IN RE PHARMACEUTICAL INDUSTRY AVERAGE WHOLESALE PRICE LITIGATION THERESA SHEPLEY; LARRY YOUNG, Plaintiffs, Appellants, v. JOHNSON & JOHNSON; CENTOCOR, INC.; ORTHO-BIOTECH PRODUCTS, L.P., Defendants, Appellees.
No. 08-1002
United States Court of Appeals For the First Circuit
September 28, 2009
Hon. Patti B. Saris, U.S. District Judge
APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS
Steve W. Berman, with whom Sean R. Matt, Hagens Berman Sobol Shapiro LLP, Jeffrey Kodroff, John A. Macoretta, Spector, Roseman & Kodroff, P.C., Marc H. Edelson, Hoffman & Edelson, Thomas M. Sobol, Edward Notargiacomo, Hagens Berman Sobol Shapiro LLP, Kenneth A. Wexler, Jennifer Fountain Connolly and Wexler Toriseva
Andrew D. Schau, with whom William F. Cavanaugh, Jr., Erik Haas, Adeel A. Mangi and Patterson Belknap Webb & Tyler LLP, were on brief, for appellees.
I. BACKGROUND
This appeal represents just one case in a sprawling, nationwide multi-district class action involving the pricing of physician-administered pharmaceutical drugs which were reimbursed by Medicare, private insurers and patients making co-insurance payments from 1991 through 2003. The gravamen of the nationwide litigation against the pharmaceutical companies is that they unfairly and deceptively inflated the drugs’ “average wholesale prices” (“AWPs“), a price published by the pharmaceutical companies in various private industry publications and widely used as a benchmark for reimbursement payments, while simultaneously offering secret discounts and rebates to physicians. The result of this scheme was that the AWPs dramatically diverged from the physicians’ actual acquisition costs, a divergence referred to as the “spread,”
The plaintiffs further allege that the pharmaceutical companies exploited this system by “marketing the spread,” by which a company used the prospect of windfall profits to induce physicians to prescribe its drug, thereby protecting or increasing market share vis-a-vis competitor drugs. This case involves just a slice of the larger litigation: the claims against J&J by Class 1 plaintiffs -- the group of natural persons nationwide who made co-payments based on AWP for relevant Medicare Part B drugs.1 For a detailed discussion of this scheme, and of the district court‘s case management efforts, see In re Pharmaceutical Industry Average Wholesale Price Litigation, No. 08-1056, ___ F.3d ___, slip op. (1st Cir. Sept. 2009), and In re Pharmaceutical Industry Average Wholesale Price Litigation, 491 F. Supp. 2d 20 (D. Mass. 2007). This opinion assumes familiarity with those two decisions.
As part of the broader litigation, the district court held a twenty-day bench trial adjudicating the claims of the Class 2 and Class 3 plaintiffs, see In re Pharm. Industry Average Wholesale Price Litig., 233 F.R.D. 229, 231 (D. Mass. 2006) (defining Classes 2 and 3), against a set of pharmaceutical companies, including J&J. See In re Pharm., 491 F. Supp. 2d at 31 (“This bench trial involved two Massachusetts classes. One class, Class 2, consists of third-party payors (‘TPPs‘) in Massachusetts that reimburse Medicare beneficiaries for their statutory twenty percent coinsurance obligations under Medicare, known as Medigap insurance or supplemental insurance. The other class of plaintiffs, Class 3, consists of all third party payors, end-payors, consumers who make coinsurance payments, and consumers who have no insurance for these drugs in Massachusetts and who pay for drugs based on AWP.” (footnotes omitted)). In June 2007, the district court entered a split judgment, finding in favor of the Class 2 and 3 plaintiffs as to some of the defendants but not others. Id. at 31-32 (summarizing findings).
On the strength of those findings, during a July 2007 conference relating to the Class 1 plaintiffs’ claims against the Bristol Myers Squibb Company (which ultimately settled before trial), the district court characterized its post-trial findings as
THE COURT: . . . So, there will be no more trials with respect to the first five defendants in Track 1 with respect to, as I understand it, Class 1. . . . .
