for these drugs constituted an economic injury because they allegedly were not proven to be effective for depression in patients under 18.

If you are following along, then you might see some issues here and why we pointed out that not going to the original sources to get the facts can hamper an analysis. In the manner of a lazy orator, we will pose some of these issues as questions we will not answer. What sort of economic injury exists when you get the product you paid for at the price you intended to pay? For a third-party payor that negotiates the prices it pays and obviously decided whether to pay on a claim-by-claim basis—choosing not to do so 78-87% of the time—how can there be an economic injury and how could it be analyzed except on a claim-by-claim basis? How can the use of a drug for autism, effective per the doctors who kept prescribing it, be based on whether the drug was effective for depression in any age population? Why would cases involving such low amounts of purported actual damages get pursued so aggressively? Given that every off-label prescription here was written by a doctor who knew it was off-label and had the right to write the prescription anyway, how can there be liability? The court did not provide clear answers to most of these questions either.

Operating under the Neurontin framework, the court started with the premise that all promotion (undefined) for off-label uses was wrongful and proceeded to characterize the record as “strongly suggest[ing] that Forest engaged in a comprehensive off-label marketing scheme from 1998 through 2009 aimed at fraudulently inducing doctors to write pediatric prescriptions of Celexa and Lexapro when Forest had insufficient reason to think that these drugs were effective for the treatment of depression in children and adolescents.” Id. at *2. More specifically, the defendant was alleged to have promoted the use of both drugs for pediatric depression in various ways and to have concealed “negative clinical studies concerning Celexa’s efficacy and safety.” Id. Again, none of the allegations seemed limited to false and misleading statements or focused on the impact on the particular prescriptions—for autism and more general pediatric use—for which plaintiffs claimed injury. In addition to recounting that the manufacturer pled guilty to criminal FCA charges on off-label promotion and settlement of related civil FCA claims—before the First Amendment shift—the court noted some relevant FDA history. “In 2009, the FDA approved Lexapro for the treatment of depression in adolescents (i.e., individuals of ages twelve through seventeen).” Id. at *1. FDA also determined that one of the pivotal studies that it considered in approving Lexapro as safe and effective for depression in adolescents also applied to use of Celexa for pediatric depression. Id. at *4. Plaintiffs offered various criticisms of this and other studies, which the court generally credited as supporting that the drugs were ineffective for pediatric depression. It failed to note something the district court had noted when it granted summary judgment: FDA had and considered all the study evidence that plaintiffs claimed showed the opposite of what FDA found. That makes it really hard to prove their case without inviting the jury to conclude that FDA got it wrong.

Preemption, you say. RICO is a federal statute, so the Supremacy Clause does not apply. Whether the Minnesota statutes would be preempted was not examined. What was examined, without labeling it primary jurisdiction, was whether “the FDA’s various pronouncements or actions close the door on any effort to convince a jury that either Celexa or Lexapro was ineffective.” Id. We do not think that was the right question to ask, but the court got the wrong answer anyway. In concluding that the plaintiffs were free to invite the jury to second-guess the FDA’s conclusion that Lexapro was effective for pediatric depression (and related conclusions), the court missed the big picture. The court found its ruling in D’Agostino, which affirmed the dismissal of a FCA case predicated on fraud-on-the-FDA, did not apply because the manufacturer “could not have pleaded on FDA approval” when it allegedly promoted off-label use. Id. at *5. We do not see what reliance has to do with allowing second-guessing of FDA. The court also found its ruling in an earlier appeal from the same litigation, which held that a consumer claim based on an approved label and no new safety information was preempted, did not apply because, well, it was about preemption.

From there, the court’s reasoning escapes us—although we do appreciate the nod toward the relevance of FDA evidence to state law claims:

The common law has long recognized that agency approval of this type is relevant in tort suits. See Restatement (Third) of Torts: Prod. Liab. § 4 (Am. Law Inst. 1998) (“[C]ompliance with an applicable product safety statute … is properly considered in [a product defect case].”). But the common law also recognizes that such evidence is not always preclusive. Id. (“[S]uch compliance does not preclude as a matter of law a finding of product defect.”). And while there are strong reasons for treating such evidence as preclusive when the challenged sales are made in reliance on agency approval, those same reasons cut the other way when the sales are made without approval, and certainly when made unlawfully, as we must assume they were here.

Id. at *5. Consistent with such fuzzy reasoning, it was not unexpected that the court would find that the evidence of lack of efficacy that plaintiffs had was enough to raise a question of fact.

The leap from a dispute about efficacy in general to economic injury for the plaintiffs was not really explored. Nor was how the individual plaintiff—the mother of autistic child—could prove causation. How the union health fund could prove causation was addressed and we will not dwell too much on it here. Suffice it to say evidence tending to say promotion increased prescriptions in general was seen as more probative than evidence about what the fund actually did in connection with the less than fifty prescriptions it reimbursed. Talk about ignoring the elephant in the room.

 

Private plaintiffs love to scream “fraud on the FDA”!  Agency fraud is their magic potion for dissolving any FDA action that they don’t like.  Just assert that the FDA was bamboozled and invite some jury somewhere to ignore what the FDA actually did.  Unfortunately for the other side, Buckman Co. v. Plaintiffs Legal Committee, 531 U.S. 341 (2001), precludes private plaintiffs from bringing such allegations bases on state tort law.  The FDCA is quite clear, in 21 U.S.C. §337(a), that only the government – not private plaintiffs – may seek to enforce the Act.

In Buckman, the Court held (unanimously), first, that “fraud-on-the-FDA claims inevitably conflict with the FDA’s responsibility to police fraud consistently with the Administration’s judgment and objectives.”  Id. at 350.  That’s rather obvious, because the logic of any agency fraud claim is that “fraud” allows a factfinder to conclude that, if not defrauded, the agency wouldn’t have done what it did.  That presents a rather raw conflict with whatever the agency actually did, which (unless revoked by the affected agency) is a federal decision presumably still in effect.

Second, in the context of the FDCA specifically, the Court recognized that Congress did not want private individuals running around purporting to enforce any of the many requirements imposed by the FDA under the Act.  That’s the §337(a) aspect:  “The FDCA leaves no doubt that it is the Federal Government rather than private litigants who are authorized to file suit for noncompliance with the medical device provisions:  ‘[A]ll such proceedings for the enforcement, or to restrain violations, of this chapter shall be by and in the name of the United States.’”  531 U.S. at 349 n.4 (quoting §337(a)). “[W]e have clear evidence that Congress intended that the MDA be enforced exclusively by the Federal Government.”  Id. at 352 (again citing §337(a)).

But Buckman involved only state-law claims and thus preemption was easily invoked to prevent both the inherent conflict and the private enforcement problems identified by the Court.  So Buckman does not directly prohibit private litigants from using a federal statute to assert purported fraud-on-the-FDA claims.  One federal statute does not preempt another.  POM Wonderful LLC v. Coca-Cola Co., 573 U.S. 102, ___, 134 S. Ct. 2228, 2236 (2014) (“the alleged preclusion of a cause of action under one federal statute by the provisions of another federal statute” “is not a pre-emption case”).  There are at least four types of federal statutes that we expect plaintiffs to use to attempt private enforcement of fraud-on-the-FDA claims:  the False Claims Act (“FCA”), the Lanham Act, RICO, and antitrust statutes.  Most of the action, particularly recently, has involved the FCA.

There are other types of wanna-be private FDCA enforcement than fraud on the FDA – that’s what POM Wonderful was about (FDA-permitted food labels that allegedly deceived the public, not the FDA) – but we’re more interested in Buckman than anything else, so we wanted to see how fraud-on-the-FDA claims specifically have fared, when asserted under these other federal statutes.

Most recently, in a FCA decision that we discussed here, the First Circuit rejected allegations that were little different, substantively, from those that had produced Buckman itself.  Plaintiff alleged that the defendant “made a series of false statements to the FDA . . ., but for which the FDA would not have approved the [product] or would have withdrawn that approval.”  United States ex rel. Nargol v. DePuy Orthopaedics, Inc., 865 F.3d 29, 31 (1st Cir. 2017).  Based on those allegations, the Nargol plaintiffs claimed the every use of the product was as false claim – without the FDA’s (allegedly fraudulently obtained) approval, “doctors would not have certified the devices for government reimbursement.”  Id.  The First Circuit held, in effect, “hell, no.” The FDA was aware of all the mud the plaintiffs threw against the wall and did not rescind its decision:

Such very strong evidence [of immateriality] becomes compelling when an agency armed with robust investigatory powers to protect public health and safety is told what Relators have to say, yet sees no reason to change its position.  In such a case, it is not plausible that the conduct of the manufacturer in securing FDA approval constituted a material falsehood capable of proximately causing the payment of a claim by the government.  Ruling otherwise would “turn the FCA into a tool with which a jury of six people could retroactively eliminate the value of FDA approval and effectively require that a product largely be withdrawn from the market even when the FDA itself sees no reason to do so.”  [T]here is no allegation that the FDA withdrew or even suspended product approval upon learning of the alleged misrepresentations.

