DRUG AND MEDICAL DEVICE A Practical Guide Defending Against State Attorney

By Jessica D. Miller General Litigation and Jordan Schwartz

With their growing One of the biggest legal challenges facing the pharmaceu- focus on civil penalty tical industry is the increasing volume of litigation pros- recoveries and the ecuted by state attorneys general. Most of these cases, threat of exorbitant which typically seek restitution and civil penalties, are premised on theories of economic loss pharmaceutical defendants should con- verdicts, these cases under which an attorney general claims sider when facing such a lawsuit. First, de- that the state or its citizens have been fendants should consider removing the present real challenges injured by virtue of having to pay for an case to a federal court under a theory of allegedly defective pharmaceutical drug substantial federal question jurisdiction to pharmaceutical or device. The attorneys general in some as set forth in Grable & Sons Metal Prods., of these lawsuits have prevailed against Inc. v. Darue Eng’g & Mfg., 545 U.S. 308 companies, but they pharmaceutical manufacturers. For exam- (2005), or under the Class Action Fairness ple, an attorney general lawsuit regard- Act (CAFA). Second, defendants should are by no means ing the drug Risperdal resulted in a $1.2 move to dismiss a case asserting aggre- billion penalty for nearly 240,000 alleged gate claims and requests for civil penalties insurmountable. violations of the state’s Medicaid fraud law under the individualized-­proof rule or for and $11 million for alleged violations of lack of a cognizable loss, or both, as well as the state deceptive practices act. A simi- challenge any claims under the state false lar lawsuit by the Louisiana attorney gen- claims act or Medicaid fraud statute as not eral regarding the same drug resulted in a reaching drug and device manufacturers. $257.7 million verdict after the jury found Third, defendants should conduct their 35,542 violations of the Louisiana Medical own discovery, including deposing state Assistance Programs Integrity Law and officials to uncover the bases of the state’s penalized the company $7,250 for each one. claims. And fourth, defendants should The good news for defendants is that determine whether an attorney general has they can take a series of concrete steps to hired outside counsel to prosecute the law- challenge these cases successfully. This suit—and if so—whether there is any basis article examines four practical steps that to challenge such arrangement.

■ Jessica D. Miller is a partner and Jordan Schwartz is an associate in the Washington, D.C., office of Skad- den, Arps, Slate, Meagher & Flom LLP. Ms. Miller has broad experience in the defense of purported class actions and other complex civil litigation, with a focus on product liability matters and multidistrict litigation proceedings. Mr. Schwartz focuses on purported class actions and multidistrict litigation, particularly con- sumer-fraud class actions in California and other states.

50 ■ For The Defense ■ September 2013 Theories of Removal for State sought to recover Medicaid funds spent edy for a violation of the federal statute.” Id. Attorney General Cases on Zyprexa); Montana ex rel. McGrath at 585. See also, e.g., Caldwell ex rel. Louisi- The starting point for defending against v. Eli Lilly & Co. (In re Zyprexa Prods. ana v. Bristol Myers Squibb Sanofi Pharms. litigation initiated by a state attorney gen- Liab. Litig.), Nos. 04-MD-1596, 07-CV-1933 Holding P’ship, No. 2:12 CV 00443, 2012 U.S. eral is removal to a federal court. A federal (JBW), 2008 U.S. Dist. Lexis 10355, at *8–10 Dist. Lexis 126039, at *5–6 (W.D. La. Sept. court is less likely to be hostile to an out- (E.D.N.Y. Feb. 12, 2008) (same); Louisiana 4, 2012) (rejecting the “argu[ment] that the of-state defendant and is arguably more ex rel. Foti v. Eli Lilly & Co. (In re Zyprexa [state-law] claims arise under federal Med- likely to embrace its substantive defenses, Prods. Liab. Litig.), 375 F. Supp. 2d 170, icaid law because the Attorney General will including those under the individualized-­ 172 (E.D.N.Y. 2005) (same); New Mexico have to prove that the defendants caused proof rule. Two theories of removal have v. Eli Lilly & Co. (In re Zyprexa Prods. been attempted when pharmaceutical com- Liab. Litig.), Nos. 04-MD-1596,07-CV-01749 panies are forced to defend against claims (JBW/RLM), 2009 U.S. Dist. Lexis 20768, brought by state attorneys general: (1) sub- at *71 (E.D.N.Y. Mar. 11, 2009) (same). Federal district courts  stantial federal question jurisdiction under In each of these cases, Judge Weinstein Grable, 545 U.S. at 308; and (2) jurisdiction held that federal Medicaid funding provi- are currently split on under CAFA. sions were integral to determining whether states were entitled to reimbursement for whether attorney general Grable: Substantial Federal payments made for Zyprexa and that the Question Jurisdiction states’ claims therefore presented substan- actions seeking to recover In Grable, 545 U.S. at 308, the Supreme tial federal questions regarding Medicaid Court held that a quiet title claim that de- law. For instance, in McGraw and McGrath, Medicaid dollars are pended on the interpretation of a federal tax the court held that because federal Med- law provision was subject to substantial fed- icaid law mandates that states cover cer- subject to federal question eral question jurisdiction, despite the fact tain drugs, plaintiffs’ claims would turn on that the claim was brought under state law. whether the states were obligated to pay for jurisdiction under Grable. Id. at 312. In its holding, the Supreme Court Zyprexa under federal law, making federal made clear that “federal question jurisdic- jurisdiction appropriate. tion will lie over state-law claims that im- In contrast, a number of courts, including the state to spend more money than it oth- plicate significant federal issues” because a those adjudicating claims involving the drug erwise would have been obligated to spend “federal court ought to be able to hear [state- Risperdal, have held that federal question under federal Medicaid regulations”); In law claims] that nonetheless turn on sub- jurisdiction does not exist over state law re Avandia Mktg., Sales Practices & Prods. stantial questions of federal law, and thus claims seeking recovery of Medicaid dol- Liab. Litig., MDL No. 1871, 2012 U.S. Dist. justify resort to the experience, solicitude, lars. For example, a federal court assessing Lexis 48319, at *9 (E.D. Pa. Apr. 4, 2012) (re- and hope of uniformity that a federal forum jurisdiction in the Pennsylvania Risperdal manding cases by state attorneys general offers on federal issues.”Id. case found that Grable did not apply because claiming that Medicaid funds were improp- A common characteristic of litigation “[e]ven though ‘medically accepted indica- erly dispersed based on defendant’s