MR. BERMAN: There‘s one issue on Track 1, your Honor.
THE COURT: Yeah?
MR. BERMAN: And, that is Johnson & Johnson. I know that you said that their drugs didn‘t exceed the 30 percent rule for the purposes of Class 2 and 3. But, it‘s our position -- and we would like the opportunity to present this or maybe you‘ve already decided -- that the 30 percent would not apply to [Class] 1.
THE COURT: I thought I ruled that. The 30 percent did apply to Track -- to Class 1.
MR. BERMAN: Well, you have a footnote that talks about -- implies that, but you did not rule in that way. That‘s your ruling, that we have no J & J Class 1 trial.
THE COURT: I thought it was not a footnote. I thought I went on and on about it. I think I went on and on about everything. So, maybe I ought to look at it again.
MR. BERMAN: I don‘t think you did --
THE COURT: I think I said that I rejected plaintiffs’ position that the per se
liability for Class 1 and that I thought that the 30 percent speed limit should apply to Class 1 as well. And, that would be, I thought applicable to all of the defendants. So why is that not clear? MR. BERMAN: Well, I didn‘t see that in your order, your Honor.
THE COURT: They‘ve got it.
MR. BERMAN: At the time we negotiated the -- via that [BMS] settlement, both sides thought that was a risk that could go either way. And, we discussed that with the mediator. The mediator didn‘t think that it was clear either.
THE COURT: Well --
MR. BERMAN: It‘s clear now.
THE COURT: It‘s clear now. And, I will look at it again. If it wasn‘t clear, it is clear. The 30 percent speed limit applies to Class 1.
I rejected a per se position. And, I have to go look through it again, because I thought it was clear. That‘s why I essentially had the expert go back and calculate the damages again. Because, the way he did it was he aggregated all the years when he did it with the 30 percent speed limit. He didn‘t back out the -- it might have been statute of limitations and on the specific [drugs]. That‘s why I needed a root calculation.
Otherwise, I could have done it. Right? On the per se. Because, he did it year by year.
MR. BERMAN: Correct, you could have, yeah.
THE COURT: I could have done that. I mean . . .
MR. BERMAN: But, we felt it was a different issue with the consumers, because there‘s no evidence that they had any knowledge of the so-called industry norm of 20, 25 percent.
THE COURT: Well, I ruled to the contrary and I don‘t accept that position. And, I thought it was clear. If not, I‘m making it clear now.
Seizing on this colloquy, J&J began asking the district court to officially seal the fate of the Class 1 plaintiffs’ claims: in August 2007, J&J moved for final judgment under
The Class 1 plaintiffs’ responses to these efforts appear to have taken two different positions. In one response, filed by Attorney Donald Haviland, Jr. on behalf of the “Class 1 and Class 3 Consumers,” the Class 1 plaintiffs argued that the entry of
The district court ultimately entered a final judgment pursuant to
As to the J&J Defendants, the Court ruled, among other things, that although J&J‘s conduct was troubling, it did not violate
Mass. Gen. Laws ch. 93A , in part because the spreads on the J&J Defendants’ subject drugs (Procrit® and Remicade®) never substantially exceeded the range of spreads generally expected by the industry and government. [In re Pharm.,] 491 F. Supp. 2d at 104. As a result, the Court ruled that the claims of Class 2 and Class 3 should be dismissed. Id. at 109. The claims by members of Class 1 are dismissed for the same reason.
The order did not include the Track 1 defendants’ proposed finding that “no reasonable jury could find that the J&J Defendants’ conduct violated the consumer protection laws applicable to the Class 1 claims.”
The Class 1 plaintiffs, which include neither industry nor government, appeal.
