Friday, January 22, 2010

You say no injury, I say no standing

The standing requirement. . . . Are you asleep yet?

Okay, few things induce yawning and cure insomnia as much as discussions about standing and jurisdiction, but in the world of no-injury lawsuits, we defense lawyers have to pay attention to such things. Standing (for the non-lawyers) is a requirement that courts impose on parties who want to sue. To have standing (at least in federal court), you need to have: (1) suffered an injury – which can be economic or not, but for our discussion today, let’s stick with an economic injury; (2) causally connected to the conduct complained of; and (3) redressable by the court.

As a practical matter, standing (generally -- there are almost always exceptions to rules) means that you can’t sue a car dealer for selling a car for a false representation unless you actually bought the car. If you bought the car, you have an injury: money paid, causally connected to the false statement you complain of, and your claim is “redressable” – that is, a court can help you by ruling that you get your money refunded. But if you only thought of buying the car, or if you watched while someone else bought the car, even if you are angered by the car salesman, you have no standing to sue. (For purposes of this discussion, we’re ignoring the exception – we told you there were exceptions – that at times the law grants people standing to sue on behalf of the public.)

In federal courts, standing requirements come from the case or controversy requirement of the judicial power under Article 3 of the U.S. Constitution ("The judicial Power shall extend to all Cases, in Law and Equity, . . .--to Controversies"). Therefore, if you don’t have a real “case” or “controversy,” the courts have no authority (“jurisdiction”) to hear your gripe. States have their own versions of this constitutional grant of judicial authority; some are like the federal version, some aren’t (more exceptions) – so we’ll stick with the feds.

Now, just because you have standing does not mean you win your case, or get awarded damages. But it does get you past the first hurdle – the courthouse door – and thus into the game. And sometimes, especially class actions where the plaintiff’s goal is to pressure a defendant into settlement through the sheer size of the claim, getting into the game is the game.

This brings us to our case for the day. In a per curiam opinion not yet released for publication, the Alabama Supreme Court vacated a nationwide class certification involving Wyeth’s nonsteroidal, anti-inflammatory drug, Duract. Wyeth, Inc. v. Blue Cross and Blue Shield of Alabama, 2010 WL 152123 (Ala. Jan. 15, 2010). Wyeth marketed Duract, as approved, for durations of up to 10 days. Doctors, as is their right, didn’t always adhere to that limit (“off-label use”).

When patients began having liver problems following prolonged use, Wyeth petitioned FDA and received approval to change the package insert (the “labeling”) to describe the reports of liver problems resulting from the overuse of the drug and reemphasize that Duract was intended “only for the short term (10 days or less).” When Wyeth nonetheless continued to receive reports of adverse liver effects for long-term users of Duract, it concluded that no change in the package insert could guarantee that physicians would stop prescribing Duract for long-term use. Therefore, Wyeth voluntarily withdrew Duract from the market on June 22, 1998.

Could people with liver damage recover? Was the labeling adequate? We don’t have to deal with those questions – the potential real “cases” and “controversies” – because that’s not what the Alabama case was about.

Instead, as part of the process of withdrawing Duract from the market, Wyeth voluntarily instituted a customer-refund program for customers who still had Duract capsules in their possession. The program provided that Wyeth would reimburse retail customers at the rate of $1.15 per capsule for every Duract capsule returned to Wyeth, a price above the retail cost of the capsules – and required no receipt – in order to provide a greater incentive for return. Wyeth used a different formula to reimburse pharmacies, distributors, and wholesalers for the capsules of Duract those entities had in their possession. So far, this sounds like model conduct.

But Wyeth couldn’t, and thus didn’t, make the pharmacies, distributors, and wholesalers, etc., reimburse Third Party Payers (“TPPs”) (we have acknowledged before the inconsistency in spelling; is it the made up “payors” or the blander sounding “payers”?), see here – health insurance companies that pay, in whole or in part, the health-care costs of insureds in exchange for premiums.

