CHAPTER § 10.04 State and Federal Causes of Action and Defenses

• Jurisdiction: United States

§ 10.04 State and Federal Causes of Action and Defenses

[1] Common-Law Fraud and Misrepresentation

Where TPP lawsuits are based on allegations that manufacturers misrepresented the attributes of their products, they often assert claims of fraud, negligent misrepresentation, violation of state consumer-protection statutes and unjust enrichment.⁸⁰ The following section discusses some of the defenses to such claims and how they apply to TPPs.

[a] No Actionable Misrepresentation

Fraud claims generally require the plaintiff to plead and prove that the defendant made an actionable misrepresentation of fact.⁸¹ TPP plaintiffs often make the mistake of equating the promotion of a drug for off-label purposes with actionable fraud. Off-label promotion is the promotion of a drug by a pharmaceutical company for a use not approved by the FDA. Some forms of off-label promotion violate federal regulations and are subject to regulatory action by the FDA and the U.S. Department of Justice and some do not.⁸² As several courts have recognized, however, off-label communications (even those in violation of FDA regulations) are not intrinsically fraudulent.⁸³ Even where actionable misstatements are "intertwined" with allegations of off-label promotion, dismissal may be proper because it is impossible to separate what is lawful (and therefore inactionable) from what is not.⁸⁴ Finally, a defendant should, of course, scrutinize the allegations in a complaint to ensure that the allegedly fraudulent misrepresentations or omissions satisfy Federal Rule of Civil Procedure 9(b)'s heightened pleading requirement.⁸⁵

[b] Justifiable Reliance and Causation

Generally, fraud and misrepresentation require justifiable reliance and causation.⁸⁶In the case of prescription pharmaceuticals and devices, the physician is the one to whom a company directs the bulk of its marketing and promotional efforts, not the TPP.⁸⁷ Because of this and the fact that TPPs rarely have a direct relationship with manufacturers, TPPs face difficulty making sufficient allegations of justifiable reliance. If a TPP cannot claim to have relied on a misrepresentation, then causation is also absent.

Decisions dismissing claims against manufacturers on standing grounds where there is no allegation of a direct relationship between the manufacturer and the TPP illustrate the way a manufacturer may attack a TPP's allegations of reliance. As one court explained:

There are no allegations in the Master Complaint that the TPPs agreed to pay for the devices at issue and related costs based on their relationship with Guidant or representations Guidant made to it. . . . And there are no allegations that the named TPP Plaintiffs agreed to pay a certain price for the devices based on Guidant's statements or to grant Guidant some sort of preferred or approved provider status, thereby creating a direct relationship between the named TPP Plaintiffs and Guidant.⁸⁸

Because the TPPs did not allege the manufacturer made specific statements to them or explain how such statements influenced their decision to reimburse their insureds, causation was absent.⁸⁹ In addition to the lack of direct communication, justifiable reliance and causation can also be attacked on the grounds that the TPP had no role in deciding to use a particular drug or device.⁹⁰

Against this background, TPPs face a difficult hurdle in making believable and supported allegations of reliance. As with any claim, the complaint should be scrutinized to determine whether the TPP has actually alleged reliance.⁹¹ Even assuming it has, a manufacturer may still attack the factual basis for such allegations since the TPPs themselves usually have no direct relationship with the manufacturers. Such arguments, however, are probably better raised after the motion-to-dismiss stage.⁹² For example, in a case brought by the Commonwealth of Pennsylvania to recover for alleged overpayments for the prescription drug Risperdal, the defendant manufacturer raised reliance and causation arguments in a nonsuit motion after the State presented its evidence, arguing that "[t]he absence of any alleged reliance on any alleged misstatements by Janssen could not be more clear."⁹³ The trial court agreed and granted the motion.⁹⁴ On appeal, the trial court was affirmed. The appellate court reasoned that even if it accepted the Commonwealth's argument that reliance could be presumed in the case, the Commonwealth did not offer proof that it would have acted differently with knowledge of the "true" facts about Risperdal.⁹⁵ The appellate court found that because the Commonwealth simply "invite[d] speculation by the jury" as to what the Commonwealth would have done with the information that it alleged Janssen concealed, the trial court did not err in ruling that the Commonwealth did not meet its burden of proving causation.⁹⁶

