Pharmaceutical Fracas: Can Misrepresentation Count as Proximate Cause in a Pharma RICO Claim?

BACKGROUND

Pharmaceutical drugs cause side effects – with that notion, there is no dispute. However, the issue of whether patients, physicians, or payors (underwriting insurance companies) are adequately informed of those side effects is often up for dispute. In 2017, Takeda Pharmaceuticals Company finalized a Master Settlement Agreement (MSA), in which it agreed to pay damages to patients who took Actos, a Type II Diabetes medication, and later developed bladder cancer.

In 2017, several additional patients and multiple insurance companies filed a civil Racketeering Influence and Corrupt Organizations Act (“RICO”) action against Takeda for its misrepresentation of Actos’s side effects to prescribing physicians and patients. In Painters and Allied Trades District Council 82 Healthcare Fund v. Takeda Pharmaceuticals Co. (2019), the plaintiffs alleged that neither the patients nor the payors knew the cancer risks associated with Actos at the time of purchase and that neither would have paid for the drug had they known of the risks. The District Court for the Central District of California dismissed the action for failure to state a claim under FRCP 12(b)(6). Plaintiffs appealed to the Ninth Circuit.

To satisfy the standing requirement of a civil RICO claim under 28 U.S.C. § 1964(c), the Ninth Circuit has held that a “plaintiff must show: (1) that [their] alleged harm qualifies as injury to his business or property; and (2) that [their] harm was ‘by reason of’ the RICO violation.” The latter has been interpreted by the Supreme Court to require both proximate and but-for causation in these matters.

In applying these principles to Painters and Allied Trades, the Ninth Circuit reasoned that the patients and the payors were “the most direct victims . . . who suffered economic injury” and thus had sufficiently alleged proximate cause. The Court remanded to the district court for further proceedings. Contention arises on the issue of the standing of the payor, specifically whether a payor can sufficiently allege proximate cause as a result of misrepresentation to prescribing physicians.

THE ISSUE

Is the proximate cause element of a RICO matter satisfied where a third-party payor alleges they would not have underwritten a prescription for a pharmaceutical drug if the drug manufacturer had not misrepresented safety risks to prescribers?

THE SPLIT

In addition to the Ninth Circuit, the First, Second, Third, and Seventh Circuit Courts of Appeals have weighed in on the proximate cause requirements of a RICO matter. The First and Third Circuits both take a similar approach to the Ninth Circuit in Painters and Allied Trades. The Second and Seventh Circuits have held that such an allegation is not a sufficient showing of proximate cause for a RICO case.

The First Circuit ruled similarly to the Ninth Circuit in In re Neurontin Marketing and Sales Practices Litigation (2013), where a jury awarded Kaiser Foundation Health Plan damages for misrepresentation of a drug’s off-label use. Kaiser made its allegations as an insurance company covering the cost of prescriptions (“third-party-payor”). The drug, Neurontin, was manufactured and sold by Pfizer. The FDA approved Neurontin for the treatment of shingles-related seizures and pain. However, Kaiser alleged that Pfizer had misrepresented and promoted the drug to payors and providers as an effective treatment of bipolar disorder, neuropathic pain, and migraines. A public health and economics expert testified that, nationally, approximately 99.4% of Neurontin prescriptions for bipolar disorder, 70% of Neurontin prescriptions for neuropathic pain, and 27.9% of Neurontin prescriptions for migraines, would not have been written if Pfizer had not engaged in a fraudulent misrepresentation campaign. Kaiser thus alleged that its underwriting was a direct result of the misrepresentations. The First Circuit found this allegation, and the chain of causation, to be adequate for proximate cause under RICO. The Supreme Court denied Pfizer’s petition for writs of certiorari addressing this and two other similar matters.