Id. at 35 (citations omitted).  Thus, “the FDA was paying attention,” but the Agency “viewed the information . . . differently than [plaintiffs] do.”  Id.

The government, having heard what [plaintiffs] had to say, was still paying claims not because of what was said to or by the doctors, but because the government through the FDA affirmatively deemed the product safe and effective.  And, absent some action by the FDA, we can see no plausible way to prove to a jury that FDA approval was fraudulently procured.

Id. at 36.  So, rather than preemption, Nargol disposed of fraud on the FDA-based FCA claims on materiality grounds, as long as the FDA (as is 95%+ the case) did not act on the purported fraud.  That’s basically Buckman modified by that decision’s two-justice concurrence that a different result might occur had the FDA itself found fraud.  531 U.S. at 353-55 (Stevens & Thomas, JJ. concurring).

The omitted citations in our quote from Nargol were to an earlier First Circuit decision that reached a similar result, D’Agostino v. ev3, Inc., 845 F.3d 1 (1st Cir. 2016).  In D’Agostino (which we previously discussed here), the First Circuit saw FCA-based fraud-on-the-FDA claims for what they really were, an attempt to hijack the FCA and turn it into a vehicle for second-guessing FDA decisions:

To rule otherwise would be to turn the FCA into a tool with which a jury of six people could retroactively eliminate the value of FDA approval and effectively require that a product largely be withdrawn from the market even when the FDA itself sees no reason to do so.  The FCA exists to protect the government from paying fraudulent claims, not to second-guess agencies’ judgments about whether to rescind regulatory rulings.

Id. at 8 (citation omitted).  Thus, the same policy reasons the Supreme Court gave for preemption in Buckman all counseled against recognizing agency fraud claims under a federal statute:

The collateral effects of allowing juries in qui tam actions to find causation by determining the judgment of the FDA when the FDA itself has not spoken are akin to those practical effects that counsel in favor of not allowing state-law fraud-on-the-FDA claims.  See Buckman Co. v. Plaintiffs’ Legal Committee, 531 U.S. 341, 349-51 (2001).  If jurors in a single qui tam case could determine precisely what representations were essential to approval, which experts to believe, and how the FDA interpreted submissions made to it, some potential applicants who would otherwise seek approval for new products might be deterred, others might swamp the FDA with more data than it wants, and the “FDA’s responsibility to police fraud consistently with the Administration’s judgment and objectives” might be undercut.  Id. at 350.

Id. at 8-9.

Additionally, as already mentioned in connection with Nargol, the D’Agostino decision also relied upon the “demanding” materiality standard for “implied certification” FCA claims.  Id. at 7.  That agency fraud supposedly “could have” influenced FDA approval wasn’t enough.  “[C]ould have . . . falls short of pleading a causal link between the representations made to the FDA and the [false claim] payments.”  Id.

If the representations did not actually cause the FDA to grant approval it otherwise would not have granted, [the government] would still have paid the claims. In this respect, [relator’s] fraudulent inducement theory is like a kick shot in billiards where the cue ball “could have” but did not in fact bounce off the rail, much less hit the targeted ball.

Id.  Moreover, the D’Agostino fraud-on-the-FDA allegations failed for lack of causation.  If the FDA’s response to the fraud allegations is “doesn’t impress me much,” and the FDA thus doesn’t rescind its decision, then causation is impossible – and that’s what happened in D’Agostino:

In the six years since [relator] surfaced the alleged fraud, the FDA has apparently demanded neither recall nor relabeling of [the product] − this notwithstanding the agency’s [list of enforcement options].  The FDA’s failure actually to withdraw its approval . . . in the face of [plaintiff’s] allegations precludes [plaintiff] from resting his claims on a contention that the FDA’s approval was fraudulently obtained.

Id. at 8.  “[C]ausation is an element of the fraudulent inducement claims [plaintiff] alleges and . . . the absence of official action by the FDA establishing such causation leaves a fatal gap.”  Id. at 9.

In Southeast Laborers Health & Welfare Fund v. Bayer Corp., 444 F. Appx. 401, 410 n.2 (11th Cir. 2011), the court held that plaintiffs could not pursue a fraud on the FDA-based RICO causation theory.  However, the court’s discussion of RICO simply referred back to its prior discussion of why a similar state-law claim could not survive:

A theory of causation relying solely on an allegation that the medication in question would not have been on the market absent the alleged fraudulent conduct is no more than a state law “fraud on the FDA” theory, a theory that has been specifically rejected by the Supreme Court. . . .  Accordingly, [our prior decision] could not have implicitly approved of a state law “fraud on the FDA” theory of causation . . . whereby a third-party payor is permitted to state a causal nexus between the alleged fraudulent conduct and the payor’s ascertainable loss by simply asserting that absent the allegedly fraudulent conduct, the FDA would not have approved the medication to be on the market.

Id. at 407 (Buckman discussion omitted).

Those are all the appellate cases having anything to do with agency fraud that cite Buckman in the same paragraph as one of the four federal statutes we earlier identified.  As for district courts, United States ex rel. v. Medtronic, Inc., 2017 WL 4023092 (C.D. Cal. Sept. 11, 2017), likewise rejected a fraud on the FDA-based FCA claim:

[C]laims of fraud are disfavored if made by third parties who seek to second guess a decision by the FDA to certify a device.  Relator’s claims are in effect such a challenge as to the decision of the FDA to grant §510(k) clearance for the Subject Devices. Alleged fraudulent conduct directed to the FDA, without more, is inadequate to support an FCA claim.  [discussion of Buckman omitted]

Given the resources available to the FDA to investigate and approve medical devices, and to pursue remedies for alleged violations that arise in connection with the process, the policy concerns expressed in [Buckman] are material here.  The premise of the alleged fraud in the FAC is that Defendants misled the FDA during the §510(k) certification process.  However, an FCA action is not the proper way to bring such a claim.

Id. at *7 (citing inter alia the district court opinion in D’Agostino, 153 F. Supp.3d 519).

On the other side, we have also found a couple of district court FCA cases that have allowed the sort of fraud on the FDA-based allegations that Nargol and D’Agostino reject.  See United States ex rel. Brown v. Pfizer, Inc., 2016 WL 807363, at *9 (E.D. Pa. March 1, 2016) (“The claims in Buckman were state law tort claims, not claims brought under the FCA.  Defendant has provided no authority, and we are aware of none, that has extended the holding in Buckman to FCA claims.”); United States ex rel. Krahling v. Merck & Co., 44 F. Supp. 3d 581, 593 (E.D. Pa. 2014) (“alleg[ations] that Defendant consistently and deliberately withheld pertinent information as to the safety and efficacy of a medication from the government . . . is [a] grounds for FCA liability.”).  Neither of these cases had the benefit of Nargol or D’Agostino, and neither addressed causation/materiality, so it is questionable whether they would be decided in the same fashion today.

Beyond the FCA, we found a magistrate’s opinion, Meijer, Inc. v. Ranbaxy Inc., 2016 WL 4697331 (Mag. D. Mass. Sept. 7, 2016), that the case “present[ed] an issue of apparent first impression: whether Sherman Act claims . . . may be predicated on an underlying fraud on the [FDA].”  The Magistrate effectively gave antitrust plaintiffs free rein to assert fraud-on-the-FDA claims:

The FDA’s enabling statute does not entrust it with policing antitrust or RICO; therefore, Plaintiffs’ claims do not usurp the agency’s statutory right to… calibrate a measured response to alleged fraud committed against it.  The question of whether or not particular acts of regulatory gaming harm competition is and should be an antitrust question

Id. at *11 (citations and quotation marks omitted).  See Id. at *19 (“these claims sound in antitrust, not violations of the FDCA”).  We note that Meijer evidently differs from the vast majority fraud-on-the-FDA pleadings, in that the plaintiffs allege that the FDA actually did determine that it had been misled and took affirmative corrective action.  Id. at *5, 13.  Perhaps that is the reason that Meijer nowhere cited the otherwise extremely pertinent D’Agostino district court decision.  Also of interest, permission for an interlocutory appeal has been granted, Meijer, Inc. v. Ranbaxy Inc., 245 F. Supp.3d 312 (D. Mass. 2017), and that appeal in pending in the First Circuit.  In the interim, of course, the First Circuit has decided both Nargol and D’Agostino since the district court originally decided Meijer.

Finally, we expected to find agency fraud claims brought under the Lanham Act, but didn’t.  There are certainly enough other types of attempted private FDCA enforcement that have been asserted under the Lanham Act.  But our search (which required the term “Lanham” to appear in the same paragraph as “Buckman” or several variants of “fraud on the FDA”) didn’t produce anything directly on point.  The closest approximation was Intra-Lock International, Inc. v. Choukroun, 2015 WL 11422285 (S.D. Fla. May 4, 2015), which alleged the sale of a “medical device” without getting any form of FDA pedigree.  There was no fraud on the FDA, because there were no interactions with the FDA at all. The Lanham Act claim in Intra-Lock was dismissed because plaintiff’s theory of selling a medical device without a license was purely a violation of the FDCA.  Id. at *7.  But the case wasn’t – at least overtly – a true agency fraud claim.  Cf. Organ Recovery Systems, Inc. v. Preservation Solutions, Inc., 2012 WL 116041, at *7-8 (N.D. Ill. Jan. 16, 2012) (allowing non-FDA-related Lanham Act claims while making clear that plaintiff’s preempted agency fraud claims were not based on the federal statute).

