Wednesday, October 01, 2014

Final Answer: Arkansas "Illegal Exaction" Theory Does Not Reach Drug Reimbursement


Last November we took note of a case where a federal court sought clarification from the Arkansas Supreme Court about the scope of claims for “illegal exaction.”  Now we have the answer, and lo, it is good.


For those of you who do not commit our old posts to memory, here is a refresher on Arkansas v. Takeda Pharmaceuticals North America, Inc.,  2013 U.S. Dist. LEXIS 160593 (W.D. La. Nov. 7, 2013).  The plaintiff (named Bowerman) brought an action against Actos manufacturers/sellers to recover costs borne by Arkansas and its citizens for injuries allegedly caused by Actos.   Bowerman never purchased or used Actos, but claimed standing simply by virtue of being an Arkansas taxpayer.  The plaintiff sought a refund of money spent by the state to purchase Actos and to treat the injuries.  The theory relied upon by the plaintiff is called “illegal exaction,” which arises under the Arkansas Constitution and is defined as “any exaction that is not authorized by law or is contrary to law.”  That is broad language, but the theory was typically limited to allegations that public officials misappropriated public funds.  Unfortunately, there was enough muddiness in Arkansas law to prompt the federal court to certify questions to the Arkansas Supreme Court as to whether the “illegal exaction” theory was so vast or elastic as to permit Bowerman’s case to proceed.


Last week, in Bowerman v. Takeda, 2014 Ark. LEXIS 500 (Sept. 25, 2014), the Arkansas Supreme Court said no, and we say yay.    The Arkansas Supreme Court held that a claim for “illegal exaction” must allege an expenditure of state funds that was “illegal, misapplied, or arbitrary.”  The use of state funds to reimburse for physician-prescribed drugs or to treat injuries is not illegal, misapplied, or arbitrary.  The plaintiff did not allege that the state did anything wrong in paying such reimbursements.  Rather, the plaintiff directed his ire at the manufactuers/sellers, asserting that they induced doctors to write Actos prescriptions that should never should have been written.  As the Dude said in The Big Lebowski, "that's just, like, your opinion, man."  It is the Court's opinion that matters, and it reasoned that because “the pharmaceuticals were prescribed by a physician, reimbursement for them cannot be said to be arbitrary.”  Moreover, this is not a case where the state paid for something it did not get.  Here, “the state paid reimbursement for exactly the drug that was prescribed.”   


In short, the plaintiff had overreached, the federal court declined to overreach with a bad Erie guess, and the Arkansas Supreme Court restored clarity and order to the “illegal exaction” theory.     



Tuesday, September 30, 2014

Removal May Prove Difficult for Compounding Pharmacies

            Like pharmaceutical and medical device manufacturers, it is not surprising that compounding pharmacies facing personal injury/products liability litigation prefer the typically more defense-friendly federal arena over the often more challenging (to put it mildly) state court system.  But as today’s case demonstrates, that may not be the easiest path for compounders to follow.

            The case is Cruz v. Preferred Homecare, 2014 U.S. Dist. LEXIS 132647 (D. Nev. Sep. 22, 2014) and it involves a horrific set of facts involving the death of a minor.  The decedent was born with a condition known as gastroschisis which required she be treated with Total Parental Nutrition (“TPN”).   Id. at *2.  TPN is used for patients who cannot get sufficient nutrition through eating.  It is a solution administered intravenously and contains a combination of sugar and carbohydrates, proteins, lipids, and electrolytes.  In this case, decedent’s physician would prescribe TPN by designating both an overall volume and a specific percentage of each substance.  Id.  It was the job of the compounding pharmacist to calculate the percentages into grams.  Id.   The complaint alleges that in 2011 decedent received an overdose of dextrose causing her glucose levels to rise so high that she went into fatal cardiac arrest.  Id. at *3. 

            In 2012, plaintiff sued both the compounding pharmacy and the individual pharmacists who were involved in some capacity with decedent’s TPN alleging negligence, breach of implied warranty and strict products liability.  Id. at *4.  The pharmacy removed the case to federal court alleging both federal question and diversity jurisdiction. 

