Today, the Supreme Court rejected arguments by the prescription drug industry that having their labels approved by the Food and Drug Administration should be a shield from state law tort liability.  In a rousing victory for consumers of prescription drugs, the Supreme Court rendered a decision preserving consumer rights to access the courts when injured physically or financially by prescription drugs. 

In the case Wyeth v. Levine, the Court ruled 6 to 3 that the FDA’s approval of a drug label does not preempt consumer’s rights to sue the manufacturer for their failure to warn of knows risks associated with the drug. 

The lawsuit was brought by Diane Levine, a musician from Vermont who while suffering from a migraine was given the anti-nausea drug Phenergan. Her physician’s assistant did so in a manner that caused the drug to contact her arteries, which caused gangrene and resulted in the loss of her arm. Ms. Levine sued and settled with her doctor. She also sued the drug’s Manufacturer, Wyeth. In its defense, Wyeth argued that the FDA’s approval of the label under federal law preempted Ms. Levine’s rights under state law, but lost. After a 5-day trial, a Vermont jury concluded that the drug maker did not adequately warn of the known risks of gangrene associated with the use of the drug, and awarded Ms. Levine $7.4 million.

After losing in appeals all the way up to Vermont’s Supreme Court, Phenergran’s manufacturer, Wyeth appealed to the U.S. Supreme Court. The Court accepted the case, and addressed the issue 

whether federal law preempts Levine’s claim that Phenergan’s label did not contain an adequate warning about using the IV-push method of administration. 

In today’s decision, the Court decided that there was no preemption, and found in favor of Ms. Levine.

The Court first noted that it was not impossible for the drug maker to comply with both state law and federal requirements in preparing the drug’s label.  The court concluded that the drug maker could have added warnings to the label at any time to reflect the risks of gangrene that had occurred to over twenty people since the labeling was approved by FDA. Wyeth had incorrectly argued that the federal regulations prohibited their changes to the label, because they must have been based on “newly acquired information….”  The Court countered that Wyeth was incorrect, and that they could have added warnings to reflect the 19 amputations that had arisen from Phenergan’s use before Ms. Levine’s case.

The Court also concluded that Wyeth suffered from a “more fundamental misunderstanding” about the duty to warn consumers of the risks of prescription drugs.  The Court noted that

Wyeth suggests that the FDA, rather than the manufacturer, bears primary responsibility for drug labeling. Yet through many amendments to the FDCA and to FDA regulations, it has remained a central premise of federal drug regulation that the manufacturer bears responsibility for the content of its label at all times. It is charged both with crafting an adequate label and with ensuring that its warnings remain adequate as long as the drug is on the market.

 

Wyth also argued that the Ms. Levine’s lawsuit should be preempted because it interferes with “Congress’s purpose to entrust an expert agency to make drug labeling decisions that strike a balance between competing objectives.” The Court rejected this argument as being both out of line with the intent of Congress, and as based on “an overbroad view of agency’s power to pre-empt state law.”

On the first point, the Court notes that “[i]f Congress thought state-law suits posed an obstacle to its objectives, it surely would have enacted an express preemption provision at some point during the FDCA’s 70-year history” like it did with a 1976 amendment allowing “express pre-emption … for medical devices….”

The Court also spoke to the FDA’s role in the preemption debate, especially it’s position in favor preemption announced in the preamble to the 2006 regulations that redesigned the format and content requirements for prescription drugs.  The Court also assessed how much weight to give an agency position that “state law is an obstacle to achieving its statutory objectives….” The Court found that in cases lacking express authority by Congress, the deference given to an agency “depends on its thoroughness, consistency, and persuasiveness.”  Based on this, the Court decided that FDA’s position “does not merit deference.”   

First, the Court pointed out a glaring procedural lapse by FDA in adopting the position that their regulations and approval of drug label preempts state law.   In proposing the draft rule in 2000, the FDA had stated that the rule would “not contain policies that have federalism implications or that preempt State law.”