So far, there hasn’t been an appellate court in the country that has allowed a private plaintiff to avoid Buckman by bringing a fraud-on-the-FDA claim disguised as a federal statutory claim.  While we’re not out of the woods, yet, the current trend can be described as favorable.

Not too long ago we read a non-drug/device decision, Hale v. State Farm Mutual Automobile Insurance Co., 2018 WL 3241971 (S.D. Ill. July 3, 2018), which left us shaking our heads.  How this suit could not be a blatant First Amendment violation is beyond us.

But that’s not really the point of this post.

The alleged “facts” are downright bizarre:  The plaintiffs were sore losers in previous litigation against the same defendant.  They had managed, through the use of now-discredited legal gamesmanship – a nationwide class action involving the extraterritorial application of the Illinois consumer protection statute – to obtain a verdict of over a billion dollars on claims involving State Farm and allegedly inferior replacement parts used in car repairs.  Thankfully, plaintiffs couldn’t hold it.  In Avery v. State Farm Mutual Automobile Insurance Co., 835 N.E.2d 801 (Ill. 2005), the court rejected extraterritoriality and nationwide consumer fraud class actions. Id. at 855 (“we conclude that the circuit court erred in certifying a nationwide class that included class members whose claims proceedings took place outside Illinois”).  The nominal vote was 4-2, with one justice not participating, but even the dissent agreed on this issue.   Id. at 864 (“I agree with the ultimate result reached by my colleagues − I, too, would find that the circuit court erred in certifying the nationwide class”) (concurring and dissenting opinion).  There were a slew of other issues in this contentious case, but with rejection of the nationwide extraterritorial class, any basis for the boxcar, billion-dollar verdict disappeared.

But plaintiffs (or their lawyers) didn’t give up.  Instead they filed a RICO action alleging that State Farm was “racketeering” when it gave large amounts of campaign contributions – Hale contains nothing to suggest that any state-law campaign finance violations were involved − to support the election of a particular “pro-business” candidate to the Illinois Supreme Court, while the Avery appeal was pending:

In essence, plaintiffs allege that defendants secretly recruited [the candidate] to run for an open seat on the Illinois Supreme Court, where the Avery . . . appeal was pending; that defendants organized and managed his campaign behind the scenes; that defendants covertly funneled millions of dollars to support his campaign through intermediary organizations over which [defendants] exerted considerable influence.

Hale, 2018 WL 3241971, at *1.  You get the drift.  Next came the predictable allegations that everything was covered up so no recusal occurred.  Id.  The new justice supposedly “broke” a “deadlock” – yeah, right, in a case where the main result was unanimous − and “voted to overturn the judgment.”  Id.  All this purportedly nefarious politicking supposedly “deprived [plaintiff plaintiffs] of their constitutionally-guaranteed right to be judged by a tribunal uncontaminated by politics.”  Id.

It’s not the point of this post to debate the intricacies of RICO causation, damages, or enterprises.  We don’t think Hale should ever have gone that far.  We’ve previously advocated the First Amendment protection of purely scientific speech, because we don’t believe that one side to a scientific debate should be allowed to sue the other into submission.  That was our primary interest when Citizens United v. Federal Election Com’n, 558 U.S. 310 (2010), was handed down.  We frankly didn’t dream that core political speech of the sort at issue in Hale could give rise to private prosecutions under RICO.

But be that as it may. If it’s open season on the opposition’s campaign contributions, can the defense side play, too?  After all, in most judicial elections, contributions from the defense are dwarfed by what our politically minded adversaries are able to raise and spend.  It’s no secret.  Here, for example, is the “Campaign Finance Online Reporting” of the Pennsylvania Secretary of State.  You can type in the name of your most (or least) favorite judge and relevant election year and see everybody from whom s/he reported receiving contributions.  Or you can click on “contributions made” and track the donations by your favorite plaintiffs’ lawyer or firm.  Our clients have just as much of a “constitutionally-guaranteed right to be judged by a tribunal uncontaminated by politics” as do plaintiffs.  Are there RICO violations here?

But maybe that’s not enough.  Perhaps it’s too diffuse to assert a RICO violation just because the other side’s contributions made up 90%+ of the total contributions to a particular judge sitting on a particular case.  Maybe there needs to be a “pending” matter to focus things more precisely.  Still, our side might be able to play.  Consider all of those “civil enforcement” actions nominally brought by cities, counties, and states against our clients – where the real vigorish goes to the contingent fee, private counsel brought in to prosecute the action for the government.  We’ve complained about those actions, as well, without much success.  If it turns out that contingent fee counsel (or those acting in concert with counsel) made large political contributions to the particular politicians who later authorized the filing of one of those suits against a client, does the client have a RICO counterclaim under the same rationale as Hale?

Our bottom line is that suits like Hale are abuses of the judicial system and attempts to sue over the other side’s First Amendment protected political activity.  We’re, frankly, shocked that Hale survived summary judgment.  But if plaintiffs insist on opening up that Pandora’s Box, our side should consider whether it wants to play, too.

We’ll be hitting all the Presidents’ Day sales today, but something tells me we’ll be disappointed because we won’t be able to buy, beg, borrow, or steal a new one.  So we keep trying.

With plaintiffs desperate to find some way to continue pursuing aggravated, aggregated product liability litigation in their favorite venues after Daimler AG v. Bauman, 134 S. Ct. 746 (2014) (“Bauman”), and Bristol-Myers Squibb Co. v. Superior Court, 137 S. Ct. 1773 (2017) (“BMS”), we thought we’d look at one likely target that we haven’t spent much time on before.  At the tail end of the BMS decision, the Court left open a caveat:

[W]e leave open the question whether the Fifth Amendment imposes the same restrictions on the exercise of personal jurisdiction by a federal court.  See Omni Capital International, Ltd. v. Rudolf Wolff & Co., 484 U.S. 97, 102, n.5 (1987).

BMS, 137 S. Ct. at 1784.  We have offered our opinion that we don’t think there will turn out to be a dime’s worth of practical difference between the two, due to the extent that BMS, a Fourteenth Amendment case relied on Walden v. Fiore, 134 S. Ct. 1115 (2014), which was as federal a cause of action as they come, being a constitutional Bivens action filed in federal court.  We still believe that’s right, but it’s a bit more complicated than we thought at first, a later on in this post.

Let’s start with what “federal court” means.  While we’ve always thought that cases in federal court based on diversity jurisdiction were on the Fourteenth Amendment side of the personal jurisdiction line, we’d never researched it.  It wasn’t hard.  Looking for cases with “diversity,” “Fourteenth Amendment,” and “personal jurisdiction” in the same paragraph was enough.  Too much, actually – since that search produced over two thousand cases – but it didn’t take long to get the answer.  From the first case:

The United States District Court for the Southern District of Florida, sitting in diversity, relied on [a state longarm statute] in exercising personal jurisdiction over a [non-]resident. . . .  The question presented is whether this exercise of long-arm jurisdiction offended “traditional conception[s] of fair play and substantial justice” embodied in the Due Process Clause of the Fourteenth Amendment.

Burger King Corp. v. Rudzewicz, 471 U.S. 462, 464 (1985).  Lots of other appellate cases stand for the proposition that cases in federal court on diversity jurisdiction are governed directly by the Fourteenth Amendment.  E.g., Cossart v. United Excel Corp., 804 F.3d 13, 18 (1st Cir. 2015); Philos Technologies, Inc. v. Philos & D, Inc., 802 F.3d 905, 912 (7th Cir. 2015); Creative Calling Solutions, Inc. v. LF Beauty Ltd., 799 F.3d 975, 979 (8th Cir. 2015); Carmouche v. Tamborlee Management, Inc., 789 F.3d 1201, 1203 (11th Cir. 2015); SFS Check, LLC v. First Bank, 774 F.3d 351, 355-56 (6th Cir. 2014); ClearOne Communications, Inc. v. Bowers, 643 F.3d 735, 763 (10th Cir. 2011); Metcalfe v. Renaissance Marine, Inc., 566 F.3d 324, 330 (3d Cir. 2009); Mullins v. TestAmerica, Inc., 564 F.3d 386, 398 (5th Cir. 2009); Bank Brussels Lambert v. Fiddler Gonzalez & Rodriguez, 305 F.3d 120, 124 (2d Cir. 2002); Chung v. NANA Development Corp., 783 F.2d 1124, 1125 (4th Cir. 1986); Steinberg v. International Criminal Police Org., 672 F.2d 927, 930 (D.C. Cir. 1981).