            The dates above are important because the issue of federal question jurisdiction is wrapped up in the convoluted history of federal regulation of compounding pharmacies.  The FDA was first given regulatory power over compounding pharmacies in 1997 when Congress passed the Food and Drug Administration Modernization Act (“FDAMA”).  Id. at *6.  In 2001, certain provisions of FDAMA were held unconstitutional and because those provisions were not severable, the entire act was invalidated.  Id. at *6-7.  In 2002, FDA issued a guidance to the compounding industry regarding what types of compounding might be subject to FDA regulation.  Id. at *7 n.2.  But it wasn’t until 2013 that Congress passed legislation affirmatively creating federal regulatory power over compounding pharmacies.  Id. at *7.  To sum it up, that means that between 2002 and 2013 “there was no federal statute in effect that expressly provided for the FDA to regulate compounding pharmacies.”  Id.

            To establish federal question jurisdiction, defendants need to satisfy the Grable factors (Grable & Sons Metal Prods., Inc. v. Darue Eng’g. & Mfg., 545 U.S. 308 (2005):  that the claim necessarily raises a federal issue, that is both actually disputed and substantial, and that is capable of resolution in federal court without disturbing Congress’s federal-state balance.  Id. at *5.  Because it is undisputed that there was no statute conferring federal regulatory power over compounding pharmacies in either 2011 or 2012, defendant instead argued that “there is a substantial federal interest at stake because Congress and the FDA have repeatedly expressed their intent to monitor and oversee compounding pharmacies.”  Id. at *8.  The court found that at best, intent to regulate goes to whether the federal issue is substantial; which left unsatisfied the first Grable factor – that a federal issue is “necessarily raised.”  Id. 
            Simply because compounding pharmacies are subject to FDA regulation and legislation are not enough – but we know that from the pharmaceutical and device industry already.  The 10-year absence of statutory authority for compounders only makes this an even more difficult argument. 

            Unfortunately for compounding pharmacies, they also face more difficult obstacles in establishing diversity jurisdiction.  One of the ways plaintiffs attempt to avoid removal is by naming local sales representatives as defendants.   But as we know, manufacturers have a fairly good track record of successfully arguing these defendants are fraudulently joined.  Why?  Because in the overwhelming majority of cases, there is no there there.  That is there is no basis for potential liability against the sales representatives separate and apart from the manufacturer.   Just think about the role of the sales representative in most cases and the fraudulent joinder becomes obvious.  They are employees who market the product under strict corporate and federal guidelines.  The representative doesn’t actually sell or typically even handle the product that the plaintiffs had allegedly used. The representative likewise has no involvement in preparing the FDA-approved prescribing information and warnings that accompanies all prescription drugs/devices.  So, it is easy for courts to conclude that their presence in lawsuits is nothing more than a tactic to avoid diversity.

            The role of pharmacists in compounding cases is actually quite different.  First, they are directly involved in preparing the product that is used by the plaintiff.  Second, they do sell the product to the plaintiff.  Presumably, they have direct interaction with the plaintiff.  In this particular case, the allegations were that the defendant-pharmacists 1) noted the problem with the TPN calculations shortly before it was administered but failed to take corrective action, 2) prepared the actual TPN that was administered, and 3) were responsible for monitoring the decedent’s blood glucose.  Id. at *3-4.  We aren’t saying that there isn’t an argument that plaintiff’s claims aren’t more properly brought against the compounding pharmacy rather than the pharmacist-employees – but the argument that there is no potentially viable claim isn’t nearly as strong as in the case of a sales representative.  Given that defendant bears the “heavy burden” of proving fraudulent joinder, the court’s decision to remand isn’t astounding.  Unfortunate, but not astounding. 

Monday, September 29, 2014

Negligence Per Se and Fraud Claims Dismissed in Risperdal Litigation

The Middle District of Florida in Gallant v. Ortho-McNeil-Jannsen Pharmaceuticals, Inc., 2014 U.S. Dist. LEXIS 131769 (M.D. Fla. Sept. 29, 2014), recently addressed a plaintiff’s negligence per se and fraud claims in the Risperdal litigation.  It dismissed the negligence per se claim, a claim that is a bit unusual for a drug case.  While device plaintiffs often use such claims to try to avoid preemption, plaintiffs in drug cases ordinarily don’t have that concern.  But, ordinary or not, the claim remains improper.  

