Drug Maker Defeats AG Motion to Dismiss Action Challenging Private Contingency Counsel

We have warned readers before about the dangerous and growing practice of governmental agencies delegating state police powers to private (plaintiff) attorneys on a contingency fee basis.  The latest round in this nationwide battle comes from Kentucky, where the court recently ruled that Merck can continue its suit alleging violation of its due process rights after the state hired such outside counsel.  See Merck Sharp & Dohme Corp. v. Conway, No. 3:11-cv-51 (E.D. Ky., 12/19/12).

The matter underlying this action arose from Merck’s marketing and distribution of the prescription medication Vioxx. The AG filed suit against Merck in the Franklin County Circuit Court in 2009, alleging a violation of the Kentucky Consumer Protection Act (“KCPA”). Merck removed the case to federal court, and the action was then transferred to the Eastern District of Louisiana on April 15, 2010, as part of the multidistrict litigation, In re Vioxx Product Liability Litigation, MDL No. 1657.  But on January 3, 2012, the District Court for the Eastern District of Louisiana granted the AG’s motion to remand, concluding that the case was improperly removed from state court. In re Vioxx Prods. Liab. Litig., MDL No. 1657, 2012 WL 10552, at *14 (E.D. La. Jan. 3, 2012).

Now, approximately one year into the proceeding, the AG had retained outside counsel to take over the Vioxx KCPA litigation.  Under the contract executed, private counsel agreed to be compensated by a contingency fee “to be withheld from any settlement award resulting from the litigation.” Merck filed suit against the AG in federal court in August, 2011, seeking a declaratory judgment and injunctive relief. In its complaint,  Merck alleged that the AG had “delegated his coercive powers to private lawyers having a clear, direct and substantial financial stake in the outcome...."  The case was "a punitive enforcement action that must be prosecuted in the public interest or not at all.”  As a result, Merck asserted, its “right to due process under the Fourteenth Amendment had been infringed.” 

The AG moved to dismiss, and the issue in this decision focused on the abstention doctrine announced in Younger v. Harris, 401 U.S. 37 (1971); it provides that when a state proceeding is pending, principles of federalism dictate that any federal constitutional claims should be raised and decided in state court without interference by the federal courts. See Pennzoil Co. v. Texaco, Inc., 481 U.S. 1, 17 (1987).  If a federal district court concludes that its resolution of the case before it would directly interfere with ongoing state proceedings, then it must determine whether to abstain from hearing the case altogether, under the following: (1) there must be an ongoing state
judicial proceeding; (2) the proceeding must implicate important state interests; and (3) there
must be an adequate opportunity in the state proceeding to raise constitutional challenges.

Merck argued that the AG’s active litigation in federal court — through the filing of answers, motions to dismiss, and motions for summary judgment — was sufficient to establish that proceedings of substance had taken place before the remand, i.e., before an action had been pending in state court.  The court agreed that the abstention doctrine did not require a strict view of the federal action timeline nor a formalistic approach to the abstention analysis. Using a "common sense approach," several factors weighed in favor of a conclusion that proceedings of substance had taken place: (1) the federal action had been pending for over seven months when the state court proceeding was remanded on March 20, 2012; (2) on the date of the remand, there were two important motions that were fully briefed and ripe for adjudication; and (3) the court had held a scheduling conference during which the parties advised the court about their positions on those two motions. Based on these facts, the court concluded that the federal action was well beyond an “embryonic stage.” Because the state proceeding was not “ongoing” in a meaningful sense, abstention was not appropriate under the principles of Younger.

Your humble blogger notes that the legal policy of many states strongly favors open, competitive bidding for contracts involving state funds. Such requirements, included in some state Constitutions and various statutes, are designed to prevent fraud, eliminate bias and favoritism, and thus protect vital public interests. Those same goals of open and good government reside in the requirement that state officials give their undivided loyalty to the people of a state. Many of the contingent fee contracts used by state officials to bring mass tort actions violate the core principle that attorneys pursuing actions on behalf of the state represent a sovereign whose obligation to govern impartially is essential to its right to govern. Government attorneys must exercise independent judgment as a ministers of justice and not act simply as advocates. The impartiality required of government lawyers cannot be met where the private pecuniary interest inherent in the contingent fee is the primary motive force behind the bringing of the action. By turning over sovereign prosecutorial-like power to contingency counsel, a state effectively creates a new branch of government – motivated by the prospect of private gain rather than the pursuit of justice or the public welfare. This subversion of neutrality does more than implicate the due process rights of those confronting such tainted prosecutions. Direction of state prosecutions by financially interested surrogates also damages the very public interest that such litigation is supposed to advance. 
 

Court of Appeals Considering Significant Mass Tort Settlement Issue

When a defendant settles a mass tort, it wants to achieve peace; one of the worst things that can happen is for plaintiffs to attempt to pursue claims that were and ought to have been extinguished in the settlement.  An important version of this issue arises in the Vioxx mass tort. See In re: Vioxx Products Liability Litigation, No. 12-30560 (5th Cir. 2012).

