Thursday, September 30, 2010

Not So Special Pleading

We like the stronger interpretation of Fed. R. Civ. P. 8(a) adopted by the United States Supreme Court in Ashcroft v. Iqbal, 129 S. Ct. 1937 (2009), and Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007).  We like Twombly/Iqbal (also "TwIqbal") enough that we’ve got 57 posts (this will be #58) in our “pleadings” topic – including one that spotted Twombly as a potential game-changer only 10 days after it was decided.  We like Twombly/Iqbal enough that we’ve defended it against the predictably pro-plaintiff Greek chorus from academia.


So when our kindred spirits (on product liability, at least) over at the Washington Legal Foundation told us about a recent “Issue Brief” (“IB” for short) on TwIqbal released by the American Constitution Society, we were intrigued enough to take a look.  The ACS bills itself as:
a non-partisan, non-profit educational organization.  We do not, as an organization, lobby, litigate or take positions on specific issues, cases, legislation or nominations.  We do encourage our members to express their views and make their voices heard.

So we thought we’d find something that was at least reasonably nuanced.  Heck, it was the WLF that recommended the piece to us, so how bad could it be?

Who says the folks at WLF don't have a sense of humor?  Boy did they fool us.  ACS also bills itself as “progressive” – which must be some code word for “let anybody sue anybody over anything.”

The authors of the “Issue brief” aren’t law professors or legal scholars of some other sort, but rather a pair plaintiff-side civil rights lawyers.  We don’t do civil rights litigation (unless appellate amicus briefs for groups like the ACLU or the ADL on First Amendment issues count), nor do we discuss civil rights litigation on this blog.  Thus, if the ACS IB just advocated that “civil rights cases are different” and should be exempt from TwIqbal, we’d have let the whole thing go.

But that’s not what they do.  Instead they spout the maximalist plaintiff-side position – hook, line and sinker – that TwIqbal should rolled back as to all kinds of litigation.  But as we've said before, and will say again, product liability plaintiffs aren't dramatically disadvantaged, as the IB would have us believe that civil rights plaintiffs are.

Since they go after us – we’ll return the favor.  Come at us, bro.

The ACS IB asserts, right up front, that Twombly/Iqbal “suddenly and without clear necessity overturned well-settled law.”  IB at 1.  We don’t know what planet those guys are on.  The “clear necessity” for change is stated in both decisions in black and white – modern litigation, particularly discovery, has gotten out of hand and become so expensive and time-consuming that Court’s 1950s relaxed attitude towards initiating suit was badly outmoded.

In Twombly the Court rested its decision squarely on the discovery costs of litigation:

[I]t is one thing to be cautious before dismissing an antitrust complaint in advance of discovery, but quite another to forget that proceeding to antitrust discovery can be expensive. . . .  It is no answer to say that a claim just shy of a plausible entitlement to relief can, if groundless, be weeded out early in the discovery process through “careful case management,” given the common lament that the success of judicial supervision in checking discovery abuse has been on the modest side.  . . .[T]he threat of discovery expense will push cost-conscious defendants to settle even anemic cases before reaching those proceedings.  Probably, then, it is only by taking care to require allegations that reach the [plausibility] level . . . that we can hope to avoid the potentially enormous expense of discovery in cases with no reasonably founded hope that the [discovery] process will reveal relevant evidence.

550 U.S. at 558-59 (emphasis added).

In Iqbal the Court went beyond discovery expense (although that remained important) to recognize other aspects of the cost of modern litigation on society:

Respondent next implies that our construction of Rule 8 should be tempered where, as here, the Court of Appeals has “instructed the district court to cabin discovery in such a way as to preserve” petitioners' defense of qualified immunity “as much as possible in anticipation of a summary judgment motion”. . . .  Litigation, though necessary to ensure that officials comply with the law, exacts heavy costs in terms of efficiency and expenditure of valuable time and resources that might otherwise be directed to the proper execution of the work of the Government. . . .  It is no answer to these concerns to say that discovery for petitioners can be deferred while pretrial proceedings continue for other defendants.  It is quite likely that, when discovery as to the other parties proceeds, it would prove necessary for petitioners and their counsel to participate in the process to ensure the case does not develop in a misleading or slanted way that causes prejudice to their position.  Even if petitioners are not yet themselves subject to discovery orders, then, they would not be free from the burdens of discovery. . . . We decline respondent's invitation to relax the pleading requirements on the ground that the Court of Appeals promises petitioners minimally intrusive discovery. That promise provides especially cold comfort in this pleading context.

129 S. Ct. at 1953-54 (emphasis added).

Nine and even ten-figure litigation charges have become all too common on corporate balance sheets, as have settlements of the same range in mass torts litigation even where plaintiffs have lost most of the trials and/or dispositive motions.  In mass torts, even gigantic payouts have been characterized as “nuisance settlements.”  See Frank, “Riverboat Poker & Paradoxes:  The Vioxx Mass-Tort Settlement,” 12 Andrews Drug Recall Litig. Rep. 2 (May 2008) (asserting that $4.85 billion Vioxx settlement was for “nuisance” value"); In re Agent Orange Products Liability Litigation, 818 F.2d 145, 171 (2d Cir. 1987) (finding “good reason to view” $180 million Agent Orange settlement as for “nuisance value”). Given what modern litigation has become, we’d have to say that TwIqbal easily surpasses any “clear necessity” test – assuming any such test exists (which it doesn’t).

It’s not just us, either. One of us (Bexis) edits the ABA Mass Torts Newsletter. One of the (few) perks of that position is a free subscription to all of the newsletters published by the ABA’s Litigation Section.  The most recent two of these newsletters to cross Bexis’ desk are the “Minority Trial Lawyer” (Summer 2010) (“MTL”) and the “In-House Litigator” (Summer 2010) (ABA membership required) (“IHL”) – neither having anything in particular to do with mass torts.  Just leafing through these two, randomly selected (by time) publications, we see similar statements about the high cost of modern litigation.
  • From an IHL article on third-party financing of litigation – “[D]efendants with financing do not have to succumb to a plaintiff’s settlement demands out of fear that they cannot afford to continue the case through trial.”
  • From a MTL article on arbitration – “[A] defendant who does not want to be forced into an unfair settlement by economics just because the plaintiff is making the litigation too expensive to continue.”
  • From the same MTL article – “[D]iscovery is currently one of the largest expenses of time, effort, and money in litigation.”

So it’s not just us (as we freely admit to being just as biased as the ACS IB authors in fact are) – although we went over the same issues in more detail in our Pennumbra piece last year.   The expense of litigating today’s lawsuits seems to be on everybody’s mind.

Nothing in the IB changes our minds one iota about the strength of the Supreme Court's practical justifications for emphasizing “short and plain” a little less, and “statement of the claim” a little more, in construing the language of Rule 8(a).

In part II, the IB claims that a “liberal” pleading standard (that is to say, the essentially non-existent Conley v. Gibson, 355 U.S. 41 (1957), standard from 50 years ago) is of “critical importance.”   But other than dropping a few names and emphasizing that Conley was a civil rights case, it doesn’t offer anything to back up the closing assertion that “[i]t is not an overstatement to say that the key successes of civil rights litigation in the last half century were due, in part, to the liberal pleading standard.”  IB at 3.

Oh really?  We’d have thought that the Civil Rights Act of 1964, the Voting Rights Act of 1965, and the Equal Housing Act of 1968 might have at least warranted mention.  LBJ must be spinning in his grave right about now.  But that's all right, everybody's evidently forgotten about him.

Anyway, if the authors were only arguing that civil rights litigation was some sort of special case, we wouldn’t be writing this post.  But there’s a disconnect between their arguments and their conclusions.  They support legislation (ironically holding civil rights litigation hostage to mass tort and other large litigation) that would revert to the Conley non-standard for pleading in all cases.  So we proceed.

Part III of the IB takes the Court to task for overruling “Well-Established Precedent” (that is, Conley) that – they state repeatedly – had been on the books for “five decades.”  There’s no small irony here, in that the same criticism could be leveled at a number of monuments of Supreme Court jurisprudence – Erie v. Tompkins for one, Baker v. Carr, for another, or even Brown v. Board of Education. All three cases overturned several decades of “established precedent.”

Age does not equate to wisdom.

Moving on, the IB describes Twombly as “promulgat[ing] a new and stricter “plausibility” standard, ruling that a plaintiff . . . will survive a motion to dismiss only if he or she pleads enough facts to state a claim to relief that is plausible on its face.”  IB at 3-4.  We don’t disagree.  But to us, that description raises a question that TwIqbal’s critics have never answered:

Why should the legal system tolerate the filing of implausible complaints?

Maybe back in the 1950s, when litigation was smaller, cheaper, and less prevalent (the modern discovery rules were still a decade in the future), the system could afford to be so indulgent, but not any longer.  The litigation system has grown up.  It's time to put away childish things, such as allowing implausible pleadings to trigger costly discovery.

Moving on, we hack our way through a bunch of citation-free rhetoric – like how TwIqbal somehow “is fundamentally at odds with Congress’s intent to provide effective enforcement of our nation’s civil rights laws.”  IB at 5.  While that might support special pleading for civil rights plaintiffs, that’s not what the IB is about.

Okay, what about Rule 1?  It expresses both congressional (Congress approved the rules) and Supreme Court (who promulgated them) intent that the Rules – including Rule 8 – “should be construed and administered to secure the just, speedy, and inexpensive determination” of litigation.  Fifty years of Conley conclusively demonstrated that lax pleading standards, particularly combined with other litigation sea changes (from broad discovery as of right, to First Amendment protection of attorney solicitation), are inimical to “just, speedy, and inexpensive” litigation.  Rule 1, it can be argued, obligated the Court to retire Conley and to adopt a construction more in keeping with the way litigation is conducted in the Twenty-First Century.

As for TwIqbal’s supposedly “complex, two-pronged inquiry,” IB at 5, we have to ask, “Complex,” as compared to what?  Sure it’s more "complex" than waving through anything with the word “complaint” at the top.  But there’s nothing “complex” about TwIqbal that one semester of first-year civil procedure can’t teach.  The two steps are:  go through the complaint and (1) disregard all pure conclusions of law (such as “the product was defective” without saying how) and then (2) compare the remaining factually supported allegations to the elements of the claim and see if a “plausible” claim is pleaded.