Negligence per se claims generally seek to treat statutory requirements as standards of care that, if violated, create a private cause of action for someone injured thereby.  But that can’t and shouldn’t work when FDA regulations are involved.  Section 337(a) of the FDCA reserves to only the government the authority to bring an action for violations of the FDCA and FDA regulations.  And the Supreme Court in Buckman clarified that only the FDA is authorized to police violations of its own regulations.  

Against this background, it’s clear why violations of FDA regulations (including those that may or may not address off-label promotion) cannot support a state-law negligence per se claim.  To allow such a claim would be to allow an improper circumvention of Section 337(a) and Buckman.  And so Florida courts do not recognize such claims:

Gallant argues that Defendant’s failure to abide by the FDCA demonstrates a deviation from the standard of care owed to Gallant and, therefore, demonstrates that Defendants were per se negligent or reckless.  However, district courts in this Circuit have consistently held that negligence per se claims premised on violations of the FDCA and/or FDA regulations are barred because Florida does not recognize such causes of action. 

Id. at *4-5 (citing Small v. Amgen, Inc., No. 12-CV-476, 2014 U.S. Dist. LEXIS 28904, 2014 WL 897033, at *6 (M.D. Fla. Mar. 6, 2014); Kaiser v. Depuy Spine, Inc., 944 F. Supp. 2d 1187, 1192 (M.D. Fla. 2013); Cook v. MillerCoors, LLC, 872 F. Supp. 2d 1346, 1351 (M.D. Fla. 2012)).
And so this particular foray into negligence per se claims in drug cases ended quickly, with a dismissal, as it should have.  

The Court also dismissed plaintiff’s fraud claims.  Plaintiff, as plaintiffs often do, provided a laundry list of alleged misrepresentations and omissions: 

[T]he Complaint alleges a series of misrepresentations and omissions committed by Defendants, including "[f]ailing to publish or report negative studies about Risperdal;" "[p]resenting false and misleading studies and reports concerning Risperdal;" "[f]ailing to file accurate and timely reports of post marketing adverse events;" and "[d]istributing promotional materials . . . which were false, misleading and/or lacking in fair balance."  The Complaint also alleges that Defendants sent healthcare professionals a false and misleading letter that minimized Risperdal's risks and that Defendants "knew or should have known about articles written by independent researches . . . that demonstrated an association between atypical antipsychotics, including Risperdal, and serious and life threatening adverse effects . . . ." 

But these are fraud claims, and that means that plaintiff must satisfy FRCP 9(b)’s particularity pleading requirements.  And plaintiff’s broad allegations didn’t even identify the misstatements:

[O]ther than the conclusory allegations set out above, Gallant does not identify with particularity any allegedly false statements.  As such, the Complaint lacks any facts concerning the substance and details of Defendants' allegedly fraudulent conduct and, accordingly, Defendants have not been alerted to the precise misconduct with which they are charged. 

Id. at *6-7.  And so these claims were also dismissed.  

Now, plaintiff did bring failure to warn and warranty claims, which we are more accustomed to seeing in drug cases,  And, for now, those are essentially the only claims that the plaintiff has left.

Friday, September 26, 2014

Prosecuting Alleged Adulteration Through Off-Label Use Of A Device

            Our first post of the fall (and new year, according the Hebrew calendar), concerns something we do not usually post about – the adequacy of allegations in a criminal indictment.  Much like we feel about seasonal changes, we have mixed views about the opinion in United States v. Kaplan, No. 2:13-CR-00377-PMP-CWH, 2014 U.S. Dist. LEXIS 124174 (D. Nev. Sept. 5, 2014), a review of a Magistrate’s Report and Recommendation (R&R) found at 2014 U.S. Dist. LEXIS 124176.  The case involves allegations that a urologist, as part of his scheme to increase profits, re-used needle guides that were indicated as single-use devices.  He was investigated by FDA and charged with conspiracy to adulterate medical devices and false statements to a federal official, the latter based on alleged misrepresentations to FDA investigators about when he stopped re-using needle guides.