Thus the TPPs didn’t receive money back that they had paid either to pharmacies or their insureds for Duract capsules that went unused. On this basis, Blue Cross sued Wyeth – in Alabama state court – demanding that Wyeth pay them too, that is, that Wyeth should refund the cost of the same drug twice. The TPPs alleged unjust enrichment, and (of course) sought to represent a class of all TPPs that paid for Duract capsules that went unused following the withdrawal of the drug.
Because the case was filed prior to the enactment of the Class Action Fairness Act, 28 U.S.C. § 1332(d), discussed here, it remained in state court, but the standing analysis was done using federal precedent (so we assume that Alabama follows federal standing precedent).

Blue Cross alleged that it and other TPPs “conferred on [Wyeth] a benefit in the form of the consideration of the purchase price paid by [the putative class members] for unused Duract.” Blue Cross claimed it would not have paid for the (unused) Duract capsules had it known that they would go unused (due to the recall). (Talk about hindsight being 20/20!)  The complaint concluded that the “[r]etention of the benefit conferred upon [Wyeth] by [the putative class members] is inequitable and has resulted in the unjust enrichment of [Wyeth].” 2010 WL 152123, *2-3.

Let’s remember that Blue Cross’s claim is NOT that it paid Wyeth for Duract that went unused. Individuals and pharmacies that paid for Duract received refunds. Rather Blue Cross asserted it indirectly enriched Wyeth by . . . HONORING ITS INSURANCE OBLIGATIONS TO ITS INSUREDS. Hmmm.

After a hearing on the class-certification motion, the trial court entered an order certifying a nationwide class of TPPs “who paid for the prescription drug Duract that was not used as of the date of its withdrawal from the market on June 22, 1998.” Any TPPs that purchased Duract directly from Wyeth (and who therefore were covered by the refund program) were excluded from the class.

We’ve beaten TPP class actions half to death already, so instead of addressing the Alabama Supreme Court majority’s indisputably correct finding that Blue Cross failed to meet its burden under the class action rule that common questions of law and fact predominate where the unjust enrichment claim would require application of the laws of all 50 states, id. at *9-10, we’d rather discuss the court’s less indisputable treatment of standing. 

Wyeth contended at the outset that Blue Cross lacked standing to serve as class representative because it did not sustain an injury of a nature required for standing. As Wyeth put it, Blue Cross did not allege any loss, financial or otherwise, resulting from the withdrawal of Duract from the market. Blue Cross did not allege that it made payments to insureds or to pharmacies that were more than it would have made had the withdrawal not occurred. Finally, Blue Cross received the same premiums from its insureds that it normally would receive in exchange for paying their health-care expenses. Id. at *2.

Blue Cross countered that Wyeth's argument go to the merits of the unjust-enrichment claim rather than to the question of standing. Blue Cross alleged that the payments made by TPPs for the purchase of Duract were “erroneously made, and would not have been made if the TPPs had been aware that substantial portions of the Duract for which it conferred a benefit would be unused due to the withdrawal of Duract.” In other words, under the particular theory of unjust enrichment urged by Blue Cross, the withdrawal of Duract from the market retroactively made every TPP's payments, to the extent allocable to those Duract capsules that eventually went unused, an unjust benefit to Wyeth. Id. at *3.

A majority of the Alabama Supreme Court sided with Blue Cross on that. After distinguishing “standing” from the “mere failure to state a cognizable cause of action or legal theory, or a failure to satisfy the injury element of a cause of action,” the majority concludes that “[t]he issue Wyeth seeks to frame for this Court as one of “standing” is, “in reality, an issue as to the cognizability of the legal theory asserted by [Blue Cross], not of [Blue Cross’s] standing to assert that theory or the subject-matter jurisdiction of this Court to consider it.” Id. at *3.

