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.

We’ve been thinking a lot about class actions lately.  One reason is that the Rule 23 Subcommittee of the (federal) Advisory Committee on Civil Rules just came out with a “sketch” of possible amendments – and from the defense perspective they’re frankly horrible. Bexis has been working with the Lawyers for Civil Justice to respond to a proposal that would:  (1) allow classes where most members aren’t injured at all; (2) allow free reign for non-predominance “issue classes”; (3) legitimize “cy pres” donations of class funds to charities that foment litigation; and (4) allow settlement classes that ignore the rest of Rule 23, among other things.  We’ll certainly have more to say on this if these “Frankenclass” amendments move forward, but for now, we just caution our pro-defense friends to remain alert and support LCJ.

The reason for such proposals is that, under the current rules, we on the defense side are generally not doing so badly, at least in prescription medical product third-party payor (“TPP”) cases.  The latest win is in In re Actiq Sales & Marketing Practices Litigation, ___ F.R.D. ___, 2015 WL 1312015 (E.D. Pa. March 23, 2015), in which the plaintiffs (including, of all entities, the Pennsylvania Turnpike Commission) had their class bounced out on its ear.

So, what happened?  First, plaintiffs proposed a nationwide class alleging the usual – off-label promotion of a drug that (this time a heavy-duty pain reliever approved under even more restrictive marketing scheme authorized by 21 C.F.R. §314.520 (so-called “Subpart H”), because of the drug’s known risks) that they never alleged was either ineffective or injurious to any of those prescribed.  Rather, “[f]or many patients, Actiq proved effective for alleviating their pain.”  Actiq, 2015 WL 1312015 at *6 (footnote omitted).  In short, Actiq was another TPP strike suit, an attempt to gin up “damages,” or should we say “unjust enrichment,” that didn’t exist in fact.

Continue Reading Some Plaintiffs Just Have No Class

Yesterday the Third Circuit upheld a District of New Jersey decision denying class certification as to plaintiffs’ consumer fraud and unjust enrichment claims.  Grandalski v. Quest Diagnostics Inc., 2014 U.S. App. LEXIS 17543 (3d. Cir. Sep. 11, 2014).

Plaintiffs alleged that Quest had overbilled them for testing services and their complaint proposed multiple nationwide litigation classes.  Id. at *2-3.  The court examined both causes of action and found neither met the standards or requirements for class certification.

First up was consumer fraud.  In denying class certification, the district court conducted a choice of law analysis.  On appeal, plaintiffs argued that such an analysis was premature and alternatively, that the choice of law ruling was incorrect.  For their prematurity argument, plaintiffs relied on another Third Circuit decision that stated that it may be “inappropriate to decide choice of law issues incident to a motion for class certification.”  Id. at *8 (citation omitted).  But the Grandalski court quickly pointed out that that other case concerned settlement classes – not nationwide classes proposed for the purpose of trial.  For putative litigation classes, “it was reasonable for the District Court to inquire at the certification stage as to whether the classes posed intractable management problems for trial.”  Id. at *9.  Such as – application of 50 different states’ consumer fraud statutes.

So, plaintiffs next took issue with the district court’s conclusion that the laws of the putative class members’ home states controlled their consumer fraud claims.  It was undisputed that there was a conflict between New Jersey consumer fraud law and the consumer protection laws of other states.  Id. at *10.  Therefore, under New Jersey’s choice of law rules, it was up to the court to determine which state had the most “significant relationship” to the case.  For this the court looked to §148(2) of the Restatement (Second) of Conflict of Laws.  Section 148(2) addresses when alleged misrepresentations were made and received in different states and applies a 6 factor test:   (a) the place where the plaintiff acted in reliance upon the defendant’s representations; (b) the place where the plaintiff received the representations; (c) the place where the defendant made the representations; (d) the place of business of the parties; (e) the place where a tangible thing which is the subject of the transaction was situated at the time; and (f) the place where the plaintiff is to render performance under a contract which he has been induced to enter by the false representations of the defendant.  Id. at *12.

The Third Circuit agreed with the district court that the totality of the factors weighed in favor of applying the law of plaintiffs’ home states – the place where plaintiffs received and paid the allegedly erroneous bills and where Quest performed and plaintiffs obtained the testing services.  Finding that residency was a wash, the court held that the place where the representations were made – New Jersey – was not enough to overcome the remaining factors which all pointed to the plaintiffs’ home states.  Id. at *13.

Plaintiffs advanced one more argument to try to save class certification of the consumer fraud claims – groupings.  For purposes of trial, the court could group together plaintiffs whose state law prohibits “unfair or deceptive conduct” and those whose state law prohibits “false or misleading conduct.”  Id. at *16-17.  The Third Circuit acknowledged that while groupings may be a permissible approach – “plaintiffs face a significant burden to demonstrate that grouping is a workable solution.”  Id. at *19.  A burden that plaintiffs in Grandalski failed to carry:  “Appellants must do more than provide their own ipse dixit, citation to a similar case, and a generic assessment of state consumer fraud statutes, to justify grouping.”  Id.  Without a viable trial grouping plan, the Third Circuit upheld the lower court’s decision that “class litigation involving dozens of state consumer fraud laws was not viable and that common facts and a common course of conduct did not predominate.”  Id. at *20.

