Pennsylvania High Court Joins Judicial Stampede That’s Trampling State Attorneys-General/Plaintiffs’ Bar Alliances

PA scotusOn June 16, the Pennsylvania Supreme Court rejected the Commonwealth’s arguments that Bristol Myers Squibb (BMS) was liable for fraudulently overcharging state health agencies. The state had sued BMS and 13 other pharmaceutical companies and won a $27 million damage award. In the unanimous ruling, the Court dropped a noteworthy footnote in which it questioned Pennsylvania’s reliance on private contingent-fee lawyers to prosecute the case. The decision is just the latest in a string of costly failures by deputized plaintiffs’ lawyers in state actions against drug companies.

The Court’s unanimous Commonwealth v. TAP Pharmaceutical Products decision turned on whether the Pennsylvania agencies suffered any financial loss when taking into account the value of rebates that BMS provided the state for drug purchases. The state claimed that BMS took advantage of the complex “average wholesale price” (AWP) formula to artificially increase its profits from sales to health agencies. BMS denied those charges, and argued that even if the agencies were overcharged, the rebates offset the alleged financial harm. Despite testimony from state officials that they did take rebates into consideration when assessing drug payments, Pennsylvania excluded rebates when formulating its damages claim. The trial court bought the state’s justification for this contradictory stance, as did the Commonwealth Court on appeal.

The justices seemed shocked by the lower courts’ unquestioned acceptance of Pennsylvania’s stance on rebates. Justice Saylor wrote, “[T]his Court is not in need of a body of evidence to apprehend that a rebate operates to reduce the net price of a commodity.” The Supreme Court found it “astonishing” that the Commonwealth Court would allow the state to collect “a billion dollars in rebates relative to social welfare reimbursements while giving no credit to the payers.” Continue reading

Solicitor General’s Brief in Medical Device Tort Case Capitulates to Plaintiffs’ Bar

DOJThe Obama Administration has been a faithful friend of the plaintiffs’ bar, particularly regarding federal preemption of State-law tort claim against product manufacturers. The Food and Drug Administration has, for example, proposed a regulation (with direct input from plaintiffs’ lawyers) on labeling of generic drugs that would sweep away a federal preemption defense upheld twice by the U.S. Supreme Court.

A Supreme Court brief filed on May 20 by the Solicitor General of the United States provides another example of just how committed the Administration is to this mutually beneficial friendship. In urging the Court to deny review in a medical device preemption case, the brief urges the Court to ignore an express preemption statute and to effectively overrule its 2008 pro-preemption decision in Riegel v. Medtronic.

The Supreme Court has steered a middle course when previously considering claims that the federal statute at issue, 21 U.S.C. § 360k(a), preempts product liability suits against medical device manufacturers. It held in a 1996 case that federal law does not preempt claims involving the vast majority of medical devices: those devices being marketed based on a determination that they are “substantially equivalent” to devices already on the market as of 1976 (so-called § 510(k) devices).   The Court explained that FDA never undertook a formal review of the safety and effectiveness of such devices, and thus there was no reason to believe that Congress intended to prevent States from imposing their own safety and effectiveness requirements. The Court later held in Riegel that § 360k(a) generally does preempt design defect and failure-to-warn claims involving the small number of Class III devices that FDA has approved for marketing following a safety and effectiveness review undertaken in accordance with the agency’s rigorous pre-market approval (PMA) process.

The Solicitor General’s office submitted its brief in connection with a petition (Medtronic v. Stengel) seeking review of a U.S. Court of Appeals for the Ninth Circuit decision that claims involving a PMA device for delivering pain medication were not preemped. (WLF filed an amicus brief in support of certiorari). Riegel left open the possibility that some State law claims might escape § 360k(a) preemption if they were “parallel” to federal law; i.e., if the State were simply imposing the very same requirements on a device that FDA regulations specific to the device already imposed. Lower courts have struggled in the ensuing years to craft a workable definition of a “parallel claim,” and the Stengel petition asks the Supreme Court to resolve a well-entrenched conflict among the federal appeals courts regarding the meaning of the parallel-claims exception. Last October, the Supreme Court invited the Solicitor General to comment on the petition. Continue reading

Supreme Court Observations: AU Optronics Ruling Empowers State Attorney General-Trial Lawyer Alliance

supreme courtCross-posted at WLF’s Forbes.com contributor page

In its unanimous Mississippi ex rel. Hood v. AU Optronics ruling, the Supreme Court on Tuesday refused to interpret the Class Action Fairness Act (CAFA) so as to allow the “mass action” removal of a parens patriae suit in which the State of Mississippi was the only named plaintiff.  The decision marks only the second time that the high court has considered the 2005 statute, which Congress enacted to expand a defendant’s ability to remove to federal court a class action that did not satisfy the traditional requirements of diversity jurisdiction.  (Last term, a unanimous Court in Standard Fire Insurance Co. v. Knowles ruled in favor of removal in a case where the class representative attempted to avoid CAFA jurisdiction by stipulating to damages below the threshold amount in controversy).