alleged brought by state attorneys general in the tion’ is defined by federal law, liability under fraudulent marketing of Avandia because pharmaceutical context is the pursuit of the state law claims presented here nonethe- “[t]he issues of federal law do not predom- Medicaid dollars spent on covering alleg- less does not depend on the violation of any inate”); Hood ex rel. Mississippi v. Astra- edly defective pharmaceutical products. federal standard or statute.” Pennsylvania v. Zeneca Pharms., LP, 744 F. Supp. 2d 590, Federal district courts are currently split Eli Lilly & Co., 511 F. Supp. 2d 576, 581 (E.D. 607 (N.D. Miss. 2010) (granting remand on whether attorney general actions seek- Pa. 2007). While the court recognized that where the state attorney general sought re- ing to recover Medicaid dollars are sub- Judge Weinstein has taken the opposite ap- imbursement for Medicaid funds spent on ject to federal question jurisdiction under proach in the Zyprexa cases, it found that Risperdal); State ex rel. McMaster v. Astra- Grable. Judge Jack Weinstein, who oversaw Judge Weinstein’s view was incorrect. See Zeneca Pharms. LP, No. 7:09-387-HFF, 2009 the federal litigation involving the drug id. at 584 n.3. As the court explained, “[a] U.S. Dist. Lexis 39174, at *18–*19 (D.S.C. May Zyprexa, has repeatedly held that state law lthough federal regulatory schemes may be 5, 2009) (granting remand where the state claims seeking to recoup Medicaid pay- implicated” in cases seeking the return of attorney general sought reimbursement of ments for prescription drugs are subject Medicaid funds, “it takes more than a fed- Medicaid funds spent on Seroquel). to federal question jurisdiction under Gra- eral element to open the… door” to federal ble because such claims require interpreta- question jurisdiction. Id. at 584. According Removal of Parens Patriae tion of federal Medicaid law. See, e.g., West to the Pennsylvania federal district court, Lawsuits as “Class Actions” or Virginia ex rel. McGraw v. Eli Lilly & Co. the “mere presence of a federal standard em- “Mass Actions” Under CAFA (In re Zyprexa Prods. Liab. Litig.), 476 F. bedded in a state law cause of action is not Pharmaceutical companies should also Supp. 2d 230, 233 (E.D.N.Y. 2007) (denying sufficient to warrant federal subject matter consider removing attorney general remand where the state attorney general jurisdiction where there is no federal rem- cases as “class actions” or “mass actions”

For The Defense ■ September 2013 ■ 51 DRUG AND MEDICAL DEVICE under CAFA, Pub. L. No. 109-2, 119 Stat. ute. 28 U.S.C. §1332 (d)(2)(C). This limitation be enforced.’” Id. at 800. This determination 4 (2005), codified in relevant part at 28 is significant because more and more phar- was based on several grounds: (1) the com- U.S.C. §1332(d), although the viability of maceutical companies face state attorney plaint itself alleged harm to both the state this removal theory will turn on how the general cases that overlap with the subject and to individual citizens; (2) the statutes U.S. Supreme Court rules in a case cur- matter of pending MDL proceedings. Thus, on which the lawsuit was based did not rently before it. when contemplating potential removal the- give the “[s]tate sole authority to recover CAFA defines a “class action” as “any ories, pharmaceutical defendants should not for particularized injuries suffered by con- civil action filed under Rule 23 of the Fed- only consider the relevant case law in their sumers”; and (3) the state had not acted in eral Rules of Civil Procedure or similar State jurisdictions, but also whether a case be- the case under its parens patriae author- longs in a pending MDL proceeding. No- ity, “but essentially as a class representa- tably, defendants can avoid the limitation tive.” Id. at 800-01. For all of these reasons, imposed by section 1332(d)(2)(C) by remov- the Fifth Circuit held that the lawsuit ini- It bears noting that cases ing on more than one theory. See In re: Dar- tiated by the attorney general was a “mass vocet, MDL No. 2226, 2013 U.S. Dist. Lexis action” removable to a federal court under removed as “mass actions” 54107, at *13 (J.P.M.L. Apr. 17, 2013) (“Upon CAFA. The Supreme Court has granted a review of CAFA’s overall purpose and its en- writ of certiorari in the AU Optronics case may not be transferred to tire legislative history, we conclude that Con- to determine whether state attorney general gress did not intend that actions removed cases may qualify as “mass actions” under multidistrict litigation (MDL) on multiple grounds, grounds which in- CAFA. Thus, the viability of this theory of clude the mass action provision, would be removal hinges on how the Supreme Court proceedings “unless a restricted from Section 1407 transfer.”). resolves this question. See 2013 U.S. Lexis The propriety of some of these removal 4007 (U.S. May 28, 2013). majority of the plaintiffs in theories is currently in a state of flux. In Other federal appeals courts that have State ex rel. Hood v. AU Optronics Corp., addressed the “mass action” question in the action request transfer” 701 F.3d 796 (5th Cir. 2012), the Mississippi attorney general-­initiated lawsuits have attorney general asserted state consumer reached a contrary result. In LG Display Co. under the MDL statute. protection and antitrust claims against the v. Madigan, 665 F.3d 768 (7th Cir. 2011), for manufacturers and distributors of certain example, the Illinois attorney general sued liquid crystal display (LCD) panels. The de- manufacturers of LCD products, alleging statute or rule of judicial procedure autho- fendants removed the case under both the violations of the Illinois Antitrust Act. The rizing an action to be brought by 1 or more “class action” and “mass action” provisions complaint alleged that defendants unlaw- representative persons as a class action.” of CAFA. The district court remanded the fully inflated prices on their products sold 28 U.S.C. §1332(d)(1)(B). A “mass action,” case, but the appellate court reversed. The to the state and Illinois citizens and sought which is also removable under CAFA, is de- Fifth Circuit first rejected the argument that injunctive relief, civil penalties, and treble fined as “any civil action… in which mone- the case qualified as a “class action” under damages for the state as a purchaser and, tary relief claims of 100 or more persons are CAFA, reasoning that “[b]ecause Missis- as parens patriae, for harmed citizens. Id. proposed to be tried jointly on the ground sippi did not bring th[e] suit under Rule 23 at 770. The defendants removed the lawsuit that the plaintiffs’ claims involve common or a rule of judicial procedure” and because as a “class action” and “mass action” un- questions of law or fact.” 28 U.S.C. §1332(d) the statutes under which the lawsuit was der CAFA, but the district court remanded (11)(B)(i). Defendants have argued that at- brought were not “similar” to Federal Rule the case, and the Seventh Circuit affirmed. torney general lawsuits should be remov- 23, the action did not constitute a “class ac- The appellate court first determined that able as “mass actions” when an attorney tion” under CAFA. Id. at 799. However, the the lawsuit was not a “disguised” “class general seeks relief that would benefit the court of appeals did find that the action action” under CAFA, explaining that “[a] state’s citizens—for example, by seeking met the definition of a “mass action” under class action must be brought under Rule damages on behalf of individual consum- CAFA. Because the lawsuit involved “mone- 23 or the state equivalent.” Id. at 772. Be- ers. Under these circumstances, an action tary relief” claims in excess of $75,000, the cause the Illinois Antitrust Act “does not brought by an attorney general is essentially determinative question was whether the impose, for example, requirements for ad- a representative action brought on behalf of lawsuit involved claims of “100 or more per- equacy, numerosity, commonality or typi- individuals supposedly injured by the de- sons.” Id. at 799. According to the court, the cality,” the court of appeals reasoned that a fendant’s conduct, making the individuals answer to that question was “yes” because lawsuit brought under that statute did not the real parties in interest. the state was not the only real party in in- qualify as a “class action” under CAFA. Id. It bears noting that cases removed as terest. In addition to the state, which pur- at 772. The appellate court also rejected the “mass actions” may not be transferred to chased the LCD panels, the lawsuit involved defendants’ argument that the lawsuit sat- multidistrict litigation (MDL) proceedings the claims of “numerous” individual Mis- isfied the requirements of a “mass action.” “unless a majority of the plaintiffs in the ac- sissippi citizens who also purchased those According to the court, “only the Illinois At- tion request transfer” under the MDL stat- products and “possess[ed] ‘rights sought to torney General makes a claim for damages,”

52 ■ For The Defense ■ September 2013 and the lawsuit therefore did not involve the 671 F. Supp. 2d 397, 453 (E.D.N.Y. 2009), sentations. Whether a more adequate monetary relief claims of 100 or more per- the Mississippi attorney general asserted warning by Lilly would have prevented sons. Id. Further, while the complaint also Medicaid-­related claims regarding Lil- any particular patient’s injuries requires sought relief for harm allegedly caused to ly’s purported off-label marketing of the consideration of what the prescribing Illinois citizens, these claims were asserted drug Zyprexa, alleging that the company physician knew and the cost-benefit “on behalf of the general public” rather than engaged in illegal off-label promotion of analysis that applied to the individual “individual claimants or members of a pur- Zyprexa and failed to warn about the drug’s patient suffering from a variety of seri- ported class.” Id. For this reason as well, the side effects.Id. at 401, 453. Judge Jack Wein- ous mental problems. lawsuit was not a “mass action” removable stein applied an “individualized proof rule” Id. under CAFA. The Ninth Circuit reached a to bar one of the state’s primary theories of similar conclusion in Nevada v. Bank of Am. causation, namely, that Lilly’s alleged mis- Corp., 672 F.3d 661, 672 (9th Cir. 2012), rea- conduct caused more Zyprexa to be pre- soning that because “[t]he State of Nevada is scribed to Medicaid beneficiaries, either A pharmaceutical the real party in interest, … the action falls because doctors prescribed Zyprexa for off- 99 persons short of a ‘mass action.’” label use more than they otherwise would defendant may be able In sum, if the Supreme Court affirms have, or because doctors would have been the Fifth Circuit ruling in AU Optronics it more hesitant to prescribe the drug if it to obtain dismissal would validate removing attorney general had come with a stronger warning. Id. at lawsuits seeking relief on behalf of indi- 454. Judge Weinstein granted Lilly sum- under the individualized-­ vidual consumers as “mass actions” under mary judgment on this theory, holding that CAFA. Because the question presented in the state could not prove its theory of cau- proof rule, which bars the Supreme Court order granting certio- sation on an aggregate basis. Judge Wein- rari is limited to the “mass action” issue, stein began by explaining that Mississippi’s courts from adjudicating the Court’s decision may leave open the theories of relief turned the lawsuit into a possibility of removing attorney general functional class action even though the aggregate claims with cases as “class actions” as well, although state itself was a single party and Federal the adverse case law regarding this theory Rule 23 had not been invoked. The court generalized proof. of removal would make removal on this reasoned that “[c]onceptually and struc- basis much more difficult. turally,” “the State’s suit is predicated on numerous acts of fraud… alleged to have Judge Weinstein also found that an Moving to Dismiss Aggregate Claims, affected a statewide population of phy- award of penalties was barred under the Requests for Penalties, and Claims sicians [and] patients.” Id. at 433. Judge individualized-­proof rule because the trial Under State False Claims Acts Weinstein went on to hold that an “individ- court “is invested with discretion to deter- Once jurisdiction is determined, a de- ualized proof rule” applies in a structural mine the appropriate amount of the pen- fendant should next consider moving to class action just as it does in a traditional alty with respect to each violation, whether dismiss the claims asserted by an attorney class action under Federal Rule 23. Such a the maximum of $10,000 or some smaller general under various theories. rule requires plaintiffs to prove causation amount.” Id. at 458. Although the Mis- First, a pharmaceutical defendant on an individual basis and thus bars aggre- sissippi statute did not articulate the spe- may be able to obtain dismissal under gate adjudication of claims that include a cific factors that a court should consider the individualized-­proof rule, which bars causation element. Id. at 434. when evaluating a request for civil penal- courts from adjudicating aggregate claims Applying the “individualized proof rule” ties, Judge Weinstein found that the court with generalized proof. As some federal to Mississippi’s theories of relief, Judge would nonetheless have to consider courts have recently recognized, attor- Weinstein granted summary judgment in a number of issues as they bear on each ney general litigation in which a state favor of Lilly with respect to all theories of Zyprexa prescription, including but asserts multiple wrongful acts that alleg- causation that depended on individualized not limited to: whether