Moving on to unjust enrichment, plaintiffs failed to meet the predominance requirement.  As framed by the court, the question is “whether essential elements of the class’s claims can be proven at trial with common, as opposed to individualized evidence.”  Id. at *21 (citation omitted).  The Third Circuit’s opinion contains a discussion of the difference between the predominance requirement and the ascertainability requirement – the latter being “whether individuals fitting the class definition may be identified without resort to mini-trials.”  Id. at *20.  The district court held that plaintiffs failed to satisfy either requirement, while the Third Circuit focused more on predominance.

After examining several factual scenarios presented by defendant’s expert that would amount to overbilling, but not necessarily unjust or fraudulent overbilling (indeed some plaintiffs had received refunds), the Third Circuit agreed with the district court’s conclusion that.

individual inquiries would be required to determine whether an alleged overbilling constituted unjust enrichment for each class member. Such specific evidence is incompatible with representative litigation.

Id. at *23.

And so falls another proposed class action.

We’ve seen an increase in allegations of “unjust enrichment,” particularly in strike suits seeking recovery of purely economic loss. A number of states don’t even recognize this theory as a separate cause of action (according to Bexis’ book, these include California, New Jersey, Pennsylvania, and Tennessee), and others preclude it when there is an “adequate remedy at law” (Florida, Louisiana, Massachusetts, Minnesota). But last week we ran across a case dismissing an unjust enrichment claim on a ground we hadn’t considered – privity.

In Smith v. Glenmark Generics, Inc., 2014 WL 4087968 (Mich. App. Aug. 19, 2014), the court dismissed a garbage class action for unjust enrichment based on alleged loss of value of birth control pills that had been mislabeled. As to such “losses,” the defendant asserted “that it sought to remedy the problem by directing patients to return the product to their respective pharmacies for replacement or reimbursement,” but the court never had to go there. Id. at *1. Instead, it affirmed dismissal on the basis of lack of “direct” enrichment, which in the case of products sold through supply chains, appears indistinguishable from privity:

[O]ur courts only employ the doctrine of unjust enrichment in cases where the defendant directly receives a benefit from the plaintiff.   Notably, caselaw does not specifically state that the benefit must be received directly from the plaintiff, but these decisions make it clear that it must. This is particularly true where emphasis is placed on the fact that the defendant must receive a benefit from the plaintiff, and where the facts show that a benefit received indirectly is not enough to establish a claim for unjust enrichment.

Smith, 2014 WL 4087968, at *1 (citations omitted). This “direct benefit” requirement killed off all unjust enrichment claims under Michigan law because:

[D]efendant did not receive a direct benefit from plaintiff. Defendant did not sell the contraceptives directly to plaintiff, and plaintiff admitted that she did not purchase the contraceptives from defendant, but rather from a pharmacy.

Id. (emphasis added).

We confess that we haven’t looked very deeply at this cause of action, which is usually something of a throw-away, so we don’t know whether the direct benefit/privity defense discussed in Smith is widespread or peculiar to Michigan. Since we’re always on the lookout for “new” (or at least so old as to be new to us) defenses to any and all of the causes of action we encounter, we thought this one was worth passing along.

We start June with a fabulous two-fer:  yes, that is two cases discussed in the same post. But wait, there’s more.  The two cases each discuss civil RICO claims against drug companies and state law claims.  For an unknown, but surely exorbitant, cost to the defendants, the courts, and maybe even the third party payors who brought these suits, the RICO claims are exposed as unsupported nonsense and most—maybe all, eventually—of the state law claims go the same way.  By acting now, the judge in the second case maybe signaled the end to an eight year old case.

Like some of the state AG cases proceeding against drug companies in state court under false claims act type statutes or consumer protections statues, which have been the subject of a number of posts (like this), we suspect that these cases started with a fast-talking sales pitch from plaintiff lawyers to the TPP plaintiffs. We find it hard to believe that the plaintiff in Indiana/Kentucky/Ohio Regional Council of Carpenters Welfare Fund v. Cephalon, Inc., No. 13-7167, 2014 U.S. Dist. LEXIS 69526 (E.D. Pa. May 21, 2014), decided to sue over its payments for one particular painkiller with fairly narrow use—even with the allegations of off-label promotion—and sought lawyers from other states to do so. Louisiana joined the fray late in Sergeants Benevolent Association Health & Welfare Fund v. Sanofi-Aventis US LLP, No. 08-CV-179 (SLT) (RER), 2014 U.S. Dist. LEXIS 65714 (E.D.N.Y. May 12, 2014), and certainly has experience trying to line its coffers through deals with plaintiff firms, but the original three plaintiff Funds seem unlikely to have decided to have sought out lawyers to sue over payments for a single antibiotic.  Like many schemes promising big money with no risk to you, it looks the plaintiffs will end up making nothing in these two cases.  We can only hope that the costs of litigating will be borne by the plaintiff firms that made the sales pitches rather than the Funds that probably actually need money to pay for health care for their members.

