DEBRA ANN LIVINGSTON, Circuit Judge:
Plaintiffs-Appellants are three health-benefit plans ("HBPs") that brought suit under the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1961 et seq. ("RICO"), and various state laws, claiming that Defendants-Appellees sanofi-aventis U.S. LLP and sanofi-aventis U.S., Inc. (collectively, "Aventis") engaged in a pattern of mail fraud by failing to disclose the true risks of the antibiotic drug telithromycin, marketed as "Ketek." Plaintiffs sought to certify a class of all HBPs that paid for Ketek prescriptions on the theory that such HBPs were injured as a result of paying for Ketek prescriptions that would not have been written if Aventis had not concealed Ketek's safety risks. The United States District Court for the Eastern District of New York (Sandra L. Townes, Judge), denied Plaintiffs' motion for class certification, relying on our decision in UFCW Local 1776 v. Eli Lilly & Co., 620 F.3d 121 (2d Cir.2010) ("Zyprexa"), to hold that the individual decisions of prescribing physicians thwarted Plaintiffs' effort to prove class-wide causation using generalized proof. The district court subsequently granted Aventis summary judgment on all claims, again citing Zyprexa and Plaintiffs' inability to prove causation with generalized evidence.
Although we agree with Plaintiffs that Zyprexa does not foreclose class certification for all RICO mail-fraud claims brought against a drug manufacturer, we nevertheless conclude that Zyprexa's reasoning applies to this case, and bars Plaintiffs' attempt to certify a class. While it may be possible for a class of plaintiffs to prove the causation element of a pharmaceutical
The human respiratory tract—comprising the sinuses, throat, and lungs—is highly susceptible to invading microorganisms. These microscopic invaders are the cause of the sniffling, sneezing, congestion, and coughing that most laypeople identify as symptoms of "a cold" or "the flu." The medical community classifies such symptoms as those of either upper respiratory infections—the common cold and sinusitis being the most common examples—or lower respiratory infections—of which bronchitis and pneumonia are the most familiar. See Patrick R. Murray et al., Medical Microbiology 6-7, 153-54 (7th ed.2013). Respiratory tract infections may be caused by bacteria or by viruses; most cases are caused by viruses. Ctrs. for Disease Control & Prevention, Get Smart: Know When Antibiotics Work (What Everyone Should Know), http://www.cdc.gov/getsmart/community/about/should-know.html (last visited Nov. 12, 2015) [hereinafter CDC, Get Smart].
Antibiotic drugs were first produced for widespread use in the 1940s, and their discovery was one of the greatest medical advances in history. Ctrs. for Disease Control & Prevention, About Antimicrobial Resistance, http://www.cdc.gov/drugresistance/about.html (last visited Nov. 12, 2015) [hereinafter CDC, Antimicrobial Resistance]. One of the first antibiotic drugs was penicillin, which was a member of a class of antibiotics known as beta-lactams. Pneumonia: In-Depth Report (Antibiotic and Antiviral Drug Classes), N.Y. Times, http://www.nytimes.com/health/guides/disease/pneumonia/antibiotic-and-antiviral-drug-classes.html (last visited Nov. 12, 2015). Other beta-lactam antibiotics include amoxicillin, which, with the addition of clavulanic acid, is marketed under the name Augmentin. Id. In addition to the beta-lactams, the most common classes of antibiotic drug used to treat respiratory infections are macrolide drugs, such as azithromycin (Zithromax) and clarithromycin (Biaxin), and the most recent major class of antibiotics to come on the market, fluoroquinolones. Id. All categories of antibiotic drug have their own benefits and risks. Antibiotics in all categories, however, are only effective against bacteria, and not against viral infections. Thus, because most respiratory tract infections are viral in nature, most such infections are unaffected by antibiotics. CDC, Get Smart.