That criticism reminds us of the mugging scene from Crocodile Dundee. Complex?  TwIqbal’s not complex – not for lawyers and judges.  You want complex?   Go read our posts under the Daubert topic heading.  Now that’s complex.

Next, there’s the criticism that TwIqbal requires a “judicially-mandated appraisal of the facts at the pleading stage.”  IB at 5.   But don’t judges “appraise” everything that comes before them?  That’s not a criticism of TwIqbal, but rather of the very concept of judicial decision making.  It’s an attack on the idea of “not forgetting as judges what we know as [the phrase is hoary enough to be sexist] men.”  E.g., U.S. v. Blackburn, 461 F.3d 259, 264 (2d Cir. 2006), and a bunch of other cases going back to Legions v. Commonwealth, 23 S.E.2d 764, 765 (Va. 1943) (a significant civil rights case of the time, it turns out).  Judges used their discretion under Conley as well, and until we replace judges with computers, will continue to exercise discretion on any number of litigation-related questions.

We next find the familiar complaint (that can be made about any procedure throwing out a case before a verdict) that “strict pleading will screen [out] some meritorious suits.”  IB at 5.  Twombly, of course, said "no" to this, but that argument's subtext – unspoken but real – is that such a result is somehow worse than allowing hordes of meritless, or in TwIqbalspeak “implausible,” suits to proceed and tie up the parties and the court until the next hurdle is reached.  We dealt with this argument in our Pennumbra piece, so we’ll be lazy and rely on that response:
[C]ourts have no legitimate basis for favoring plaintiffs when interpreting pleading standards.  A just system does not pick sides in advance, but instead establishes neutral rules.  We reject the normative view that it is somehow “better” to let unmeritorious cases proceed than to risk that meritorious cases will be dismissed.  Either way represents error, and neither error is inherently better than the other.  Indeed, given the enormous transaction costs that litigation entails, Type II errors (false negatives) are probably preferable to Type I errors (false positives) from a purely economic perspective.


 
There follows a great deal of civil-right-specific factual arguments (“especially onerous for civil rights plaintiffs,” IB at 5) that, if made to support an exemption for such cases, might be appealing.  Id. at 5-8. Maybe they’re right about that, maybe not; but as we’ve said over and over again, that some classes of plaintiffs might have legitimate beefs is no excuse for letting other types of plaintiffs (such as the other side in our cases) get away with implausible pleadings.

Finally we get to the numbers.  We don’t have time to screw around with statistical validity or methodology issues.  IB at 9-10.  That would be Daubert-level “complex” and take too long.  So we’re taking the numbers offered by the ACS Issue Brief at face value.  The first number is that, under TwIqbal, motions to dismiss were between 1.8 and 4 times more likely than under the old Conley standard.  IB at 9.  That may well be accurate.  We wouldn’t maintain a TwIqbal cheat sheet if we didn’t think it would help defendants win product liability cases.

The next number, though, raises our eyebrows.  Even under the supine pleading standards of Conley, some 50% of all civil rights cases were dismissed on the pleadings.  IB at 9 (“[i]n the two years prior to Twombly, the rate at which motions to dismiss were granted in [civil rights] cases was an already high 50%”).  Really?  We’re jealous. If we could get 50% of our clients’ product liability cases dismissed on the pleadings, even after TwIqbal, we’d be ecstatic (as would our clients).

From that number, we have to say that the real problem seems to be that a lot of civil rights cases are simply really bad cases.  A 50% dismissal rate under Conley maintained for two years is too high to be anything else.

But back to the numbers. The IB states that after Twombly, the dismissal rate for civil rights cases went up to 55%, and after Iqbal, the rate increased to 60%.  IB at 9.  Looking at the same issue another way, the IB states that dismissal percentages increased from 27.8% to 35.2% in “employment” cases and from 25.9% to 36.9% in “other civil rights cases.”  Id.

Umm … we’re confused.  First, the second set of percentages doesn’t square with the first set.  Either the overall dismissal rate is in the range of one in two, or in the range of one in three.  It can’t be both, and the differences between the two sets of statistics is quite large – a spread exceeding 20 percentage points.  The discrepancy is unexplained.

The authors should be glad this isn’t a Daubert post.

Second, those numbers don’t show that civil rights cases are disproportionately affected by TwIqbal – rather they demonstrate the opposite.

Accepting the overall 1.8 to 4 times more likely dismissal statistic as true (it accords with our anecdotal experience), then civil rights cases have been TwIqballed less often, relatively speaking, than other types of cases.  We did the math.  1.8 times 50% equals 90% (not 60%).  1.8 times 27.8% equals a little over 50%. 1.8 times 25.9% equals 46.6%.  All of those numbers are way higher than the dismissal rates stated in the IB.

The 4 times more likely number causes some conceptual problems (another Daubert-type issue) if we crunched the numbers the same simple way.  There can't be dismissal rates exceeding 100%, so we used the percentage non-dismissal rate, and then reduced that by 75% (or three out of four).  50% non dismissal divided by four equals 12.5%, so the theoretical "four times higher" dismissal rate would be 87.5% .  For a 72.2% non-dismissal rate, the corresponding figure would be about an 81% dismissal rate post TwiIqbal.  Finally, for a 74.1% non-dismissal rate, the same 4-times-more-likely calculation generates a dismissal rate of 81.5%.

We don’t know whether the IB’s numbers are statistically valid or not, but assuming they are, they show that, contrary to the thesis of the paper, the rate of increase in civil rights dismissals after TwIqbal is smaller than the increase in dismissal rates for litigation as a whole.  The raw numbers look bad only because the pre-TwIqbal civil rights dismissal rate was so large – meaning that a lot of meritless cases were being filed, even before TwIqbal.

That takes us back to our main thesis – what virtue is there, given the significant increase in litigation costs over the last 50 years, in letting all these meritless, or should we say “implausible,” cases persist in our legal system?

We see none. The more quickly we can cull the wheat from the chaff, the better off everyone will be (including other plaintiffs competing for scarce judicial resources), except for the implausible litigants themselves – and, of course their lawyers (such as the authors of the IB).

Sometimes, doing the math can be very revealing.

Given our oft-expressed views about the invalidity of anecdotal evidence, particularly when cherry-picked from a much larger data set, we’re not going to get into the IB’s case reports (see pp. 10-13).  They involve elements such as knowledge, causation, repetition, pattern and practice, and cognizable injury under various civil rights statutes.  Those elements sound different from the kind of issues we’re used to addressing, so we’ll stay away from what we can’t discuss intelligently.  Our general reaction, though, is that the problems (assuming there are any) are not with TwIqbal, but rather with the substantive elements of the various causes of action.  We presume that, if Congress included relatively difficult-to-prove elements in the civil rights laws, it did so for a reason – it didn’t want cases being brought that lacked such elements.  If injustices are occurring, then Congress can amend the law and remove or reduce those elements, as it did in the Lilly Ledbetter case.

What we don’t want is the litigation lobby using civil rights (or some other irrelevant type of litigation) as smokescreen for sending product liability pleading back to the Conley dark ages – which is precisely what the IB advocates:
[T]hese are not the only types of cases in danger of unwarranted dismissal under the heightened pleading standard. Iqbal’s expansion of Twombly to all civil cases places in jeopardy innumerable personal injury and consumer cases, most of which require full development of the facts before facing a dispositive motion.

IB at 12.

That’s simply garbage.

We’re product liability defense lawyers, so now we’re getting to stuff we know about.  In product liability, the plaintiff has possession of the product, not the defendant.  Thus, the plaintiff should be able to plead who the manufacturer is.  The plaintiff can have an expert examine the product (or an exemplar, if the actual product’s been consumed or otherwise lost) and therefore should be able to plead what the defect (or at least the malfunction) is. The plaintiff can talk to his/her own doctors.  Thus the plaintiff is able to plead causation.  Finally, the plaintiff is uniquely knowledgeable about the nature of his/her injuries and can thus plead damages. There’s no legitimate excuse for not pleading a TwIqbal-compliant, factually supported product liability complaint.

Granted, there might be some exotic theory that can’t be pleaded without discovery, although we’re hard pressed to think of one.  (Is there a regulatory violation?  The FDA’s website posts warning letters.)  But that kind of theory is what Rule 15 (and its relation back provisions) are for. Complaints can be amended, after all.

Our experience with Conley is that it permitted product liability plaintiffs to file complaints that often fail to specify which defendant is the manufacturer, what's the supposed defect, what law/regulation the defendant supposedly violated, how the defect/violation could have injured the plaintiff, and so on and so forth.  One of us just got done with a product liability/negligence complaint that asserted the same 20 or so boilerplate allegations of tortious conduct against ten different defendants from a product manufacturer to a premises liability defendant without ever specifying who was who.  We think that’s completely improper and unnecessary.  And for specific examples of such broad and vague pleadings in the prescription medical product context, see the 53 prescription medical product liability litigation decisions (since 2007) currently in our TwIqbal Cheat Sheet.

After that, the IB delves into a little more civil rights “inside baseball” – whether TwIqbal overruled sub silentio (that means “without saying so”) a case called Swierkiewicz.  IB at 13-14.  We dealt with that in our Pennumbra piece, so we won’t go into any detail here.  Our conclusion was (and is) that, while some of the rationale of Swierkiewicz doesn’t survive TwIqbal, the end result would be the same.

Then the IB addresses affirmative defenses.  IB at 13-14.  We’re agnostic about that.  We don’t think, for example, that defendants should plead, say, the statute of limitations unless there are facts suggesting that the statute should apply.  On the other hand, the pleading of defenses is governed by Rule 12(b), not Rule 8(a).  Rule 12(b) doesn’t contain the same “short and plain statement of the claim” language that the Supreme Court interpreted in Twombly/Iqbal.  Thus, as a legal matter, we don’t think that affirmative defenses are, in fact, subject to being TwIqballed.

But if you’re looking for possible novel uses of TwIqbal, then check out our post where we discussed its application in the class action context to boilerplate recitations that the class satisfies the requirements of Rule 23.  That’s a pleading that's covered by Rule 8, and thus by TwIqbal.