II. STANDARD OF REVIEW
We begin by noting that the district court‘s use of the word “dismissed” in its November 2007 order entering judgment, and the fact that it made its findings as to Class 1 after the bench trial involving the Class 2 and 3 plaintiffs, admits of some doubt as to the precise procedural grounding of the judgment. At oral argument, counsel for J&J represented, without objection, that the district court‘s judgment was entered in accordance with
We review a grant of summary judgment de novo, drawing all reasonable inferences in favor of the non-moving party. Sullivan v. City of Springfield, 561 F.3d 7, 14 (1st Cir. 2009). “Summary judgment is appropriate where there is no genuine issue as to any material fact and the movant is entitled to judgment as a matter of law.” Id. (citing
III. DISCUSSION
On appeal, the appellants argue that the district court erred by extending its findings from the bench trial to extinguish the Class 1 plaintiffs’ claims against J&J. It is undisputed that the bench trial adjudicated only claims of Classes 2 and 3, not Class 1. Consequently, it is also undisputed that the Class 1 representative plaintiffs did not participate in the trial. Finally, it is clear from the record that the imposition of that trigger was based on the district court‘s fact findings as to how
Against this backdrop, the district court‘s decision to apply its trial findings to impose the 30% potential liability trigger to the Class 1 plaintiffs, leading to entry of judgment as to the Class 1 plaintiffs’ claims against J&J, appears problematic. The 30% potential liability trigger, which was derived from the testimony of Dr. Raymond Hartman, represented two sequential decisions by the district court: first, acting as a gatekeeper under Daubert v. Merrell Dow Pharms., Inc., 509 U.S. 579 (1993), the district court admitted Dr. Hartman‘s testimony about industry expectations into the record evidence; second, acting in its capacity as factfinder, the district court credited that testimony and adopted the 30% potential liability trigger. Both of these decisions were within the power of the district court.
In extending these findings to necessarily encompass the expectations of the Class 1 plaintiffs, however, the district court may have exceeded its power. Unlike the Class 2 and Class 3 plaintiffs, whose claims under
To enter summary judgment against the Class 1 plaintiffs, the district court would have first had to view the facts in the light most favorable to the plaintiffs as the nonmoving party, see First Marblehead Corp. v. House, 473 F.3d 1, 3 (1st Cir. 2006), which is a very different enterprise from the factfinding engaged in at a bench trial.
J&J‘s arguments to the contrary are unpersuasive. Its contention that the claims of Class 1 were not materially different from the claims of Class 2 and the consumer members of Class 3 says nothing about the different role of the district court in adjudicating those claims in the context of a jury trial. Its characterization of the district court‘s decision to adopt the 30% potential liability trigger as “legal” (and therefore outside the purview of the jury) fails to account for the fact that the creation of the 30% trigger depended on factual findings relating to the relevant expectations as to the size of spreads. And elsewhere we have rejected J&J‘s arguments that the district court‘s adoption of a 30% potential liability trigger was erroneous as a matter of law; those arguments do not provide “alternative grounds” for affirming the district court, as urged by J&J. See In re Pharm., No. 08-1056, ___ F.3d ___, slip op.
None of this is to say, however, that the judgment issued by the district court cannot be sustained or that this case must
IV. CONCLUSION
Because we lack a clear understanding of both the scope of the district court‘s judgment and the reasons for the judgment,
No costs are awarded.
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Notes
In re Pharm. Indus. Average Wholesale Price Litig., 233 F.R.D. 229, 230 (D. Mass. 2006) (footnote omitted).All natural persons nationwide who made, or who incurred an obligation enforceable at the time of judgment to make, a co-payment based on AWP for a Medicare Part B covered Subject Drug that was manufactured by the Johnson & Johnson Group (Johnson & Johnson, Centocor, Inc., Ortho Biotech, McNeil-PPC, Inc., and Janssen Pharmaceutica Products, L.P.). Excluded from the Class are those who made flat co-payments, who were reimbursed fully for any co-payments, or who have the right to be fully reimbursed; and the residents of the states of Alabama, Alaska, Georgia, Iowa, Kentucky, Louisiana, Mississippi, Montana, and Virginia (where consumer protection statutes do not permit class actions).