For a variety of reasons, doctors nonetheless frequently prescribe antibiotic drugs to patients with respiratory tract infections, even if they have no evidence that the infection in question is caused by a bacteria rather than a virus. This kind of over-prescription of antibiotic drugs, as well as the widespread use of antibiotic therapies in general, has given rise to a phenomenon known as antibiotic resistance. CDC, Antimicrobial Resistance. Antibiotic resistance occurs when bacteria
Although the various classes of drugs used to treat respiratory infections exhibit similar effectiveness and thus offer a similar benefit, each class has different downsides. Beta-lactams such as penicillin and amoxicillin are not suitable for patients with penicillin allergies, and Augmentin (amoxicillin with clavulanic acid) is a well-known cause of liver injury. In addition, resistance to both beta-lactams and to macrolide antibiotics is high. Macrolides can cause serious allergic reactions, impaired liver function, and sometimes-fatal heart problems. Fluoroquinolones can cause serious side effects in the central and peripheral nervous system, and can cause heart problems. Although all antibiotics can cause colitis by killing the normal, healthy microorganisms in a patient's body that protect us from the dangerous bacterium Clostridium difficile, or C. dif, see Ctrs. for Disease Control & Prevention, Making Health Care Safer: Stopping C. difficile Infections, http://www.cdc.gov/vitalsigns/HAI/StoppingCdifficile/index.html (last visited Nov. 12, 2015), fluoroquinolones are particularly prone to this effect, because they attack a broader spectrum of bacteria, and thus kill more healthy gut bacteria than other drugs. All antibiotic drugs can have dangerous side effects; antibiotics are responsible for approximately twenty percent of all emergency room visits for adverse drug events. CDC, Get Smart.
On February 28, 2000, Aventis submitted a New Drug Application ("NDA") to the Food and Drug Administration ("FDA") seeking approval to sell and market Ketek as a treatment for four types of respiratory infections: acute bacterial sinusitis ("ABS"), acute exacerbation of chronic bronchitis ("AECB"), tonsillopharyngitis, and community-acquired pneumonia ("CAP"). In support of the NDA, Aventis submitted data from in vitro testing of Ketek against various bacteria in a controlled lab setting, data from animal testing, and data from small human safety and efficacy trials. The in vitro data demonstrated that Ketek was capable of killing strains of common bacterial pathogens that were resistant to other antibiotics, including MDRS, though in vitro results cannot always be replicated in clinical trials.
At the time when the FDA was considering the Ketek application, the FDA used a non-inferiority standard to assess the efficacy of antibiotic drugs in treating respiratory tract infections. This means that the FDA accepted, as conclusive proof of a drug's effectiveness, trials demonstrating that a new drug was no worse at treating a particular illness than existing, approved drugs—or, at least, was not so much worse than existing drugs that it fell below a set
Aventis's Ketek application was evaluated by the FDA's Anti-Infective Drug Advisory Committee ("AIDAC"), a panel of experts tasked with assessing an antibiotic drug's risk/benefit profile and making an approval recommendation to the FDA. The agency usually follows the recommendation of such a committee, but it is not bound by it. On April 26, 2001, the AIDAC met and voted to recommend limited approval of Ketek only for treatment of CAP—the most serious of the four conditions considered. The committee also recommended that further studies be performed to assess Ketek's potential side effects, known in the medical community as "adverse events." Specifically, the AIDAC members were concerned that Ketek might have serious but rare side effects that the small-scale clinical trials conducted thus far might not have revealed. Following this meeting, the FDA sent Aventis a letter finding its application for CAP, AECB, and ABS (though not tonsillopharyngitis) "approvable"—subject to the performance of a large-scale clinical study. Such a study would ideally reveal rarer side effects that might not have appeared in trials of only a few hundred or few thousand subjects. In other words, the study recommended by the AIDAC would be a microcosm of what could be expected to happen if Ketek were approved and entered the marketplace.
Aventis agreed to perform such a study, and enlisted Pharmaceutical Product Development, Inc. ("PPD") to create the study protocol for and oversee the operation of what Aventis dubbed "Study 3014." Study 3014 was designed to enroll 24,000 patients, half of whom would be treated with Ketek, and half of whom would be treated with Augmentin. Patients were to be randomly assigned to one or the other drug. PPD was charged with recruiting physicians, who would be paid $400 for every patient of theirs who completed the study. The study required that each patient be diagnosed with ABS, AECB, or CAP at an initial appointment, at which baseline labs would be drawn and one of the two study medications would be prescribed. The protocol then required two follow-up visits.