Likewise, the Third Circuit ruled in favor of a class of payors that sued GlaxoSmithKline under RICO for deceptive marketing of Type II diabetes medications. The plaintiffs in In re Avandia Marketing, Sales Practices & Products Liability Litigation (2016)were union health and welfare funds that underwrote Avandia prescriptions for members instead of less expensive alternatives. This decision to cover was based on GSK’s representations to physicians about Avandia being safer than less expensive alternatives (of which Actos was one). Years of regulations and studies proved that this was patently false. In 2010, the Senate concluded that GSK had failed to warn the FDA and the public of the side effects of Avandia, and that GSK had attempted to downplay and misrepresent the potential heart-related risks. The plaintiffs alleged that there was a sufficient connection between the manufacturer’s years-long misrepresentation of Avandia and its underwriting of prescriptions for the drug. The Third Circuit deemed this reliance to be sufficient for the RICO proximate cause requirement. The Supreme Court denied certiorari.

Unlike the First and Third Circuits, the Second Circuit declined to find underwriting as a result of misrepresentation sufficient to allege proximate cause. In UFCW Local 1776 vs. Eli Lilly & Co. (2010), it summarily rejected doctor reliance national misrepresentation campaigns as a sufficient showing of but-for causation. There, Eli Lilly & Co. had minimized the drug Zyprexa’s risk of diabetes and hyperglycemia to patients and prescribers across the United States, Europe, and Asia. It also made “excessive claims of utility” and overcharged for the drug. The Second Circuit ruled that because doctors do not “generally consider the price of a medication when deciding what to prescribe for an individual patient[,]” the doctors’ reliance on misrepresented utility and potential side effects was not a proximate cause of the price that the third-party payors ultimately paid for the drug. This, the Second Circuit reasoned, was too attenuated to award damages to payors under RICO. In combination with other matters against Eli Lilly & Co., the Supreme Court denied certiorari.

The Seventh Circuit in Sidney Hillman Health Center of Rochester v. Abbott Laboratories (2017) made a conclusion similar to that of the Second Circuit. Plaintiffs in Sidney Hillman were insurers that underwrote member off-label prescriptions for Depakote. The drug, manufactured by Abbott Laboratories, was approved by the FDA for treatment of seizures, migraines, and certain conditions related to bipolar disorder. Abbott marketed the drug to physicians as effective in treating schizophrenia, dementia, and attention deficit hyperactivity disorder (ADHD). In 2012, Abbott pleaded guilty to criminal actions and settled civil actions resulting from this off-label promotion. In an opinion by Judge Easterbrook, the Seventh Circuit panel ruled that payors’ claims were too attenuated since the misrepresentation was directed only at physicians. Payors were “several levels removed in the causal sequence[,]” and thus could not satisfy the RICO proximate cause requirement.

LOOKING FORWARD

In the age of increasing opioid litigation, the debate over payor recovery for drug company misrepresentations to prescribing physicians is a debate ripe for review. The Supreme Court has denied certiorari from parties on both sides of this split. However, given the increased scrutiny of pharmaceutical companies as a result of the national opioid crisis, the Court may soon be forced to consider proximate cause requirements in civil RICO matters of “payor versus pharma.”

Hassling with the Hague Convention: Part II

BACKGROUND

Michelle Monasky, a U.S. citizen, married to Domenico Taglieri, an Italian citizen, faced repeated domestic abuse and assault before and during her pregnancy. After Monasky returned to the United States with her and Taglieri’s two-month-old daughter, Taglieri filed a petition under the Hague Convention seeking the daughter’s return to Italy. The court granted Taglieri’s petition, finding that Italy was the baby’s habitual residence.

Monasky sought a stay of the return order, which was denied first by the Sixth Circuit and then by the Supreme Court. Therefore, the daughter was returned to Italy, where an Italian court in an ex parte proceeding had terminated Monasky’s parental rights and made Taglieri “sole custodian with full parental rights” over the daughter.

After a panel of the Sixth Circuit affirmed the district court’s decision, the Sixth Circuit agreed to a rehearing en banc. Applying a different standard than the district court, the Sixth Circuit majority held in Taglieri v. Monasky (2018) that “the parents’ shared intent” determines whether an infant, who is too young to acclimate to her surroundings, has attained a habitual residence in the country from which she was removed. The majority went on to hold that “shared parental intent” does not require the parents to have a “meeting of the minds’ about their child’s future home.” According to the majority, “[a]n absence of a subjective agreement between the parents does not by itself end the inquiry” because a subjective agreement, while sufficient, is “not a necessary…basis for locating an infant’s habitual residence.”

