A federal court rejected a proposed class action in which plaintiffs alleged that a drug maker misstated the frequency of potential side effects.  See Saavedra v. Eli Lilly & Co., No. 12-09366 (C.D. Calif., 12/18/14).

Plaintiffs alleged they were harmed because the defendant allegedly understated the risk of withdrawal-related side effects, so they purportedly received a product that had less value than they expected it to have. Plaintiffs asserted that their proposed class met the requirements for Rule 23(b)(3). To qualify for certification under this subsection, a class must satisfy two conditions: (1) common questions of law or fact must “predominate over any questions affecting only individual members,” and (2) class resolution must be “superior to other available methods for the fair and efficient adjudication of the controversy.” Fed. R. Civ. P. 23(b)(3). The predominance requirement is satisfied where common questions comprise a significant portion of the case and can be resolved for all class members in one adjudication. See In re ConAgra Foods, Inc.,  No. CV 11-05379 MMM AGRX, 2014 WL 4104405, at *29 (C.D. Cal. Aug. 1, 2014).

Rule 23(b)(3)’s predominance prong also requires the moving party to show that “damages are capable of measurement on a classwide basis.” Comcast Corp. v. Behrend, 133 S. Ct. 1426, 1433 (2013). Specifically, this requires plaintiffs to tie their method of proving damages to their theory of liability. We have posted about the impact of this decision before, and here.

Plaintiffs relied on Dr. Joel W. Hay to establish their method of proving class-wide damages.  Plaintiffs did not seek damages for personal injuries. Instead, plaintiffs argued that class members were harmed because they purchased a product that was represented to have a lower risk of withdrawal side than it actually had.  Thus, plaintiffs claim they were injured because the drug as received was worth less than the drug as represented. However, plaintiffs did not assert that class members were harmed by being overcharged or by being induced to purchase something that they would not have otherwise purchased. Instead, plaintiffs argued that the harm was in receiving a product that had less value than the value of the product as class members expected to receive it. Plaintiffs thus seemed to use the term “value” to mean consumer utility—a concept distinct from and not directly related to price. According to plaintiffs, this consumer value or “utility” supposedly was the measure of the benefit that consumers believe they will obtain by using or owning a product.

Plaintiffs’ theory of injury thus was trying to be distinct from the typical benefit-of-the bargain claim
because it focused only on the demand side of the equation, rather than on the intersection of  supply and demand. In other words, plaintiffs sought to prove injury by showing that each class member received a drug that the average consumer would subjectively value less than the average consumer subjectively valued the drug he expected to purchase. In contrast, the typical benefit-of-the-bargain claim relies on a difference in fair market value (i.e. the amount that a willing
buyer and willing seller would both accept) between the product as represented and the product
actually received.

The court rejected this theory, and agreed with defendant that its flaws impacted predominance and superiority. Dr. Hay’s model looked only to the demand side of the market equation. By looking only to consumer demand while ignoring supply, Dr. Hay’s method of computing damages converts the lost-expectation theory from an objective evaluation of relative fair market values to a seemingly subjective inquiry of what an average consumer wants. But plaintiffs provided and the court found no case holding that a consumer may recover based on consumers’ willingness to pay irrespective of what would happen in a functioning market (i.e. what could be called sellers’ willingness to sell).

Second, at some point the subjective valuation had to be converted to actual dollar damages. But as Dr. Hay readily admitted, the prescription drug market is not an efficiently functioning market. Unlike markets for ordinary consumer goods, the prescription drug market is heavily regulated and restricted. The market is further complicated by insurance plans’ (or their absence’s) and their determinative effect on the price that an individual pays.  This price, in turn, relies on prices set by a complex array of contracts between such entities as health plan sponsors, third-party payers, pharmacy benefit managers, retail pharmacy chains, and the drug manufacturer.  Thus, depending on her insurance plan, an individual might pay nothing, a percentage of a “full price” determined by a contract between her insurance provider and another entity, a flat co-payment, or some other “full” price.

So, even assuming the expert’s analysis could be used to compute the relative value consumers place on a drug having a lower withdrawal risk (which of course defendant disputed), Hay’s proposed measure was highly flawed.  As noted, the numerous complicating factors in the prescription drug market sever the relationship between price and value. See In re POM Wonderful LLC, No. ML 10-02199 DDP RZX, 2014 WL 1225184, at *4 (C.D. Cal. Mar. 25, 2014) (stating that in contrast to an efficient market, in an inefficient market some information is not reflected in an item’s price). In other words, a consumer’s out-of-pocket cost for a drug is not a proxy for the drug’s value to that consumer. Thus, class members’ out-of-pocket costs are not a proxy for the value of the drug as represented. Therefore, applying the value ratio to class members’ out-of-pocket costs fails to tether the consumers’ relative valuations of product features to the drug’s fair market value. Instead, it yields an arbitrary amount that is unrelated to the amount of harm incurred by individual class members.

While Dr. Hay might have been correct that a rational consumer would not pay more for the drug than she believes it is worth, a rational consumer would surely pay less than she believes the drug is worth. Thus, it does not follow that a consumer who pays a $20 co-payment believes that the drug is only worth $20. Therefore applying the refund ratio to that consumer’s co-payment does not yield an accurate approximation of the difference between the consumer’s subjective valuation of the drug as represented and the drug as actually received (even assuming plaintiffs’ medical facts were right).

Additionally, Dr. Hay’s model suffered from serious methodological flaws. He proposed conducting a survey in 2014 (or later) to estimate consumers’ valuation and apply this estimate to harms incurred by class members beginning in 2004, a decade ago.  With no legitimate basis for that leap.

Accordingly, plaintiffs failed to show that damages could be “feasibly and efficiently calculated” once liability issues common to the class were decided. Rahman v. Mott’s LLP, No. 13-CV-03482-SI, 2014 WL 6815779, at *8 (N.D. Cal. Dec. 3, 2014); accord Lilly v. Jamba Juice Co., No. 13-CV-02998-JST, 2014 WL 4652283, at *9–10 (N.D. Cal. Sept. 18, 2014) (same). Plaintiffs’ failed to present a method of calculating damages that was tied to their theory of liability. The court therefore declined to grant the motion to certify a damages class under Rule 23(b)(3).