Study 3014 was a fiasco. Dr. David Ross, who was the primary FDA safety reviewer responsible for review of Ketek, testified before a congressional hearing that the fraud in Study 3014 was "unprecedented. . . at this scope and scale." J.A. 4213. "[O]ut of 10 [study] sites that were inspected [by the FDA], all had serious problems that made their data completely unreliable. . . . [E]very single one was found to have significant violations of what are called Good Clinical Practices, the rulebook for conducting clinical trials. Four
As a result of this widespread fraud and incompetence, the FDA Division of Scientific Investigations ("DSI") concluded that "[t]he integrity of data from all sites involved in Study 3014 cannot be assured with any degree of confidence." J.A. 643. "[I]f these sites, which were high-enrolling sites, where supposedly the company had been keeping close tabs on the doctors, were unreliable, the rest of the sites couldn't be relied on either." J.A. 4213. Ultimately, because "the integrity of data from all of the 1,800 investigative sites . . . could not be assured," the FDA "did not rely on those data to take a regulatory action." J.A. 4539; see also J.A. 4387 ("Although the FDA did not rely on study 3014 to support approval, we reviewed the study for safety findings that would have counted `against the drug,' as is consistent with good review practice."). Thus, Study 3014's ultimate conclusion—that Ketek was comparable to Augmentin in safety and effectiveness—was worthless.
On July 24, 2002—before the FDA had reason to suspect fraud in Study 3014—Aventis filed its amended NDA, including data from Study 3014, and post-marketing safety data from countries in Europe and South America, where Ketek had already been approved for sale. Aventis's report about Study 3014 omitted any mention of the study's data integrity problems. On October 15, 2002, DSI began its investigation of Dr. Kirkman-Campbell's involvement in Study 3014, which led swiftly to discovery of her fraud.
On January 8, 2003, the AIDAC met for a third time to discuss the Ketek application. The committee was missing crucial information, however—the FDA did not reveal to the AIDAC members any information relating to DSI's ongoing investigation of Study 3014. Unaware of the unreliability of Study 3014's results, the AIDAC recommended that the FDA approve Ketek for ABS, AECB, and CAP. The FDA, armed with the information the AIDAC lacked, did not accept the committee's recommendation, but instead requested additional information from Aventis concerning both Study 3014 and post-marketing safety data from countries where Ketek was already in use.
Finally, on April 1, 2004, the FDA approved Ketek for three indications: ABS, AECB, and CAP. Because the agency was aware that Study 3014 was unreliable, and Aventis had conducted no other large-scale safety studies, the FDA relied almost entirely on post-marketing safety reports from other countries in approving the drug. This was highly unusual. See J.A. 4231 (Dr. David Graham, associate director for science and medicine in FDA's Office of Surveillance and Epidemiology, testified that he could not "think of a single other example where FDA used such data as the primary basis for the approval of a drug[`s] safety.").
The label agreed upon by Aventis and the FDA for Ketek noted that there was some risk of liver failure associated with the drug, but this information was not included in the "Warnings" section, nor was any indication included therein that Ketek should not be prescribed to patients with a history of liver problems. J.A. 3934-35. No information from Study 3014 appeared on the Ketek label. The FDA's approval of Ketek, like FDA approval of any other drug, see Zyprexa, 620 F.3d at 127, permitted doctors to prescribe Ketek not only for its approved indications (ABS, AECB, and CAP), but also for any other disease or symptom for which an individual physician thought it might be effective. Prescription of a drug for an indication other than the indications approved by the FDA is called "off-label" prescription or "off-label" use. Id.
A prescription for antibiotic drugs, like any prescription, involves three main actors: the patient, who takes the medication and often assumes some share of the cost; the doctor, who prescribes the drug but is not involved with the financial side of the prescription; and the payer, who covers the majority of the drug's cost. For insured patients, the payer is a health-benefit plan ("HBP"), which pays whatever cost the patient's co-pay does not cover. Plaintiffs in this case are all HBPs. Most HBPs contract out their prescription drug benefit coverage to pharmacy benefit managers ("PBMs"), and all three named plaintiffs here did so. PBMs manage approximately seventy-five percent of all outpatient prescription drug claims, and the three largest PBMs—Medco, Caremark, and Express Scripts—handle about two-thirds of those claims, or about half of all retail prescriptions.