the prescrip- edly affected numerous individuals can- showings, in particular, the state’s theories tion was for an on-label or off-label use; not proceed to trial when the claims would that it had spent money on diseases caused whether the prescription was medically require hundreds or thousands of cau- by Zyprexa and on prescriptions that were necessary; whether the patient received sation inquiries. Two district court rul- made as a result of Lilly’s representations any benefit from Zyprexa; whether and ings in state attorney general cases arising or warnings. Id. at 454–55. Judge Wein- the extent to which the patient experi- from alleged misrepresentations regarding stein reasoned that enced any of Zyprexa’s potential meta- prescription drugs demonstrate how the [i]ndividualized proof is needed… to bolic side effects; the information about individualized-­proof rule can doom attor- overcome the possibility that a Missis- Zyprexa available to the medical com- ney general litigation. sippi patient was prescribed Zyprexa munity at the time the prescription was In Hood ex rel. Mississippi v. Eli Lilly for some reason other than belief in the written; and the times of the various & Co. (In re Zyprexa Prods. Liab. Litig., accuracy of Lilly’s warnings or repre- alleged instances of misconduct by Lilly,

For The Defense ■ September 2013 ■ 53 DRUG AND MEDICAL DEVICE

and whether and to what extent each Louisiana arising from alleged misrepre- tion omitted); In re Schering-Plough Corp. instance may have impacted the pre- sentations concerning the drug Vioxx. In Intron/Temodar Consumer Class Action, scription in question. that case, the state alleged, among other No. 2:06-cv-5774 (SRC), 2010 U.S. Dist. Id. at 458–59. things, that fewer Vioxx prescriptions Lexis 56621, at *24–25 (D.N.J. June 9, 2010) The court went on to reason that [d]ue would have been written—and thus fewer (“Despite the unquestionable detail in the to the nature of the alleged misconduct Medicaid dollars spent—but for defendant Amended Complaint concerning the tac- and injuries in the instant case, and in Merck’s alleged misrepresentations and tics employed by Schering in marketing light of the discretion invested in the failure to warn. See Louisiana Atty. Gen.’s the Subject Drugs, the allegations still fail court to set the amount of the CPA pen- Mem. of Law in Opp’n to Merck’s Mot. to establish that Named Plaintiffs suffered to Dismiss Pl.’s Am. Compl. at 16. Judge injury fairly traceable to the misconduct at Fallon held that such theories are fore- issue.”), aff’d, 678 F.3d 235 (3d Cir. 2012). closed under the “individualized proof While most federal appeals courts that Many courts have rule” because “[e]ach decision by each doc- have addressed aggregate claims in phar- tor and each patient was different,” and it maceutical litigation in contexts other than recognized that a plaintiff would be “simply impossible, or close to it, traditional class actions have held that to determine the individual thought pro- plaintiffs cannot prove such claims with suing based on an allegedly cess of each of the thousands of doctors generalized evidence, a recent decision by and patients involved.” In re Vioxx, 2010 the First Circuit reached a contrary result. defective pharmaceutical U.S. Dist. Lexis 142767, at *23-24. For this See Harden Mfg. Corp. v. Pfizer, Inc. (In re reason, the state’s theory of causation that Neurontin Mktg. & Sales Practices Litig., product lacks standing to Merck’s alleged misrepresentations “led to No. 11-1806), 2013 U.S. App. Lexis 6797 the prescription of Vioxx” failed as a mat- (1st Cir. Apr. 3, 2013). In that case, several sue for purely economic ter of law, and Merck was entitled to sum- third-party-payor purchasers of prescrip- mary judgment on that theory. Id. tion drugs sued two pharmaceutical de- losses where the plaintiff While the Zyprexa and Vioxx courts fendants under, among other things, the applied the individualized-­proof rule on federal Racketeer Influenced and Corrupt does not allege that the motions for summary judgment, the rea- Organizations (RICO) Act and the New soning underlying the decisions also sup- Jersey Consumer Fraud Act, seeking to product was ineffective ports challenging a state attorney general’s recover the money spent in covering Neu- case on the pleadings. After all, as the rontin for various off-label purposes. Id. at or caused the particular Vioxx court recognized in the Louisiana *2. The district court had granted the de- attorney general case, it would be “sim- fendants summary judgment, finding that plaintiff physical injury. ply impossible, or close to it” for a court to plaintiffs’ aggregate evidence of causation assess individualized facts even if a govern- was improper as a matter of law. Id. at *3. mental entity attempted to proffer them. The court of appeals reversed, however, alty, proper assessment of the claimed 2010 U.S. Dist. Lexis 142767, at *23–24. For rejecting the defendants’ argument that penalties would require individualized this reason, a number of courts have dis- “the individualized nature of physicians’ consideration of the circumstances of missed aggregate claims in pharmaceuti- prescribing decisions renders aggregate each prescription alleged to be in viola- cal cases that did not involve class actions. proof inappropriate.” Id. at *21. Accord- tion of the statute. See, e.g., United Food & Commer. Work- ing to the court, “[t]he combination of [] Id. at 459. ers Cent. Pa. v. Amgen, Inc., 400 F. App’x aggregate evidence and [] circumstantial Thus, determining the propriety of civil 255, 257 (9th Cir. 2010) (affirming dis- evidence was enough for the [] plaintiffs to penalties on a “per-­violation basis” would missal of a third-party-payor complaint overcome summary judgment.” Id. at *21– be “impractical and beyond the resources for “fail[ing] to plead a cognizable the- 22. The defendants plan to petition the U.S. of any court.” Id. Based on this reasoning, ory of proximate causation” on a motion Supreme Court for certiorari review. the court granted summary judgment in to dismiss); Emplr. Teamsters-Local Nos. While the Neurontin ruling threatens favor of the defendant with respect to the 175/505 Health & Welfare Trust Fund v. the vitality of the individualized-proof­ rule claim for statutory penalties. Id. Bristol Myers Squibb Co., No. 3:12-0587, within the First Circuit, that rule, as illus- Similarly, in Louisiana v. Merck & Co. 2013 U.S. Dist. Lexis 21589, at *32 (S.D. W. trated by the Zyprexa and Vioxx rulings, (In re Vioxx Prods. Liab. Litig., No. 05-md- Va. Jan. 29, 2013) (granting a motion to dis- remains a strong weapon against attorney 1657), 2010 U.S. Dist. Lexis 142767, at *23 miss on causation grounds and noting that general litigation in most other jurisdic- (E.D. La. Mar. 31, 2010), Judge Eldon Fallon “[b]etween [d]efendants’ alleged mislead- tions. Under the Zyprexa and Vioxx line of of the United States District Court for the ing marketing and [p]laintiffs’ prescrip- reasoning, an attorney general seeking to Eastern District of Louisiana also applied tion reimbursements lies a vast array of recover based on multiple acts of alleged an “individualized proof rule” to a struc- intervening events, including the ‘indepen- fraud against the citizens of a state can- tural class action brought by the state of dent medical judgment’ of doctors”) (cita- not prove causation or entitlement to pen-