The IB closes by endorsing legislation that would overturn Twombly/Iqbal.  IB at 16-18.  We’ve already discussed that, and we’re not inclined to further lengthen this post by going over it yet again.  Also, we think that would be beating a dead horse.  The chief sponsor of the bill in the Senate, Arlen Specter, was defeated for re-election, and we don’t see any indication that this bill’s going anywhere in the waning days of this congress. If the litigation lobby couldn’t move that bill in this congress, it’s not likely to be able to move it in the next one.

So we think we’re going to have TwIqbal around for quite some time.  Willingly or not, lawyers will get used to it, and it will become as much a part of the litigation landscape as Daubert or the broader summary judgment standards of Celotex Corp. v. Catrett, 477 U.S. 317, 322-26 (1986).  We expect that TwIqbal will have lasting effect on litigation practice, but probably not as much as we hope or the IB authors fear. In any event, we’ll be here doing what we can to keep hope alive.

Interesting Supreme Court Cert. Grants

The whole list is available at the inestimable SCOTUSblog, but there were a few grants of certiorari from Monday's annual "long conference" that readers of this blog will find particularly interesting:

The first one is Smith v. Bayer Corp., No. 09-1205.  The issue accepted by the Court is:

Whether, under the re-litigation exception of the Anti-Injunction Act, a district court can enjoin parties from seeking class certification in state court under state procedural rules when the district court had previously denied certification of a similar class under federal procedural rules but neither the parties sought to be estopped nor the issues to be presented in state court are identical as those presented to the district court.
This is the same issue first decided in the pre-CAFA decision, In re BridgeStone/Firestone, Inc. Tires Products Liability Litigation, 333 F.3d 763 (7th Cir. 2003), that Bexis amicused for PLAC.  Back then the problem was plaintiffs taking second (and third, and fourth....) bites at certifying identical national class actions in different jurisdictions after losing the first time around.  CAFA makes that problem less serious for nationwide class actions, but as Smith demonstrates, plaintiffs still try this sort of funny business with identical statewide class actions before different courts of the same state.

The defendants succeeded in convincing the lower court that plaintiffs were collaterally estopped from relitigating class issues they had previously lost on appeal in another jurisdiction, so this grant comes at the request of the other side.
SCOTUSblog has the relevant documents:  lower court opinion; cert. petition, opposition to the petition, and the petitioner's reply, so we're not going to upload them ourselves.
The second one is Astra USA, Inc. v. Santa Clara County, No. 09-1273 (Justice Kagan recused).  The issue accepted by the Court is:

Whether, in the absence of a private right of action to enforce a statute, federal courts have the federal common law authority to confer a private right of action simply because the statutory requirement sought to be enforced is embodied in a contract.
The statute in question is the Public Health Service Act because the case involves Medicare drug pricing issues.  But to us, the case fairly screams out "Food, Drug & Cosmetics Act."  The issue boils down to whether private plaintiffs can use "federal common law" as a way to get around the fact that certain statutes (such as the FDCA) don't allow private enforcement.  The Ninth Circuit let the plaintiffs get away with this, so the cert. grant was sought by the defense side.

Here are the SCOTUSblog links to the documents:  lower court opinion; cert. petition, opposition to the petition, and the petitioner's reply.

Numbers three and four we present together.  They are J. McIntyre Machinery v. Nicastro, No. 09-1343, and Goodyear v. Brown, No. 10-76.  They both deal with "stream of commerce" personal jurisdiction

The issue in Nicastro is phrased as:
Whether, consistent with the Due Process Clause and pursuant to the stream-of-commerce theory, a state may exercise in personam jurisdiction over a foreign manufacturer when the manufacturer targets the U.S. market for the sale of its product and that product is purchased by a forum state consumer.
The issue in Brown is phrased as:
Whether a foreign corporation is subject to general personal jurisdiction, on causes of action not arising out of or related to any contacts between it and the forum state, merely because other entities distribute in the forum state products placed in the stream of commerce by the defendant.

"Stream of commerce" personal jurisdiction, if recognized, would allow any state to assume jurisdiction over any product manufacturer whose product found its way into the state, no matter how many independent middlemen's hands the product had passed.  It would essentially eliminate any requirement of intentional state-specific activity by the defendant.  The Supreme Court took a look at "stream of commerce" jurisdiction over 20 years ago, and split so badly there was no majority decision.  But a plurality rejected the "stream of consciousness" concept as contrary to the Worldwide Volkswagen intentional targeting standard.  See Asahi Metal Industry Co. v. Superior Court of California, 480 U.S. 102 (1987).  Well, it's baaaaack.

Our side lost both of the cases below, so the cert. grant is an improvement over the current state of affairs.
Here are the SCOTUSblog document links:  Nicastrolower court opinion; cert. petition, opposition to the petition, and the petitioner's reply; Brownlower court opinion; cert. petition, opposition to the petition, and the petitioner's reply.

It looks like it could be another interesting term.

Wednesday, September 29, 2010

Sales Representatives – The Saga Continues

Any time a sales rep’s conduct and statements are the centerpiece of a trial, our natural inclination as defense lawyers is to cringe. We know we will be fighting tooth and nail to explain to the judge and jury why the evidence should be excluded or ignored. Because let’s face it – the plaintiffs’ lawyer’s “Big Bad Pharma marketing in the air” theme is typically a tale “full of sound and fury, signifying nothing.”

Much as the plaintiffs’ bar hates to admit it, a trial focused on sales rep statements doesn’t necessarily have to end badly for a drug/device defendant. Flashback with us, Lost-style, to 2006, when the Connecticut Supreme Court reversed a trial court grant of summary judgment in a case called Hurley v. Heart Physicians, P.C., 898 A.2d 777 (Conn. 2006). In Hurley, the plaintiff was born with a serious heart condition – a congenital complete heart block – that required a cardiac pacemaker. Hurley v. The Heart Physicians, P.C., __ A.2d __, 2010 WL 3488962, at *1 (Conn. Sept. 14, 2010). Every few years, as the plaintiff grew, she received a new pacemaker. When the plaintiff was fourteen, her pacemaker’s replacement indicator signaled that the battery was wearing down, and it was time for a new pacemaker. The plaintiff’s cardiologist invited a representative of Medtronic, the defendant manufacturer, to attend an examination of the plaintiff and test the pacemaker. The representative performed the diagnostics, determined the battery was indeed dying, and explained that it needed to be replaced as soon as possible. So far, so good, but it goes bad pretty quickly.

Why? Because the plaintiff’s mother inexplicably refused to replace the pacemaker. Faced with this bizarre situation, the company representative also presented the option of lowering the “rate” of the pacemaker, which would at least conserve the failing battery. In consultation with the plaintiff’s cardiologist, the representative downward adjusted the rate, in accordance with what he understood the mother’s position to be. No good deed goes unpunished. A month later, the plaintiff tragically went into cardiac arrest and suffered permanent brain damage as a result. Id. at *1-2.

Back in 2006, the trial court granted summary judgment on the basis of the learned intermediary doctrine. The Connecticut Supreme Court, however, found that an issue of material fact existed as to whether the representative’s “words and actions were in derogation of the pacemaker’s technical manual.” Id. at *2. The supreme court therefore remanded for a new trial on the question of whether the representative’s conduct “actually contradicted” the pacemaker’s manual, “thereby vitiating and nullifying the manual’s warnings.” Id. at *4. After a 26-day trial on remand, the jury returned a verdict for the defendant, and the plaintiff again appealed to the supreme court.

Flashforward to 2010 – the plaintiff challenged the defense verdict on the grounds that the scope of the trial on remand was inappropriately limited. In essence, the plaintiff tried to dumb down the initial Hurley opinion. She argued she could prevail upon a showing that the representative’s statements were merely “inconsistent” with the technical manual, rather than actually “contradicting” the manual. Id. at *7. As an initial matter, the supreme court found the trial court properly conducted a retrial limited to the issue of whether the representative’s oral statements and adjustment of the pacemaker were for “diagnostic” purposes, or rather whether they “actually contradicted” the technical manual and thus nullified the accompanying warnings. Id. at *6. More fundamentally, the supreme court disagreed with the plaintiff’s hair-splitting, semantic-based argument that she needed only to satisfy a lesser standard of showing the representative’s statements and conduct were “inconsistent” with the manual. Id. at *7. The court had none of it, concluding that “inconsistent” and “contradicted” were synonymous; a showing that the statements “actually contradicted” the manual did not improperly heighten the burden of proof on the plaintiff. Id. The supreme court thus concluded the scope of the remand trial was proper, and upheld the defense verdict after disposing of the plaintiff’s other specious arguments.

We thought this case was worth reporting, first of all because it is somewhat unusual, involving a unique fact pattern and procedural history, and we don’t expect to see more trials like this. But it also got us riffing on this whole notion of alleged “inconsistent” marketing statements. Should those alleged statements have any impact on the outcome of a case? Certainly the plaintiffs’ bar thinks so. We’ve seen, on more than one occasion, plaintiffs’ lawyers argue that liability attaches whenever a sales rep makes statements that are “inconsistent” with the label – and typically, the plaintiffs’ lawyers go on to suggest that “inconsistency” is a pretty low burden to satisfy, much as the plaintiff argued in Hurley. But that’s a brazen attempt to end-run the learned intermediary doctrine. In most states, that’s not allowed; the learned intermediary’s testimony typically determines whether you can prove proximate causation in a prescription drug/device case (i.e., that a different warning would have caused the prescriber not to prescribe for the plaintiff). If the physician would have prescribed anyway, the case should be over. Plaintiffs’ lawyers often use evidence that a physician may have been visited by sales reps generally, or may have received information about the product at issue from the manufacturer, to suggest that such conduct was “inconsistent” with the warnings and risk information provided. The plaintiffs claim that this “inconsistency” renders the warnings per se inadequate, and thus the manufacturer should be liable regardless of what the prescriber knew or didn't know, and regardless of whether the prescriber stands by the prescribing decision.

Even more egregious, plaintiffs’ lawyers often argue that “inconsistent” generalized marketing conduct, with no connection to the prescribing decision at issue, is sufficient, standing alone, to create a triable issue as to the adequacy of the warnings given and whether those allegedly inadequate warnings were the proximate cause of injury. In other words, good ole “fraud in the air.” But that’s just not the way the learned intermediary doctrine works. In fact, it ignores the actual reasons for the prescriber’s decision. We keep hoping that more judges will recognize this, and put an end to the typical plaintiffs' tactic of sifting through call notes to find some snippet the lawyers can take out of context, distort, and ultimately claim is “inconsistent” with the label and thus actionable.