Ind./Ky./Ohio is a no nonsense decision on a motion to dismiss from a no nonsense judge.  As far as we can tell, the plaintiff will not get a chance to re-plead its dismissed claims, meaning the case would have only lasted a few months (at the district court level) and never got to discovery.  This would be an efficient result compared to many cases where allegations of off-label promotion seem to be enough to keep them going.  The basic story in IKO—we can take liberties with abbreviations—is that defendant’s prescription painkiller was approved only for “breakthrough pain” in cancer patients who already take maximum opioids, but the defendant allegedly promoted it for other types of breakthrough pain, which the Fund claims caused it to pay extra for painkiller prescriptions for its members.  Plaintiff alleged that FDA rejected an attempt to add indications for the drug, but the defendant nonetheless promoted off-label—as it had allegedly done (and been busted for) with another painkiller years before—so effectively that 93% of prescriptions filled in the drug’s first three years on the market were off-label.  2014 U.S. Dist. LEXIS 69526, **8-9.  This, it said, entitled it to relief under two sections of the RICO statute and Indiana common law unjust enrichment.

There were three basic hurdles for plaintiff’s RICO theories.  First, the court understood the FDA regulatory scheme as to off-label use. Other than a questionable statement that physicians “frequently rely on information supplied by drug manufacturers before” they “exercise [] their independent professional judgment” in prescribing off-label, the court makes many statements about how off-label prescriptions are common and legal and manufacturers can provide information about off-label use under certain situations.  Id. at **5-6.  Second, RICO claims must be predicated on “some sort of fraudulent misrepresentations or omissions reasonable calculated to deceive persons of ordinary prudence and comprehension.”  Id. at *14.  Third, RICO claims have to be pled with particularity under Fed. R. Civ. P. 9(b), which means that the complaint needs “the ‘who, what, when, where, and how’ of the events at issue,” must “inject[] precision and some measure of substantiation into their allegations of fraud,” and “must allege who made a misrepresentation to whom and the general content of the misrepresentation.”  Id. at **12-13 (citations omitted).

The court’s analysis started off with the statement that “off-label marketing is not per se fraudulent.”  Id. at * 15.  Even off-label promotion in violation of the FDCA and FDA regulation is not automatically fraudulent.  Id. at * 17.  Thus, the court had to look for specific allegations about specific communications that “could reasonably be interpreted to be a fraudulent misrepresentation or omission calculated to deceive the audience.”  Id. at *16.  Not surprisingly to anyone who has read many complaints, the “voluminous” complaint here only identified three specific communications amidst “sweeping” allegations about defendant’s conduct.  Id. at **15-16.  The closest the complaint came to identifying a fraudulent misrepresentation was a statement in a journal supplement that the drug “has been shown to be effective” for breakthrough pain beyond the approved indication, “but this statement neither contradicts nor conceals the limits of the FDA’s approval of the drug.”  Id. at **16-17.  In light of the drug’s Black Box warning on death in improper patients, contraindication for acute and post-operative pain, and warnings on misuse, abuse, and diversion, the court saw nothing about these three communications that suggested fraud.  General allegations about the defendant’s marketing “message” or “theme” being fraudulent did not suffice.  Id. at *19.  So, the two RICO claims were dismissed—you need a substantive claim to get a conspiracy claim—and the court did not even reach the issues of whether plaintiff had pleaded injury and causation with sufficient specificity.

The unjust enrichment claim also fell quickly. Without detailed fraud allegations, the lack of Indiana law supporting “the proposition that payments for a drug that has been promoted off-label, without more, present the sort of ‘circumstances . . . such that under the law of natural and immutable justice there should be a recovery.’”  Id. at * 28 (citation omitted).  The court did not even have to reach whether such a claim would be preempted if based on purported violation of federal law. RICO, as a federal statute, may not be subject to preemption—just primary jurisdiction—but state court claims like unjust enrichment can be.

The much longer decision in Sergeants focused on the causation and injury issues that IKO had not addressed.  Not only was this decision on summary judgment, but the case had a much more complicated and longer history with multiple complaints, state consumer fraud claims, four plaintiffs, and a prior denial of class certification. The court also utilized the magistrate judge for a report and recommendation, which added another two layers to any discussion.  While some readers may want to delve into the thorough discussion of the nuances of RICO law, we will focus on the parts of the decision about which we care.  The basic facts underlying the various claims was that defendant’s antibiotic was approved to treat acute bacterial sinusitis, acute exacerbation of chronic bronchitis, and community-acquired pneumonia, after FDA required a further clinical study in rejecting the initial New Drug Application.  Plaintiff claimed there was a conspiracy in relation to this further study, which was itself saddled with misconduct by multiple investigators, and defendant misrepresented the results of the study to FDA.  Thereafter, defendants allegedly marketed the drug off-label, there was a FDA public health advisory and labeling change about a risk of liver failure, FDA withdrew the sinusitis and bronchitis indications, and the defendant stopped promoting the drug in the U.S.  Within this relatively short period of time, the plaintiff Funds and Louisiana each claim they paid extra for their members’ antibiotics, although they have different methods of determining what drugs they cover and how they pay for them. The plaintiffs, of course, do not decide whether a member should be prescribed a drug or which drug should be prescribed.  2014 U.S. Dist. LEXIS 65714, *11.