The dissent (everybody on the Court agreed that the class certification was wrong) – which we think got it right – disagreed on the issue of standing – and would have made the trial court dismiss the case entirely. “Standing,” Justice Woodall, reminds us, “requires injury in fact to the plaintiff.” 2010 WL 152123, *10. “Further, the injury must be to a ‘legally protected right.” Id. “A plaintiff who alleges no such injury “‘has no standing to sue either on [its] own behalf or on behalf of a class.’” Id. (citations omitted).

In the instant case, Blue Cross

alleges that it honored its contractual obligations to its insureds by paying pharmacies for Duract at the time the medication was dispensed to its insureds. [It] does not claim that, after the medication was dispensed, it had any legal interest in the medication or any right to control the manner in which the medication was, or was not, used. Although it alleges that it paid for Duract that was unused because of the later withdrawal of that drug by Wyeth, it does not explain how that withdrawal affected any of its legal rights. Instead, [it] simply says that it wants its money back. In my opinion, more is required to allege an injury to a “legally protected right.”
Id. “Because [Blue Cross] had no standing, the trial court had no subject-matter jurisdiction, and, consequently, no alternative but to dismiss the action.” Id.

If this sounds a bit familiar, we grant you a cyber-pat on the back (and maybe suggest that you, like we, might consider getting a life). In 2002, the Fifth Circuit dealt with an almost identical case involving – guess what – Duract and class action standing. Rivera v. Wyeth-Ayerst Laboratories, 283 F.3d 315 (5th Cir. 2002).
In Rivera, both the individual and the employee benefit plan that paid for drug sued Wyeth to recover economic damages, alleging breach of implied warranty, unjust enrichment, and violation of Texas Deceptive Trade Practices Act (DTPA). The District Court certified a class action, which the Fifth Circuit reversed.

The Fifth Circuit characterized plaintiffs’ claims in Rivera thusly:
Rivera's claim to injury runs something like this: Wyeth sold Duract; Rivera purchased and used Duract; Wyeth did not list enough warnings on Duract, and/or Duract was defective; other patients were injured by Duract; Rivera would like her money back. The plaintiffs do not claim Duract caused them physical or emotional injury, was ineffective as a pain killer, or has any future health consequences to users. Instead, they assert that their loss of cash is an "economic injury."
The plaintiffs never define this “economic injury,” but, instead, spend most of their brief listing helpful suggestions on how a court could calculate damages. These arguments are relevant (if at all) to redressability, not injury. Merely asking for money does not establish an injury in fact.
283 F.3d at 319.

We love that line so much, we have to repeat it: “Merely asking for money does not establish an injury in fact.” Id. Or as Justice Woodall puts it, “[Blue Cross] does not explain how that withdrawal affected any of its legal rights. Instead, [it] simply says that it wants its money back.” 2010 WL 152123, *10.

And Rivera continued:
The confusion arises from the plaintiffs' attempt to recast their product liability claim in the language of contract law. The wrongs they allege-failure to warn and sale of a defective product-are products liability claims.  Yet, the damages they assert-benefit of the bargain, out of pocket expenditures-are contract law damages. The plaintiffs apparently believe that if they keep oscillating between tort and contract law claims, they can obscure the fact that they have asserted no concrete injury. Such artful pleading, however, is not enough to create an injury in fact.
283 F.3rd at 320-321 (citation omitted).

In the end, it matters whether courts grant standing to litigants who have no injury and who “just want their money back”; defendants have their hands full defending cases in which there is a “dispute . . . presented in an adversary context and in a form historically viewed as capable of judicial resolution.” See Sierra Club v. Morton, 405 U.S. 727, 732 (1972) (citations omitted). There is no need to expand litigation to cover cases where there is no actual injury. Doing so defeats the standing requirement and threatens to involve courts in hypothetical disputes.

With the number of suits these days, the legal system shouldn’t stand for such an expansion.

2 comments:

robert said...

Small business

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wondering about damages said...

Great article! I've been wondering about this a lot due to a case I'm working on. Thanks for all the info!