Thus, we think it’s a lock that for the types of cases we typically discuss on this blog, which sound in diversity if they’re in federal court, that Bauman/BMS applies to all personal jurisdiction issues.  Indeed, some of the cases we read indicate (like we think) that there is no difference between the Fifth and Fourteenth Amendments’ Due Process clauses when it comes to personal jurisdiction. See Republic of Panama v. BCCI Holdings (Luxembourg) S.A., 119 F.3d 935, 943 n.12 (11th Cir. 1997); Akro Corp. v. Luker, 45 F.3d 1541, 1545 (Fed. Cir. 1995).

This means that, to get around Bauman/BMS, and to assert personal jurisdiction against non-resident defendants, litigation-tourist plaintiffs would have to do the opposite of what they have normally done for decades and instead plead some sort of federal claim if they have any hope of arguing that some hypothetical lesser standard of Due Process applies under the Fifth Amendment.  Even assuming plaintiffs desperate enough to jettison decades of prior practice, there aren’t many of these statutes around.  The False Claims Act is a federal statute that authorizes nationwide service of process, see 31 U.S.C. §3732(a), but by no stretch of the imagination could it apply to the sorts of product liability/consumer fraud claims that are our opponent’s stock in trade.

RICO also provides for nationwide service of process. 18 U.S.C. §1965(d).  RICO has a major limitation – from the standpoint of a product liability plaintiff – in that the statute does not allow recovery of personal injury damages.  Reiter v. Sonotone Corp., 442 U.S. 330, 339 (1979); see, e.g., Safe Streets Alliance v. Hickenlooper, 859 F.3d 865, 886 (10th Cir. 2017); Blevins v. Aksut, 849 F.3d 1016, 1021 (11th Cir. 2017); Williams v. BASF Catalysts LLC, 765 F.3d 306, 323 (3d Cir. 2014); Fiala v. B & B Enterprises, 738 F.3d 847, 853 (7th Cir. 2013); Jackson v. Sedgwick Claims Management Services, Inc., 731 F.3d 556, 565 (6th Cir. 2013) (en banc); Ironworkers Local Union 68 v. AstraZeneca Pharmaceuticals, LP, 634 F.3d 1352, 1364 (11th Cir. 2011); Upper Deck Co., LLC v. Federal Insurance Co., 358 F.3d 608 (9th Cir. 2004); Hughes v. Tobacco Institute, Inc., 278 F.3d 417, 422 (5th Cir. 2001); Hamm v. Rhone-Poulenc Rorer Pharmaceuticals, Inc., 187 F.3d 941, 954 (8th Cir. 1999); Bast v. Cohen, Dunn & Sinclair, PC, 59 F.3d 492, 495 (4th Cir. 1995); Laborers Local 17 Health & Benefit Fund v. Philip Morris, Inc., 191 F.3d 229, 241 (2d Cir. 1999).  Even more of a drawback for purveyors of nationwide class actions, is the statute’s causation requirements almost always having precluded reliance on classwide statistical evidence, as we discussed here.

Another possibility would be the Magnuson-Moss Warranty Act, although MMWA also has a number of substantive drawbacks for plaintiffs, not the least of which is prescription medical products not being “consumer” goods.  Kanter v. Warner-Lambert Co., 122 Cal. Rptr.2d 72, 86 (Cal. App. 2002); MHA, LLC v. Siemens Healthcare Diagnostics, Inc., 2017 WL 838797, at *2 (D.N.J. March 2, 2017); In re Minnesota Breast Implant Litigation, 36 F. Supp.2d 863, 876 (D. Minn. 1998); Goldsmith v. Mentor Corp., 913 F. Supp. 56, 63 (D.N.H. 1995); Kemp v. Pfizer, Inc., 835 F. Supp. 1015, 1024 (E.D. Mich. 1993).

In this regard, however, the citation BMS gives to the Omni Capital case is particularly ominous for MMWA plaintiffs.  Omni Capital was a federal question case, alleging violations of several federal securities statutes.  498 U.S. at 99.  The Court held that, even if the Fifth Amendment Due Process Clause did allow Congress to expand personal jurisdiction with a statute providing for nationwide service of process (the footnote cited in BMS was itself a caveat that the Court had “no occasion to consider the constitutional issues raised by this theory”), no jurisdiction existed because Congress had not in fact done so.  “[U]nder Rule 4(e), a federal court normally looks either to a federal statute or to the long-arm statute of the State in which it sits” to determine personal jurisdiction.  Id. at 105.  An “implied” cause of action did not include implied nationwide service of process.  “[W]e would not automatically graft nationwide service onto the implied private right of action.”  484 U.S. at 107.  Nor would the Court in Omni Capital go beyond the limits to service of process expressly provided in Rule 4:

We would consider it unwise for a court to make its own rule authorizing service of summons.  It seems likely that Congress has been acting on the assumption that federal courts cannot add to the scope of service of summons Congress has authorized.  This Court in the past repeatedly has stated that a legislative grant of authority is necessary. . . .

The strength of this longstanding assumption, and the network of statutory enactments and judicial decisions tied to it, argue strongly against devising common-law service of process provisions at this late date for at least two reasons.  First, since Congress concededly has the power to limit service of process, circumspection is called for in going beyond what Congress has authorized.  Second, as statutes and rules have always provided the measures for service, courts are inappropriate forums for deciding whether to extend them.  Legislative rulemaking better ensures proper consideration of a service rule’s ramifications within the pre-existing structure and is more likely to lead to consistent application.

Id. at 109-10 (citations and footnotes omitted).

Thus, unlike the FCA or RICO, MMWA falls into the same category as the securities statutes in Omni Capital – it contains no provision for expanded service of process of any sort.  Alisoglu v. Central States Thermo King of Oklahoma, Inc., 2012 WL 1666426, at *3-4 (E.D. Mich. May 11, 2012); Bluewater Trading LLC v. Fountaine Pajot, S.A., 2008 WL 2705432, at *2-3 (S.D. Fla. July 9, 2008), aff’d, 335 F. Appx. 905, (11th Cir. 2009); Weinstein v. Todd Marine Enterprises, Inc., 115 F. Supp. 2d 668, 671 (E.D. Va. 2000); see Walsh v. Ford Motor Co., 807 F.2d 1000, 1012, 1018-19 (D.C. Cir. 1986) (reversing decision that “veered off course” by “regard[ing] Magnuson-Moss as an Act intended to facilitate nationwide class actions”).  What that means for Magnuson-Moss plaintiffs is:

The end result of Omni is to require a court to apply in federal question cases such as this case where there is no provision authorizing nationwide service of process a personal jurisdiction test very similar to that used in diversity cases:  Where a federal court’s subject matter jurisdiction over a case stems from the existence of a federal question, personal jurisdiction over a defendant exists if the defendant is amenable to service of process under the forum state’s long-arm statute and if the exercise of personal jurisdiction would not deny the defendant due process.

Alisoglu, 2012 WL 1666426, at *4 (citations and quotation marks omitted) (emphasis added).

While the current version of Rule 4 was amended to address the specific situation presented in Omni Capital – an overseas defendant ostensibly not amenable to service of process in any state (see Rule 4(k)(2)) – plaintiffs who sue defendants (like our clients) that are amenable to suit in some states are subject to state-law limitations on service of process unless a federal statute expressly allows otherwise:

(k) Territorial Limits of Effective Service.

(1) In General. Serving a summons or filing a waiver of service establishes personal jurisdiction over a defendant:

(A) who is subject to the jurisdiction of a court of general jurisdiction in the state where the district court is located;

(B) [special rules for third party practice − not relevant to personal injury plaintiffs – and indispensable parties – ditto]; or

(C) when authorized by a federal statute.

(Emphasis added).

Thus, under both controlling precedent and the language of Rule 4, our opponents should not be able to utilize federal causes of action to evade Bauman/BMS – unless they can plead into some statute (like the FCA or RICO) that provides nationwide service of process – and those other statutes have attributes that preclude their use in product liability.  Getting back to Walden v. Fiore, this interplay between personal jurisdiction and Rule 4 is what ultimately led to the application of Fourteenth Amendment personal jurisdiction principles in what was a federal question case.  Bivens is an implied right of action (similar to Omni Capital in that respect), thus no statutory expansion of personal jurisdiction was available, and a state long-arm statute subject to the Fourteenth Amendment was the only other option for the plaintiff, even with a federal cause of action involved:

Federal courts ordinarily follow state law in determining the bounds of their jurisdiction over persons.  This is because a federal district court’s authority to assert personal jurisdiction in most cases is linked to service of process on a defendant “who is subject to the jurisdiction of a court of general jurisdiction in the state where the district court is located.”  Fed. Rule of Civ. Proc. 4(k)(1)(A).  Here, Nevada has authorized its courts to exercise jurisdiction over persons “on any basis not inconsistent with … the Constitution of the United States.”  Thus, in order to determine whether the Federal District Court in this case was authorized to exercise jurisdiction over petitioner, we ask whether the exercise of jurisdiction comports with the limits imposed by federal due process on the State of Nevada.