            We should state up front that we do not advocate unsafe medical practices.  (An extreme stance for us to take, we know.)  We would hope that procedures like those at issue here, prostate biopsies with an accompanying transrectal ultrasound, are performed with maximal sterility—maybe the not word when discussing this anatomical region—and professionalism.  Jokes about prostate and rectal exams have been a comedy staple for years (e.g., “Mr. Babar” singing “Moon River” in Fletch), but medical practices that would entail the use of less than sanitary devices or instruments in such exams are not funny.  We should also state that we do not know what it is about Nevada medical practice and alleged re-use of single-use devices.  There have well publicized trials (and a few decisions) in cases against drug manufacturers predicated on the idea that the approved size of the vials of medications encouraged a Nevada clinic to engage in colonoscopy practices that allegedly resulted in a hepatitis outbreak.  We do not practice criminal law, so we can only guess whether some part of all of this is trying to deter dangerous medical practices in a place where they may not be sufficiently rare.
            The allegations being tested in Kaplan did not include, from what we can tell, that anybody had been physically injured as a result of re-using needle guides.  There was not even an allegation of economic injury to a patient or payor, because there was no suggestion that the defendant charged the new needle guide price for re-used needle guides or even that he charged for the needle guides at all, as opposed to just charging for the diagnostic procedure.  Whether such a re-use practice was actually dangerous or in violation of standards of care for urologists was not was not spelled out in the decision, which focused instead on the straight legal issue of whether using a single use device more than once constituted adulteration under the FDCA.  (We would say “approved as single use,” but the regulatory status of the devices that the defendant used is not discussed.  We can quickly see that needle guides, whether “reusable or disposable,” are Class I devices under 21 CFR § 878.4800, so they do not get approved or cleared.)

            Many times in the course of arguments on preemption and primary jurisdiction and testimony on company conduct, we have taken the position that the FDA’s charge to police compliance with the FDCA and its regulations is real and meaningful.  While the plaintiffs’ bar may contend that FDA is the puppet of industry and needs its help in punishing bad conduct—for a slight fee, of course—examples where FDA investigates, shuts down operations, and tries to put people in jail go some way to giving judges and juries the confidence to keep enforcement of FDA laws and regulations out of the hands of private litigants.  While the Kaplan defendant was not a user-fee-paying manufacturer, his prosecution is an example of FDA enforcement.  Similarly, tacking on an indictment for allegedly lying to an investigator from the FDA’s Office of Criminal Investigations shows a little more of FDA’s teeth.  Evidence about FDA inspections of manufacturers, whether routine or “for cause,” are standard fodder in drug and device cases.  The same statute, 18 USC §1001, used here also can be used to criminalize a materially false statement (with requisite mens rea) to an inspector.  The court’s decision to not dismiss the false statement count also helps, in this sense, as it affirms FDA’s “jurisdiction to investigate violations of the FFDCA, including the adulteration of medical devices”--§1001 requires the false statement be made to a federal agency acting within its jurisdiction—and that adequate pleading of a false statement involves allegations of “the date of the alleged false statement, the content thereof, and to whom the statement was made”—allegations often lacking in consumer fraud and similar claims against manufacturers.  2014 U.S. Dist. LEXIS 124174, **12-15.
            We also liked some language, more in the R&R than in the opinion, about how states regulate the practice of medicine and FDA does not.  In concluding that FDA gets to prosecute adulteration even when done by an individual in connection with practicing medicine, because it regulates the distribution of drugs and medical devices, the opinion has an unexplained cite to 21 USC § 396.  Id. at *10.  That provision, without much more analysis, seems hard to reconcile with the indictment, as the FDCA is not to be “construed to limit or interfere with the authority of a health care practitioner to prescribe or administer any legally marketed device to a patient for any condition or disease within a legitimate health care practitioner-patient relationship.” While we are fine with the idea that parties other than the FDA are not allowed to enforce the FDCA’s prohibitions against adulteration or misbranding, we would think that there needs to be some act by the physician that is more than just “prescrib[ing] or administer[ing a] legally marketed device to a patient,” on-label or off-label, to allow prosecution for misbranding. 