The defendant made two related arguments for why plaintiffs’ RICO claims lacked of proof of causation:  (1) there was no proof that the alleged fraud made plaintiffs pay for more prescriptions of the drug and (2) there was no proof that the alleged fraud caused a greater payment for the member’s care given the availability of other drugs.  Id. at **25-26.  After a lengthy discussion of what is required to show causation for RICO claims and the meaning of the decision in UFCW Local 1776 v. Eli Lilly & Co., 620 F.3d 121 (2d Cir. 2010), the court turned to plaintiff’s theory of causation:  “Plaintiffs have to establish that Defendants’ fraud resulted in FDA approval for additional indications, that Plaintiffs placed Ketek on their formularies as approved drugs, that Defendants represented to physicians and consumers that Ketek had valid regulatory approval for broad antibiotic uses, that these representations resulted in ‘excess’ prescriptions for Ketek, and that Plaintiff paid for these excess prescriptions.”  Id. at 59-60.  Even though this causal theory was “interrupted by the independent actions of prescribing physicians,” the plaintiffs sought to rely on “generalized proof to determine the injury to Plaintiffs caused by Defendants’ misconduct.” Id. at **60-62.  In other words, the plaintiffs had not even tried to muster proof on a prescription-by-prescription basis.  This is predictable because the lawyers’ get-rich-quick scheme pitched to the named plaintiffs would not work if they had to prove up their case without some major shortcuts.  Noting the role of physicians, that safety considerations “are not necessarily determinative of doctor’s decision regarding what to prescribe,” and prescriptions of the drug kept being written after new liver failure information was broadcast, the court ruled that “individualized proof would be necessary to establish RICO causation in this case.”  Id. at **61-65.  We would have liked this even more without the “in this case,” but we can add this case to the list of those that have rejected generalized proof of liability and causation in cases about drugs, devices, and healthcare decisions/billing.  And it did not even discuss the First Circuit’s Neurontin decision.  Being ignored can be even more telling than being rejected explicitly.

The court then turned to plaintiff’s state law claims and things got a bit hairy.  The plaintiffs asserted consumer fraud (our shorthand) claims under 43 different state statutes and unjust enrichment under unspecified state law.  Defendants only argued there should be summary judgment under the law of the states where the three plaintiff Funds were based—apparently, Louisiana did not assert all the claims—because they contended that the location of the physicians who wrote the prescriptions (and were subject to the alleged misrepresentations and omissions) was irrelevant since the decisions on drug coverage and benefits were only made in those three states. The court disagreed and invited another round of argument after the plaintiffs amend their state law counts “to clarify the state laws under which they actually seek to recover.”  Id. at **74-76.  The ensuing discussion of New York, Massachusetts, and Illinois law on consumer fraud and unjust enrichment involves some nuances we will not highlight, but results we will—summary judgment was granted on each issue decided. Even with a fairly low bar under New York consumer fraud law, plaintiffs could not support the “highly dubious proposition” that they “would not have had to pay for any antibiotics at all had no misrepresentations been made,” which eliminated causation.  Id. at *82.  There was no injury under the Massachusetts consumer fraud law because there was no proof that the plaintiffs ever paid for a drug that caused injuries or that was ineffective.  Id. at **87-88.  There was no proof of damage or causation under Illinois consumer fraud law because generalized proof says nothing about individual physician reliable or decision making.  Id. at **91-92.

When the last part of this gets cleaned up, the same principles that doomed the RICO and state law claims should make it very difficult to prove cognizable injury or causation except under the most lenient (or punitive, depending on your view) of state consumer fraud laws.  (The unjust enrichment should pretty much be a dead end everywhere.)  If any claims sneak by, they should be facing our old friend preemption.  As the court noted, the claims here were predicated on the defendant defrauding on the FDA in connection with the approval of its prescription drug.  Plaintiffs may keep chasing good money after bad on these claims, but they might as well be trying to buy a bridge in Buckmanland.

We’re a bit too tired from going late into the evening watching the Oscars to say much of anything pithy today.  We’ll just complain.  Argo was a very good movie.  But Best Picture good?  Maybe, but maybe not.  It’s certainly not as shaky as last year’s pick, The Artist.  Cute and different doesn’t mean best.  Does anyone remember Crash winning best picture for 2005?  How the heck did that happen?  That might not even have been a good movie, no less best.  And Shakespeare In Love?  How does its victory over Saving Private Ryan look in retrospect?