Despite this, FDA adopted a position in favor of preemption upon publishing the final rule in 2006. FDA did so “without offering States or other interested parties notice or opportunity for comment….” As a consequence, the Supreme concluded that “[t]he agency’s views on state law are inherently suspect in light of this procedural failure.”

The Court also noted that the FDA position on preemption “is at odds with … Congress’s purposes, and it reverses the FDA’s own longstanding position….” The Court summarized the history of FDA’s relationship to state law, noting that

the FDA traditionally regarded state law as a complementary form of drug regulation. The FDA has limited resources to monitor the 11,000 drugs on the market,and manufacturers have superior access to information about their drugs, especially in the postmarketing phase as new risks emerge.

The Court also stated that

State tort suits uncover unknown drug hazards and provide incentives for drug manufacturers to disclose safety risks promptly. They also serve a distinct compensatory function that may motivate injured persons to come forward with information. Failure-to-warn actions, in particular, lend force to the FDCA’s premise that manufacturers, not the FDA, bear primary responsibility for their drug labeling at all times. Thus, the FDA long maintained that state law offers an additional, and important, layer of consumer protection that complements FDA regulation.12 The agency’s 2006 preamble represents a dramatic change in position.

We recognize this decision as an important victory for consumers, and we applaud the Court for this decision.

We hope to post more details on this decision, and its potential impact on our other lawsuits, soon.

You can read the full decision at

http://www.supremecourtus.gov/opinions/08pdf/06-1249.pdf

In an opinion posted today on the website of the New Jersey Courts system, the New Jersey Supreme Court refused to allow a class action lawsuit to go forward against Merck, the maker of the withdrawn arthritis drug Vioxx. The lawsuit, International Union of Operating Engineers Local 68 Welfare Fund v. Merck was brought on behalf of a nationwide class of “third party payors” (health plans, union health & welfare funds, self-insured employers, and others) and alleged that Merck’s deception and concealment of information about the cardiovascular dangers of Vioxx caused these third party payors (TPPs) to pay for Vioxx when they would not otherwise have paid for it, and to pay inflated prices for it as well.

In July 2005, the Law Division, which was hearing the case, agreed to certify a nationwide class of TPPs that paid for Vioxx. “Class Certification” is the stage at which a Court decides whether to allow a lawsuit to proceed as a class action, on behalf of a large group of individuals or entities. Merck appealed the Law Division’s decision, and the Appellate Division upheld the certification of the class of TPPs. (PAL and several PAL members filed amicus curiae (friend of the court) briefs at both of these stages.) Merck appealed to the New Jersey Supreme Court, which held a hearing on the appeal in March 2007. The Court issued its decision today, and reversed the certification of the class.

The decision is significant because so many pharmaceutical companies are based in New Jersey. Thus, many pharmaceutical lawsuits are brought in New Jersey, under New Jersey’s Consumer Fraud Act. (Although now they are primarily brought in federal court, not state court, due to the Class Action Fairness Act of 2005).

The decision was just posted at 10:00 AM this morning. It is available here. What follows are some preliminary thoughts on and reactions to the decision.

In the 29 page opinion, the Court does not really begin its analysis until page 19. Its decision that a class should not be certified primarily rests on what is known as the “predominance” requirement:

“The central question before us, as in Iliadis, is whether the putative class raises “questions of law or fact common to the members of the class [that] predominate over any questions affecting only individual members, and that a class action is superior to other available methods for the fair and efficient adjudication of the controversy.” R. 4:32-1(b)(3).” (Decision, p.14)

The Court spends several pages describing how TPPs decide what drugs to include on their list of drugs they will pay, known as “formularies.” It particularly focuses on its conclusion that different TPPs treated Vioxx differently, in terms of coverage, copayments and the like. The Plaintiffs had argued that if Merck had disclosed the negative information about Vioxx, that TPPs would have not covered Vioxx or would have placed greater formulary restrictions on it.