Most PBMs use formularies to outline which drugs are covered by a particular plan and what type of coverage each drug receives. Many formularies are "tiered," often using a three-tier system which separates generics (Tier 1), "preferred" brand name drugs (Tier 2), and "non-preferred" brand name drugs (Tier 3). J.A. 1138-39. Tier 1 drugs require the smallest co-pay,
Although HBPs implement tiered formularies and otherwise classify drugs in order to incentivize patients to request cheaper, safer, and more effective drugs over more expensive, dangerous, or ineffective ones, the ultimate decision regarding which drug will be prescribed to a patient rests entirely with the patient's doctor. The parties to this case agree that a variety of factors contribute to a physician's decision, including both patient-specific factors and the physician's own experience with, and knowledge about, the various options. Those factors include, in the case of antibiotics: the patient's age and sex, the possibility of pregnancy, drug allergies, success of prior courses of treatment in this patient, other medications the patient is taking, other illnesses the patient is experiencing, family history, drug compliance tendencies (whether the patient is likely to take and finish the course of treatment as prescribed), patient preferences, side effects from previous antibiotics, the likelihood of antibiotic resistance in the patient, the profile of antibiotic resistance in the region, and, of course, the drug's safety and efficacy.
There are many antibiotic drugs available to treat respiratory tract infections, including AECB, ABS, and CAP. As discussed above, each class of drug, and each individual drug within that class, comes with its own particular risks and benefits, including the type and severity of potential side effects, the existence of resistant organisms, and whether the drug targets a broad or narrow spectrum of bacteria. Ketek's competitors also vary significantly in cost. Zithromax, in the timespan shortly after Ketek's entrance into the market, cost $39.54 for a full course of therapy, while Levaquin (a fluoroquinolone) cost $62.09 for a course of treatment for AECB and $124.18 for a course of treatment for ABS. Amoxicillin clavulanate cost $75.77 for a full course of therapy for both diseases. Generic competitors like penicillin cost much less. Ketek was priced close to Zithromax, which Aventis considered its main competitor: $46.15 per course of therapy for both ABS and AECB.
Following FDA approval, HBPs placed Ketek on their formularies. At the time relevant to this action, two of the named plaintiffs, New England Carpenters Health Benefits Fund ("NEC") and Allied Services Division Welfare Fund ("ASD"), employed a three-tiered formulary; Sergeants Benevolent Association Health and Welfare Fund ("SBA"), the third named plaintiff, did not employ a tiered formulary at all. It is not clear in which tier ASD's PBM classified Ketek during the relevant time period; all that is known is that, as of March 2010, ASD's PBM listed Ketek as "Tier 2," which is the tier for preferred brand-name drugs. NEC covered Ketek at Tier 2 until December 2006, at which point it moved Ketek to Tier 3. SBA, which does not employ a tiered formulary, has covered Ketek at the same level from the time of its original FDA approval through the date of the district court's summary judgment decision.
After FDA approval in April 2004, Ketek entered the market in July 2004 and
Ketek entered a market that was in a significant state of flux. Zithromax, the market leader, and the drug that Aventis considered Ketek's true rival, was scheduled to go off-patent in the fourth quarter of 2005. Biaxin, another popular macrolide antibiotic, was scheduled to go generic in the second quarter of 2005. Cefzil, a less popular competitor, was going off-patent in the third quarter of 2005, and Levaquin and Tequin, two of the first fluoroquinolone drugs, were scheduled to go off-patent in 2007. In other words, Ketek entered a market which was dominated by brand-name drugs facing off against other brand-names, but which likely would not remain that way for long. Ketek had to be able to compete even when its most popular rivals became cheaper and more widely available than ever before.
Ketek's sales peaked in the winter months and dropped in the summer months, which is typical for drugs treating seasonal illnesses like sinusitis and pneumonia. After the peak sales of winter 2005-06, however, sales dropped much more steeply than they had following the first winter peak in 2004-05; sales ultimately fell to about 60,000 prescriptions in July 2006, far below the July 2005 low of about 140,000 prescriptions. Ketek's numbers then began to rise again, as expected in the fall and winter, but on a much smaller scale. Indeed, Ketek's peak for the 2006-07 winter was only about 130,000 prescriptions—lower than Ketek's summer 2005 "low" of about 140,000. In short, Ketek's sales took an unmistakable dive starting in early-to-mid-2006. The reason or reasons for this precipitous decline are intensely disputed by the parties.