54 ■ For The Defense ■ September 2013 alties on an aggregate basis. Rather, issues allegedly overpriced medications because defendants with a means to dispose of mer- related to causation and penalties would the plaintiffs failed to allege that the prod- itless cases early in litigation. have to be addressed in myriad, individ- ucts did not work as intended). Rather, as Third, when an attorney general pur- ualized minitrials, making an aggregated the Eleventh Circuit recently explained, sues litigation under a state’s false claims trial impractical. a plaintiff must also allege that but for a act or Medicaid fraud act, a drug manu- Second, suits by state attorneys gen- defendant’s alleged misconduct, physicians facturer should examine the particular eral against pharmaceutical companies “would not have prescribed the drug under statute carefully and consider whether it are often also subject to challenge for lack the standards of sound medical practice could successfully challenge the state’s law- of injury—a core element of many causes because the drug actually was unsafe or suit on the ground that the statute does not of action. The attorneys general in these ineffective in treating the plaintiff’s con- apply to drug and device manufacturers actions often allege that the state or its cit- dition.” Ironworkers, 634 F.3d at 1363–64. or to the wholesale transactions involving izens were injured because they would have In Ironworkers, several third-party pay- their products. paid for cheaper or supposedly safer alter- ors sued AstraZeneca, alleging that the For example, the Pennsylvania Medicaid native medications or both. Because this company fraudulently induced physi- fraud law expressly applies to “providers.” is not a viable theory of economic injury, cians to prescribe the medication Seroquel See 62 P.S. §1407 (listing “[p]rovider prohib- pharmaceutical companies should con- for numerous off-label uses. Id. at 1356. ited acts”) (emphasis added); id. §1407(c)(1) sider moving to dismiss an attorney gener- The plaintiffs claimed that AstraZeneca’s (“If the department determines that a pro- al’s claims on this ground as well. allegedly fraudulent off-label marketing vider has committed any prohibited act… Many courts have recognized that a campaign caused them “‘to unnecessar- it shall have the authority to immediately plaintiff suing based on an allegedly defec- ily pay for [the more expensive] Seroquel terminate, upon notice to the provider, the tive pharmaceutical product lacks stand- off-label prescriptions,’” and they sought provider agreement and to institute a civil ing to sue for purely economic losses where to recover the difference between the price suit against such provider in the court… for the plaintiff does not allege that the prod- of the off-label Seroquel prescriptions and twice the amount of excess benefits or pay- uct was ineffective or caused the particular the amount that they would have paid for ments plus legal interest from the date the plaintiff physical injury. See, e.g., Iron- the less expensive alternatives. Id. at 1357 violation or violations occurred.”) (empha- workers Local Union 68 & Participating (quoting complaint). The district court dis- ses added). The statute defines provider as Emplrs. Health & Welfare Funds, 634 F.3d missed each of the plaintiffs’ claims for “any individual or medical facility which 1352, 1363 (11th Cir. 2011) (“a patient suf- failing to adequately allege causation. The signs an agreement with the department fers no economic injury merely by being Eleventh Circuit affirmed, but on a dif- to participate in the medical assistance pro- prescribed and paying for a more expen- ferent ground: failing to plead cognizable gram, including, but not limited to, licensed sive drug”); Id. at 1363-64 (same conclu- injury. The court of appeals recognized that practitioners, pharmacies, hospitals, nurs- sion with respect to insurers that cover “for tort-based causes of action, the scope ing homes, clinics, home health agencies such prescriptions); Rivera v. Wyeth-Ayerst of potential economic injury arising from and medical purveyors.” Id. §1401. Drug Labs., 283 F.3d 315, 319-20 (5th Cir. 2002) a… health insurer’s[] purchases of pre- manufacturers are not included in this list. (holding that the plaintiff did not allege scription drugs is limited.” Id. at 1362. This Similarly, Missouri’s Medicaid fraud any cognizable injury because she does is so, the court explained, because a drug statute provides that a “health care pro- “not claim Duract caused [her] physical or prescription is based on a doctor’s medical vider shall [not] knowingly make or cause emotional injury, was ineffective as a pain judgment that the drug will be beneficial to to be made a false statement or false rep- killer, or ha[d] any future health conse- the patient. Id. As such, a plaintiff does not resentation of a material fact in order quences to users”); Health Care Serv. Corp. suffer “economic injury merely by being to receive a health care payment[.]” Mo. v. Pfizer, Inc., No. 2:10-cv-221, 2012 U.S. prescribed and paying for a more expensive Rev. Stat. §191.905(1) (emphasis added). Dist. Lexis 89759, at *7-8 (E.D. Tex. Apr. drug.” Id. at 1363. Instead, a plaintiff must A “health care provider” is defined as 23, 2012) (third-party payor failed to plead also show that the drug was “unnecessary “any person delivering, or purporting to injury because it “does not allege that any or inappropriate according to sound medi- deliver, any health care, and including any physician, had he or she known all the cal practice—i.e., the drug was either inef- employee, agent or other representative of true information about Geodon or Zyvox, fective or unsafe for the prescribed use.” such a person, and further including any would not have prescribed the drugs under Id. Because the plaintiffs in Ironworkers employee, representative, or subcontractor the standards of sound medical practice did not plead any facts suggesting that the of the state of Missouri delivering, purport- because the drugs actually were unsafe prescriptions were “unsafe or ineffective ing to deliver, or arranging for the deliv- or ineffective in treating their patients’ in treating the [enrollees’] condition,” they ery of any health care,” id. §191.900(7); a conditions”), report and recommendation had not “plausibly suffered economic injury “health care payment” is a payment made adopted by 2012 U.S. Dist. Lexis 89758 caused by AstraZeneca’s false representa- by a state medical assistance program for a (E.D. Tex. June 28, 2012); In re McNeil Con- tions.” Id. at 1363, 1369. health care service, id. §191.900(5)-(6). This sumer Healthcare, MDL No. 2190, 2011 Thus, depending on the precise causes language, too, likely does not reach drug U.S. Dist. Lexis 76800, at *45 (E.D. Pa. July of action asserted by an attorney general, manufacturers because they do not deliver 14, 2011) (dismissing claims arising from lack of injury can provide pharmaceutical or purport to deliver health care “in order