The Court concludes that common questions of law and fact do not predominate, primarily because it rejects the the plaintiffs’ proposed method for calculating “ascertainble loss.” The New Jersey Consumer Fraud Act requires plaintiffs to show:

“(1) unlawful conduct . . . ; (2) an ascertainable loss . . . ; and (3) a causal relationship between the defendants’ unlawful conduct and the plaintiff’s ascertainable loss.” N.J. Citizen Action v. Schering-Plough Corp., 367 N.J. Super. 8, 12-13 (App. Div.), certif. denied, 178 N.J. 249 (2003). (Decision, p. 24)

The plaintiffs had argued that the Court should focus on Merck’s marketing of Vioxx. This argument is essentially that Merck’s deceptive marketing of Vioxx misled all TPPs and affected their decisions to cover Vioxx, regardless of what those specific decisions were. In other words, TPPs paid for Vioxx when they would not have otherwise, or would have on a much more limited basis, because of Merck’s deception. The defendants, by contrast, argued that the individual decisions of each TPP in the class were key to the claims, and thus that individual questions predominate over common ones, since TPPs acted in numerous different ways concering Vioxx. The Court concludes “…the commonality of defendant’s behavior is but a small piece of the required proofs. Standing alone, that evidence suggests that the common fact questions surrounding what defendant knew and when it did would not predominate.” (Decision p.26-27)

What is odd about this conclusion is that it seems to contradict something the Court says earlier in its opinion. Many states’ consumer protection act require that plaintiffs show “reliance,” that is, that they actually relied on the alleged deceptive acts of the plaintiff. NJ’s Consumer Fraud Act, does not require reliance:

“Our CFA does not require proof that a consumer has actually relied on a prohibited act in order to recover. In place of the traditional reliance element of fraud and misrepresentation, we have required that plaintiffs demonstrate that they have sustained an ascertainable loss.” (Decision, p.27)

Yet, by saying that each individual class members’ actions and treatment of Vioxx predominates over Merck’s deceptive marketing campaign, the Court seems to be importing a requirement of reliance. It presumes that each class member’s reaction to the revelations concerning Vioxx is relevant to whether or not the CFA is violated. Yet that is, at its core, a question of reliance, and isn’t relevant here. It also ignores the fact that the Merck’s fraudulent marketing was a baseline for all of the admittedly-diverse decisions of different TPPs on how they would cover Vioxx. It is axiomatic that every TPP would have regarded Vioxx differently, and paid for it differently (if at all), had they been told the truth about it.

On p. 15 of the opinion, the Court lays out its standards for predominance from prior cases:

In Iliadis, supra, we explained the meaning of predominance, referring to the importance of an analysis of “the number, and more important the significance of common questions.” 191 N.J. 108 (citing Carroll, supra, 313 N.J. Super.at 499)…Finally, we noted that “predominance requires, at [a] minimum, a ‘common nucleus of operative facts.’” (Decision, p.15)

The common question of whether Merck deceptively marketed Vioxx is far, far more significant than the “non-common” question of how individual TPPs reacted to that marketing (which arguably, is not relevant at all, because it is a reliance issue.)

The Court then goes on to question the plaintiffs’ proposed method of determining “ascertainable loss:”

“Plaintiff argues that it should be permitted to demonstrate class-wide damages through use of a single expert who would opine about the effect on pricing of the marketing campaign in which defendant engaged. To the extent that that plaintiff intends to rely on a single expert to establish a price effect in place of a demonstration of an ascertainable loss or in place of proof of a causal nexus between defendant’s acts and the claimed damages, however, plaintiff’s proofs would fail. That proof theory would indeed be the equivalent of fraud on the market, a theory we have not extended to CFA claims.” (Decision, p. 29)

There are several problems with this analysis. First, it isn’t much of an analysis — it goes into no detail about why this method would not be adequate. In fact, methods such as this are routinely used in other pharmaceutical class actions. Data concerning insurance coverage for drugs and the amount paid by
third party payors as a group versus individuals making copayments are readily available.