Walden, 134 S. Ct. at 1121 (citations and quotation marks to Bauman omitted).  Walden is Supreme Court precedent demonstrating that Rule 4(k)(1)(A) imports the Fourteenth Amendment’s – and thus Bauman/BMS – Due Process analysis into federal causes of action unless a federal statute expressly provides otherwise.  Thus, plaintiffs can’t get away from Bauman/BMS even by raising federal statutory causes of action like MMWA that don’t authorize nationwide service of process.

Finally, even if plaintiffs somehow grab the BMS-caveat brass ring, and find some federal statute that provides for expanded service (and thus expanded personal jurisdiction), they would run squarely into the principle discussed in Dick Dean’s prescient guest post of a few weeks back – “[j]ust because there is specific jurisdiction over one claim . . ., that is insufficient to find specific jurisdiction over all claims.”  This guest post cites the relevant cases holding that personal jurisdiction must be determined on a claim-by-claim basis, so we won’t repeat them here.

We’ll add only that this claim-by-claim precedent is incompatible with any novel expansion of “pendent jurisdiction” (which has been a subject matter jurisdiction concept) to allow courts to hear otherwise Bauman/BMS-barred claims because one claim somehow squeaks through.  Recent cases rejecting “pendent jurisdiction” as an end run around Bauman/BMS include:  Lexington Insurance Co. v. Zurich Insurance (Taiwan) Ltd., ___ F. Supp.3d ___, 2017 WL 6550480, at *3 (W.D. Wis. Dec. 21, 2017); Greene v. Mizuho Bank, Ltd., ___ F. Supp.3d ___, 2017 WL 7410565, at *4-5 (N.D. Ill. Dec. 11, 2017); Spratley v. FCA US LLC, 2017 WL 4023348, at *7 (N.D.N.Y. Sept. 12, 2017); Famular v. Whirlpool Corp., 2017 WL 2470844, at *6 (S.D.N.Y. June 7, 2017); MG Design Associates, Corp. v. Costar Realty Information, Inc., 224 F. Supp.3d 621, 629 (N.D. Ill. 2016), partially reconsidered on other grounds, 267 F. Supp.3d 1000 (N.D. Ill. 2017); In re Testosterone Replacement Therapy Products Liability Litigation, 164 F. Supp.3d 1040, 1048-49 (N.D. Ill. 2016); In re: Bard IVC, 2016 WL 6393596, at *4 n.4 (D. Ariz. Oct. 28, 2016); In re: Zofran (Ondansetron) Products Liability Litigation, 2016 WL 2349105, at *5 n.5 (D. Mass. May 4, 2016); Demaria v. Nissan, Inc., 2016 WL 374145, at *7-8 (N.D. Ill. Feb. 1, 2016); Tulsa Cancer Institute, PLLC v. Genentech Inc., 2016 WL 141859, at *4 (N.D. Okla. Jan. 12, 2016); Hill v. Eli Lilly & Co., 2015 WL 5714647, at *7 (S.D. Ind. Sept. 29, 2015); In re Plavix Related Cases, 2014 WL 3928240, at *9 (Ill. Cir. Aug. 11, 2014).

Notably, most of these rejections of pendent jurisdiction come in the context of unsuccessful attempts to maintain nationwide class actions after Bauman/BMS.  The jurisdictional noose is tightening around litigation tourists.  It is important that they not  be given any wiggle-room by virtue of the “federal court” caveat in BMS.

Disclaimer:  Any resemblance between the substance of this post and that of a certain recent, wrongly-decided case out of the Northern District of California is purely intentional.

We have written extensively on the travesty of the Neurontin trilogy (like here and here) and noted how the plaintiffs’ efforts to fit cases based on alleged off-label promotion of the prescription SSRIs Celexa and Lexapro into the same rubric have not been as successful. Today’s case addresses what we understand to be some of the last few cases in the MDL.   In re Celexa & Lexapro Mktg. & Sales Practs. Litig., MDL No. 09-02067-NMG, 2018 U.S. Dist. LEXIS 13579 (D. Mass. Jan. 26, 2018).  This summary judgment decision addresses three cases, one by a third party payor on behalf of a purported class and two by parents of former pediatric users.  As always, we reserve the right to focus on the parts we want and to make gratuitous statements about how these cases exemplify much of what is wrong with civil RICO and consumer fraud cases over prescription drugs.

A little background on the litigation and these cases should help.  The allegations centered on the claim that the manufacturer of these drugs had caused economic injury to the plaintiffs by promoting the use of the drugs for pediatric patients when they were only approved for adult use.  To dispose of the plaintiffs’ cases, the court did not have to resolve whether the manufacturer engaged in such promotion, let alone whether any promotion was untruthful—which we think it would need to be to impose liability consistent with the First Amendment.  Celexa was approved to treat depression in adults in 1998 and an application to treat depression in adolescents was filed in 2002.  FDA denied that application based on a lack of efficacy in one of the two clinical studies.  Lexapro was approved to treat depression in adults in 2002 and an application to treat depression in adolescents was filed in 2008 and approved a year later.  The Celexa label always stated that “safety and effectiveness in pediatric patients have not been established” and, starting in 2005, described the results of certain pediatric trials.  The Lexapro label had similar language until the pediatric indication was added.  The first individual plaintiff sued over the prescription, purchase, and intermittent use of Celexa by a thirteen year old depressed patient in 2002-2003.  The second individual plaintiff sued over the prescription, purchase, and use of Celexa and later Lexapro by an eight to fifteen year old autistic patient from 2003 to 2010.  The TPP plaintiff sued over prescriptions paid for a relatively small number of Celexa prescriptions for pediatric beneficiaries from 1999 to 2004 and for a somewhat larger number of Lexapro prescriptions for pediatric beneficiaries between 2012 and 2015, but also claimed to represent a nationwide class of payors.  The plaintiffs asserted a mix of federal civil RICO and state consumer fraud claims and, skipping some procedural history, the court entertained summary judgment motions.

The consideration of the RICO requirements of injury and causation resolved all issues. For those of you who know RICO or have just followed along with some of our posts, RICO requires an injury to “business or property” as a matter of standing.  Relying on the Neurontin cases, these plaintiffs claimed that they had been injured because they paid for drugs that were not effective for the indications for which they were prescribed.  They claimed, however, that any payment for an off-label prescription was an injury because they contended that FDA had somehow been defrauded in connection with the applications for pediatric indications.  2018 U.S. Dist. LEXIS 13579, *19.  If you are following along, then you might wonder how this theory could apply to Celexa prescriptions or the earlier prescriptions of either drug.  First things first, though, as the Celexa court had to unpack the Neurontin rulings to see if they supported plaintiffs’ relaxed standard.  They did not, so plaintiffs had to prove lack of efficacy.  The TPP and second plaintiff could not:  “[T]he FDA in this case approved the drug for use in adolescents.  There is no conclusive or even strongly suggestive evidence of inefficacy in this case and plaintiff have presented no evidence as to the inefficacy for [the second plaintiff] or for any of [the TPP’s] plan members.” Id. at *22.  As one might expect with prescriptions over the eight years, the second individual plaintiff’s prescribing physician testified that the drugs had been effective with the patient’s autism.  The TPP’s evidence resembled what we have seen in other cases—no proof from physicians for the plan beneficiaries and the plan still pays for pediatric prescriptions for both drugs, contrary to the allegations in the case.

Plaintiffs’ attempted end run was that they had experts who would say FDA was somehow defrauded about efficacy for pediatric use—presumably just for Lexapro, as FDA rejected the only application for a pediatric indication for Celexa, and not for autism, as that was not an indication for either drug.  As the court noted, and we will let the Neurontin characterizations lie, plaintiffs’ “fraud theory is a tenuous attempt to shoehorn the facts of this case into the facts of Neurontin, where there were no positive, or even equivocal, clinical trials for the indications at issue.” Id. at *25.  Here, FDA “determined that two clinical studies were positive” and “FDA is the exclusive judge of safety and efficacy and a court should not question that judgment unless new information not considered by the FDA develops.” Id. (internal quotes and citation omitted).  Keep in mind that RICO is federal, so there is no preemption.  Not too shabby.  And summary judgment for the manufacturer on two of the plaintiffs.

On the remaining plaintiff, the first individual, the manufacturer challenged causation.  In part because we think the analysis was somewhat confused, we will skip to what mattered and probably applies to other plaintiffs with similar claims.  The prescribing physician’s testimony did not support reliance on a sales representative’s discussion of Celexa at all. Id. at *30.  While he did acknowledge a possibility of some unrecalled exposure to off-label promotion, this is not enough to avoid summary judgment on an issue for which the plaintiff bears the burden of proof.  “A mere possibility that the doctor could have, at some point, encountered off-label promotion, although he has no memory of it, does not rise to the level of a disputed material fact.” Id. at **30-31.  That sounds like what courts are supposed to say when evaluating a summary judgment motion on proximate cause for failure to warn with a prescription medical product.  The court here called this “but-for causation,” but we will not quibble. Summary judgment was awarded to the manufacturer on the last plaintiff’s RICO claim and the analysis on RICO determined the result of the various consumer fraud claims.  Like we said up front, this was all without reaching whether the manufacturer did anything wrong with its promotion.