            Given § 396, the evaluation of whether the alleged conduct here meets the requirements of adulteration is lacking.  21 USC § 331(k) prohibits:
The adulteration, mutilation, destruction, obliteration, or removal of the whole or any part of the labeling of, or the doing of any other act with respect to, a food, drug, devise, tobacco product, or cosmetic, if such act is done while such article is held for sale (whether or not the first sale) after shipment in interstate commerce and results in such article being adulterated or misbranded.
In the criminal context—again, not our area—statutes can be too vague to impose liability in some or all situations.  The term “held for sale” is not defined in the FDCA and the Ninth Circuit has prohibited using § 331(k) to impose liability for distributing homemade GHB for free.  (GHB is not to be confused with the “roofies,” or, rather, “floories” featured in The Hangover.)  By contrast, because the Kaplan defendant charged for his services (although not necessarily for the needle guides themselves), there was a “commercial component” to defendant’s actions with regard to the needle guides and that was enough.  Id. at **7-10.  Such an interpretation of “held for sale” was “consistent with the FFDCA’s overall structure and purpose of ‘protect[ing] consumers from dangerous products . . . from the moment of their introduction into interstate commerce all the way to the moment of their delivery to the ultimate consumer.’”  Id. at *8 (quoting Unites States v. Sullivan, 332 U.S. 689, 696 (1948)).

            The ultimate consumer here was the patient, not the physician who had bought the needle guides for use in his practice.  This is a necessary conclusion for the needle guides to still be “held for sale” when the alleged adulteration takes place.  But this is where we think the logic breaks down.  Quoting from the R&R, the opinion stated that the “patients’ payment for medical services undoubtedly reflects the costs of materials used to provide the unique medical service.  When the single use needle guide is used for a patient’s biopsy, its value and usefulness as a medical device is transferred to the patient in exchange for payment.”  Id at *9 (internal quotations omitted).  The next sentence from the R&R stated “It has no residual value, at least as a needle guide, because it can only be used once.”  2014 U.S. Dist. LEXIS 124176, *15.  Defendant’s alleged adulteration, however, was not with regard to the first patient on whom a new needle guide was used—the patient who paid for its complete value—but any patient on whom a needle guide was re-used.  What constituted adulteration beyond simply prescribing or administering the device, as reading § 331(k) with § 396 would require, is not specified.  Whether re-sterilizing the device, simply re-using it, or doing something else changed the device enough to adulterate it,  the acts must have occurred after the care of the first patient for each needle guide.  If the first patient bought the needle guide and used up all of its value, then how was the needle guide still held for sale for the unwitting second and third patients?  We do not know, but we also do not see how this logic could be used to impose liability on the manufacturers of drugs or devices, which is always our primary concern.  Should the new year bring new cases with allegations that manufacturers are liable for adulteration because doctors re-used products contrary to labeling, we promise to think about it harder.