Against these historic mistakes, the selection of Argo isn’t bad.  As we said, it really was a good movie.  A historically based movie is unquestionably good when it can get your teen-aged son to look at you with wide eyes during the last 20 minutes and say, “Man, this is intense.”  Its selection as Best Picture also created a second, “hey, can you believe Ben Affleck just won an Oscar” moment.  Those are always fun.  He’s gotten pretty good at making movies.  The Town was a good one too.  So we’re really not complaining about Argo.

This is more about Django Unchained.  We knew it never had a chance to win.  Quentin Tarantino makes unusual movies.  They’re loaded with violence, cursing and one odd circumstance piled on top of or backed into another.  And Tarantino himself sometimes comes off as a know-it-all when it comes to cinema.  But, man, what a move that was.  It must have been incredibly difficult to craft a movie about such a painful part of our history and yet have it at once be action-packed, terrifying, funny, exhausting, exhilarating, realistic, cartoonish, unpredictable and wonderfully predictable – and then to wrap it all up in a spaghetti western.  Who would even think to do such a thing, no less accomplish it?  For those of you who saw it, wasn’t it great to cheer Django on as he whipped the heck out of his former slave master?  We bet you’d never thought you’d get that experience at a movie.  Or wasn’t it a surreal movie-going moment to laugh along with the entire crowd as the KKK members complained about the guy who improperly cut the eye holes into their hoods?  And then be thrilled when Django shoots the KKK leader, Big Daddy (Don Johnson), off his horse.  Tarantino doesn’t make the type of movie that gets selected as Best Picture.  The Academy seems more comfortable throwing him a Best Screenplay award from time to time instead.  But you’ll likely never see another movie like that one again.  And you’ll definitely see more Argos.  Maybe Django Unchained should have been picked.

Who knows?  McConnell thinks a lot about these things and sees all the Best Picture nominees.  He’ll probably straighten this all out on Wednesday.

Now for your entertainment . . . . a third-party-payer case called Employer Teamsters-Local Nos. 175/505 Health and Welfare Trust Fund v. Bristol Myers Squibb Co., No. 2013 U.S. Dist. LEXIS 21589 (S.D. W.Va. Jan. 29, 2013).  As cases go, if you like courts dismissing plaintiffs’ claims for all sorts of reasons, this one should keep your attention.

Continue Reading A Solid Decision Dismissing Third Party Payer Claims — And a Mundane Oscar Decision

We can’t say all that much about Merck & Co. v. Ratliff, ___ S.W.3d ___, 2012 WL 413522 (Ky. App. Feb. 10, 2012), because of our involvement in the Vioxx litigation, but we’d be remiss not to point out that the Kentucky appellate court joined the vast majority of other jurisdictions in rejecting “fraud on the market” outside of the securities area while reversing (overcoming a tough abuse of discretion standard) class certification in RatliffId. at *7.  No fraud on the market theory was appropriate for:  (1) consumer fraud, (2) regular fraud, (3) negligent misrepresentation, and (4) unjust enrichment.

Three other points of interest about Ratliff:  First the court recognized that “class certification is typically not granted in prescription drug cases because of the individualized inquiries such litigation typically involves.”  Id. at *6 n.6.  Our class action cheat sheets – state and federal – underscore the accuracy of this point.  Second, the court recognized the similarities between fraud on the market and agency fraud theories such as fraud on the FDA.  Id. at *7.  Third, the court held that the “inequitable conduct” element of unjust enrichment would require an individualized determination of medical risk and benefit for every user of the drug.  Id.

With Herrmann in-house and retired (from blogging, at least), only one of us is currently a member of the American Law Institute (“ALI”).  That said, Bexis headed down to DC yesterday to attend the ALI’s annual meeting.

With the Aggregate Litigation Project now done, we’re finding the Institute’s meetings less white-knuckle than they used to be – but that’s not to say that they’re boring.  Rather, there’s always something interesting going on when the ALI gets together.

Which means there’s something worthwhile to blog about.

This time it was the wrapping up of another ALI project – one that’s been going on for over a decade (since 1997)  – the Restatement (Third) of Restitution and Unjust Enrichment. The last part of this project was brought to a final vote yesterday.  It passed.  True, the ALI grinds slowly, but its final product is finer than anything you’ll find just about anywhere.

One of the things that means is that a lot of the … umm, that’s quite a mouthful so we’ll just call it the “R3RUE” for short … was finished well before Bexis ever joined the ALI.  Talk about being late to the party.  But not knowing what went on has never stopped Bexis from putting his two cents in before, and it didn’t this time.

That last chunk of the R3RUE that was up for discussion included “defenses to restitution” – leading off with the most basic:  §62 entitled “Recipient Not Unjustly Enriched.” This defense was described in the draft:

The defense stated in §62 may appear redundant. If a well-pleaded complaint alleges unjust enrichment, it must be a proper answer (and not an affirmative defense) to plead “no unjust enrichment.” . . .[T]he practical application of the present rule is to a more limited class of cases. These arise when the claimant alleges facts supporting a prima facie claim in unjust enrichment . . . but the recipient is able to show that the resulting enrichment is not unjust, in view of the larger transactional context in which the benefit has been conferred.