 

 

If you want to insult and annoy someone, consider suing them under the Racketeering Influenced and Corrupt Organizations Act, 18 U.S.C. section 1964.  That law is charmingly known as RICO, in an allusion to the big bad in the great 1931 gangster film Little Caesar, played by Edward G. Robinson at his most snarly.  It’s one thing to accuse someone of fraud, but to accuse them of racketeering is a bit over the top.  But there is, unfortunately, ample precedent out there supporting the abuse of RICO, extending it to ordinary business disputes.  Plaintiffs dazzled by the prospects of treble damages have not been terribly shy  about filing RICO claims against companies that do their best to dot all the i’s and cross all the t’s – those companies simply committed the offense of being “organizations” in a society where plaintiff lawyers know no bounds of judgment or taste.   Promiscuous use of RICO is often counterproductive because, while the plaintiff lawyers are usually trolling for a settlement, good luck settling with someone who is justifiably outraged that you called them a racketeer.

 

 RICO is yet another instance of the American system of jurisprudence taking a wild wrong turn, so it’s nice to see a court rein it in.  It’s especially nice to see that the judge who did the reining in was once one of our favorite law professors in a far away place (okay – Chicago isn’t that far away) long ago.   Last week the Seventh Circuit issued its opinion in Sidney Hillman Health Center v. Abbott Laboratories, 2017 WL 4544834 (7th Cir. Oct. 12, 2017), a Third Party Payor (TPP) action coming out of the Depakote MDL in N.D. Illinois.   The action by the TPPs was, as is typical, completely parasitic, opportunistically seizing upon the existence or conclusion of other litigation.  The TPPs filed their RICO action after a 2012 guilty plea and settlement of a False Claim Act lawsuit.  Judge Easterbrook wrote the Seventh Circuit’s opinion.  It is pithy and compelling and might very well make it onto our top ten list at the end of the year. 

 

Two welfare-benefit plans that paid for some of Depakote’s off-label uses filed this suit seeking treble damages under civil RICO.  The plaintiffs alleged that the off-label uses of Depakote were harmful and/or not effective. The alleged injuries were that the TPPs paid for (1) off-label uses that would not have been paid but for the company’s alleged misrepresentations, and (2) additional medical harm caused by the drug.  The TPPs asked the district court to certify a class comprising all third-party payors of drug expenses. The district judge dismissed the complaint on the ground that the plaintiffs could not show proximate causation.  The district judge reasoned that the allegedly improper marketing was directed, not at the plaintiffs, but at physicians, and concluded that tracing loss through the steps between promotion and payment would be too complex.  We wrote about the district court’s ruling here. The Seventh Circuit affirmed the dismissal of the case, and did so without footnotes or reservations.    

 

The headline is that Sidney Hillman rejected the type of attenuated causal chain typically asserted by TPPs:  “improper representations made to physicians do not support a RICO claim by Payors, several levels removed in the causal sequence.”  Sidney Hillman, 2017 WL 4544834 at *4.  As the Seventh Circuit recognized, under RICO, the initially injured parties are not payors, but rather the patients, who “suffer if they take [a drug] even though it is useless to them and may be harmful.”   Id. at *2.  Because TPPs are not initially injured parties, determining their alleged injuries would be difficult.  First, some off-label uses of Depakote may be beneficial, so how does any alleged injury arise from such uses?  Second, some doctors would have prescribed the drug regardless of any off-label promotion.  Third, other doctors may not have changed their prescribing practices at all, or they might have changed them but done so in response to information that the company did not influence.  How can the ‘injury” caused by the off-label promotions be calculated?

 

The plaintiffs’ lawyers  suggested that they could gin up a “regression analysis” to “determine the volume of off-label prescriptions that would have occurred in the absence” of the promotional activity.  We have seen this sort of thing before.  Maybe you have, too.  Yes, there are travelling econometricians who can regress their way to any conclusion you might want.  Luckily, the Seventh Circuit did not accept this suggestion, because the data such an analysis would require simply did not exist.  The wished-for regression analysis also “would not address the question whether patients suffered medical losses or out-of-pocket costs via co-pays, or whether physicians lost business by prescribing an ineffective or harmful drug, or what to do about patients whose off-label use of Depakote made them healthier.”  Id. at *3.  Moreover, it would not be proper to assume that TPPs would not have paid for anything, as they likely would have paid for some drug other than Depakote, which might have been more costly.  Importantly, the “absence of data leaves a serious problem in showing plausible causation, which is required even at the complaint stage.”  Id.  Thank you, TwIqbal. 

 

The Seventh Circuit acknowledged that five other courts of appeals have considered the extent to which TPPs can recover under RICO for wrongs committed while marketing pharmaceuticals.  The Second Circuit, in Sergeants Benevolent Ass’n Health & Welfare Fund v. Sanofi-Aventis, 806 F.3d 71 (2d Cir. 2015), held that the causal chain in TPP cases was too long to satisfy SCOTUS requirements.  (Sergeants Benevolent Ass’n made our 2015 Top Ten list.) The Ninth and Eleventh Circuits agreed with the Second, “and deem this so straightforward that they have issued nonprecedential decisions.”  Sidney Hillman, 2017 WL 4544834 at *3.  Those are the good decisions.  Spoiler alert: the Seventh Circuit agrees with them.  On the not-so-good-side of the ledger, the Seventh Circuit observed that In re Avandia Marketing, Sales Practices & Product Liability Litigation, 804 F.3d 633 (3d Cir. 2015), the Third Circuit “held that recovery under RICO is possible when misrepresentations are made directly to Payors, leading them to add certain drugs to their formularies, which means that they pay more per prescription than they would otherwise.”  (Honestly, despite this terrible result in Avandia, and despite the Fosamax legal-butchery that we’ve analyzed to a fare-thee-well, our hometown Circuit is usually wise and wonderful.)  Finally, in the Neurontin litigation the First Circuit kind-of-sort-of had been in the same place as the Third Circuit, while implying disagreement “with the other four circuits about the possibility of Payors’ recovery for misrepresentations made to physicians.”  Id. at *4.  It’s not clear exactly what the First Circuit held in Neurontin,  but don’t fret about it too much, because “to the extent there is a conflict the Second Circuit has this right.”  Id. 

 

And, almost needless to say, we think the Seventh Circuit has this right.   

 

And, with a Circuit split teed up for SCOTUS, we’re willing to bet that the efforts by Second, Ninth, Eleventh, and now Seventh Circuits to cabin RICO somewhat will prevail.   

Imagine a conspiracy so vast that it includes not only your usual plaintiff-side fantasy of the FDA conspiring with a drug company, but also high FDA officials, President Obama, Robert Mercer (noted Trump supporter and reputed Breitbart financier), a number of other investors, and just for good measure President and Hillary Clinton.

Larry Klaman could, and thus brought the lawsuit that recently resulted in Aston v. Johnson & Johnson, ___ F. Supp.3d ___, 2017 WL 1214399 (D.D.C. March 31, 2017).

Nobody else did, though.

In particular, and fortunately for everyone on the defense side, the judge in Aston could not.  Reading the Aston opinion, it is evident that the court is beyond skeptical of the vast, or even half-vast, conspiracy claims.  In a nutshell, five plaintiffs who claimed a great many personal injuries (the opinion lists 74 separate alleged injuries, 2017 WL 1214399, at *1) from their use of the drug Levaquin, brought suit alleging that the drug’s manufacturer and the FDA were in cahoots to cover up the drug’s risks, in order to increase the value of the manufacturer’s stock, to the advantage of various investors.  As for the political officials, according to the opinion:

Amazingly, former presidents Barack Obama and Bill Clinton also make cameo appearances in plaintiffs’ alleged scheme, together with former Secretary of State Hillary Clinton, and the Clinton Foundation; these actors are alleged to have solicited, or received, “gratuities” from defendants in exchange for securing [another alleged conspirator’s] appointment as FDA Commissioner.

Id. at *2.  We admit, this is an extreme oversimplification – the opinion took two Westlaw pages just to sort through the Aston plaintiffs’ labyrinthine conspiracy allegations.

Plaintiffs’ legal theories were almost as numerous as their injury allegations – twenty-two counts, including RICO, state-law (Arizona (?)) RICO, strict product liability, negligence, fraud, express and implied warranty, unjust enrichment, Lanham Act, and a bunch of state consumer fraud claims (D.C., New York, Maryland, Pennsylvania, Illinois, Arizona, and California). Id. at *3.

Aston threw everything out on the many defendants’ motions to dismiss. The half-vast conspiracy, and all its subsidiary theories of liability went down in a hail of defense-friendly rulings, and that’s why – aside from its humor value – the Aston opinion is well worth reading.  We’ll list the rulings so our readers will have an idea of what this goodie basket contains.