Utilizing a “real-parties-in-interest” analysis, the U.S. Court of Appeals for the Fifth Circuit had agreed with the district court that the case constituted a “mass action” under CAFA.  But on the question of the applicability of CAFA’s “general public” exception, the appeals court reversed the district court, which had remanded the case back to state court on the basis that it was “asserted on behalf of the general public (and not on behalf of individual claimants or members of a purported class)” under 28 U.S.C §1332(d)(11)(B)(ii)(III).  Oddly, the Supreme Court didn’t bother weighing in on CAFA’s “general public” exception, holding instead that the suit failed even to meet the basic definition of a “mass action” because it did not involve 100 or more named plaintiffs.  The Court rejected the lower courts’ “real-parties-in-interest” approach in favor of a narrow reading of the statutory language.

As a result, state attorneys-general and their trial bar friends are now free to avoid federal court altogether by simply running their class and mass actions through an AG’s office as a parens patriae suit.  The trial lawyers will still receive their big contingent-fee awards, and they can continue to send AGs their out-of-state campaign contributions.  According to a recent report, for example, the Mississippi AG’s “plaintiffs’ firm contributors were all out of state, and they made no contributions to any other candidates for statewide office in Mississippi.”  In only two instances where contingent-fee law firms represented Mississippi in securities fraud class actions did the firms not make a previous contribution to the AG’s campaign.  They did so subsequently, however, according to the report.

If this staggering conflict of interest is ever to be reined in, the Court has left it up to Congress to do so.  That’s a shame, inasmuch as the Supreme Court should take a greater interest in cleaning up practices that treat courtrooms like cash registers and corrode the integrity of the judicial process.

Court Ruling Recalls Injudicious Average Wholesale Price Litigation Crusade

Cross-posted by Forbes.com at WLF’s contributor site

A little over a decade ago, federal regulators and state attorneys general initiated a litigation campaign to alter how government health care programs reimbursed doctors for prescription drugs. Like most “regulation by litigation” efforts, this campaign seized upon laws of broad application such as the False Claims Act (FCA) and encouraged private lawsuits of questionable merit. Government enforcers have long since moved on to other crusades, but as a federal court decision last month reflects, some private suits still drag on, burdening American businesses with needless legal expenses.

AWP. In the early 2000s, the federal government reimbursed health care providers based in part on a drug’s average wholesale price, or “AWP.” Some likened AWP to the sticker price, or MSRP, of a new car: an inflated number which almost no one actually paid. Everyone involved in health care was aware of the illusory nature of AWP, and federal and state regulators urged legislative change, but Congress resisted reform. So unelected officials and their brethren in the plaintiffs’ bar sought to impose change. As this 2002 WLF Working Paper explains, they devised legal theories which branded AWP as an overcharging scheme, and accused drug makers, price publishers, and other entities such as pharmacy benefit managers (PBMs) of perpetrating a fraud. State attorneys general filed billion-dollar fraud actions and plaintiffs’ lawyers teamed up with “whistleblowers” to file qui tam suits under the FCA.

The ensuing litigation crusade provided moderate returns at best to the plaintiffs’ lawyers and state AGs who jumped on board. For instance, in 2009, the Alabama Supreme Court dashed the state’s (and its contingent-fee lawyers’) dreams of a huge payday, dismissing two AWP cases, finding no fraud existed. Continue reading

Parens Patriae?: SCOTUS to Assess States’ Identity as Class Action Litigant in Fall CAFA Case

mississippiGuest Commentary

by Cory Clements, a 2013 Judge K.K. Legett Fellow at the Washington Legal Foundation and a student at Texas Tech School of Law.

In their ongoing quest to circumvent the Class Action Fairness Act (CAFA), plaintiffs’ lawyers have increasingly enlisted the aid of sympathetic state Attorney Generals (AG). In order to keep class action (or “mass action”) lawsuits in state court, plaintiffs’ lawyers pitch their ideas to state AGs who in turn bring suit on behalf of the state as parens patriae. This trick works because a suit brought only in the name of an AG on behalf of the state evades federal removal jurisdiction. Historically, because states are not considered “citizens” for purposes of diversity jurisdiction, when a state brings suit against an out-of-state corporation there can be no diversity, which will keep the suit in state court.  But state court judges and juries often are biased against out-of-state interests.  That works out well for the plaintiffs’ lawyers.