For The Defense ■ September 2013 ■ 55 DRUG AND MEDICAL DEVICE to receive a health care payment”—i.e., a macies and other providers; and… these lawyer or that a deposition would impinge payment from the state. other providers in turn file claims with the on protected work product. A handful of South Carolina’s Medicaid fraud stat- government (e.g., Medicare and Medicaid).” courts have barred depositions of gov- ute imposes similar requirements as well. Fazal Khan & Justin Holloway, Verify, Then ernment agency lawyers on these bases. That statute limits liability to a “provider of Trust: How to Legalize Off-Label Drug Mar- See, e.g., SEC v. Buntrock, 217 F.R.D. 441, medical assistance, goods, or services.” S.C. keting, 117 Penn St. L. Rev. 407, 414 (2012). 445 (N.D. Ill. 2003) (holding that a 30(b) Code Ann. §43-7-60(B). The statute defines Because drug and device manufacturers (6) notice was an inappropriate attempt to a “provider of medical assistance” as a “per- do not request payment from the state and depose opposing counsel and to delve into son who provides goods, services, or assis- may not be “providers” as defined under the theories and opinions of the SEC attor- certain statutes,, they are likely outside the neys); EEOC v. HBE Corp., 157 F.R.D. 465, scope of laws like those in Pennsylvania, 466 (E.D. Mo. 1994) (granting a motion for Missouri and South Carolina. ” a protective order barring deposition of an Depending on the More and more state attorneys general EEOC attorney, explaining that “it is the rely on their respective states’ false claims selection and compilation of the relevant precise causes of action acts and Medicaid fraud laws to sue phar- facts that is at the heart of the work prod- maceutical companies. As these officials uct doctrine”); SEC v. Morelli, 143 F.R.D. asserted by an attorney seek to stretch these laws beyond their 42, 47 (S.D.N.Y. 1992) (“the Court finds intended scope, pharmaceutical defend- that the proposed Rule 30(b)(6) deposition general, lack of injury can ants should rebuff these efforts by rely- constitutes an impermissible attempt by ing on the plain language of the statutes in defendant to inquire into the mental pro- provide pharmaceutical moving to dismiss these lawsuits. cesses and strategies of the SEC”). While attorneys general have relied on defendants with a means Conducting Discovery Against these cases in opposing a defendant’s efforts Attorneys General to take 30(b)(6) depositions, this caselaw to dispose of meritless Another step that a pharmaceutical de- represents the minority approach. Several fendant should take in challenging attor- other courts have recognized that defend- cases early in litigation. ney general litigation is to conduct its own ants have a right to depose public agencies discovery. This begins with propounding that sue them. See, e.g., William Beaumont interrogatories, requests for admissions, Hosp. v. Medtronic, Inc., No. 09-CV-11941, tance and who is entitled or claims to be and requests for production to an attor- 2010 U.S. Dist. Lexis 60370, at *22–23 (E.D. entitled to receive reimbursement, pay- ney general’s office. The fruits of this -ini Mich. June 18, 2010) (granting a motion to ment, or benefits under the state’s Medicaid tial discovery can then be used to depose compel a 30(b)(6) deposition and rejecting program.” Id. §43-7-60(A)(1). Drug compa- representatives of the state with know- reliance on Morelli because the “[p]laintiffs nies are likely not covered by this language ledge of the case to uncover the factual should have the opportunity to more fully because they do not receive reimbursement bases of a lawsuit even further. The infor- probe [defendant’s] [interrogatory] response or payment under South Carolina’s Medic- mation gleaned from these depositions can using the traditional method for ascertain- aid program. help the defendant adequately prepare its ing facts in the litigation process—examina- Arguments like these have already had defense and formulate arguments for dis- tion of a witness”); see also Serrano v. Cintas some success before the courts. See, e.g., positive pre-trial motions. Corp., No. 04-40132, 2007 U.S. Dist. Lexis United States ex rel. Ramadoss v. Caremark Under Federal Rule of Civil Procedure 66553, at *9–10 (E.D. Mich. Sept. 10, 2007) Inc., No. SA-99-CA-00914, 2008 U.S. Dist. 30(b)(6), a “party may name as the depo- (denying the EEOC’s motion for a protective Lexis 71299, at *17–18 (W.D. Tex. Aug. 27, nent a public or private corporation, a order barring a 30(b)(6) deposition and not- 2008) (“With regard to the first provision partnership, an association, a government ing that “[t]he arguments and caselaw cited under Section 36.002(1), it appears that agency, or other entity and must describe by [d]efendant… are [more] compelling and the language precluding the unlawful act with reasonable particularity the matters persuasive” than EEOC v. HBE Corp.). of making a false statement or misrepre- for examination” and “[t]he named orga- As one federal court put it, an attorney sentation on an application for a benefit or nization must then designate one or more general must submit to a deposition “like payment is directed at the Texas Medicaid officers, directors, or managing agents, any other litigant” by preparing a witness to recipient, and was not intended to apply or designate other persons who consent testify on his or her behalf. See United States to” providers) (citation omitted) [The court to testify on its behalf.” Fed. R. Civ. P. ex rel. Fry v. Health Alliance of Greater Cin- was construing a version of the Texas Med- 30(b)(6) (emphasis added). Federal Rule cinnati, No. 1:03-cv-167, 2009 WL 5227661, icaid Fraud Prevention Act that has since 30(b)(6) does not include any exception at *3 (S.D. Ohio Nov. 20, 2009) (“[T]he fact been amended to apply more broadly.] As for state attorneys general. However, attor- that government attorneys are the only in- one commenter explained, “drug compa- neys general tend to resist 30(b)(6) deposi- dividuals with the requisite knowledge to nies… sell the[ir] products to wholesale tion notices lodged with their offices on the answer Defendants[’] questions does not distributors… [who] in turn sell to phar- grounds that the only suitable deponent is a prevent them from preparing a designee to