Not all TPP claims are susceptible to attacks regarding reliance and causation. Claims based solely on increased purchase cost or placement on a TPP's formulary present a more direct relationship with the manufacturer. In such cases, TPPs may allege that, absent misrepresentations, "they would have taken steps not to purchase [the drug] at prices set by the [manufacturer]" or would have "exclude[ed] it altogether from their approved schedules."⁹⁷ The TPPs will argue that their actions would have prevented or dissuaded doctors from prescribing the product.⁹⁸ Such claims are "unaffected by whether any given patient" ingests a drug (or logically whether a physician prescribes it).⁹⁹

[c] No Duty to Speak

TPP claims of misrepresentation are often based on putative omissions, as opposed to affirmative statements.¹⁰⁰ These claims offer a significant theory of attack: the lack of a duty to speak.¹⁰¹ Because TPPs often have no relationship with manufacturers, it follows that in many cases there is no duty to disclose.¹⁰²

For example, in an antitrust case, TPP plaintiffs alleged that the manufacturer entered into "collusive, [and] anticompetitive agreements" settling certain patent law-suits.¹⁰³ The TPPs claimed that the agreements illegally delayed the entry of generic products into the market, thereby inflating the price of its branded drug.¹⁰⁴ The court dismissed the fraud-by-omission claims because the TPP did "not plead any set of facts to support a fiduciary or confidential relationship and thus failed to demonstrate why Defendants owed a duty of disclosure. . . ."¹⁰⁵

In claims based on product safety, as opposed to antitrust theories, the learned-intermediary doctrine also bolsters this defense. Under the doctrine, a manufacturer's duty to speak runs only to the treating physician.¹⁰⁶ Even if the TPP alleges a duty, a manufacturer may argue that this is a legal impossibility under the learned-intermediary doctrine.¹⁰⁷

Nonetheless, at least in safety and efficacy cases, this argument may not be persuasive. Courts may be inclined to accept the fact that a manufacturer always has a duty to disclose the risks its product causes, even to TPPs.¹⁰⁸

[d] The Economic-Loss Doctrine

A manufacturer may also attack a TPP's tort claims pursuant to the economic-loss doctrine. The economic-l oss doctrine varies from jurisdiction to jurisdiction, and three primary approaches to the doctrine have emerged.¹⁰⁹ Generally speaking, the majority approach bars tort claims where only economic injury exists. The minority approach allows such claims, regardless of the nature of the injury. The intermediate approach allows tort claims for economic loss, but only if the product's malfunction presented the possibility of personal injuries.¹¹⁰ Obviously, the only injury a TPP can ever suffer is economic.¹¹¹ Thus, the doctrine may bar TPP tort claims. For example, pursuant to the "economic-loss doctrine," the court dismissed claims against Pfizer for consumer fraud where the claimed injuries were "purely economic."¹¹² As noted, the success of this argument will depend on which approach the relevant jurisdiction has adopted.¹¹³

[2] State Statutory Claims: Consumer-Protection/Medicaid-Fraud Statutes¹¹⁴

In addition to common-law tort claims, TPPs invariably rely on state consumer-protection and deceptive-trade-practice statutes. Although these statutes (many of which are patterned after the Federal Trade Commission Act) have been around for years, plaintiffs are using them with increasing frequency.¹¹⁵ These statutes are attractive for TPPs because they often have relaxed standards of proof.¹¹⁶ TPPs—both state governments and private insurers—have had some success in the lower courts asserting claims under these statutes, obtaining multi-million-dollar awards.¹¹⁷ Some of these verdicts have survived on appeal.¹¹⁸ The following section provides an overview of some of the more common defenses and discusses their application in the context of TPP lawsuits.

[a] Reliance and Causation

The requirements of consumer-protection statutes vary from state to state. Some consumer-protection statues require reliance.¹¹⁹ However, this appears to be the exception, not the rule.¹²⁰

When reliance is required, understanding the flow of communications alleged in the complaint is central to an analysis of how to defend the TPP's claims. The specific allegations as to precisely to whom the drug or device manufacturer allegedly misrepresented information can be very helpful to a manufacturer's argument. Typically, TPPs will only allege that a manufacturer made misrepresentations to physicians and consumers, not to the TPP itself. If a TPP fails to allege that a manufacturer misrepresented information to the TPP, then the TPP necessarily cannot argue that it relied on any such misrepresentation.¹²¹

One federal district court, however, has interpreted two state consumer-protection statutes that require reliance as not requiring reliance by the TPP.¹²² TPPs asserted claims under the Indiana Deceptive Consumer Sales Act, which expressly requires reliance, and the Pennsylvania Unfair Trade Practices and...