Mass Tort Defense : Mass Tort Defense Lawyer & Attorney : Sean P. Wajert : Dechert Law Firm : Products Liability, Class Actions, Pharmaceutical Litigation

A federal judge in Florida has dismissed the class action claims of plaintiffs asserting economic loss from Bayer's drug Trasylol, ruling that they have failed to adequately plead that their alleged damages flowed directly from the company's alleged conduct in marketing the drug. See Southeast Laborers Health and Welfare Fund, et al. v. Bayer Corporation, et al., 2009 WL 2355747 (S.D. Fla.).

Trasylol was approved by the U.S. Food and Drug Administration to prevent excessive bleeding during coronary artery bypass graft (CABG) surgery. The plaintiffs, including a health and welfare fund responsible for paying for members' prescription drugs, allege that cheaper and safer alternatives were available but that Bayer somehow "over-promoted" the drug for CABG use.  They also allege the company promoted it for unapproved off-label uses, such as orthopedic surgery. They say, bottom line, that they would not have paid for Trasylol had they known the true story.

Such claims are typical of the consumer fraud act claims of plaintiffs in drug litigation, and equally typical is the fact that calculation of plaintiff's alleged losses would be extremely difficult, fact intensive, and absent such facts, purely speculative. Plaintiff must allege the causation element of the claim, and even the requisite short and plain statement of the claim requires more than labels and conclusions, and more than a formulaic recitation of the elements of a cause of action. (citing Twombly, 550 U.S. at 555 ).

In a causation analysis that applies to both the consumer fraud act and RICO allegations, the court noted that there are many factors that a doctor may consider in determining what medication to administer to a given patient. Doctors are presumed to, and actually do, go beyond advertising and marketing and also use their independent knowledge in making medical decisions. Loss calculation, therefore, necessarily would require an analysis of whether or not a particular physician ever received or relied on Bayer's allegedly fraudulent statements, and whether or not a physician, knowing the risks vs. benefit of Trasylol, would still have used it during an operation.

It would require a determination as to how many doses a patient received, and whether or not the number of doses was tied into any fraudulent marketing. It would also require speculation as to what alternative medications a particular physician would have ordered in a particular surgery, and how much that medication would have cost. Such a cost calculation would be problematic, as costs clearly would have fluctuated over the ten year period. Lastly, it would entail determining those patients who received Trasylol who did not suffer any adverse reactions, and who might have been helped by the use of the drug. Plaintiffs plead none of those facts.

The plaintiffs here attempted to rely on a "fraud on the market" theory to avoid this analysis, citing In re Zyprexa Prod Liab. Litig., 493 F.Supp.2d 571 (E.D. N.Y. 2007), but the court called this "simply misplaced." The fraud-on-the-market doctrine in both the Eleventh and Third Circuits has been held to be limited strictly to securities cases and is inappropriate in claims alleging deceptive advertising such as the ones presented by drug litigation.   

Further, on the RICO count, the court said that the plaintiffs' factual allegations were not sufficient to constitute a representative sample of the defendants' allegedly fraudulent acts, when they occurred and who engaged in them.

Judge Middlebrooks granted the plaintiffs leave to amend but said it was "unlikely" they would be able to cure the proximate causation deficiency in their claims.

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The U.S. Court of Appeals for the Second Circuit recently agreed to hear Eli Lilly’s appeal of a federal district court's orders granting class certification and denying summary judgment in litigation over its anti-psychotic medication, Zyprexa. See In re Zyprexa Products Liability Litigation, 08-4685-mv (2d Cir. 1/15/09).

Judge Jack B. Weinstein of the the Eastern District of New York had granted class certification last fall to a group of third-party payers, including insurance companies, who were suing Eli Lilly for alleged overpayment after the company allegedly exaggerated the benefits of the drug and supposedly failed to disclose certain side effects. The 2d Circuit has now granted the 23(f) motion for leave to appeal.

Readers of MassTortDefense may recall that the 2d Circuit just last year in McLaughlin v. American Tobacco Co., 522 F.3d 215 (2d Cir. 2008), overruled Judge Weinstein's certification of a class of “light” cigarette smokers, finding that individualized issues regarding reliance, loss causation, damages and injury all precluded a finding that common issues predominated over individualized ones as required by Federal Rule of Civil Procedure 23(b)(3). The Zyprexa class claim was brought under the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. § 1964, as plaintiffs seek to take advantage of their reading of the U.S. Supreme Court’s ruling in Bridge v. Phoenix Bond & Indemnity Co., 128 S. Ct. 2131 (2008), regarding reliance in a RICO fraud claim.

In certifying the class in Zyprexa, Judge Weinstein applied his take on the reasoning in Bridge, finding that third-party payers had colorable claims based on the allegedly fraudulent statements made to and relied upon by doctors who prescribed the drugs (not parties). As warned of in our post here last year, the Supreme Court had appeared to reject the defense argument that the proximate cause requirement inherent in the “by reason of” language of the RICO statute demands that a civil RICO plaintiff asserting a claim based on fraud establish his reliance on a misrepresentation by the defendant. In the context of a civil RICO claim predicated on fraud, the required causal link demands a showing that the plaintiff relied on an alleged misrepresentation made to the plaintiff by the defendant. Otherwise, the causal relationship between the alleged injury and the alleged fraud is too attenuated.