Tuesday, September 28, 2010

Get rid of parallel violation claims without supporting facts

Sometimes repeated litigation concerning a particular product can help establish legal standards applicable to all cases, especially if many people received the product and try to bring suits. Plaintiffs try one theory after another; courts reject most of those theories; and the resultant mosaic of decisions forms a comprehensive picture of which claims are viable and which are not. Litigation involving breast implants, fen phen, and many other drugs (not to mention silica and other products beyond this blog’s scope) have set generalized standards for rejecting junk science, determining causation, weeding out fraudulent claims, and many other issues.

On a smaller scale, lawsuits about the Trident hip replacement system are helping to clarify the requirements to plead a parallel violation claim under Riegel v. Medtronic, Inc., 552 U.S. 312 (2008). The latest example is Gelber v. Stryker Corp., 2010 U.S. Dist. LEXIS 97692 (S.D.N.Y. Sept. 14, 2010).

Plaintiff Jeanette Gelber and her husband claimed that her replacement hip prosthesis squeaked and hurt, so she sued. Defendants moved to dismiss because the Trident system received premarket approval from the FDA and therefore state law claims are preempted.

Plaintiffs argued that they pled parallel claims permitted under Riegel, but their complaint included no facts, only an unsupported statement that Defendants failed to act as required by federal law. The court surveyed the post-Riegel case and found that just about every case except Hofts v. Howmedica Osteonics Corp., 597 F. Supp. 2d 830 (S.D. Ind. 2009) (more of our criticism of Hofts here), required particular facts supporting a parallel violation claim. The court became the latest to stab Hofts in the heart with a Trident and followed the majority rule. The court held that “Twombly clearly requires more than a conclusory statement that Defendants violated federal code and rule.” 2010 U.S. Dist. LEXIS 97692 at *14. Because Plaintiffs’ complaint said nothing more, and because the complaint failed to provide any link between the alleged violations and the claimed injury, it failed to state a parallel claim.

The court granted plaintiffs leave to replead “because courts have only recently articulated how a plaintiff can successfully plead a parallel claim.” Id. at *18. We might quibble a bit with the court here, as there have been a ton of cases in the last two years holding that simply pleading a violation of FDA regulations is not enough and explaining exactly what Riegel and TwIqbal require. We cited about a dozen of those cases here.

Courts rarely impose Rule 11 sanctions any more, but aren’t we approaching the time when a court could at least slap a plaintiff or plaintiff’s counsel on the wrist for pursuing one of these claims in the face of established precedent? Even if the law were not clear when the plaintiff filed the complaint a couple of years ago, it is clear as can be now, when a plaintiff must decide whether to submit a brief opposing a motion to dismiss or fall on his or her sword and ask for leave to replead. No plaintiff’s lawyer who makes “an inquiry reasonable under the circumstances,” which is what Rule 11 requires, could believe that a conclusory parallel violation claim without supporting facts is “warranted by existing law.” Fed. R. Civ. P. 11(b)(2). We hope that the time when plaintiffs get a free pass for pleading parallel claims without any facts is coming to an end.

Monday, September 27, 2010

Come at Me Bro

While strolling on the boardwalk at the Jersey Shore this Summer, we saw the usual array of tacky t-shirts: Sopranos, Yankees (yuck), and lots of silly double entendres. This time, we also saw a t-shirt that said "Come at Me Bro." Having no idea what that meant, we turned to the ultimate authority on popular culture, our teen-aged daughter. She informed us that the phrase refers to a witticism uttered by a cast member of the MTV show, "Jersey Shore," whenever another seaside mesomorph adopted a belligerent pose. "Come at Me Bro" is a prelude to a tussle. That t-shirt came to mind when a plaintiff-oriented blawg picked a fight with us recently.

A week ago we posted about a plaintiff-side motion in the Aredia-Zometa MDL to undo a confidentiality/protective order. Our point was that the relief sought was extreme and unjustified, and that plaintiff lawyers occasionally (okay -- usually) abuse the confidentiality process by multiplying work and co-opting the press.

On Thursday, the Drug Recall Lawyer Blog took issue with our "articulate rant," arguing that the defense side creates pointless and expensive work because greedy defense lawyers get paid no matter what, while angelic plaintiffs "want to get from Point A to Point B as quickly as possible" because their lawyers only "get paid for success." Not content to stop there, the other side’s rant-against-our-rant goes on: "making documents public that show what drug companies are actually doing may serve plaintiffs' lawyers' interests but it also serves the public good. If you are taking a drug and the manufacturer has documents showing they are burying studies that reveal the drug has risks not fully disclosed, isn't it a good thing if the patient and the doctor read about this in The Washington Post?"

Long ago, as young associates a little too well acquainted with Ramen noodles, we were taught that every reply brief followed the same pattern: (1) here's what we showed in our opening brief, (2) here's what the opponent couldn't even dispute, and (3) here's why our opponents’ few coherent points miss the mark. Let's try that out here.

First, our point was that the plaintiffs in the Aredia-Zometa litigation were basically going back on a deal, that the relief they sought was outrageous and overbroad, and that some plaintiff lawyers abuse the confidentiality process.

Second, the Drug Recall Lawyer Blog doesn't even dispute any of our main points. They don’t argue that anything supports the plaintiffs' overly-ambitious motion in the Aredia-Zometa case. Indeed, in what is a remarkable concession, given the source, the Drug Recall Lawyer Blog admits that "[t]here is some measure of truth to almost the entire post."

Third, the claim that defense lawyers seek to jack up the costs of litigation is out of date, and the claim that the public benefits from selective dissemination of internal documents is more than a tad self-serving.

There may have been a time when mass tort litigation was a war of attrition. But plaintiff lawyers got very good very fast at combining resources and coordinating attack angles. To deny that the playing field is now level is to deny reality. Almost a decade ago, a local court observed:

Plaintiffs claim that it is “David versus Goliath.” This argument however is a tad disingenuous. . . . [P]laintiffs are represented by a nation-wide consortium of more than sixty well-financed law firms. There thus really does not appear to be a significant financial disparity in the parties' ability to finance these putative litigations. Thus, what this Court and other courts similarly situated are faced with is “Goliath versus Goliath.”
Arch v. American Tobacco Co., 175 F.R.D. 469, 496 n.28 (E.D. Pa. 1997), aff’d, 161 F.3d 127 (3d Cir. 1998).

Our clients -- even those perched in the Fortune 500 -- are sensitive about cost-containment. Efficiency is the watchword everywhere. Many drug or device companies have executives sitting in foreign capitals, and they view the American litigation system as an exercise in excess and madness. And they are mostly right. They do not smile upon high legal bills. Neither do their insurers. It's been years since we heard clients treat litigation as an arms race. Meanwhile, we don't know any defense lawyers who fly in private jets. We know plenty of plaintiff lawyers who do. A lot of clients don’t even want us flying first class. No hard feelings, by the way. Congratulations on your success. But don't keep peddling a David-and-Goliath sob story that’s something out of the last century.

The fact is that neither side wants to increase its own costs. Defendants have a hard time increasing the plaintiffs' costs without increasing their own at least as much. For example, case specific discovery requires both sides to show up at depositions, review documents, etc. But plaintiffs' lawyers have mastered the art of increasing defense costs while limiting their own. Asymmetrical discovery costs – something we’ve complained about before – have become the rule in aggregated litigation, and the confidentiality process is merely one example. We have been in cases where plaintiffs insist on the production of enormous electronic databases, and after getting them, it turns out that plaintiffs don't even look at them. What is that if not pure "sport" and sadism? Anyway, the Drug Recall Lawyer Blog says that it wouldn't have had a problem with our post if "it would have had something thrown in there about the fact that defense lawyers are far more guilty of this than plaintiffs' lawyers. Because, believe me, it is undeniable."

Er, no. It is deniable. In fact, we're denying it right now. Come at us, bro.

We agree that defense designation of confidential documents is seldom flawless, and if it's a close call we’re going to err on the side of confidentiality. But that practice doesn't emanate from malice or an aim to increase costs. The process isn't perfect, and nobody wants to make an irrevocable mistake. That kind of toothpaste is awfully hard to get back into the tube.

Even so, sometimes confidential or privileged documents get disclosed. When that happens, we don't hear plaintiff lawyers complain about the imperfection of the process. Instead, they gloat. And by the way, when plaintiffs successfully challenge confidentiality designations, it’s neither a happy nor inexpensive moment for the defense. Nobody – especially the clients who foot the bills – likes being ordered to go back through God knows how many documents a second time. Believe it or not, we want to get it right. As a matter of practicality, that criticism is all wet.

The other side’s propaganda is just as baseless. There is no merit whatsoever to the suggestion that the public benefits when plaintiff lawyers strategically hand discovery documents to the press. Those documents almost never contain anything that the FDA hasn’t seen. Rather, those "hot" documents consist of some individual expressing a personal opinion as part of a debate. Debate in science is good. But it's not a good thing for a litigant to select one side of the story and present it to the press as if it were some corporate admission of scientific fact. The Zyprexa litigation is a notorious case in point, featuring the deliberate violation of a discovery order to plant an unfavorable story in the New York Times. But as Judge Weinstein concluded – yes, on or off label it was an effective drug:

“Numerous articles in medical journals and periodicals have reported off-label uses of atypical antipsychotics; some have endorsed such uses.” In re Zyprexa Products Liability Litigation, 671 F. Supp.2d 397, 415 (E.D.N.Y. 2009).

An extensive list of the uses (on- and off-label) for which atypical antipsychotics have become “first line agents.” Id.

"Atypical antipsychotics are routinely prescribed off-label." Id.

"Even for those medications associated with an increased risk of metabolic side effects the benefit to specific patients could outweigh the potential risks. For example [a drug] has unique benefits for treatment refractory patients and those at significant risk for suicidal behavior." Id. at 423 (quoting ADA consensus statement).

"[Defendant]. . .has created a product with substantial benefits that even now – after many years of litigation, research, testing, and controversy – is still favored by many physicians and patients. . .for some of the most serious psychological conditions that afflict millions of people worldwide. Courts cannot ignore the substantial benefits accruing. . .from use of [the drug]. . .[which] [p]revent[s] users with serious mental problems from requiring hospitalization. . .and allow[s] them to become productive taxpayers and participants in the economy." Id. at 462.
Biased, one-sided press-accounts based upon documents selectively disclosed by the other side don’t do the public any favors.