Second, it does not explain why the use of such an expert amounts to a “fraud on the market theory.” It merely states that the plaintiffs’ approach is “fraud on the market” and leaves it at that — no analysis of why this is allegedly so.

Finally, the issue is largely beside the point. It is adequate to show that the members of the class had an ascertainable loss. It is not necessary to show how much that loss was, for purposes of class certification. But that seems to be precisely what the Court is seeking. By concealing vital information about Vioxx’s safety, Merck induced TPPs to cover and pay for Vioxx when they would otherwise not have. The TPPs ascertainable loss is those improper payments. The amount of their ascertainable loss is a question not of liability, but of damages, which was not at issue at this stage of the case.

The last section of the opinion addresses the “superiority” requirement, i.e. that a class action be shown to be superior to other methods of adjudication. The Court’s analysis here ignores key facts. On p.16, the Court says that its superiority analysis:

“demands ‘(1) an informed consideration of alternative available methods of adjudication of each issue, (2) a comparison of the fairness to all whose interests may be involved between such alternative methods and a class action, and (3) a comparison of the efficiency of adjudication of each method.’” …More specifically, in Iliadis, we identified as important to the superiority analysis a consideration of the “class members’ ‘lack of financial wherewithal.’” In such circumstances, we have expressed a concern that, absent a class, the individual class members would not pursue their claims at all, thus demonstrating superiority of the class action mechanism.” (Decision, p.16-17, internal citations omitted)

In its analysis on p.30-32, the Court fundamentally misunderstands the nature of third party payors. It compares this proposed class to a class of individual hourly wage earners in the Iliadis case and concludes that:

“Unlike the individual wage earners there, plaintiff and, by extension, all of the members of the class, allege that they have been damaged in large sums. Unlike those hourly wage earners, plaintiff and the other third-party payors are well-organized institutional entities with considerable resources. Unlike in Iliadis, here we see no disparity in bargaining power and no likelihood that the claims are individually so small that they will not be pursued. In short, we find no ground on which to conclude that this proposed nationwide class meets the test for superiority that we have traditionally required.” (Decision p.31-32)

The question is not whether the class members have been “damaged in large sums,” (and what constitutes large, anyway?) but rather, whether the damages they suffered make an individual lawsuit feasible. Pursuing an individual lawsuit against Merck in this case would be an enormously expensive undertaking. Certainly, large commercial insurers like Aetna, Humana, United Healthcare and even many Blue Cross plans would have the “financial wherewithal” to pursue such cases. But there are tens of thousands of smaller TPPs that would not, including the plaintiff here, IUOE Local 68 Welfare Fund.

The Court had identified on p.16 that an important consideration is “class members’ ‘lack of financial wherewithal.’ In such circumstances, we have expressed a concern that, absent a class, the individual class members would not pursue their claims at all, thus demonstrating superiority of the class action mechanism.” But the Court wrongly concludes that class members here would be able to pursue their claims without a class action. Most of them would not.

While some TPPs are “well-organized institutional entities with considerable resources,” many are not. How could one conclude that a small union health and welfare fund with a few hundred members has “no disparity in bargaining power” with a company like Merck?

The bottom line is that for most TPPs, a class action is the only way they can pursue claims against Merck for its deceptive marketing of Vioxx, a campaign that cost health plans and consumers billions in unnecessary costs, not to mention tens of thousands of heart attacks and deaths.

Today’s decision from the New Jersey Supreme Court is an extremely disappointing one. It ignored key facts about the class and how they were affected by the allegations in the case. Unfortunately, this decision will make it that much harder for health plans to hold drug companies accountable for their illegal tactics. With so many drug companies headquartered in New Jersey, this case will have broad impact.

To read the court’s decision, click here.