The FDA maintains a publicly available database of spontaneous reports of adverse drug reactions, known as the Adverse Event Reporting System, or "AERS." In March 2005, slightly less than a year after Ketek was approved, the FDA Center for Drug Evaluation and Research asked the Division of Drug Risk Evaluation ("DDRE") to evaluate reports appearing in AERS related to Ketek—specifically, reports of "visual disturbances, automobile accidents, liver events, and syncope/loss of consciousness." J.A. 2230. After assessing the AERS reports in detail and determining that a number of the reported hepatic adverse events were caused by something other than Ketek, DDRE concluded that the hepatic adverse event reports were "consistent with those seen prior to approval in worldwide experience and as described in the current labeling." Id. DDRE recommended only "including a statement in the
By the end of January 2006, Ketek had been prescribed approximately four and a half million times, and ten cases of serious hepatic adverse events closely associated with Ketek had been reported to AERS, including two deaths. On January 20, 2006, the medical journal Annals of Internal Medicine published a short article describing a cluster of three Ketek-associated
The year 2006 saw a spike in reports of hepatic adverse events associated with Ketek. The six months from January 2006 to June 2006 saw twenty-five cases of serious hepatic side effects reported as associated with Ketek—more than twice as many as had been reported in the entire eighteen months that Ketek had previously been on the market. The six months from June 2006 to December 2006 saw an additional eighteen reported serious adverse hepatic events, for a total of fifty-three such events since Ketek came on the market. DDRE noted in an October 2006 report on Ketek that "the rising trend of reporting rates associated with [Ketek] is of concern," J.A. 3855, but also noted that the rise in reporting of hepatic events associated with Ketek was potentially "stimulated" reporting prompted by the Annals of Internal Medicine article in January 2006, J.A. 3866. Stimulated reporting occurs when press coverage of a particular adverse event associated with a drug prompts healthcare providers to notice and report similar drug-event pairings with greater frequency; when it occurs, this phenomenon makes it difficult to compare reporting rates for different drugs, because a higher reported rate of liver failure associated with one drug as opposed to another may simply reflect greater public salience rather than greater risk. The October 2006 DDRE report noted that the domestic reporting rate for Ketek-associated serious hepatic adverse events was 23 per 10 million prescriptions and recommended "consideration of regulatory actions for [Ketek] such as restricted use for only patients who have failed other antibiotic treatments or even market withdrawal." J.A. 3869. On June 29, 2006, Aventis (with the FDA's approval) changed Ketek's label to include additional warnings about liver toxicity and sent a Dear Healthcare Professional letter to prescribers alerting them to the change. On the same date, the FDA issued a press release cautioning that many antibiotics may pose a risk of liver failure, and that "as drug usage becomes more widespread, it is expected that rare adverse events may be detected or reported in greater numbers." J.A. 3061-62. On September 12, 2006, the AIDAC voted to reject an NDA for the fluoroquinolone gemifloxacin, targeted at ABS, in part because clinical trials demonstrated only non-inferiority; the manufacturer could not prove that gemifloxacin was more effective than a placebo. On October 23, 2006, the FDA effectively announced a new superiority requirement for antibiotic trials by rejecting an NDA for another anti-infective aimed at respiratory infections, faropenem, and raising no safety concerns but instead advising the manufacturer to conduct superiority trials.