Thursday, September 25, 2014

Squeezing the Toothpaste Ever More Firmly

Those of you who dialed into yesterday’s teleseminar given by the Reed Smith side of the blog saw an image of a leaking tube of toothpaste on one slide and a poster for the Orson Wells motion picture The Third Man on another.  For those who dialed in, thank you.  To those who couldn’t make it, we will probably do another one next year, so stay tuned.
As for pictures of toothpaste and old movies, they are not as random as you might think.  Our point about the toothpaste was that as the law squeezes down on traditional avenues of product liability—such as through applications of the learned intermediary doctrine and/or defenses based on federal preemption—plaintiffs are squeezing around the obstacles to find alternate paths.  The Third Man poster was an introduction to our segment on attempts to recover for alleged product defects from parties other than product manufacturers, i.e., third parties.  That could include doctors, pharmacists, monograph publishers, pretty much anyone who touched the process with any perceived capacity to pay a judgment.
It is somewhat poetic then that we bring you today another “third man” and another novel theory of liability, and the case even involves teeth.  The case is Tavilla v. Blue Cross, No. 1 CA-CV 12-0843, 2014 Ariz. App. Unpub. LEXIS 1093 (Ariz. App. Sept. 11, 2014), and the dispute was over the plaintiff’s health insurer’s refusal to cover injuries allegedly caused by off-label use of pain medication.  In Tavilla, the plaintiff had a history of chronic pain, and his pain management doctor prescribed a form of fentanyl that is delivered on a plastic stick that dissolves in the patient’s mouth, like a lozenge.  Id. at *2.  The product, however, was indicated only for cancer patients, which the plaintiff was not.  Id. at **2-3.  That made the use “off label,” which is perfectly legal and sometimes is the standard of care, which we have explained countless times. 
Now, the key fact is that the plaintiff’s health insurer paid for the drug, even though the plaintiff’s policy excluded coverage for drugs prescribed off label.  That is to say, the insurer paid for the plaintiff’s pain medicine gratuitously and without any contractual duty to do so.  Id. at **2-3. 
The plaintiff later developed severe tooth decay that his dentist said was typical of decay seen in people who use sugar-containing lozenges.  Id. at *3.  The plaintiff therefore sued the doctor who prescribed the lozenge-like fentanyl drug for medical malpractice and the drug’s manufacturer for product liability.  Id. at *4 n.4.  We don’t know how that litigation came out, but we suspect it was not so promising for the plaintiff because he also sued his health insurer to pay for his extensive dental work.  Id. **3-4. 
As you read the remainder of this story, bear in mind the old saying “no good deed goes unpunished.”  That is because the plaintiff’s theory against the insurer was that the insurer acted in bad faith by paying for the pain medicine even though it did not have to, but then denying coverage for his extensive dental work, which was also excluded under the policy.  Id. at **13-20.  This is the Drug and Device Law Blog, not a health insurance blog, so we will not delve into the intricacies of health insurance contracts and the implied covenant of good faith and fair dealing.  Suffice it to say that the Arizona courts found no breach of contract in the insurer’s overpayment of policy benefits.  They also found no bad faith in the insurer’s alleged failure to investigate the physician’s prescribing practices, prevent the prescription of the drug, or deny coverage for use that was off label.  Id.
We write about this case because it is an example of a plaintiff attempt to recover for injuries allegedly caused by a prescription drug by pursuing novel claims against someone other than the drug manufacturer.  But we also think the result is correct because finding potential liability in this situation would lead to numerous perverse incentives.  Insurance companies already have a business incentive to pay no more than what they owe under their contracts because every dollar overpaid is a dollar off the bottom line.  It would not help their policyholders (i.e., patients requiring medical treatment) to create additional incentives to deny payment by opening insurers to extracontractual damages as a penalty for funding treatment that they technical have no duty to cover.   
More apropos to the drug and device practice, it also would not help patients to impose extracontractual duties on insurers to protect patients from the complications of medical treatment, including off-label use of prescription drugs.  The plaintiffs in Tavilla argued that the insurance company should have investigated the physician’s off-label use of the product and prevented the physician from doing alleged harm, including by refusing to pay for the treatment or making it a drug that required “precertification” for coverage.  Id. at **16-18.  But as the Arizona courts observed, “To impose such a duty would put [the insurer] squarely between the insured and the insured’s own physician.”  Id. at 17. 
We subscribe to that mantra.  Physicians practice medicine, and they make treating decisions based on their assessment of the risks and benefits as they apply to each individual patient.  Absent from Tavilla is any discussion of the severity of the plaintiff’s pain, the other options considered and/or tried, what the doctor knew and/or considered vis-à-vis potential complications and risks, what the manufacturer warned about, and whether the treatment promised or resulted in substantial benefit to the patient.  These are the factors that product liability and medical malpractice claims take into account, and rejecting liability in cases like Tavilla channels the inquiry onto those more traditional paths.  That seems to us the correct way to go. 

Wednesday, September 24, 2014

Fraudulent Joinder: Complaints Full of Folly and Ignorance

Some plaintiff lawyers seem horrified at the prospect of showing up in federal court.  How else to explain the machinations to prevent diversity jurisdiction?  What is it about federal courts that they dislike so much?  The assignment of one judge who will stick with the case and thereby come to learn its frailties?  The proclivity of federal judges to correct counsel who call the lectern a podium?  The Article III freedom from elections and political contributions?  Don’t ask us.  Log onto one of those plaintiff lawyer websites, and when a little bubble pops up where a sunny-faced minion volunteers to help you, ask said minion.