R3RUE §62, comment a, Tentative Draft No. 7 (March 10, 2010).

That got us (well, Bexis) interested when he read it on the train down to DC early yesterday morning.  There’s a set of recent cases in prescription drug product liability litigation that seem to fit into the pattern described in this part of the R3RUE.

Continue Reading ALI, Unjust Enrichment And Prescription Drugs

We wrote yesterday about how common sense had gone missing from the Southern District of Illinois. But common sense is like the Dow Jones index – some days it is down 1,000 points in a few minutes, other days it is up 400 points. Today we’re bullish. Specifically, we are happy to report about a fine example of a federal court applying common sense, in Hale v. Stryker Orthopaedics, 2009 U.S. Dist. LEXIS 126886 (D.N.J. Feb. 9, 2009). If you ever wondered why third party payers and not patients bring RICO claims against drug and device companies for behavior that supposedly makes products cost too much, Hale provides a nice explanation. Hale also applies a dose of common sense to the vexing question of which state’s consumer protection laws apply.

Hale was a typical example of some plaintiffs looking for a piggyback ride onto a federal investigation. As a result of a federal criminal investigation into joint manufacturers allegedly giving improper kickbacks to surgeons, Smith & Nephew entered into a Deferred Prosecution Agreement and consented to federal monitoring, and both Smith & Nephew and Stryker entered into five-year Corporate Integrity Agreements. Id. at *3-4. Using their Smith & Nephew/Stryker knee implants as their litigation hook – knee implants that apparently worked fine – plaintiffs tried to kick those companies when they were down. They brought RICO, unjust enrichment, and consumer fraud claims, alleging that defendants’ kickback scheme artificially inflated the coinsurance payments for their knee replacement surgeries. Plaintiffs claimed that the kickbacks increased the price of knee implants to hospitals and insurers, and the insurers passed those costs to plaintiffs in elevated coinsurance payments. Id. at *4-5.

That’s right – they brought a claim under the Racketeer Influenced and Corrupt Organizations Act over copays.

But it didn’t last long, we’re pleased to report.

Defendants moved to dismiss the RICO claims because plaintiffs were not direct purchasers of the knee implants – they paid only a coinsurance payment to their insurers – and therefore lacked standing to assert RICO claims. This direct purchaser argument comes from an antitrust rule recognized by the Supreme Court in Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977), that indirect purchasers do not have standing to bring antitrust claims, a rule the Third Circuit extended to RICO actions in McCarthy v. Recordex Serv. Inc., 80 F.3d 842 (3d Cir. 1996). The rationale of McCarthy, as explained by Hale, is that defendants would be exposed to multiple liability from both direct and indirect purchasers if indirect purchasers had standing to sue for overcharges. 2009 U.S. Dist. LEXIS 126886 at *10. In addition, apportioning the amount of the overcharges to the different purchasers in the chain of distribution would be difficult to impossible. Id.

The Hale plaintiffs argued that they were directly injured because they made inflated coinsurance payments. The court responded with the judicial equivalent of ”you’ve got to be kidding.” The key standing question, as the court held, is whether plaintiffs were direct purchasers, not whether they could gin up some cockamamie injury that they supposedly could trace back to the seller:

Between Plaintiffs and Defendants in the chain of distribution stand several actors, including the hospitals performing the joint surgeries and Plaintiffs’ insurers. This chain of distribution squarely presents the multiple liability and damage apportionment risks discussed in McCarthy. Thus, Plaintiffs’ co-payment alone does not allow them to stand in the shoes of a direct purchaser for standing purposes.