56 ■ For The Defense ■ September 2013 answer the questions.… The United States, a defendant’s right to due process, at least a penalties-­only enforcement action under like any other litigant, has the duty to pre- when a state only seeks to recover civil pen- the Kentucky Consumer Protection Act. pare a witness to testify under oath on its alties. Under these circumstances, a de- Id. at *2. The attorney general alleged that behalf.”). See also Town of Colorado City v. fendant should challenge a contingency fee Merck had misrepresented and failed to United Effort Plan Trust, No. CV11-8037- arrangement between a state attorney gen- disclose the cardiovascular risks posed by PHX-DGC, 2012 WL 5989482, at *2 (D. eral’s office and outside counsel. the drug Vioxx. Merck filed a lawsuit in Ariz. Nov. 29, 2012) (stating that the Utah Contingency fee contracts between state federal court in Kentucky, alleging that the Attorney General’s office must submit to attorney general offices and private coun- attorney general had violated Merck’s right a representative deposition); Oklahoma sel became popular during the landmark to due process by engaging contingent-­fee ex rel. Edmonson v. Tyson Foods, Inc., No. tobacco litigation of the 1990s. Explaining 05-CV-329-GKF-SAJ, 2007 WL 649335, at *2 the trend, one commentator wrote, “Pub- (N.D. Okla. Feb. 26, 2007) (“Defendant has lic officials find it easy to say yes [to these a method under the Federal Rules of Civil arrangements] because the deals are sold As one federal court  Procedure that will permit Defendant to as no-win, no-fee.” Walter Olson, Tort Trav- obtain the information Defendant seeks— esty, Wall St. J., May 18, 2007. In other put it, an attorney general a Fed. R. Civ. Proc. 30(b)(6) deposition of words, a state is “not on the hook for any Plaintiff [Attorney General of Oklahoma] on downside, so wouldn’t it practically be must submit to a deposition topics listed by Defendant.”); Brown, Rud- negligent to let a chance to sue pass by?” nick, Freed & Gesmer v. Commonwealth, 17 Id. However, these fee arrangements have “like any other litigant” Mass. L. Rptr. 11 (Super. Ct. 2003) (noting considerable downsides as well. For one, that representative of Massachusetts Attor- they create an opportunity for unseemly by preparing a witness to ney General’s office was deposed as repre- liaisons between public enforcement offi- sentative of office). cials and private, profit-­motivated law- testify on his or her behalf. In short, pharmaceutical defendants fac- yers. As one former attorney general who ing significant liability exposure are not has openly criticized these arrangements powerless to uncover the facts underlying a explained, “[t]hese contracts… create the counsel to prosecute his action. Id. Merck particular set of claims just because a state potential for outrageous windfalls or even contended that the arrangement violated attorney general has asserted them. The outright corruption for political support- its due process right to an impartial tribu- basic tools of civil discovery, including in- ers of the officials who negotiated the con- nal because it created an irresistible incen- terrogatories, requests for admissions, and tracts.” Adam Liptak, If You Win, You Lose, tive for private counsel to seek to maximize document requests, are a sensible starting N.Y. Times, July 9, 2007, at A10 (quoting monetary return, regardless of the public point. And given the ample case law sup- William H. Pryor Jr.). Critics have also con- interest. Id. at *3–4. Judge Reeves allowed porting the use of Federal Rule 30(b)(6) to demned the practice as promoting “regula- the case to proceed to discovery, hold- depose representatives of a state, including tion through litigation,” empowering states ing that “[i]f there is evidence that private government attorneys familiar with the to attack a wide variety of behavior by cor- counsel ‘have ever engaged in any con- underlying litigation, depositions remain porations merely by wielding the power of duct that invaded the sphere of control’ an important and viable discovery tactic to private attorneys. See Br. of U.S. Chamber reserved to the [attorney general’s] office, help shape a company’s defenses before trial. of Commerce & Am. Tort Reform Ass’n as then the door is opened to a conclusion that Amici Curiae in Supp. of Mot. for J. as a the contingency fee arrangement violated Challenging Contingency Fee Matter of Law, at 20–21; Oklahoma v. Tyson the defendant’s rights.” Id. at *12. The case Arrangements Between Attorneys Food, Inc., No. 05-cv-00329-GKF-SAJ (N.D. advanced through discovery, and both par- General and Outside Counsel Okla. June 12, 2007). But perhaps the most ties filed motions for summary judgment. Pharmaceutical defendants can also fend troubling consequence of these contracts Earlier this year, Judge Reeves granted off attorney general litigation by challeng- is that they violate the due process rights summary judgment to the Kentucky attor- ing questionable arrangements between an of defendants through lawsuits that com- ney general, dealing a setback to defend- attorney general’s office and outside coun- bine the political power of the state and the ants seeking to challenge contingency fee sel, including contingency fee agreements. financial power of plaintiffs’ lawyers. arrangements between state attorneys gen- As legislators cut state budgets, attorney This concern was recently noted by eral and outside counsel in quasi-crimi- general offices increasingly resort to attor- Judge Danny Reeves in a case challenging nal enforcement proceedings. See Merck ney general-private­ counsel contingency Kentucky’s retention of contingency fee Sharp & Dohme Corp. v. Conway, No. 3:11- fee agreements to prosecute pharmaceu- counsel to sue a drug manufacturer over 51-DCR, 2013 U.S. Dist. Lexis 73672 (E.D. tical cases because they do not technically its marketing of the drug Vioxx. See Merck Ky. May 24, 2013). In granting the attorney involve expending tax dollars. However, Sharp & Dohme Corp. v. Conway, No. 3: general’s motion, Judge Reeves determined these contingency fee arrangements raise 11-51-DCR, 2012 U.S. Dist. Lexis 40940, at that the attorney general’s office was exer- serious conflict-­of-­interest and other ethi- *12 (E.D. Ky. Mar. 23, 2012). In that case, cising sufficient control over the underlying cal questions, and they most likely violate the Kentucky attorney general prosecuted lawsuit and that the fee arrangement with