Maybe there was a person in a particular company who thought some piece of data meant a drug’s label should be revised, but so what? Especially so what if other people at the company disagreed and -- here's the important point -- the FDA saw the same data and didn't ask to revise the label. It's as if somebody pondered whether to eat that second donut, decided not to, and then got written up in The Washington Post for gluttony.

Let's focus for a moment on the gist of the Drug Recall Lawyer Blog's critique of our position. It doesn't deny our point that plaintiff lawyers game the confidentiality system. Instead, it says that defense lawyers engage in even more gamesmanship. The title of the post is "Pot Calling the Kettle Black." We looked that saying up. Variants appear in many languages. Some are catchy. Some aren't:
  • Spain: "Move away, you are blackening me, said the pan to the pot." [Pretty close.]
  • Wales: "Look at home." [Sort of wistful. No wonder Dylan Thomas was such a good, but melancholic, poet.]
  • Portugual: "The pig talking about the bacon." [Not that inspiring. But we love bacon.]
  • Argentina: "The dead guy laughs at the one with the throat slit." [Too terrified to comment on that one.]

In some variants, the pot is black and it sees its reflection in a copper kettle. So the pot (that would be us) is black, but the kettle (hero plaintiff lawyer) is not. But in most versions both the pot and kettle are black. It's pretty clear that's the operative version here. It's really a charge of hypocrisy. As the late Judith Shklar wrote, hypocrisy is a quintessentially modern vice. It's a name hurled back and forth between parties who don't occupy a common moral ground. It doesn’t bother with the underlying merit of the conduct at issue; it simply says that you aren't consistent with your own stated values. It's a rather hollow response. If somebody is doing something terrible, they should be criticized for doing something terrible -- not just because they are being inconsistent with their promise not to do terrible things.

Forget the smokescreen. It's important to focus on the underlying vice. Here, it is that the confidentiality process is expensive and abusive. The Drug Recall Lawyer Blog seems to agree. As we said originally, this is, to steal another phrase from Jersey Shore, a "situation." It needs to be addressed. And it requires some trust and cooperation between the parties, as well as some innovative thinking. So we'll end with, if not quite a kumbaya moment, at least some hope for reason and reconciliation. (Two things that we hear are pretty much absent from "Jersey Shore.")

Friday, September 24, 2010

Bad Mass Tort Decision Reversed

Blogging has improved our vocabulary.  For one thing, we learned what "transubstantivism" was.  No, it doesn't have anything to do with grape juice and wafers.  It means that the same rules of civil procedure apply to all civil cases being litigated, regardless of their subject matter.

Thus we complained mightily back in February of 2009 when a court in New York refused to apply the normal rules of forum non conveniens to Oxycontin litigation because, the judge concluded, "mass torts are different."  In re OxyContin II, 881 N.Y.S.2d 812 (N.Y. Sup. 2009).  As explained in more detail in that post, the court allowed a Georgia plaintiff, prescribed a drug in Georgia by a Georgia physician to maintain a lawsuit in New York, which had no contact at all with the claim.  The upshot, we pointed out, would be an instant mass tort (there were almost 300 similarly situated cases), as anybody anywhere in the country could decide "I Love New York" and bring their suit there.

We found that ruling so egregious that, even though it was a state trial court procedural ruling, it made our list of the "bottom ten" worst drug/device decisions of 2009.

Well, no longer.  We're pleased to report that OxyContin II had been reversed on appeal - making it the second on that list to bite the dust in a higher court (for the other, see here).  Yesterday, in In the Matter of OxyContin II, 2010 WL 3701311, slip op. (N.Y.A.D. Sept.23, 2010) ("Oxycontin II II"), the seccond New York Appellate Division unanimously reversed.

The court held no way in heck are we going to subsidize the flotsam and jetsam of other states:
[O]ur courts are not required to add to their financial and administrative burdens by entertaining litigation which does not have any connection with this State.  The common-law doctrine of forum non conveniens, . . . permits a court to dismiss such actions where it is determined that the action . . . would be better adjudicated elsewhere.
OxyContin II II, slip op. at 2 (we think - the pagination is weird) (citations and quotation marks omitted).

Mass torts are not different.  The same forum non rules apply:
There is no significant dispute that the Oxycontin involved was not manufactured in New York, and the defendant’s corporate offices are not located in this State.  None of the nonresident plaintiffs purchased Oxycontin in New York, none ingested the drug here and, importantly, none received treatment for alleged resulting injuries in this State.  Consequently, witnesses with critical information on both proximate cause and damages do not reside in New York. . . .   [U]nder the circumstances presented here [that is - a mass tort], we can find no strong counterbalancing consideration for retaining the cases of the out-of-state plaintiffs in our courts.  Consequently, we find that the Supreme Court [in New York, a trial court] improvidently exercised its discretion in denying the defendant’s motion to dismiss.
Id. at 3.  Thus, it doesn't look like New York trial courts will be able to, through disregard of established forum non procedures, create ersatz mass torts whenever they want.

Tip of the hat to Russ Jackson's Consumer Class Action/Mass Tort Blog for finding this first.

Thursday, September 23, 2010

Preemption, Presumption, And Parallel Claims

Two recent cases, one good and the other not, have us thinking about the presumption against preemption in the context of “parallel” claims – that would be medical device preemption – and allegations of fraud on the FDA, which could be either.  We think it would be a good idea for defense counsel to review first principles.


The good case, about which we’ve already blogged in one of our “hey, look at this” posts, is Bass v. Stryker Corp., 2010 WL 3431637 (N.D. Tex. Aug. 31, 2010).  The not-so-good case, which just turned up the other day, is Stanley v. Mylan, Inc., slip op., 2010 U.S. Dist. Lexis 97939 (D. Utah Sept. 17, 2010) (because it has a service cite, we feel comfortable discussing it).  The first (Bass) struck us in not mentioning the presumption against preemption at all.  The second (Stanley) struck us for just the opposite reason – that case didn’t discuss very much else (in the relevant section, anyway - there's other stuff in Stanley that we're not concerned with here).

Bass was a PMA medical device case, and the primary preemptive focus was, of course, express preemption as posited by Riegel v. Medtronic, Inc., 552 U.S. 312 (2008).  However, as is common in these cases – as our medical device preemption scorecard addresses – there are also so-called “parallel violation” claims.  The court in Bass threw them out, finding that they were simply disguised attempts at private enforcement of the FDCA, which is prohibited by the express terms of the statute:

[E]ven if Plaintiff's state-law claims are premised on Defendants’ alleged failures to comply with federal requirements, those claims are nevertheless preempted because the FDCA and FDA regulations do not provide a private cause of action.  See Buckman Co. v. Plaintiffs’ Legal Committee, 531 U.S. 341, 349 n.4 (2001).  It is on this point that the Court allowed additional briefing.  Section 337(a) has been held to impliedly preempt private claims based on its language that “all proceedings for the enforcement or to restrain violations of the FDCA ‘shall be by and in the name of the United States.’”  In re Medtronic, Inc., 592 F. Supp.2d 1147 (D. Minn. 2009) (discussing Buckman).  Thus, although the Supreme Court in “Riegel expressly recognized that ‘parallel’ claims – that is, claims ‘premised on a violation of FDA regulations’ – are not preempted [under § 360k(a) ],” a plaintiff’s characterizing his claims as parallel would be no response to a preemption argument under §337(a).  See id. 1160-61 & n. 17.

Generally, therefore, a plaintiff cannot get around the absence of a federal private right of action by invoking state law.  The Medtronic court, however, recognized two potential exceptions. . . . Under the first exception . . . a properly pleaded claim alleging a failure to adhere to PMA specifications could avoid preemption completely.  Id. . . .  [T]he persuasiveness of the reasoning behind this exception is diminished considering that, under Buckman, a claim that is “parallel” – and thus not preempted by §360k(a) – is nevertheless preempted by §337(a)’s language giving the United States the exclusive right to enforce the FDCA.  Buckman, 531 U.S. at 349 n. 4. . . .

Under the second exception of In re Medtronic, a state statute may itself create a cause of action for violations of the FDCA.  In re Medtronic, Inc., 593 F. Supp.2d at 1161 n.17.  Here, however, even after additional briefing, Plaintiff has not cited any such statute.  The only state statute that Plaintiff has mentioned is the Texas Deceptive Trade Practices Act, which does not provide a private cause of action for FDCA violations.  Consequently, sections 337(a) and 360k(a) work in combination to preempt Plaintiff's claims.
Bass, 2010 WL 3431637, at *5 (citations other than Buckman, Riegel, and Medtronic omitted).

Nice, clean result (a little off as to the “state statute” exception, as that is limited to exceptions recognized in §337(b), but that’s irrelevant today).  The entire discussion of implied preemption under Buckman, however, occurred in Bass without any reference to the presumption against preemption.  After Wyeth v. Levine, 129 S. Ct. 1187 (2009), we think that’s a potentially dangerous omission.  As we’ll discuss below, there’s no reason not to confront the presumption in a §337(a) case.

The other extreme is Stanley.  Perhaps because Stanley involved a drug rather than a device, the court was as fixated upon Levine and the presumption against preemption as Bass seemed oblivious.  Conversely, the Stanley court ignored §337(a) altogether, although it’s equally applicable to drugs and devices (just as is Buckman).  The presumption was essentially the only reason given for not finding a statutory fraud-on-the-FDA exception to punitive damages not preempted under Buckman:

In the case presently before the Court, Defendants invoke the Utah statute in seeking a dismissal of the punitive-damages claim.  Plaintiffs argue that Subsection 2 of the statute allows them to pursue punitive damages because they allege that “Defendants knowingly withheld or misrepresented information required to be submitted to the [FDA] under its regulations.”  The Court finds [that] . . . given the intervening Supreme Court decision in Wyeth [it] will allow the claim to proceed to discovery.  The Court notes that the effect of Wyeth is to strengthen the presumption against preemption that was weakened in Garcia [v. Wyeth-Ayerst Laboratories, 385 F.3d 961 (6th Cir. 2004)]. . . .  Defendants now before the Court offer no evidence that Congress intended to preempt the Utah statute.  Therefore, the presumption against preemption holds, and Plaintiffs should get the chance to prove the elements of their claim.  Consequently, Defendants’ Motion to Dismiss as to this claim is denied.
Stanley, 2010 U.S. Dist. Lexis 97939, at *24-25 (other citations omitted).  That’s not a presumption – that’s a talisman – the way that the Stanley court invokes it.