Even though the Sixth Circuit had not previously adopted a “shared parental intent” standard to determine the habitual residence of infants—and even though a remand is normally “required” when the Sixth Circuit adopts a different legal standard than that applied by the district court—the en banc majority declined to remand the case for the district court to apply its new standard to the facts of this case.

THE ISSUE

When an infant is too young to acclimate to her surroundings, is a subjective agreement between the infant’s parents necessary to establish her habitual residence under the Hague Convention?

THE SPLIT

The Second, Third, Fifth, and Ninth Circuits have addressed the question of how to determine habitual residence for infants too young to acclimate to their surroundings. Each concluded that habitual residence is established only if the parents shared a subjective intent—meaning if they reached a meeting of the minds—to raise the child in that country.

The Second Circuit held in Gitter v. Gitter (2005), that absent evidence that a child had acclimated to her surroundings, “a child’s habitual residence is consistent with the intentions of those entitled to fix the child’s residence at the time those intentions were mutually shared.” Applying that standard, the court concluded that because the parents “only mutually agreed to move to Israel on a conditional basis,” their child could only have attained habitual residence in Israel through acclimatization.

Likewise, the Third Circuit explained in Feder v. Evans-Feder (1995) that “the conduct and the overtly stated intentions and agreement of the parents . . . are bound to be important factors” in assessing a child’s habitual residence. With that standard in mind, the Third Circuit further held in Delvoye v. Lee (2003) that when the mother of an eight-week-old infant agreed to give birth in Belgium but to “live there only temporarily,” the infant “did not become a habitual resident” of Belgium before her mother took her to the United States.

The Fifth Circuit similarly held in Berezowsky v. Ojeda (2014), that, to establish a habitual residence, “[a] shared parental intent requires that the parents actually share or jointly develop the intention.” The court went on to explain that, “[i]n other words the parents must reach some sort of meeting of the minds regarding their child’s habitual residence, so that they are making the decision together.” The court concluded that the petitioner did not meet her burden of establishing that the parents “reach[ed] an agreement or meeting of the minds regarding [their child’s] future” and that the petitioner, therefore, was not entitled to an order returning the child to Mexico.

The Ninth Circuit follows the same approach. In Murphy v. Sloan (2014), the court declined to find a child habitually resident in Ireland because “there was never any discussion, let alone agreement, that the stay abroad would be indefinite.”

With Taglieri (2018), the Sixth Circuit took an entirely different approach to ascertain shared parental intent in this case. According to the en banc majority, a “meeting of the minds” between the parents is “not a necessary . . . basis for locating an infant’s habitual residence.” The court reasoned that this lack of subjective agreement “does not by itself end the inquiry.” Under that approach, the en banc majority upheld the return order—even though the district court made no finding that Monasky and Taglieri had ever agreed to raise their daughter in Italy.

LOOKING FORWARD

If any of the four other circuits to address the issue had decided Taglieri v.  Monasky, the absence of any actual agreement between Monasky and Taglieri—as well as the undisputed fact that the eight week-old had not acclimated to her surroundings in Italy—would have led the court to conclude that the daughter was not habitually resident in Italy and that a return order was not appropriate. The Supreme Court heard oral arguments for this case on December 11, 2019, and we await its decision.

Rules of Interrogation: Title IX and the Opportunity to Cross-Examine Complainants

BACKGROUND

Title IX, passed as part of the Educational Amendments of 1972, states that “no person in the United States shall, on the basis of sex, be excluded from participation in, be denied the benefits of, or be subjected to discrimination under any education program or activity receiving Federal financial assistance.” Three Supreme Court decisions during the 1990s interpreted Title IX to require schools to respond adequately and appropriately to incidents of sexual harassment and violence perpetrated against students.