Meanwhile, we keep seeing cases where plaintiff lawyers sue local defendants to keep the case against the out-of-state company out of federal court.  Such cases do not come as solitary spies, but in battalions.  To keep a local defendant in the case, and the case out of federal court, the plaintiff needs to allege that the local defendant is culpable of something.  When there is fraudulent joinder, that something turns out to be nothing, or something dopey this way comes.  Nothing can come of nothing.  Take Martin v. DePuy Orthopaedics, Inc., 2014 U.S. Dist. LEXIS 130143 (D. Nevada September 16, 2014), for example.  The plaintiff, a Nevada citizen, sued several defendants, including Nevada corporation Precision Instruments in Nevada state court for products liability.  The plaintiff alleged that each of the defendants were involved in the stream of commerce as to the plaintiff’s allegedly defective artificial hip.  He lumped them together.  He did not bother to allege which defendants manufactured versus distributed or retailed the product at issue.  The defendants removed the case to federal court, and the plaintiff moved to remand for lack of complete diversity.  The defendants argued that the diversity-destroying defendant,  Precision, had been fraudulently joined and therefore should not count in the diversity analysis. 


The plaintiff proudly pointed to his amended complaint, which alleged that Precision was engaged in the business of selling artificial hip/stems, including the one that was sold to the plaintiff.  But the same exact allegation was made against the eight other defendants, and the court could not see how it could be the case that all nine defendants sold the same hip/stem to the plaintiff.  Good point.  Moreover, the defendants tendered the declaration of the principal of Precision, who searched through a database and found no evidence that the company had supplied a product for the plaintiff’s surgery.  The best that the plaintiff could come up with in reply was a copy of a surgery record in which a nurse appears to have noted that the guy from Precision took extracted hardware.  But that document was hearsay; it was not made by the plaintiff for the purpose of medical treatment, nor was it established to be a business record.  Thus, there was no admissible evidence that the non-diverse defendant played any role in the surgery.  Rather, the plaintiff merely offered a boilerplate complaint that defied the rules of physics, commerce, and logic.  The court concluded that Precision had been fraudulently joined and kept the case on the federal side of the street. 


The allegations in Sazy v. DePuy Spine, LLC, 2014 U.S. Dist. LEXIS 130789 (N.D. Texas September 18, 2014), aren’t much better, as fraudulent joinder cases go.  In fact, they are much worse.  The plaintiff brought suit in Texas state court against three out-of-state companies and one solitary individual, named Brownell, who had the good fortune of being a resident of Texas.  The defendants removed the case to federal court on the ground that Brownell’s joinder was fraudulent.  This argument was bolstered by the fact that the complaint’s reference to Brownell was brief and mysterious.  In fact, Brownell was mentioned by name in only two places in the complaint:  


1.            “The Defendants and Defendant Brownell aided and abetted one another in committing torts against the Plaintiff.  The Defendants had specific intent and knowledge that their conduct constituted torts.”


2.            “Clearly, the Defendants and Defendant Brownell had the intent to assist one another in the torts.  The Defendants and Defendant Brownell gave one another assistance or encouragement and the Defendants’ assistance or encouragement was a substantial factor in causing the torts.” 


Brevity is not always the soul of wit.  Sazy is hazy.  That “Clearly” is precious.  What’s that line about protesting too much?  And who tells the tale full of sound and fury?


As our eyes drifted across the pages of the Sazy case for the first time, we grew worried about the result when the federal court decided to apply the liberal Texas pleading standard in assessing whether Brownell had been fraudulently joined. We do not agree with applying state local rules to test fraudulent joinder.  It seems to reward mischief.  But we stopped worrying when we remembered how bare-bones the complaint was.  The court also remembered, deeming the complaint “devoid of any allegations as to how Brownell aided and abetted, assisted, encouraged, or participated in acts allegedly committed by the DePuy Defendants.”  The court confessed that it had “no inkling” of what Brownell allegedly did to injure the plaintiff.   The complaint contained “no allegations of specific acts committed by Brownell, no allegations that Brownell was a party to any agreement or contract with” the plaintiff, and no allegations that Brownell negotiated or administered any contact or agreement with the plaintiff.  In short, the complaint was awesome in its reticence, and not in a good way.  Aided and abetted by a complaint that signified nothing, the federal court had little difficulty retaining jurisdiction.  All’s well that ends well. 