The Court appeared to reject petitioners' arguments that under the “common-law meaning” rule, Congress should be presumed to have made reliance an element of a civil RICO claim predicated on a violation of the mail fraud statute. And rejected the argument that a plaintiff bringing a RICO claim based on mail fraud must show reliance on the defendant's misrepresentations in order to establish proximate cause. The Court felt it had no ability to respond to the policy argument that RICO should be interpreted to require first-party reliance for fraud-based claims in order to avoid the “overfederalization” of traditional state law claims. A RICO plaintiff who alleges injury by reason of a pattern of mail fraud cannot prevail without showing that someone relied on the defendant's misrepresentations. But that does not mean, under one reading of Bridge, that the only injuries proximately caused by the misrepresentation are those suffered by the recipient.

The Court’s decision on reliance was based on statutory interpretation, rather than logic or common sense. We predicted that the absence of a clear reliance requirement may in fact make this type of claim even more popular with mass tort plaintiffs. And we are seeing its potential effect on class certification decisions in some district courts.
 

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The United States Supreme Court has just decided a case that may have significant impact on mass tort defendants. In Bridge v. Phoenix Bond & Indem. Co., 2008 WL 2329761 (U.S. June 9, 2008), the Court held that a plaintiff asserting a Racketeer Influenced and Corrupt Organizations Act (RICO) claim predicated on mail fraud need not show, either as an element of his claim or as a prerequisite to establishing proximate causation, that he relied on the defendant's alleged misrepresentations.

Why should readers of MassTortDefense care about RICO cases? Traditional claims such as strict liability and negligence still serve as the foundation of many mass torts. Increasingly, however, plaintiffs are looking for opportunities to bring novel and non-traditional claims as well, or instead of the traditional theories. Medical monitoring expands the pool of potential plaintiffs to those exposed to, but not yet injured by, a hazardous product. Consumer fraud claims may involve those with no personal injuries but only economic losses, and are, in the view of plaintiffs’ attorneys, theoretically easier to certify as class actions than traditional personal injury claims. A recent survey indicates that securities fraud cases filed against life sciences companies were up significantly in 2007 from the year before, often as plaintiffs try to turn a failure to warn claim into a securities class action. (When the market reacts to negative press about a product, the stock of a company could drop, opening it up to such claims.) And then there are civil RICO claims.

The Bridge case arose from the annual Cook County Treasurer's Office public auction to sell its tax liens on delinquent taxpayers' property. To prevent any one buyer from obtaining a disproportionate share of the liens, the county adopted the “Single, Simultaneous Bidder Rule,” which requires each buyer to submit bids in its own name, prohibits a buyer from using agents, employees, or related entities to submit simultaneous bids for the same parcel, and requires a registered bidder to submit a sworn affidavit affirming its compliance with the Rule. Respondents filed suit, alleging that petitioners (defendants below) fraudulently obtained a disproportionate share of liens by filing false documents, allegedly violating RICO through a pattern of racketeering activity involving mail fraud.

Defendants/petitioners argued that when basing a civil RICO claim on fraud, it is not sufficient for a plaintiff to show merely that some violation of a federal fraud statute has occurred. Rather, the plaintiff must show, like any other fraud plaintiff, that the plaintiff itself was defrauded. There is no indication that Congress, in authorizing a civil RICO action based on fraud, intended to permit such actions by persons who were not themselves defrauded. Here, because the alleged pattern of racketeering activity is predicated on mail fraud, respondents must show that they relied on petitioners' fraudulent misrepresentations, which they cannot do because the misrepresentations were made to the county. They argued that a proximate cause requirement inherent in the “by reason of” language of the statute demands that a civil RICO plaintiff asserting a claim based on fraud establish his reliance on a misrepresentation by the defendant. In the context of a civil RICO claim predicated on fraud, the required causal link demands a showing that the plaintiff relied on an alleged misrepresentation made to the plaintiff by the defendant. Otherwise, the causal relationship between the alleged injury and the alleged fraud is too attenuated.

The Court disagreed, finding that nothing on the statute's face imposes such a requirement. Using the mail to execute or attempt to execute a scheme to defraud is indictable as mail fraud, and hence a predicate racketeering act under RICO, even if no one relied on any misrepresentation. The Court rejected petitioners' arguments that under the “common-law meaning” rule, Congress should be presumed to have made reliance an element of a civil RICO claim predicated on a violation of the mail fraud statute. And rejected the argument that a plaintiff bringing a RICO claim based on mail fraud must show reliance on the defendant's misrepresentations in order to establish proximate cause. The Court felt it had no ability to respond to the policy argument that RICO should be interpreted to require first-party reliance for fraud-based claims in order to avoid the “overfederalization” of traditional state-law claims.

The Court noted that there is no general common-law principle holding that a fraudulent misrepresentation can cause legal injury only to those who rely on it. Of course, misrepresentation can cause harm only if a recipient of the misrepresentation relies on it. And a RICO plaintiff who alleges injury by reason of a pattern of mail fraud cannot prevail without showing that someone relied on the defendant's misrepresentations. But that does not mean that the only injuries proximately caused by the misrepresentation are those suffered by the recipient. There is a proximate cause element, and it requires a sufficiently direct relationship between the defendant's wrongful conduct and the plaintiff's injury. But here plaintiffs’ alleged injury --the loss of valuable liens-- is the direct result of petitioners' alleged fraud. It was a foreseeable and natural consequence of petitioners' scheme to obtain more liens for themselves, and that is sufficient.

The Court’s decision on reliance was based on statutory interpretation, rather than logic or common sense. It seems likely that it will create additional litigation in the lower courts over the meaning of the proximate cause element of a civil RICO claim. But the absence of a clear reliance requirement may in fact make this type of claim even more popular with mass tort plaintiffs. Product sellers, and especially those involved in RICO litigation already, will need to comb the opinion for ammunition to support their causation arguments.

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