RICO – The deficiency in the RICO counts was rather basic. RICO does not allow recovery for personal injuries.  “The overwhelming weight of authority discussing the RICO standing issue holds that the ‘business or property’ language of Section 1964(c) does not encompass personal injuries.” Aston, 2017 WL 1214399, at *4 (citation and quotation marks omitted).  For a compilation of that authority, see Bexis’ Book, §2.15, footnote 3.  Further, “as plaintiffs’ counsel is well aware, courts in this District and elsewhere have consistently rejected the argument that pecuniary losses derivative of personal injuries are injuries to ‘business or property’ cognizable under RICO.”  Aston, 2017 WL 1214399, at *4 (citing, inter alia, Klayman v. Obama, 125 F. Supp.3d 67, 88 (D.D.C. 2015)).  Aston also distinguishes “tobacco litigation [RICO] precedents” because those cases arose from a federal prosecution that was not limited by the “business or property” requirements of RICO’s private cause of action.  2017 WL 1214399, at *5.

Nor did the Aston plaintiffs satisfy RICO’s causation requirements – for another very basic reason.  Even the most recent of the five plaintiffs’ injuries arose before the conspirators allegedly acted:

Barring some sort of temporal paradox, there is no way that suppression of an FDA report in 2013 could have caused plaintiffs to be injured in 2012 or earlier.  Because plaintiffs’ allegations, taken as true, are insufficient to establish proximate causation, their federal RICO counts must be dismissed.

Id. (citing H.G. Wells, The Time Machine, 22–23 (1895)) (other citation omitted).  On this basis alone, we’re rooting for the defendants to obtain recovery of their counsel fees, since the underlying premise of the entire litigation was physically impossible.

Arizona RICO – Same basis:  “[P]laintiffs have failed to plead facts that make possible − let alone plausible − the conclusion that the alleged cover up by defendants was the proximate cause of plaintiffs’ injuries.”  Id. at *6.  Unfortunately, the relatively terse dismissal of does not answer the burning question − Why Arizona?

Lanham Act – Another fundamental basis for dismissal.  “[T]o come within the zone of interests in a suit for false advertising under [the Lanham Act], a plaintiff must allege an injury to a commercial interest in reputation or sales.”  Id. (quoting Lexmark International, Inc. v. Static Control Components, Inc., 134 S. Ct. 1377, 1390 (2014) (emphasis original in Aston).

Now comes the most useful stuff – dismissal of the common-law claims.  For the record, Aston applies the law of the District of Columbia rather than the law of the plaintiffs’ (Maryland, Pennsylvania, Arizona, Illinois, California) or defendants’ (New Jersey) domiciles.  Aston, 2017 WL 1214399, at *6.

Product Liability (both strict liability and negligence) – Manufacturing defect is TwIqballed.  For all its factual prolixity, the Aston complaint was utterly devoid of any allegations that the drug wasn’t made precisely as intended.  Id. at *7 (“for all these recitals of the term ‘manufacture’ and its derivatives, plaintiffs plead no facts that would appear to relate to manufacturing defects”) (citation and quotation marks omitted).

Warning related claims were also dismissed, in a usefully rigorous application of TwIqbal.  Dismissal in Aston occurred because plaintiffs failed to plead:  (1) “the contents of the warning label” when the drug was taken (2) “how the contents of the label were inadequate,” (3) “the timing of each plaintiffs use of” the drug, including “when each individual plaintiff was prescribed,” (4) “the onset of [plaintiffs’] injuries,” (5) “how the alleged distinctions in the warnings would have had a causal effect,” (6) “what injuries each individual plaintiff experienced,” (7) “why [plaintiffs] think [the drug] was the cause of the[ir] injuries,” and (8) “why [plaintiffs] think inadequate warnings contributed to their injuries.”  Id. (various quotations omitted).  That’s a spicy TwIqbal – without even having to get into the learned intermediary rule.

As to warnings, we also note that the court held that all warnings publicly available on the FDA’s website are subject to judicial notice.  Id. at *2 n.1.

Design defect claims were preempted under Mutual Pharmaceutical Co. v. Bartlett, 133 S.Ct. 2466 (2013), and Aston rejected the well-worn plaintiff argument that, for some reason, implied preemption is different in generic, as opposed to branded (as in Aston) drugs:

Plaintiffs are mistaken.  [Bartlett] expressly found that “[o]nce a drug − whether generic or brand-name − is approved, the manufacturer is prohibited from making any major changes to [its formulation]” by federal law.  133 S. Ct. at 2471.  Thus, even though [Bartlett] arose from a state-law design-defect claim against a manufacturer of a generic drug, its holding applies to both types of drugs, and plaintiffs’ design-defect claim must be dismissed.

Aston, 2017 WL 1214399, at *8. Preemption is “fully consistent with the well-established tort law principle, ‘especially common in the field of drugs,’ that an unavoidably unsafe product is ‘not defective, nor is it unreasonably dangerous’ where it is ‘properly prepared, and accompanied by proper directions and warning.’”  Id. at *8 n.7 (quoting Restatement (Second) of Torts §402A, comment k (1965)).

Fraud/Misrepresentation – Perhaps predictably, plaintiffs’ fraud-based claims failed under Fed. R. Civ. P. 9(b).  Id.  Allegations broadly “span[ning] the more than twenty-year period” alleged could not possibly allow defendants to file a response.  Id.  Plaintiffs “do not even specify which corporate entity they believe was responsible.”  Id.  Nor did any of the five plaintiffs allege their own circumstances with the required specificity.  Id.  “In sum, plaintiffs fall woefully short of pleading any specific allegations that would support a claim of fraud or misrepresentation.”  Id.

Warranty – Again, perhaps predictably, plaintiffs’ express warranty claims failed for not “plead[ing] any express promises.”  Id. at *9.  Here, Aston made another good TwIqbal ruling:

[T]o state a claim for breach of express warranty in cases involving prescription drugs, Plaintiffs must allege facts demonstrating that Defendants’ affirmations formed the basis of the bargain, i.e., facts regarding how the warranties were made to Plaintiff’s physician, and that Plaintiff’s specific physician relied on them.

Id. (citations and quotation marks omitted).  Implied warranty claims “cannot be independently maintained in a case involving prescription drugs.”  Id.

Unjust Enrichment – As against the investor defendants, merely “earn[ing] profits” from allegedly more valuable stock was “far too remote and speculative to support an unjust enrichment claim.”  Id. at *9.  As against the drug manufacturer defendants, the plaintiffs did not allege “that they conferred a benefit” on those defendants.  Id. at *10 (emphasis original).

[Plaintiffs] do[] not allege that [they] paid any money for [the drug], rather than relying on an insurer, as most patients do.  This omission is significant because there is no authority demonstrating that benefits received from third-parties can be the proper subject of an unjust enrichment claim.

Id. “Because plaintiffs have not pleaded any facts showing that they paid for [the drug], I must dismiss their unjust enrichment claim.”  Id.

Obamacare to the rescue.

Readers should remember this point; we don’t remember ever seeing an individual (as opposed to TPP) unjust enrichment claim that contains the allegations – personal, as opposed to third party payer – required by Aston and the precedent it follows.

Consumer Fraud Claims

Seven states’ laws were implicated − D.C., New York, Maryland, Pennsylvania, Illinois, Arizona, and California. “Each count fails to state a claim.” Id.

Six of the states (all but Arizona) did not recognize consumer fraud claims involving prescription drugs.  Some states’ statutes did not allow personal injury damages (Pennsylvania, California, D.C.).  Others did not consider prescription drugs to be “consumer” goods (Maryland, New York).  Still other statutes simply had been held inapplicable to prescription drugs (California, Pennsylvania, Illinois).  Id.  Beyond that, all of the consumer fraud claims were dismissed as inadequately pleaded under Rule 9(b), which Aston applied to all consumer fraud claims.  Id. at *11.  In prescription drug cases, Rule 9(b) required specific pleading of prescriber reliance:

[T]he circumstances of those prescription decisions, and plaintiffs’ reliance on them, are particularly important − yet plaintiffs allege no information about them. The absence of detail about Plaintiffs experiences leads to the conclusion that Plaintiffs have not pleaded these claims with the requisite particularity.

Id. (citations and quotation marks omitted).

Finally, none of the plaintiffs resided in D.C. or New York.  Thus, claims under those two states’ consumer fraud statutes were also “dismissed because neither statute applies extraterritorially.”  Id. at *10 n.9.  We’ve always been interested in extraterritoriality.

So that’s Aston for you – an example of really poor facts (for the plaintiffs) making some quite excellent law for our side of the “v.”  Our only quibble with Aston is grammatical – in a couple of places, “principle” is used where “principal” is meant.  Id. at *2 (“principle role”); *6 (“principle place of business”).  But apart from a law clerk needing to repeat fifth grade English, the legal rulings in Aston are truly vast, and not half-vast at all.  In Ashton all too many defendants were made to spend all too much money to hire all too many of us lawyers.  With Aston now dismissed in its entirety, we certainly hope that all the defendants so inconvenienced seek to recover their fees as a sanction against such frivolous litigation.