In 2011, the Department of Education’s Office of Civil Rights (“OCR”) issued what is referred to as a “Dear Colleague” letter, which provided guidance to schools and reminded them of their obligation to address incidents of sexual assault as civil rights matters under Title IX. In this letter, the OCR under the Obama administration made recommendations regarding procedures schools should follow when addressing a Title IX complaint. One procedural recommendation by the OCR was to discourage allowing parties to personally question and cross-examine each other during a hearing on alleged sexual violence. The OCR reasoned that this method may be “traumatic or intimidating” and would potentially foster a hostile environment. Additionally, schools are not required to allow cross-examination of witnesses.

Most recently, the Department of Education under Betsy DeVos and the Trump administration has announced its intention to issue sweeping changes to the rules governing campus sexual assault. One of the major rules proposed through the early 2019 notice-and-comment procedure was a requirement that schools allow cross-examination of those alleging sexual harassment or assault.

THE ISSUE

In sexual misconduct cases, are schools required to provide a respondent with the opportunity for live cross-examination of the complainant and his or her representatives?

THE SPLIT

In 2018, the Sixth Circuit heard the case Doe v. Baum (2018). John Doe, the plaintiff and initial respondent in a sexual misconduct investigation at the University of Michigan, filed suit after the case made its way through the university’s appeals process. When the investigation was resolved in the complainant’s favor, Mr. Doe voluntarily withdrew from the university but later claimed that the university’s disciplinary procedures were in violation of both the Due Process Clause and Title IX. His argument was that, because the university’s decision turned on a finding of credibility, the school should have been required to provide him with the opportunity to cross-examine the complainant and witnesses. The Sixth Circuit reversed the district court’s decision and held that the University of Michigan did violate the student’s right to due process by failing to afford him the right to cross-examine the complainant and witnesses.

Relying on the decision in Baum, a respondent in a sexual assault investigation at the University of Massachusetts-Amherst filed suit after the university held a hearing and eventually expelled him. The respondent, Mr. Haidak, argued that his rights under Title IX and the Due Process Clause were violated because the university did not provide him with the opportunity to interrogate the complainant. In a split from the ruling in the Sixth Circuit, the First Circuit held in Haidak v. University of Massachusetts-Amherst (2018) that it is not a categorical requirement that schools must provide respondents with the opportunity to cross-examine the complainant, either directly or through a representative. The court explained that a school’s decision to examine the witnesses and parties by using a neutral factfinder would not be so fundamentally flawed in its procedure as to deprive the respondent of their right to due process. The Court reasoned that requiring the right to the kind of cross-examination demanded by Mr. Haidak would cause the disciplinary proceedings to essentially mirror a common law trial, which the First Circuit deemed unnecessary.

LOOKING FORWARD

Title IX administrators anticipate publication of the finalized regulations any day now. The proposed regulations relied heavily on the Baum decision and procedural requirements as outlined by the Sixth Circuit, conflicting with the First Circuit in Haidak. It remains to be seen what procedures will be required by the final Title IX regulations, but it is unlikely we will see any shift away from the rationale and procedures as outlined in Baum.

Educational institutions in the First Circuit will be forced to take into account both the Haidak decision and the new regulations when updating their Title IX policies. Additionally, many universities utilize the method of fact-finding supported by Haidak, which allows for a neutral party to interview the complainant and respondent. The split between the First and Sixth Circuits coupled with the introduction of the new Title IX regulations by the Department of Education will force different institutions to follow different sets of rules depending on the jurisdiction in which they are located. Various Title IX cases are awaiting trial or adjudication across the country, and experts are eager to find out which of the procedural frameworks appear to be the standard. With these rulings, it is becoming increasingly more likely that the Supreme Court will be forced to consider the Title IX procedures.

For further reading, see: First Circuit Splits from Sixth Circuit and Education Department on Title IX (2019), OCR Is About to Rock Our Worlds (2020) by Brett A. Sokolow, and 5 College Title IX Lawsuits to Watch (2019) by Jeremy Bauer-Wolf.