In December 2006, the FDA convened a joint meeting of the AIDAC and the Drug Safety and Risk Management Advisory Committee ("DSRMAC") to consider whether the agency should (1) withdraw, limit, or modify Ketek's approval for some or all of its three indications; (2) require
The meeting's introductory comments, delivered by the Director of the FDA's Office of Surveillance and Epidemiology, Dr. Gerald Dal Pan, noted "concerns that non-inferiority trials cannot determine if the observed clinical success rate" of drugs treating respiratory infections "is due to the drug or to the natural history of the condition." J.A. 4432-33. Similar concerns about the continued viability of non-inferiority trials recurred throughout the meeting. The meeting also featured an FDA statistical analysis of the Ketek-related reports appearing in AERS, which concluded that Ketek displayed a "fairly high" propensity to cause hepatic failure but noted that its propensity to cause both hepatic failure and hepatitis was statistically similar to that of another leading antibiotic drug, Augmentin. J.A. 4664-65. An epidemiological analysis of Ketek's connection to hepatic adverse events by the FDA's Office of Surveillance and Epidemiology concluded that the "reporting rate for [Ketek]-associated [liver failure] . . . was found to be similar to . . . reporting rates for selected comparators [in the quinolone family] . . . given variation inherent in spontaneous adverse event reporting." J.A. 4753.
Regarding the deficiencies of Study 3014, one attending consultant remarked that, although "[m]uch has been made . . . out of the fact" that Study 3014 had been improperly conducted and could not be considered in connection with Ketek's risks, "a clinical trial . . . is not a great way to get an answer to a question that involves a very low event rate," because "for the event rates we are talking about, a 24,000-patient trial isn't going to show much." J.A. 4844-45. Another attendee agreed, asking, "how much power would a study of 12,000 patients exposed to [Ketek]. . . [have] to tell us about liver injuries that are occurring at" a "potential rate of 1 in 20,000 to 1 in 30,000." J.A. 4848. A third attendee pointed out that "one other major limitation to clinical trials in terms of safety data . . . is that the majority of clinical trials . . . don't enroll very sick people," which is precisely the group of patients most likely to develop adverse drug reactions once a drug is prescribed widely in the general population. J.A. 4854-55.
At the end of the meeting, the attendees voted to withdraw Ketek's approval for ABS and AECB. Asked to state their rationale along with their votes, a number of members cited safety concerns, explaining that they would "need to know more about the risks" before allowing Ketek back on the market, J.A. 2277, or that they were "concerned about the possibility that the level of toxicities we see right now may herald an increasing prevalence that may occur in the future," J.A. 2284. But many members cited effectiveness instead, noting that, in the absence of superiority trials, Ketek might well be no better than a sugar pill. Several attendees expressly explained their votes in terms of the shift from non-inferiority trials to superiority trials. Two attendees voted to continue Ketek's approval based on fairness concerns, arguing that Ketek and its competitors had been approved when non-inferiority trials were considered acceptable, and that it was "unfair to single out a single
The FDA accepted the attendees' recommendation that Ketek's approval for ABS and AECB be withdrawn, and that Ketek continue to be approved for CAP. The attendees also recommended that Ketek's label be amended with a "black box warning" and expressed concern that foreign postmarketing data indicated that Ketek exacerbated the rare neurological disorder myasthenia gravis in patients already suffering from the disease, resulting in hospitalization and sometimes death. The black box warning ultimately added to Ketek's label in 2007 indicated that "Ketek is contraindicated in patients with myasthenia gravis" and referenced this data. Shortly after learning of the agency's decision, Aventis decided to terminate its rebate contracts
The withdrawal of Ketek's approval for ABS and AECB took effect on February 9, 2007. On February 13, 2007, the House Energy and Commerce Subcommittee on Oversight and Investigations began hearings on the FDA's drug-approval process, focused in large part on the FDA's decision to approve Ketek, the widespread fraud in Study 3014, antibiotic resistance, and the issue of non-inferiority versus superiority trials for drugs that address self-resolving infections like ABS and AECB. Ketek's domestic sales, already declining, continued their downward trend after the withdrawal. Ketek is still available for sale in the United States, but is rarely prescribed here. Sales remain brisk abroad.
Plaintiffs filed the original complaint in this action on January 14, 2008, alleging violations of state consumer protection laws and unjust enrichment.