Id. at *11. And that is why third party payers rather than patients are behind the recent wave of RICO claims against drug and device companies: the patients do not have standing because they are not direct purchasers. In addition to dismissing the RICO claim for lack of standing, the court found that the plaintiffs did not adequately plead a substantive RICO claim because they failed to satisfy Rule 9(b)’s requirement to plead fraud with particularity. Id. at *14-18. That’s one problem with trying to piggyback onto the results of a federal investigation: you may not have enough information about what happened to satisfy pleading standards. No one made any fraudulent statements to the Hale plaintiffs. All they were able to do is make general, conclusory allegations about the supposed misrepresentations made by the defendants, but that didn’t cut it, the court said. Id. at *16-17.The Hale court then considered plaintiffs’ claim of violation of state consumer protection laws. The three plaintiffs claimed violation of the consumer protection laws of 37 states because they were trying to bring a class action. Not so fast, the court said. Until the class is certified, the case is only between the named plaintiffs and the defendants. Id. at *19. Unfortunately for the plaintiffs, they resided in Iowa. No, that is not a dig at the Food Capital of the World, the home of the amazing University of Northern Iowa Panthers; it’s merely a comment on their legal claims. In Iowa, unlike New Jersey, there is no private right of action under the state’s Consumer Fraud Act. Maybe Iowa really is like Heaven, as Shoeless Joe and Ray Kinsella observed. The court had to decide which state’s consumer protection law applied – Iowa, where the plaintiffs lived, or New Jersey, which had no relevant contacts other than that one defendant had one division based in New Jersey. Common sense would tell you that Iowa law would apply, and the court reached that result after carefully applying New Jersey’s choice of law rules. Id. at *19-24. Featuring prominently in the discussion was the recent prescription drug product liability case, Rowe v. Hoffman-La Roche, 917 A.2d 767 (N.J. 2007) – which we spotted (and praised) back when it first came out.  The court ended by disposing quickly of plaintiffs’ unjust enrichment claim for essentially the same reason it rejected the RICO claim. An unjust enrichment claim requires plaintiff to show that the defendant received an unjustified benefit from the plaintiff. But the Hale plaintiffs didn’t give any money or benefits to the defendants; all they did was make their coinsurance payments to their insurers, which did not enrich the defendants. Id. at * 27-28. We are confident that tomorrow will produce more assaults on common sense in drug and device cases, and we will try to bring you each illogical detail. But a simple, clear, logical decision such as Hale shows that common sense in the law, although wounded at times, is not dead yet.

A tip of the old cyberhat – and not for the first time – to Alan Modlinger at Lowenstein Sandler for passing along to us the latest good news on the off-label promotion front – dismissal (with leave to replead under Twombly) in In re Schering-Plough Corp. Intron/Temodar Consumer Class Action, slip op. (D.N.J. July 10, 2009). It’s a whopper – 72 pages.

Despite the name, there aren’t really many “consumers” in the case – mostly a bunch of third-party payers (TPPs) with their hands out. It’s the usual piggy back (“filed on the heels of” slip op. at 21), on an FDA prosecution for off-label promotion. The damages allegations, as well, are what we’ve come to expect: a fraud on the market type theory that somehow the off-label promotion increased the overall price of the drug – even though the drug’s price for on- and off-label uses was the same. There’s also the standard TPP claim that they paid for illegally induced off-label uses – even though for a lot of people the drugs were effective and didn’t cause any adverse effects.

No personal injuries, of course. Just RICO (federal and state), consumer fraud, unjust enrichment, civil conspiracy, fraud, negligent misrepresentation, and a couple of weird claims – “aiding and abetting breach of fiduciary duty” and “equitable accounting” based upon “illicit marketing.” Slip op. at 2.

We aren’t going to go into the facts because – well this opinion is 72 pages long and we have other work to do.

So we’ll go straight to the bottom line. Here are the important legal rulings:

This is another example of how the courts are not letting plaintiffs get away with boilerplate pleading after Twombly. The opinion’s standard of review section is essentially all about Twombly. Slip op. at 11-12. That is, except when fraud is involved.

Dismissal of the RICO claims (both federal and state, because plaintiffs pleaded the same supposed facts for both) is for the familiar ground the the plaintiffs have not plead standing to sue/cognizable injury.

The court discerned four claims in the plaintiffs’ complaint: (1) economic loss due to off-label promotion; (2) the same sort of loss due to paying for prescriptions for ineffective drugs; (3) yet more economic loss because the TPPs were induced to pay for the drugs when there were cheaper alternatives; and (4) still more economic loss due to paying for more prescriptions and alleged price inflation due to increased demand (this is the fraud on the market theory). Slip op. at 17.

All bogus, ruled the court.

Number 1: Illegal promotion in and of itself isn’t something private plaintiffs have standing to sue about. “[T]his theory of injury – injury based solely on the off-label promotion of the [drugs] – is patently illogical and untenable. Slip op. at 19. Why? It would allow recovery where: (1) the off-label promotion was entirely truthful, and (2) when the off-label use was the most effective treatment. Id. This theory is “plainly an impermissible attempt … to turn violations of the FDCA for off-label promotion into a private cause of action.” Id. Off-label promotion is not inherently fraudulent. Slip op. at 20. Instead, where the off-label use was effective, the plaintiffs received the benefit of their bargain and were not injured at all. Id. “The court will not permit Plaintiffs to shoehorn allegations of off-label promotion within the rubric of RICO without pleading the essential RICO elements of injury and causation.” Slip op. at 21. Bye-bye off-label use theory.

Agreed 100%. For more of our take on these issues, in the RICO context specifically, see here and here.

Number 2: It’s hard to argue a loss from allegedly “ineffective” drugs when there aren’t any facts pleaded that plausibly establish the ineffectiveness of the alleged off-label uses. Slip op. at 22. And the kicker: to the extent the TPP plaintiffs allege ineffectiveness, they never tie those allegations to any particular prescription that they paid for. Slip op. at 28-29 (failure to identify who received an ineffective drug). That’s the kicker because it’s harder for plaintiffs to plead around it – and by its nature it would defeat any kind of class recovery. “[F]ormulaic recitation of of the statutory RICO elements” doesn’t cut it anymore. Id. at 23 (citing Iqbal). Pleading injury “requires proof of a concrete financial loss,” not “mere injury to a valuable intangible property interest.” Id. “Not FDA approved and/or ineffective” doesn’t adequately plead actual ineffectiveness. Slip op. at 24. Lack of FDA approval does not establish ineffectiveness. Id. Nor does mere lack of evidence. Slip op. at 25-26.