Amicus, the Product Liability Advisory Council, weighed in on the issue, emphasizing the policy implications.  Merck entered into a class action settlement in the Vioxx MDL. Afterwards, plaintiffs in Missouri sought to pursue claims that had already been resolved in the settlement. Specifically, the state court plaintiffs sought recovery of alleged economic damages for the price of Vioxx prescriptions that were owned, not by the Missouri plaintiffs, but by the MDL plaintiffs who settled their claims and were paid already.  The MDL court stepped in, issuing an injunction under the All Writs Act, to protect and effectuate its orders regarding the settlement.  The district court concluded that the injunction was necessary to prevent interference with years of effort, at great expense, to reach the massive settlement. Plaintiffs appealed.

PLAC noted that an MDL court has authority and flexibility to decide a case and to manage it, including to effectuate binding settlements that state courts may not frustrate or imperil. Injunctions in aid of the settlement are valid exercises of a federal court's authority under the All Writs Act.

The policy underlying this view is that, otherwise, the finality of virtually any class action involving pendent state claims could be defeated by subsequent suits brought in those states, asserting rights derivative of those already released by class members.  As a practical matter, no defendant in consolidated federal court actions could reasonably be expected to consummate a settlement of the claims if those claims could later be reasserted under state law by different plaintiffs seeking recovery of the money already paid to the federal court plaintiffs.

The "clear and present risk" to the finality of the settlements reached, argued PLAC, was the duplication of effort, the re-litigation of claims that were settled, and a possible double recovery of the damages. The success of any federal court settlement is dependent on the parties' ability to agree to a release of all claims in exchange for fair consideration; if any of those claims can be re-litigated, there could be no certainty about the finality of the federal settlement, nor the amount a defendant will pay.  This would threaten settlement efforts by the district courts, and hamper the utility of the MDL forum.  Indeed, MDL litigation presents a unique opportunity to resolve large numbers of claims in an efficient manner. Parallel state court actions that functionally would require defendants to pay twice on the same claims would severely curtail the incentive to settle.

PLAC argued that the had been careful not to over-reach; the injunction forbids recovery only of the claims that have already been settled.

Lone Pine Ruling Affirmed in Vioxx

The Sergeant Joe Friday character on Dragnet was created and played by actor Jack Webb.  Like so many famous lines, the immortal words, "Just the facts, ma'am," were apparently never uttered by the character.  What Friday actually said in early episodes is "All we want are the facts, ma'am."  

Either way, that's our motto when we post about litigation the firm has been involved in.  But with that limitation, a noteworthy decision is In re Vioxx Products Liab. Litig., 2010 WL 2802352 (5th Cir. July 16, 2010).

After a tentative settlement was reached in the Vioxx litigation, the MDL court entered several pre-trial orders with respect to the claims of those plaintiffs who could not or chose not to participate in the Master Settlement Agreement (MSA).  PTO 28 required non-settling plaintiffs to notify their healthcare providers that they must preserve evidence pertaining to the plaintiffs' use of Vioxx. Plaintiffs were also required to produce pharmacy records and medical authorizations, answers to interrogatories, and a Rule 26(a)(2) report from a medical expert attesting that the plaintiff sustained an injury caused by Vioxx and that the injury occurred within a specified time period. Failure to comply could result in dismissal of the plaintiffs' claims with prejudice.

PTO 28 is characterized as a Lone Pine order, named for Lore v. Lone Pine Corp., No. L-33606-85, 1986 WL 637507 (N.J.Super. Ct. Law Div. Nov. 18, 1986). Lone Pine orders are designed to handle the complex issues and potential burdens on the aprties and the court in mass tort litigation. Acuna v. Brown & Root Inc., 200 F.3d 335, 340 (5th Cir.2000).

The trial court extended deadlines, but eventually defendant Merck moved for an Order to Show Cause as to sixty-one plaintiffs for alleged failure to provide a case-specific expert report as required by PTO 28. The plaintiffs filed responses, arguing that they were in substantial compliance with PTO 28 and that state substantive law only required general forms of causation proof. In April 2009, the district court dismissed these plaintiffs' complaints with prejudice for failure to comply with PTO 28.

A district court's adoption of a Lone Pine order and decision to dismiss a case for failing to comply with a Lone Pine order are reviewed for abuse of discretion. Acuna, 200 F.3d at 340-41. The district court stated that “it is not too much to ask a plaintiff to provide some kind of evidence to support their claim that Vioxx caused them personal injury.”

The court of appeals had previously held that such orders are issued under the wide discretion afforded district judges over the management of discovery under Federal Rule 16. The court had held that the Lone Pine orders essentially required information which plaintiffs should have had before filing their claims pursuant to Rule 11.  Each plaintiff should have at least some information regarding the nature of his injuries, the circumstances under which he could have been exposed to harmful substances, and the basis for believing that the named defendants were responsible for his injuries.

The Fifth Circuit reaffirmed its view that it is within a trial court's discretion to take steps to manage the complex and potentially very burdensome discovery that these mass tort cases would require. The court of appeals thus affirmed the judgment of the district court.