Neither case really analyzes the presumption against preemption in light of the specific types of claims involved, so we’ll give it a shot.  We’ll go right to the source and start with Levine, since, as the Stanley court correctly indicates, that’s the most recent of the relevant precedents.  Here’s how Levine describes the basis for the presumption against preemption:

[I]n all pre-emption cases, and particularly in those in which Congress has legislated in a field which the States have traditionally occupied, we start with the assumption that the historic police powers of the States were not to be superseded by the Federal Act unless that was the clear and manifest purpose of Congress.
129 S. Ct. at 1194-95 (all internal quotations - and there were a lot - omitted).

The three predicates for the presumption against preemption, according to Levine, are thus:  (1) “a field which the States have traditionally occupied”; (2) “the historic police powers of the States”; and (3) a “clear and manifest purpose of Congress.”  We call this the “Levine tripod” – standing for the three legs that support the presumption against preemption in the case.

We’d also be remiss if we ignored the footnote that follows what we just quoted.  That footnote did two things.  First, it rejected an attack on the “traditional occupation” prong of the presumption based upon the length of FDA drug regulation:

[Defendant] argues that the presumption against pre-emption should not apply . . . because the Federal Government has regulated drug labeling for more than a century.  That argument misunderstands the principle:   We rely on the presumption because respect for the States as independent sovereigns in our federal system leads us to assume that Congress does not cavalierly pre-empt state-law causes of action.  The presumption thus accounts for the historic presence of state law but does not rely on the absence of federal regulation.
129 S. Ct. at 1195 n.3.  So the existence of concurrent federal regulation doesn’t oust presumption where the topic is something that the states have “historic[ally]” done.

Second, and probably more importantly for our purposes, the footnote distinguishes Buckman as to the applicability of the presumption:

The dissent's reliance on Buckman. . ., is especially curious, as that case involved state-law fraud-on-the-agency claims, and the Court distinguished state regulation of health and safety as matters to which the presumption does apply.  See 531 U.S. at 347-348.
129 S. Ct. at 1195 n.3. Thus, Levine leaves intact Buckman’s “fraud-on-the-agency” rationale, but holds that it does not apply to “state regulation of health and safety matters,” which are different.

Significantly, in Levine there was no claim of any sort that the defendant breached any FDA regulation.  The Levine decision – including the lengthy concurrence and vehement dissent – doesn’t mention §337(a) at all.

Let’s then turn to a case that does – Buckman itself.  As Levine indicated, Buckman found that there was no presumption against preemption protecting a state-law “fraud-on-the-agency” claim.  Why?  Because it’s not a “traditional” state-law function to regulate a federally regulated entity's compliance with federal statutes:

Policing fraud against federal agencies is hardly a field which the States have traditionally occupied, such as to warrant a presumption against finding federal pre-emption of a state-law cause of action.  To the contrary, the relationship between a federal agency and the entity it regulates is inherently federal in character because the relationship originates from, is governed by, and terminates according to federal law.  Here, petitioner’s dealings with the FDA were prompted by the MDA, and the very subject matter of petitioner's statements were dictated by that statute's provisions.  Accordingly – and in contrast to situations implicating federalism concerns and the historic primacy of state regulation of matters of health and safety – no presumption against pre-emption obtains in this case.
Buckman, 531 U.S. at 347-48 (various quotes and citations omitted) (emphasis added).

Right off the bat, Buckman’s holding that no presumption against preemption applies demonstrates that Stanley is just plain wrong.  The presumption is ousted in “fraud on the agency” cases because “the relationship between a federal agency and the entity it regulates is inherently federal in character.  531 U.S. at 347.  There’s no caveat in Buckman about anything being a claim or a defense – and Levine’s manner of distinguishing Buckman didn’t in any imply that any presumption (whether “strengthened” or otherwise) could encroach upon the “inherently federal” nature of a relationship that “originates” and “is governed by” federal law – specifically the Food, Drug and Cosmetic Act (“FDCA”).  The federal “relationship,” not the fact that underneath everything there’s a claim for personal injury, drove the result in Buckman, and that’s precisely what the Levine court said about Buckman.

Since Stanley simply ignores the Supreme Court’s treatment of the presumption against preemption in what we’ll call “federal relationship” cases, there’s little more to say about it beyond it being flat out (although not spherical) error.  So we’ll turn to the presumption discussion that’s missing from Bass.  Why doesn’t the presumption against preemption apply to “parallel violation” claims that might otherwise escape the express preemption clutches of Levine?

We think it's because the three legs of the Levine tripod aren’t present in a “parallel violation” case.  Those legs are, at the risk of being repetitive, (1) “a field which the States have traditionally occupied”; (2) exercise of “the historic police powers of the States”; and (3) no “clear and manifest purpose of Congress” to preempt the claims.

The sort of parallel violation claim at issue in Bass was “a failure to comply with any particular [FDA] regulation” that “caused [plaintiff’s] injuries.”  2010 WL 3431637, at *4.  In other words Bass involved allegations under state law that the defendant violated federal law (the FDCA).  That raises the same question as in Buckman – is it “traditional” for state courts to be in the business of identifying federal law violators and finding them liable to individuals for such violations?

Such a thing certainly can happen, we can think of Magnuson-Moss and FELA as two examples right off the bat.  But in both of those examples, the statutes expressly provide for private plaintiffs bringing causes of action in state court.  The exact opposite is true of the FDCA.  We’re back to Buckman and §337(a) again. As the Supreme Court there held, not only does the FDA “ha[ve] at its disposal a variety of enforcement options that allow it to make a measured response,” Buckman, 531 U.S. at 349, but the FDCA makes crystal clear that the FDA – and only the FDA – determines if there’s been a violation and what to do about it:

The FDCA leaves no doubt that it is the Federal Government rather than private litigants who are authorized to file suit for noncompliance with the medical device provisions:  “[A]ll such proceedings for the enforcement, or to restrain violations, of this chapter shall be by and in the name of the United States.”  21 U.S.C. § 337(a).
Buckman, 531 U.S. at 339 n.4 – the footnote being to the earlier quotation.

And again, a few pages later on, when plaintiffs tried to claim “a virtually irrefutable presumption against implied preemption,” id. at 352, the Court returned to §337(a).  “[W]e have clear evidence that Congress intended that [the statute] be enforced exclusively by the Federal Government. 21 U.S.C. §337(a).”  (Emphasis added, and how).

“Clear evidence?”  Where else have we heard that phrase lately?

Oh, wait, we remember, now – that’s the standard for finding implied preemption under LevineSee 129 S. Ct. at 1198 (rejecting impossibility preemption “absent clear evidence that the FDA would not have approved a change”). It’s almost as if there’s a conversation between these two Supreme Court cases:

Levine – “You need this.”

Buckman – “That’s exactly what we got.”

Thus, Buckman and Levine – far from being contradictory – work in tandem where violation claims are concerned.  Levine holds that, in general, for implied preemption there has to be “clear evidence” of a conflict.  Buckman holds that, with respect to whether plaintiffs can bring claims that the defendant violated the FDCA, “clear evidence” supporting a preemptive conflict with congressional intent exists.

Thus, in addition to §337(a) being a source of implied preemptive power, as the court did recognize in Bass, the same statutory section also knocks out the legs from the Levine tripod.

Is the imposing of sanctions upon an alleged violator of the FDCA “a field which the States have traditionally occupied”?  Given that §337(a) explicitly reserves “enforcement” and “restrain[ing] violations”  of the FDCA to the federal government, it’s pretty hard to say that.  Purported FDCA violations are also part of the same “inherently federal relationship” referenced in Buckman.  If the defendant violated the FDCA in some way, that determination springs from something in that federal statute and the FDA’s regulatory construction of it.

Likewise, is ferreting out FDCA violations something within “the historic police powers of the States”?  While state-law doctrines such as negligence per se exist, their application to federal, as opposed to state, statutory/regulatory violations is relatively uncommon – and at least as much dependent upon what Congress was willing to tolerate as upon state law.  That’s what one of the first appellate decisions to consider the subject in the FDCA context pointed out:

It is clear that whether a state chooses to recognize violations of its own statutes as negligence per se is purely a question of state law. . . .  However, the determination that a violation of a federal statute such as the FDCA will create state tort liability is not a matter solely of state law.  A state’s ability to use a federal statute violation as a basis for state tort liability and negligence per se depends on the intent of Congress, and not merely on the intent of the state.  Thus, the congressional decision not to provide a private cause of action under the FDCA becomes quite important in considering the propriety of a state negligence per se action for violation of the FDCA.  It may be that a decision by Congress not to create a private remedy is intended to preclude all private enforcement. If that is so, then a state cause of action that makes relief available to private individuals for violations of the FDCA is pre-empted.
In re Bendectin Litigation, 857 F.2d 290, 313-14 (6th Cir. 1988) (other citations omitted) (emphasis added).  Thirteen years later, along comes Buckman, where the Supreme Court holds that §337(a) is indeed “intended to preclude all private enforcement.”  See Buckman, footnote 4, above.

And finally, the last leg of the Levine tripod – is there “clear and manifest purpose of Congress” to preempt violation claims?  Buckman sure seems to hold that there is, and that this purpose is to be found in §337(a).  That section “leaves no doubt that it is the Federal Government rather than private litigants who are authorized to file suit for noncompliance” and is “clear evidence that Congress intended” that FDCA enforcement be “exclusively by the Federal Government.”  531 U.S. at 349, n.4, 352.

Thus we think that 21 U.S.C. §337(a), as interpreted in Buckman, means that defense counsel have no reason to shy away from addressing the presumption against preemption head on in cases involving fraud on the FDA/FDCA regulatory violation claims.  The Buckman analysis of the presumption against preemption and of §337(a) not only isn’t adversely affected by anything in Levine, but the two cases complement each other rather well – in both the analysis of Levine’s three bases for the presumption and again in what constitutes “clear evidence” that supports preemption in this particular category of implied preemption cases.