Plaintiffs’ allegations of insufficient evidence and lack of FDA approval are not adequate to plead RICO injury because they fail to assert that the [drugs] were ineffective, unsafe, or somehow worth less than what Plaintiffs paid for the drugs…. [T]here is a clear and decisive difference between allegations that actually contest the safety or effectiveness of [the drugs] and claims that merely recite violations of the FDCA, for which there is no private right of action.

Slip op. at 26. Off-label promotion is “puffery” – not fraud. Id. at 26-27.

To plead injury, plaintiffs would have to plead what actually happened to them – to the beneficiaries they claim they covered. Slip op. at 29-30. “The Complaint simply does not allege that the [drugs] were ineffective, never mind that that the drugs were ineffective for the off-label uses for which they were purchased by [plaintiffs].” Slip op. at 31.

All this means that plaintiffs must plead ineffectiveness affirmatively. See Slip op. at 27. They won’t be able to do that, of course, because any large-scale off-label use has to be effective, at least in a significant number of patients – otherwise doctors wouldn’t have used the drug in that manner in the first place. In short, the only off-label uses involving enough bucks to sue over have to be effective in some populations. Ineffectiveness is not a plausible theory.

Number 3: An alleged lower-priced alternative is not a viable form of loss where plaintiffs received the drug they bargained for, since “the value of the product that was actually purchased was not diminished.” Slip op. at 35. There is no allegation in the complaint that the TPPs were themselves misled, only that prescribing doctors supposedly were. Slip op. at 36. Plaintiffs “failed to adequately plead that any particular consumers or TPP beneficiaries received inadequate or inferior drugs or even worse suffered personal injuries.” Slip op. at 38 (citation and quotation marks omitted). See Slip op. at 41 (rejecting argument that off-label uses are “a fortiori not as effective or safe as approved treatments”).

And the second point in number 2 applies here as well – failure to plead existence of an equally effective, lower priced alternative with respect to any actual individual situations (not even as to the only rare individual plaintiff). Slip op. at 39-40.

Thus, unless the drug in question was affirmatively inferior in some way, there is no RICO injury for the mere existence of a cheaper road not taken (apologies to Robert Frost).

Number 4: Price inflation “is a classic fraud-on-the market theory” that has been “resoundingly rejected.” Slip op. at 42-43.

Other grounds for dismissal:

Plaintiffs’ off-label marketing allegations also fail because they inadequately plead causation. “[I]ndividualized inquiry would require the factfinder to determine which off-label prescriptions were written by doctors (and ultimately paid for by plaintiffs) as a direct result of [defendant’s] alleged misconduct.” Slip op. at 49. Nothing in the complaint even purported to plead any facts of this nature. Slip op. at 51-52 (pleadings “ignore reality”; are “full of holes”). The presence of independent prescribing doctors cuts off causation for reasons of remoteness. Slip op. at 50.

The racketeering allegations – predicated on alleged fraud – are not pleaded with the specificity required under Rule 9(b). Slip op. at 54. No particular communications to the plaintiffs themselves, or to particular doctors or patients, are alleged. Other predicate acts are not causally connected to the plaintiffs. Slip op. at 54-55.

A drug manufacturer’s sales subsidiary isn’t an independent entity capable of combining with its parent in a RICO “enterprise.” Slip op. at 56-59.

A promotional program that is not a natural person or legal entity can’t be part of an “association in fact” under RICO. Slip op. at 61-62.

The New Jersey consumer fraud act does not permit fraud-on-the-market theories, slip op. at 63, and plaintiffs allege no other loss theory.

TPPs are not “consumers” for purposes of the New Jersey consumer fraud act, since they do not purchase drugs for their own consumption. Slip op. at 64-66.

Common-law fraud and misrepresentation are not adequately pleaded, for reasons previously discussed. Slip op. at 66-67. Nor is there any allegation that the plaintiff TPPs were intended recipients of any fraudulent statement. Slip op. at 67.

Unjust enrichment and equitable accounting fail for lack of ascertainable loss and remoteness of causation, as previously discussed. Slip op. at 68-69.

Since plaintiffs cannot privately claim illegal off-label promotion, they can’t use it to sustain a civil conspiracy claim either. Slip op. at 70.

No facts are pleaded connecting the defendant with any particular doctor, so fiduciary duty claims are insufficiently pleaded. Slip op. at 70-71.

Finally, plaintiffs may replead, but any amendment “should not rely upon allegations that Defendants engaged in the off-label promotion of the [drugs].” Slip op. at 72.

Whew!