In May 2010, Plaintiffs moved to certify a class including all HBPs that paid or incurred costs for Ketek between April 1, 2004, when the drug received FDA approval, and February 12, 2007, when it lost such approval for ABS and AECB. Plaintiffs argued, inter alia, that Ketek was so dangerous that no physician would have
On December 22, 2011, Aventis moved for summary judgment with respect to all four causes of action alleged in the second amended complaint, arguing that Plaintiffs could not prove causation under RICO or prove that they suffered an injury, and arguing that Plaintiffs' state-law claims failed because Plaintiffs could not prove a violation of any of the state consumer protection statutes listed in the second amended complaint or make out an unjust enrichment claim under the law of their home states. On January 4, 2012, the district court again referred the matter to Magistrate Judge Reyes, who recommended that Aventis's motion for summary judgment be granted in its entirety. Sergeants Benevolent Ass'n Health & Welfare Fund v. Sanofi-Aventis U.S. LLP, No. 08-cv-0179 (SLT)(RER), 2012 WL 4336218 (E.D.N.Y. Sept. 17, 2012) ("Sergeants III").
On May 12, 2014, the district court adopted Judge Reyes's Report and Recommendation except to the extent that Judge Reyes recommended limiting the state-law causes of action to claims brought pursuant to the laws of Plaintiffs' home states.
We review a district court's denial of class certification for abuse of discretion. To the extent that the court's decision was based on conclusions of law, we review such conclusions de novo, and to the extent that its decision was based on findings of fact, we review such findings for clear error. See Zyprexa, 620 F.3d at 130-31. Our review of a district court's denial of summary judgment is de novo. Id. Summary judgment is properly granted if "there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R.Civ.P. 56(a).
Plaintiffs seek class certification under Federal Rule of Civil Procedure 23(b)(3). They must therefore demonstrate, inter alia, that "questions of law or fact common to class members predominate over any questions affecting only individual members."
Plaintiffs' claim is brought under RICO § 1964(c). To prevail on such a claim, a plaintiff must show "(1) a substantive RICO violation under § 1962; (2) injury to the plaintiff's `business or property;' and (3) that such injury was `by reason of' the substantive RICO violation." City of New York v. Smokes-Spirits.com, Inc., 541 F.3d 425, 439 (2d Cir.2008), rev'd on other grounds sub nom. Hemi Grp. v. City of New York, 559 U.S. 1, 130 S.Ct. 983, 175 L.Ed.2d 943 (2010) (quoting 18 U.S.C. § 1964(c)).
The statute's "by reason of" language "require[s] a showing that the defendant's violation not only was a `but for' cause of his injury, but was the proximate cause as well," which mandates "some direct relation between the injury asserted and the injurious conduct alleged" that is not "too remote." Holmes v. Sec. Inv.
The core of the substantive RICO violation alleged by Plaintiffs is a pattern of mail fraud, which occurs "whenever a person, `having devised or intending to devise any scheme or artifice to defraud,' uses the mail `for the purpose of executing such scheme or artifice or attempting to do so.'" Bridge v. Phoenix Bond & Indem. Co., 553 U.S. 639, 647, 128 S.Ct. 2131, 170 L.Ed.2d 1012 (2008) (quoting 18 U.S.C. § 1341). The parties do not dispute that Aventis "use[d] the mail" in connection with its alleged fraud and thus (for purposes of this appeal) focus primarily on whether Aventis's alleged fraud caused an injury to Plaintiffs and other class members, rather than on whether Aventis's alleged conduct actually constituted a "scheme or artifice to defraud" within the meaning of the mail-fraud statute. The district court determined that common issues did not predominate, rendering class certification unavailable, because Plaintiffs could not establish using generalized proof that each putative class member suffered an injury "by reason of" Aventis's alleged fraud. Because that decision was not an abuse of discretion, we affirm the district court's order denying class certification.
Although reliance on the defendant's alleged misrepresentation is not an element of a RICO mail-fraud claim, the plaintiffs' theory of injury in most RICO mail-fraud cases will nevertheless depend on establishing that someone—whether the plaintiffs themselves or third parties—relied on the defendant's misrepresentation. See Bridge, 553 U.S. at 658-59, 128 S.Ct. 2131; In re U.S. Foodservice Inc. Pricing Litig., 729 F.3d 108, 119 n. 6 (2d Cir.2013), cert. denied, ___ U.S. ___, 134 S.Ct. 1938, 188 L.Ed.2d 960 (2014). That is because reliance will typically be a necessary step in the causal chain linking the defendant's alleged misrepresentation to the plaintiffs' injury: if the person who was allegedly deceived by the misrepresentation (plaintiff or not) would have acted in the same way regardless of the misrepresentation, then the misrepresentation cannot be a but-for, much less proximate, cause of the plaintiffs' injury.