Wednesday, September 22, 2010

New Seroquel Statute Of Limitations Decision - Delaware

We can’t comment on the cases because of our involvement, but we wanted to pass along this new opinion granting summary judgment on statute of limitations grounds in the Seroquel litigation.  Burrell v. AstraZeneca LP, slip op. (Del. Super. Sept. 20, 2010).

It’s worth a read.  The court concluded, for purposes of determining when the statute of limitations began running, that the three plaintiffs were chargeable with knowledge of their claims for alleged diabetes injuries as of January 2004, when the FDA mandated a label change to include a classwide diabetes warning for all atypical antipsychotics.  The court concluded:
In this case, the latest date that any of the Plaintiffs was diagnosed with diabetes was February 2, 2004….   As of that date, not only had the scientific community discovered a possible link between Seroquel® and diabetes, AZ itself had specifically warned of the potential risk in its new label and in its ‘Dear Doctor’ letters. Had Plaintiffs engaged in a reasonable investigation of publicly available sources as of January 30, 2004, each of them would have discovered facts that would have provided ‘notice of a potential (as opposed to a guaranteed) tort claim’ against AZ."
Slip Op. at 20-21 (emphasis added).

We wish we could say more, but we can't.

Tuesday, September 21, 2010

A jury reportedly finds the risks of an FDA-approved drug outweighed its benefits, and an interesting appeal should follow

We have written several times before about the good and the bad pretrial rulings in Bartlett v. Mutual Pharmaceutical Co., No. 08-358 (D.N.H.). Faithful readers will recall that the plaintiff allegedly developed Stevens-Johnson Syndrome (SJS) after taking generic Sulindac, an NSAID. The court threw out the failure to warn claim because the provider never read the allegedly inadequate warning but allowed plaintiff to proceed to trial on a design defect claim. As we explained earlier, the design defect claim raises serious preemption issues because it asks the jury to second guess the FDA’s decision that the benefits of the drug outweigh its risks.

Bartlett went to trial, and unfortunately the jury returned a $21 million verdict in favor of the plaintiff earlier this month. For those of us not involved in the trial and not possessing a transcript, figuring out exactly what happened at a trial can be difficult. We often have nothing but the crowing of the winning attorneys, a prime example of how history is written by the victors, a turn of phrase attributed to Winston Churchill but perhaps not coined by him. Those post-trial statements are unreliable, and we take them with a big grain of salt, but they are all we have for now.

In any event, according to the statements the plaintiffs’ attorneys gave to the press after the trial, Bartlett showed at trial that Sulindac was unreasonably dangerous because its risks outweighed its benefits. A key part of plaintiff’s case, according to plaintiff’s counsel, was a report published after the drug was approved showing that Sulindac had a higher rate of SJS than any other NSAID. It appears from the published reports of the trial that plaintiff’s theory was that post-approval information showed that the drug should have been pulled from the market. But we can’t figure out from the post-verdict victory celebrations whether the post-approval reports were shared with the FDA, the extent to which the post-approval studies differed from the pre-approval studies, or many other relevant facts.

We assume that Mutual Pharmaceutical will file post-trial motions and an appeal, which should provide us with a clearer picture of exactly what happened at trial. We have previously complimented the trial judge on the thoroughness of his opinions, even though we have disagreed with some of his rulings. We look forward to his explanation of the trial evidence and his discussion of the relevant issues. This case is a long way from being over. This trial judge or the court of appeals should hold that conflict preemption does not allow a jury to ignore the FDA's approval and conclude under state law that an FDA-approved drug should never have been sold. If this verdict is allowed to stand, then they might as well abolish the FDA.

Monday, September 20, 2010

Lack of Confidence

We trust that you are familiar with the typical life-cycle of confidentiality protective orders in mass tort litigation. It is as predictable (and maudlin) as an ABC after-school special. It invariably begins with plaintiffs seeking discovery of millions of pages of internal company documents. Mind you, the plaintiffs will never use more than one percent of the documents, but the process is fun for them and enormously difficult and expensive for the defendant. To facilitate such discovery, the plaintiffs grudgingly agree to a protective order that permits the defendant to designate documents as confidential, usually on trade-secret or commercial sensitivity grounds. Under the agreement, the plaintiffs obtain access to those documents, but cannot distribute them willy-nilly. And filings that include confidential documents must be under seal. Simple, right?

Well, no. The plaintiffs eventually decide that the defendant designated too many documents as confidential. There's usually some truth to this accusation, because it's hard to analyze the confidentiality of millions of documents and get every call exactly right. If one errs on the side of underdesignation, some confidential documents will end up in the hands of competitors and that sort of damage can't be undone. But if one errs on the side of overdesignation, the documents can be dedesignated and nobody is hurt. But the plaintiffs want to inflict pain. More out of sadism than any legitimate litigation concern, the plaintiffs start challenging confidentiality designations en masse, forcing the defendant to submit detailed, particularized justifications for hundreds, or even thousands, of documents. Meanwhile, the court gets upset when documents are filed under seal. Judges and court clerks hate the whole filing-under-seal process.

We still haven't even gotten to the most grotesque part of the pageant. Because the plaintiffs want to create additional pressure and cook the jury pools by disseminating company documents to the press, they coax the press into intervening and challenging confidentiality designations. In comes a media lawyer wrapping him or herself in the First Amendment, all the while playing the stooge for plaintiff lawyers hankering for a new Maybach. Those plaintiff lawyers affect a tone of righteous exasperation, and beg the court to undo the protective order to which they had earlier agreed. That protective order is no longer convenient. When documents are dedesignated, the plaintiff lawyers put on a dog-and-pony show for the press. By contrast, the defendant either doesn't talk to the press or offers dull platitudes. Instead of doing a truly independent investigation about whether the documents really mean anything, the press ends up going with the garish tale told by the plaintiffs. All in all, it's not a pretty sight and it doesn't inspire much confidence in the system (litigation or press).

Something very like this dance seems to be taking place in In re Aredia and Zometa Products Liability Litigation (MDL No. 1760) (M.D. Tenn). The plaintiffs' steering committee last week filed a motion to set aside the protective order. The PSC claims that the defendant engaged in "wholesale" confidentiality designations. Motion at 1. The plaintiffs apparently filed heaps of confidential documents under seal in opposing summary judgment. According to the plaintiffs, the "preferred remedy" is to scrap the protective order entirely. As "the next best remedy" the court should unseal all of the documents filed by the plaintiffs to oppose summary judgment because they are now "public records." The third and "least desirable remedy" proposed by the plaintiffs is that the defendant should have to justify the confidentiality of all the documents filed under seal. Motion at 2-3.

Now we don't have any role in the Aredia-Zometa MDL and don't know what documents were designated as confidential or filed under seal. But it's plain that the "preferred remedy" is nothing short of outrageous. It's well-established that there is no public or press right of access to discovery documents. Rather -- and as the plaintiffs seem to acknowledge -- there is a presumptive right of access to civil proceedings and judicial records. Motion at 7. Most of the confidential documents don't fit into that category, so the plaintiffs' preferred remedy is wildly overbroad.

But we're frankly suspicious even of the "next best remedy" or the "least desirable remedy." It is way too easy for plaintiffs to file all sorts of documents ostensibly in opposition to a motion – we’ve seen this all the time in our own cases. Too often the reality is that many of the documents are not germane at all; they were merely filed so as to transform them into "judicial records." That’s not a “voluntary” disclosure by the party protected by the order, so there’s no presumptive access where the adversary made a document dump. E.g., Chicago Tribune Co. v. Bridgestone/Firestone, 263 F.3d 1304, 1315 (11th Cir. 2001). Like we say, we’ve done this before. Courts can and should look through the form into the substance and decide whether some of the sealed documents were improperly filed. Courts need to ask whether parties seek dedesignation in the service of a legitimate litigation need, which is fine, or something else, which is not. And that "not" might amount to an effort to apply leverage via the press or stock price impact. How does that sort of thing square with your local ethics rules?

We don't disagree with each and every word in the plaintiffs' motion. They rightly observe that "protective orders can facilitate and expedite discovery. They are often essential to the proper functioning of civil discovery." Motion at 5-6. That's correct. If every internal document produced in discovery is immediately fair game for public disclosure there will inescapably be many more discovery disputes. But if plaintiffs can abrogate protective orders when it suits them, it's going to be harder and harder to enter into those agreements in the first place. It's fine and good for plaintiffs to complain that defendants "abuse" the confidentiality process via overdesignations. But some plaintiffs commit a worse "abuse" by shopping documents to their friends in the press.

We're talking about confidential documents. One of our high school English teachers thought that etymologies were instructive. "Confidence" comes from the Latin, meaning "with trust" or "trust in." The problem with confidentiality agreements and protective orders is that the parties don't really trust each other. Plaintiffs think that defendants are trying to keep the good stuff under wraps and defendants are convinced that plaintiffs want to disseminate proprietary information and play loosey-goosey with the press. When plaintiffs file motions like the plaintiffs' in Aredia and Zometa, they confirm all the worst fears.

Interestingly, the Aredia and Zometa plaintiffs rely heavily on In re Southeastern Milk Antitrust Litigation, 666 F. Supp. 2d 908, 914 (E.D. Tenn. 2009). That case also involved a dispute over application of a protective order. According to the plaintiffs in Aredia and Zometa, Southeastern Milk "is a prime example of what happens when the practice of sealing gets out of hand." Motion at 11. The plaintiffs quote some of the rhetoric from the Southeastern Milk opinion but in the end the court referred the sealing issue to the magistrate. We're not working on that case but we know some people who are. From what we hear, the magistrate has not found that the defendant abused the process and has certainly not seen fit to undo the protective order.

One of the more comical and disingenuous lines in the Motion is this one: "The PSC should have fought for a better protective order ab initio." Motion at 11. Really? Better how? The fact is that the Protective Order permitted the plaintiffs to get access to more documents sooner than ever would have happened absent such an Order. Now that they have the documents, the plaintiffs' idea of a "better" protective order is no protective order. That’s classic heads-I-win-tails-you-lose thinking. We're confident the court will see through the plaintiffs' effort to have it both ways.

Friday, September 17, 2010

Zyprexa Redux

Last Friday, we promised you more on the Second Circuit’s reversal of Judge Weinstein’s Zyprexa class certification decision. Well, here’s more (and the Westlaw cite to boot).