Late last year the U.S. Court of Appeals for the Fifth Circuit held in Mississippi v. AU Optronics Corp. that a suit brought by Mississippi AG Jim Hood (with an assist from a Minnesota plaintiffs’ firm) against a manufacturer of liquid crystal display (LCD) screens on behalf of Mississippi citizens was removable to federal court under CAFA’s mass action provision. Citing binding authority from a previous Fifth Circuit case, Louisiana ex rel. Caldwell v. Allstate Insurance Company, the court reasoned that “[i]t is well-established that in determining whether there is jurisdiction, federal courts look to the substance of the action and not only at the labels that the parties may attach.” Citing CAFA, Judge Stewart lauded application of this rule in order “to prevent jurisdictional gamesmanship.” Continue reading

U.S. Supreme Court to Rule on Class Action Fairness Act’s “Mass Action” Provision

Cruz-Alvarez_FFeatured Regular Expert Column

Frank Cruz-Alvarez, Shook, Hardy & Bacon, L.L.P. (co-authored with Jared SherrShook, Hardy & Bacon, L.L.P.)

The Supreme Court granted certiorari on May 28 in Mississippi ex rel. Hood v. AU Optronics Corp., No.  12-1036, to determine whether the State of Mississippi’s parens patriae action against manufacturers, marketers, sellers, and distributors of LCD panels for an alleged price-fixing scheme is removable as a “mass action” under the Class Action Fairness Act (“CAFA”).  The U.S. Court of Appeals for the Fifth Circuit held that the district court erred in remanding the case to state court on the grounds that, while the suit was not a “class action” within CAFA, it satisfied CAFA’s “mass action” provision of § 1332(d)(11)(B).

The crux of the case turns on the question of whether the suit involves the claims of “100 or more persons” to satisfy CAFA’s “mass action” provision.  Id.  The Fifth Circuit reasoned, as it did in Louisiana ex rel. Caldwell v. Allstate Ins. Co., 536 F.3d 418, 424-25 (5th Cir. 2008), that “persons” in the “mass action” context are the “real parties in interest,” and not simply the named party in the pleadings.  Mississippi ex rel. Hood v. AU Optronics Corp., 701 F. 3d 796, 800 (5th Cir. 2012).  The court ruled that Mississippi’s complaint, the statutes under which Mississippi brought suit, and common law parens patriae authority led to the conclusion that the real parties in interest in the case far exceeded 100 people. Indeed, the Fifth Circuit found that, in actuality, Mississippi brought the case as a representative of its many citizen consumers who purchased the products at the center of the case.  Accordingly, it ruled that the suit was properly removed to federal court because it met the CAFA definition of a “mass action.”

The Supreme Court has never addressed federal “mass action” jurisdiction under CAFA and its ruling here is likely to have a significant impact.  In our opinion, the Court should affirm the Fifth Circuit’s interpretation of the “mass action” provision in CAFA because such an interpretation is consistent with Congress’s intent, which was to broaden federal court diversity jurisdiction to encompass “interstate cases of national importance,” as a means of protecting out-of-state defendants from potential state-court bias.  CAFA § 2(b)(2).  This lawsuit, brought by the Mississippi Attorney General for significant damages against leading domestic and foreign manufacturers of LCD panels, is precisely the type of case contemplated by CAFA.

Because the State of Mississippi is suing for significant damages in a representative capacity on behalf of numerous Mississippi citizens and consumers of LCD displays, CAFA’s “mass action” provision is satisfied. States like Mississippi should not be permitted to circumvent CAFA and evade removal jurisdiction simply by pleading a parens patriae action.  A different result would allow plaintiffs’ lawyers to game the system to avoid removal.

5th Circuit Splits with Other Federal Courts on CAFA and Attorney General Suits

5thCir

Directly conflicting with three other circuit courts, the U.S. Court of Appeals for the Fifth Circuit has ruled that the Mississippi Attorney General’s parens patriae antitrust suit against various LCD display makers qualifies as a “mass action” under the Class Action Fairness Act and must be litigated in federal court (Mississippi v. AU Optronics Corp.).

Under CAFA, an action may be removed to federal court if it involves claims of 100 or more persons, includes common questions of law or fact, and seeks at least $5 million in damages. In deciding jurisdiction for the Mississippi Attorney General’s suit, the Fifth Circuit stated that the “decisive question” was “whether the suit involves the claims of ‘100 or more persons.’ If so, the suit is a mass action and removal is proper.”

The three-judge Fifth Circuit panel said that it was guided by a precedential 2008 case, Louisiana v. Allstate. In that case, a panel adopted what is now known as the “Caldwell claim-by-claim approach” and ruled that the interested persons in the case against the insurance industry were the individual policy holders and not the Louisiana Attorney General. The Fifth Circuit explained that the Caldwell approach instructs the court to “pierce the pleadings and look at the real nature of the state’s claims” to determine if the state is the plaintiff or if the state is suing on behalf of individuals. Continue reading