July in D.C. is hot and sticky.  When scorching day follows scorching day, area residents look forward to evening thunderstorms, not just to water otherwise thirsty lawns and gardens but to cool things down.  Lightning can be frightening—that the words almost rhyme is no accident—but it seems to always accompany our rain during the swampiest part of our summers.

The decision in Sidney Hillman Health Ctr. v. Abbott Labs., No. 13 C 5865, 2016 U.S. Dist. LEXIS 84662 (N.D. Ill. June 29, 2016), is not as dramatic as a flash of lightning or as stirring as a thunderclap.  To us, though, it provides some welcome relief and suggests that a larger storm is coming for cases like this.  (Like awkward cocktail party banter, we will keep our discussion of weather brief.) Hillman is one of many third payor cases based on alleged off-label promotion of a prescription drug.  It is of the variant where benefit plans principally used RICO as the vehicle to try to get damages for past payments for members’ prescriptions for unapproved indications.  We sometimes lump such cases together with those using the False Claims Act or various state fraud statutes to try to recover for amounts paid as a result of allegedly improper marketing, often with large fines or a damages multiplier in the mix.  Sometimes these cases are class actions on behalf of lots of payors around the country.  Sometimes they are pursued by governmental entities, which occasionally outsource the work to contingency fee lawyers.  In their various forms, these TPP cases have caught our attention.  We have been particular perturbed by some courts’ blithe acceptance of collective proof of causation in these cases, the point of which is to lump together as many purported actionable claims or implicated payments as possible without having to generate proof as to why each prescription was written or paid.  We have also questioned whether statutes like RICO (enacted to combat organized crime) or the False Claims Act (enacted to combat war profiteering) are being stretched beyond their legitimate bounds to accommodate these cases, simply because the defendants are unpopular or the coffers of the governmental or benefit plan plaintiffs need an infusion of cash.

Many of these cases have also been predicated on the idea that promotion of off-label use is inherently wrong.  Over the last year or so, largely because of Amarin, the underpinnings of that idea have been eroding fast.  The First Amendment’s prohibition on laws “abridging the freedom of speech” applies to commercial speech, including commercial speech by and on behalf of drug companies about uses of their products that are off-label.  If truthful statements about unapproved uses of the drug—like those that accurately represent the information on risks and benefits and make clear what the label says—are protected, then civil liability should not be based on them.  That would go for cases under the FCA, RICO, or various state laws—with the Fourteenth Amendment making the First Amendment applicable to states.  To our eyes, some of the notorious cases imposing massive liability for alleged off-label promotion of prescription drugs seem to have relied in large part on vilifying truthful off-label promotion.  (Keep in mind that even pre-Amarin FDA regs allowed drug companies to provide information about off-label uses under certain circumstances without it being considered “promotion.”)  So, a First Amendment storm is brewing for these cases, both in terms of the precedential value of decisions in cases that did not differentiate between truthful and false statements about off-label uses and the viability of complaints drafted with the expectation that no such differentiation would be necessary.

This brings us back to Hillman, which had an interesting litigation history of its own.  It followed FCA and related actions based on alleged off-label promotion by the manufacturer of a prescription seizure and migraine medication.  A large settlement of civil and criminal claims, with attendant press coverage, followed.  The Hillman plaintiffs filed a putative class action over a year later, alleging overpayments for off-label prescriptions between 1998 and 2012.  The trial court dismissed on statute of limitations and the Seventh Circuit reversed.  The plaintiffs amended and the defendants moved to dismiss.  Along the way, there have been a number of product liability claims with the same drug, complete with off-label promotion allegations and preemption of some warnings claims.  (As an aside, it would be interesting if some of the alleged misrepresentations about safety in the Hillman complaint were about the same issues about which it would have been impossible for the defendants to warn.  There is no preemption for RICO claims, because preemption only applies to state law, but it should be hard to misrepresent a drug’s safety by accurately repeating the contents of a label that could not have been changed as to a particular risk.)

Continue Reading Another Off-Label Promotion Third Party Payor Case Lacks Causation

Is there a more misused statute than RICO?  Or one that more convincingly shows the weakness of the textualist position, which wads up any evidence of legislative intent and tosses it into the trash bin?  RICO was clearly intended to address organized crime, but its broad and vague language has been held to reach all sorts of commercial disputes and garden variety litigations where no hit-men, shake-down schemes, or cement shoes are in sight.  It’s easy to see why plaintiff lawyers love to lob RICO claims into their complaints – getting treble damages for labeling your opponent a racketeer is a good business model.  We’ve said all this before, of course.

The godfather of RICO was Notre Dame Law Professor G. Robert Blakey.  While in law school, Blakey authored a law review note about the inability of prosecutors to affix criminal liability to the attendees of the notorious Apalachin organized crime meeting in 1957.  Later, he worked on a bill that would take care of that problem.  President Nixon signed RICO into law in 1970 and, like a lot of what Nixon did, it created more problems than it solved.  Another law came into play – the law of unintended consequences.  The malleability of RICO didn’t merely suit plaintiff lawyers down to the ground; Blakey also seemed to enjoy the surprising scope and relevance of his baby.

When we were a young litigator we attended an all-day CLE conference in NYC on business litigation.  The moderator was a sharp litigator from the Mudge Rose firm named Jed Rakoff.  He is now one of the two or three smartest and scariest judges in the country.  The star speaker was Blakey, who held forth on how RICO was the cure for whatever ailed any wannabe plaintiff.  He probably never envisioned that RICO would result in his occupation of a Waldorf Astoria podium in front of 300 white-shoed lawyers.  But there he was.  The audience peppered Blakey with questions about the reach of RICO.  Would X fall within RICO’s grasp?  Yup.  Would Y?  Of course.  We went up to Blakey after the talk and poured into his ear a complex fact scenario we were defending.  Is that a RICO violation?  Sure.

Yikes.

Blakey must have been ecstatic about what happened in the District of Massachusetts Neurontin litigation, where allegations of off-label promotion and other marketing malfeasances supported RICO claims and, consequently, huge settlements.  RICO had been stretched up to (we would say past) its breaking point on issues such as causation, injury, and damages.  It was, in our judgment, one of this country’s enormous wrong turns in drug and device litigation.  D. Mass. prosecutors showed up at CLE conferences, crowing about their success and ominously hinting at more to come.  But their legal theories rang hollow and the showmanship looked cheesy.  Having prosecuted federal cases ourselves, we have a knee jerk reflex to assume the good faith and validity of USAO actions and policies.  Not so here.  It smelled like overreaching. We think history will vindicate our position.  It is not as if the history of Mass. litigation is a history of getting things right.  Ever heard of the Salem Witch trials?  Lizzy Borden?  Roberts v. Boston (which invented the separate but equal doctrine later embraced in Plessy v. Ferguson)? Sacco and Vanzetti?   A Civil Action? Reckis v. Johnson & Johnson (a Mass. Supreme Court decision that we listed as the single worst drug/device decision of 2015)? Anyway, maybe even the folks in Boston are starting to rethink the use of RICO to police the marketing of medicines.

Continue Reading D. Mass. (!) Refuses to Certify Celexa/Lexapro RICO Class Action

This post comes only from the Cozen O’Connor side of the blog.

For years, many courts have treated RICO as a sprawling monster, awkwardly extending its civil reach into areas and transactions for which RICO was seemingly never intended, including healthcare litigation.  For over fifteen years, the Third Circuit resisted this trend.  Until now.  With its decision in In re Avandia Marketing, Sales Practices & Prod. Liab. Litig., 2015 U.S. App. LEXIS 18633 (3d Cir. Oct. 26, 2015), the Third Circuit scuttled its previous good work and stretched RICO’s arms all the way out to reach consumer disputes with pharmaceutical manufacturers.

Fifteen years ago, the Third Circuit looked at things very differently.  In Maio v. Aetna, Inc., 221 F.3d 472 (3d Cir. 2000), it upheld the dismissal of a class action complaint in which HMO members tried to turn allegations that Aetna’s HMO didn’t provide the promised quality of healthcare into RICO claims seeking financial damages.  Plaintiffs claimed that Aetna restricted doctors’ ability to provide quality care, in fact offering them financial incentives to withhold quality service, even though Aetna had represented to plaintiff that it would provide high quality care from HMO doctors incentivized to do so.  Id. at 475.  Plaintiffs made clear, however, that they were not claiming injuries suffered through a denial of benefits or subpar treatment.  Id.  They were alleging only financial losses—that is, the difference in worth between the plan that they got and the one they were promised.  But this created a disconnect.  By failing to allege denial of or substandard care, plaintiffs had alleged no concrete financial injury.  They got what they paid for.  Id. at 483, 490.  RICO’s requirement of a concrete financial injury is intended to prevent plaintiffs from converting every ordinary tort claim into a RICO claim for the purpose of trying to win treble damages.  The Third Circuit focused on that requirement and upheld dismissal of plaintiffs’ RICO claim.

Continue Reading The Third Circuit Does an About-Face on RICO Claims