Tuesday, September 23, 2014

For Today Only, We are Anti-Dentites

            Before Bryan Cranston was Walter White, terminally ill chemistry teacher turned murderous meth manufacturer; before he was Hal, the clumsy and loving husband on Malcolm in the Middle – he was Tim Whatley.  Jerry Seinfeld’s re-gifting dentist who converted to Judaism just “for the jokes.”  So affronted is Jerry for his profession, that Kramer – as only he can – labels Jerry an anti-dentite.   

            We’ll admit to not delighting in trips to the dentist.  The scraping, the drilling, the prodding.  Let’s face it, we’re litigators.   The not being able to talk alone is torture.  But, we wouldn’t normally call ourselves rabid anti-dentites.  That is until they try to sue dental product manufacturers. 

            Today’s case deals with a relatively rare (thankfully) instance of a prescriber suing for damages to his business caused by his prescribing of an allegedly defective device.  Prescott v. Argen Corp., No. 13-6147, slip op. (N.D. Ill. Sep. 17, 2014).  Plaintiffs are dentists who alleged that the crowns they purchased and implanted in their patients were defective and that they therefore sustained economic injuries.  Id. at 1.  Plaintiffs brought claims for breach of implied warranty of merchantability, fraudulent misrepresentation, consumer fraud, negligence, and strict products liability.  Id. at 5.  Defendants moved to dismiss on several grounds.

            First, plaintiffs’ breach of warranty claim failed for insufficient allegations of both notice and privity.  Plaintiffs argued that the notice requirement should be excused because defendants had actual knowledge of the defect.  But, that exception requires “actual knowledge of trouble with a particular product purchased by a particular buyer.”  Id. at 6.  Allegations of a defendant’s “general awareness” of issues with a product line aren’t enough.  Id.   As to privity, plaintiffs alleged only a “good faith belief” that privity existed, which the court found “stops short” of actually claiming privity.  Id. at 8.  They next tried to circumvent the requirement altogether relying on consumer personal injury cases.  But the same privity exception does not extend to economic loss cases.  Id. at 9.

            Second, on their fraud claim plaintiffs had to satisfy Rule 9’s heightened pleading requirements -- which they did not do because “they fail[ed] to identify any specific transaction that resulted from fraud.”  Id. at 10.  Here the court focused on a very common pleading crutch – the ambiguous “at all relevant times.”  “At all relevant times” defendant knew about the alleged defect.  “At all relevant times” defendant made “various false statements.”  In our opinion this is too vague to withstand TwIqbal, let alone Rule 9. 

            Third, plaintiffs’ consumer fraud claim failed for lack of specificity, id. at 15-16, but an even more fundamental flaw was that plaintiff-dentists are not consumers.  A consumer is someone who purchases a product “not for resale in the ordinary course of his trade or business.”  Id. at 13.  Plaintiffs tried unsuccessfully to argue that they did not purchase the crowns for re-sale, but all of the allegations regarding purchase for use in treating patients led the court to the rightful conclusion that the dentists were “business purchasers” and therefore fell outside the protections of Illinois consumer fraud statute.   Id. at 13. 

            Plaintiffs also didn’t satisfy the consumer nexus test which requires the plaintiff demonstrate (1) a link between himself and the consumer,  (2) that the defendant’s representations concerned consumers other than the plaintiff, (3) that the defendant’s actions involved consumer protection concerns, and (4) that plaintiff’s requested relief would serve the interests of the consumers.  Id. at 14.  Even assuming the dentists could satisfy the first three prongs, an award of damages to the dentists would not “benefit the damaged patients in the least.”  Id. at 15. 

            Finally, plaintiff’s negligence and strict liability claims were dismissed in accordance with the economic loss doctrine.  Plaintiffs yet again tried to fit within another exception – where the damages are the result of fraud.  But fraud was not a part of either their negligence or strict liability claim.  Negligence which is unintentional cannot constitute fraud, which by definition is intentional.  Id. at 17.  Looking at the elements of strict liability, the court found “[n]one of these elements pertains in any way to intentional false representation.”  Id. 

            We don’t like pointing the finger at prescribers.  They are our clients’ clients after all.  But, when they point at us, we’re happy to see courts brush, rinse and floss those claims right down the drain.