For The Defense ■ September 2013 ■ 57 DRUG AND MEDICAL DEVICE the outside counsel did not violate Mer- See David Bario, AstraZeneca Sues South underlying action, making such arrange- ck’s due process rights. According to the Carolina to Block Use of Private Lawyers ments particularly inappropriate where court, “the [attorney general’s] office does in State’s Seroquel Case, The National Law the State seeks penalties in what is essen- not need to be intimately involved in all of Journal, Mar. 17, 2011, http://www.law.com/ tially a quasi-criminal manner. In such the everyday work or decision-­making that jsp/cc/PubArticleCC.jsp?id=1202486359257& cases, contingency fee arrangements cre- occurs in the [Vioxx] litigation to exercise Sure_You_Can_Bring_Counsel_Of_Your_Choice_ ate the risk of bias by “distracting private meaningful control over the proceedings.” IF_We_Want_Them_Too. Under the terms of counsel from the singular goal of serving Id. at *41. While the court rejected Merck’s the contingency fee agreement, the out- the public interest—an issue that is wholly arguments regarding control, it did find side law firms would be entitled to 23 per- absent when governmental employees pur- the attorney general’s office’s “unfamiliar- cent of any penalties awarded to the state sue the same claims.” Richard O. Faulk ity” with certain aspects of the underlying under the South Carolina Unfair Trade & John S. Gray, Alchemy in the Court- state court litigation to be “disconcerting,” Practices Act, while the attorney general’s room? The Transmutation of Public Nui- and characterized the office’s involvement office would retain 10 percent of the con- sance Litigation, 2007 Mich. St. L. Rev. in the action as “complacen[t] or laz[y].” tingency fee under the agreement. Because 941, 972 (2007). This, in turn, substantially Id. at *38–39. Merck appealed the ruling, the attorney general and the state’s out- increases the risk of overzealous prosecu- and three amici filed briefs supporting its side counsel were apparently claiming that tion. The threat to due process becomes position, but the underlying case by the AstraZeneca must be penalized $5,000 for even more pronounced in cases in which an Kentucky attorney general settled shortly every Seroquel prescription ever written in attorney general seeks civil penalties rather thereafter, mooting Merck’s appeal. South Carolina, the penalties could have than compensatory damages because in Similarly, in International Paper Co. v. “translate[d] into ‘at least millions’ for the such proceedings, a defendant’s due pro- Harris County, the Texas Court of Appeals plaintiffs’ firms.” Id. cess rights correspond more closely to the recently declined to apply “a blanket pro- AstraZeneca subsequently challenged rights of a criminal defendant than the hibition against a governmental enti- the contingency fee arrangement in state rights of a defendant in ordinary civil lit- ty’s engagement of private counsel on a court, contending that it violated the defen- igation between private parties. See Mar- contingent-­fee basis to pursue civil liti- dant’s due process rights by allowing the tin H. Redish, Constitutional and Political gation in which the only remedy sought attorney general to delegate his law enforce- Implications: Private Contingent Fee law- [was] civil penalties.” No. 01-12-00538-CV, ment function to private plaintiffs’ attor- yers and Public Power, 18 S. Ct. Econ. Rev. 2013 Tex. App. Lexis 9188, at *42 (Tex. Ct. neys. Id. The company characterized the 77, 80-81 (2010). App. July 25, 2013). There, defendants in a state’s lawsuit as a “‘law enforcement action In short, delegating the coercive power penalties-­only environmental enforcement akin to a criminal proceeding’ under the of the government to private lawyers hav- lawsuit moved to enjoin Harris County guise of a civil suit.” Id. The South Carolina ing a direct and substantial financial stake from using contingency fee counsel to pros- Attorney General moved to dismiss Astra- in the outcome of an enforcement action is ecute the case. Id. at *7-8. The defend- Zeneca’s lawsuit, and the trial court denied inconsistent with the requirement of funda- ants urged the appellate court to apply a the motion. See AstraZeneca Pharms. LP v. mental fairness embodied in the Due Pro- categorical bar on contingency fee agree- Wilson (Order Den. Mot. to Dismiss). The cess Clause of the Fourteenth Amendment. ments in such circumstances, arguing that court did not issue a written opinion; how- Thus, a pharmaceutical defendant sued by a “‘[d]ue process cannot tolerate the perni- ever, the fact that the lawsuit withstood a state attorney general should scrutinize any cious influence of personal financial gain’ motion to dismiss is encouraging news for retention agreement between the attorney in a case in which the only remedy sought defendants that face coercive, penalties-­ general and outside counsel and consider is punitive.” The Texas Court of Appeals only enforcement actions tainted by con- challenging that arrangement in court. rejected this argument, stressing that the tingency fee arrangements. Following the “authorities [relied upon by defendant] South Carolina judge’s ruling, AstraZen- Conclusion do not show that due process prohib- eca decided to settle the underlying litiga- State attorney general cases, with their its a governmental entity from retaining tion for $26 million. See Nate Raymond, growing focus on civil penalty recoveries, contingent-­fee counsel in civil-­penalties-­ AstraZeneca Pays $26 Million to Settle threaten pharmaceutical companies with only cases.” Id. at *23. The Texas court South Carolina Lawsuit, Chicago Tribune, potentially exorbitant jury verdicts. How- therefore “decline[d] [d]efendants’ invita- Aug. 24, 2012, http://articles.chicagotribune. ever, while these cases present real chal- tion to become the first court to hold” oth- com/2012-08-24/lifestyle/sns-rt-us-astrazeneca- lenges to pharmaceutical companies, they erwise. Id. at *41-42. settlementbre87n11o-20120824_1_seroquel-astra- are by no means insurmountable. In par- A lawsuit filed by the South Carolina zeneca-plc-million-settlement. ticular, pharmaceutical companies can Attorney General against AstraZeneca in The premise of a due process challenge effectively overcome these obstacles by un- 2009 similarly challenged a contingency similar to the ones brought by Merck, dertaking the four steps outlined in this fee arrangement with outside counsel on International Paper Co. and AstraZen- article: (1) removing a case to a federal due process grounds. In that case, South eca is that a contingency fee arrangement court; (2) challenging the legal basis for an Carolina sued AstraZeneca for its alleged gives outside counsel an improper per- attorney general’s claims; (3) conducting off-label marketing of the drug Seroquel. sonal financial stake in the outcome of the discovery, including deposing representa-

58 ■ For The Defense ■ September 2013 tives of an attorney general’s office, to bet- ter understand the basis of the claims; and (4) challenging questionable fee arrange- ments between an attorney general’s office and outside counsel. These steps, taken to- gether, constitute a viable strategy for fight- ing back against this increasingly common type of pharmaceutical litigation.

For The Defense ■ September 2013 ■ 59