First, the background: A bunch of third-party payors (“TPP”) sued Eli Lilly and Company, claiming that Lilly had misrepresented Zyprexa’s efficacy and side effects. UFCW Local 1776 and Participating Health and Welfare Fund v. Eli Lilly and Company, __ F.3d __, 2010 WL 3516183 (2d Cir. Sept. 10, 2010) (we're just going to call it Zyprexa). These TPPs claimed the misrepresentations harmed them in two ways: (1) causing them to pay a “higher price” than would have been charged absent the alleged misrepresentations (the “excess price theory”); and (2) causing them to pay for off-label Zyprexa prescriptions that would not have been written “but for the alleged misrepresentations” (the “quantity effect theory,” which sounds like it may also be the title of a schlocky sci-fi show). Id. at *1.

The TPPs filed a putative class action on behalf of a nationwide class of TPPs, asserting civil RICO and state consumer protection claims, along with the usual fraud and unjust enrichment tag-alongs. Id. at *6. The plaintiffs moved for class certification, Lilly moved for summary judgment, and Judge Weinstein denied the SJ (or else we wouldn't be here) and certified a class of TPPs – limited to (a) the RICO claims; and (b) the “excess price theory.” Id. at *7. The writing was on the wall when Judge Weinstein denied summary judgment, finding Lilly’s alleged scheme was “broadbased” and thus it was possible to prove reliance by “aggregate proof.” Id. When a judge wipes out a major, major individual issue with the wave of the aggregate proof wand, it spells trouble for the class action defendant. You might be asking yourself, isn’t “aggregate proof” the same thing as “fraud on the market” – a theory that was rejected when the Second Circuit overturned … you guessed it … Judge Weinstein’s class certification decision in McLaughlin v. Am. Tobacco Co., 522 F.3d 215 (2d Cir. 2008)? Well, not according to Judge Weinstein, who believed that reliance could be proven classwide by “generalized proof” (as opposed to the “more abstract” fraud on the market theory) because the alleged fraud was “‘directed through mailings and otherwise at doctors who relied, causing damages in overpayments by plaintiffs.’” Zyprexa, 2010 WL 3516183, at *8 (quoting district court). So there you have it – wipe out reliance, and, Judge Weinstein concluded, “‘the only difference among class third-party payors is how much of the total overcharge each shall receive in damages.’” Id. (quoting district court again).

The Second Circuit’s reversal began with a question that’s been getting a lot of play in RICO-land lately: does RICO’s causation element – requiring proof that the injury was caused “by reason of” the RICO violation – necessarily require proof of reliance? After Bridge v. Phoenix Bond & Indemnity Co., 128 S.Ct. 2131 (2008), which we blogged about here, we know that RICO doesn’t require “first-person reliance,” i.e., reliance by the plaintiff on the alleged fraud. Zyprexa, 2010 WL 3516183, at *10. The Bridge Court went on, however, to say that “[i]n most cases, the plaintiff will not be able to establish even but-for causation if no one relied on the misrepresentation.” Bridge, 128 S.Ct. at 2144. Relying on Bridge, the Zyprexa plaintiffs put their thumb over that quote and instead argued that there is “no reliance requirement under RICO.” Zyprexa, 2010 WL 3516183, at *10. The Second Circuit was able to sidestep that question, because “in this case the plaintiffs allege, and must prove, third-party reliance as part of their chain of causation. Plaintiffs allege an injury that is caused by physicians relying on Lilly’s misrepresentations and prescribing Zyprexa accordingly.” Id. (emphasis added). So in the end, the Zyprexa court left for another day, and a braver set of plaintiffs, the question of whether a plaintiff can make out a RICO claim without alleging reliance by anyone.

Having resolved that the TPPs had to prove up their reliance allegations, the court went on to determine whether reliance could be proven with “generalized” proof, or whether it required individualized proof (which would kill the class). The court first looked at the causation/damages theory Judge Weinstein had certified – the “excess price” theory. And now is a good time to plug this opinion for its discussion on pharmaceutical pricing. It will surely come in handy down the road the next time some crazy TPP thinks it can get a class certified in of these cases, and it also served as the backbone for the class certification reversal here. For example:

(1) The market for pharmaceuticals is generally “inelastic.” That means that changes in price usually won’t significantly impact demand. Zyprexa, 2010 WL 3516183, at *3. When a brand-name product is first introduced, the price is typically “sticky,” which means price does not respond to market demand. Id.



(2) “A drug company may even increase the price of a drug when it is expected that negative information will lower the demand, so that the price increase will compensate for the decrease in quantities sold and the overall profits of the company will not fall.” Id. at *3 (emphasis added).


(3) “[I]n the market for prescription drugs three sets of price negotiations exist: (1) retail pharmacies and nonretail providers negotiate with pharmaceutical manufacturers and wholesalers; (2) payors (often through PBMs [Pharmacy Benefits Managers]) negotiate with pharmaceutical manufacturers and wholesalers; and (3) payors negotiate with retail pharmacies and nonretail providers.” Id. at *4 (quoting district court). Notably absent? The doctors, who “generally do not take the price of a drug into account when deciding among treatment options.” Id.


(4) And just to throw another monkey-wrench in the causal chain: “[I]n practice, TPPs rarely modify the recommendations of their PBMs. On the rare occasions when a TPP customizes its formulary, it generally does so in consultation with the PBM’s Pharmacy and Therapeutics Committee.” Id. at *4.

Going back to the TPP’s “excess price theory,” it is easy to see how these basics of pharmaceutical pricing doomed the plaintiffs’ attempt to prove causation on a classwide basis. For starters, because prescribers don’t typically consider price when making prescribing decisions, “[a]ny reliance by doctors on misrepresentations as to the efficacy and side effects of a drug, therefore, was not a but-for cause of the price that TPPs ultimately paid for each prescription.” Id. at *11.

Moving to proximate cause, TPPs were equally out of luck. TPPs’ “causal chain” – Lilly distributes misinformation, docs rely on that misinformation and prescribe, TPPs overpay – “skips several steps and obscures the more attenuated link between the alleged misrepresentations made to doctors and the ultimate injury to TPPs.” Id. at *12. So what does the real chain look like? (1) Lilly distributes misinformation, (2) docs rely on misinformation, (3) TPPs rely on PBMs and (4) Pharmacy and Therapeutics (P&T) Committees who put Zyprexa on formularies, (5) TPPs fail to negotiate price with Lilly, (6) TPPs overpay. Id. Got that? This isn’t Tinker to Evers to Chance; it’s more like “Who’s on First.” There are an awful lot of “independent actions” buried in that chain, from doctors to PBMs to P&Ts. Id. Those independent decisions alone kill the proximate cause proof.

Beyond that, the TPPs did themselves no favors; they were the only ones in a position to negotiate price, yet they didn’t allege they directly relied on Lilly’s misrepresentations before paying the price they paid for Zyprexa. Equally important, the TPPs’ conduct demonstrated why “generalized proof” of proximate causation was impossible – most TPPs didn’t negotiate price with Lilly, and even after the alleged “truth” was known, most TPPs continued to pay full price, while others requested rebates from Lilly, or restricted their formularies. Id. These individualized reactions to the alleged fraud underscored that proximate causation couldn’t be proven on a classwide basis – at least on the “excess price theory.”

The court then shredded the “quantity effect theory” for good measure, even though the plaintiffs abandoned the theory at the district court level and thus the class certification related only to the “excess price theory.” Id. at *12. The Second Circuit could have just held the claim abandoned and ended there, but instead it discussed the flaws in the “quantity effect theory” (probably to avoid the plaintiffs running back to Judge Weinstein and renewing their class certification motion on this theory). In order to prove up this “volume” theory, the plaintiffs’ expert assumed that, but-for the alleged off-label fraud, sales would never have risen above the volume of Zyprexa sold in 2006. Under this theory, every prescription above this 2006 level was an “excess” prescription that occurred because of the fraud. Id. at *13.

The court conceded that taking price out of the mix made the causal chain simpler, but it still wasn’t susceptible to generalized proof. Why? Those pesky doctors and their independent medical judgments again. The plaintiffs argued in effect that Lilly so tainted the information environment with its “pervasive” marketing plan that generalized proof of causation was possible. The court disagreed: “Lilly was not, however, the only source of information on which doctors based prescribing decisions. An individual patient’s diagnosis, past and current medications being taken by the patient, the physician’s own experience with prescribing Zyprexa, and the physician’s knowledge regarding the side effects of Zyprexa are all considerations that would have been taken into account in addition to the alleged misrepresentations distributed by Lilly.” Id.

The plaintiffs also had a “substitution” problem – in other words, what if they were right and a whole slew of Zyprexa was prescribed only because of the alleged fraud? How would they prove what treatment option (or options) would have been substituted in this but-for world, and how much those substitutions would have cost? Of course, the easy answer is to say simply that in the absence of Zyprexa, the patients would have received no alternative treatment. But “[p]laintiffs have not presented any evidence to show that, had Zyprexa not been prescribed, no medication would have been prescribed, nor that possible alternatives, such as antidepressants, would have been less expensive than Zyprexa.” Id. In fact, given that TPPs are differently situated, with different patient demographics, and that TPPs continue to pay for Zyprexa and for the most part do not closely monitor the prescriptions to determine whether they are off-label or not, proving up the hypothetical “lower-cost” (or “no-cost”) substitute is impossible to do on a classwide basis. Id. It’s tough for plaintiffs when real life gets in the way of theory.

Having blown out the class, the Second Circuit turned finally to Judge Weinstein’s denial of summary judgment. The court vacated that ruling on the merits, reiterating that the “excess price theory” was too attenuated to state a RICO claim, but remanding to determine whether the plaintiffs’ “quantity effect theory” has any legs for certain individual plaintiffs. Putting aside the economics of individual TPPs going it alone on this flimsy shell of a case, it seems like any brave plaintiffs that do decide to pursue the “quantity effect” claim further will run into the same causation problems outlined by the Second Circuit – including, most importantly, the individual prescribing decisions of those independent actors, the prescribing physicians, which sever the causal link. And we’re willing to bet that even if an individual TPP figured out a way around that problem, that plaintiff’s damages would be non-existent given the “substitution” problem and the high likelihood that the TPP continues to reimburse for all Zyprexa prescriptions, “off-label” or not, to this day.