Because proving causation will ordinarily require proving reliance, and because of the difficulty of proving reliance using "generalized proof," Zyprexa, 620 F.3d at 131-32, it is quite difficult, though not impossible, to certify a class in a RICO mail-fraud case. To set out some helpful guideposts for our inquiry in this case, we first examine several cases involving "first-party reliance"—i.e., cases where proving causation requires proof that the plaintiffs themselves had relied on the defendant's misrepresentations. Cf. Halliburton Co. v. Erica P. John Fund, Inc., ___ U.S. ___, 134 S.Ct. 2398, 2408, 189 L.Ed.2d 339
In McLaughlin v. American Tobacco Co., 522 F.3d 215 (2d Cir.2008), the putative class consisted of cigarette smokers allegedly induced to purchase "light" cigarettes by a tobacco company's misrepresentations that light cigarettes were healthier than regular ones. The plaintiffs' theory of injury thus required proving that each class member would not have bought light cigarettes but for the misrepresentation. See id. at 227. We held that the plaintiffs could not do so by generalized proof: "Individualized proof is needed," we explained, "to overcome the possibility that a member of the purported class purchased Lights for some reason other than the belief that Lights were a healthier alternative—for example, if a Lights smoker was unaware of that representation, preferred the taste of Lights, or chose Lights as an expression of personal style." Id. at 223.
For essentially the same reasons, the Ninth Circuit denied certification in Poulos v. Caesars World, Inc., 379 F.3d 654 (9th Cir.2004), to a putative class of plaintiffs who were allegedly induced to gamble by a casino's misrepresentations about their odds of winning. The court explained: "Some players may be unconcerned with the odds of winning, instead engaging in casual gambling as entertainment or a social activity. Others may have played with absolutely no knowledge or information regarding the odds of winning such that the appearance and labeling of the machines is irrelevant and did nothing to influence their perceptions. Still others, in the spirit of taking a calculated risk, may have played fully aware of how the machines operate." Id. at 665-66. For gamblers who did not rely on the casino's misrepresentations in deciding whether to gamble, the alleged fraud simply played no causal role in their injury; and because there was no way to establish through generalized proof that each individual class member had, in fact, relied on the casino's misrepresentations, certification was improper. See id. at 666.
We have recognized, however, that plaintiffs may be able to prove class-wide causation based on first-party reliance without an individualized inquiry into whether each class member relied on the defendant's misrepresentation if "circumstantial evidence" generates a sufficiently strong inference that all class members did, in fact, rely. McLaughlin, 522 F.3d at 225 n. 7. In certain factual contexts, it may well be reasonable to infer that each class member would only have taken the action leading to its injury if it had relied on the defendant's alleged misrepresentation. Such an inference may be available if, for example, the class members all faced "the same more-or-less one-dimensional decisionmaking process," such that the alleged misrepresentation would have been "essentially determinative" for each plaintiff. Richard A. Nagareda, Class Certification in the Age of Aggregate Proof, 84 N.Y.U. L.Rev. 97, 121 (2009). Although deciding whether to smoke light cigarettes and deciding whether to gamble are not one-dimensional decisions, a plaintiff class may be able to convince a jury that other decisions are.
The Eleventh Circuit's decision in Klay v. Humana, Inc., 382 F.3d 1241 (11th Cir. 2004), illustrates this point. In Klay, a putative class of doctors claimed that a
Similar principles apply in cases involving "third-party reliance"—i.e., cases in which proving the necessary causal connection between the defendant's misrepresentation and the plaintiffs' injury requires proving that someone other than the plaintiffs relied on the defendant's alleged misrepresentations. See, e.g., Bridge, 553 U.S. at 658-59, 128 S.Ct. 2131. Just as in cases involving first-party reliance, the individualized nature of the reliance inquiry can make it difficult to prove causation using generalized proof. Nonetheless, it may be possible in certain circumstances for a putative class to prove causation on a class-wide basis by offering sufficient circumstantial proof—analogous to that offered in Klay and U.S. Foodservice—to permit the reasonable inference that the third parties in question must have relied on the defendant's misrepresentation.
Our decision in Zyprexa illustrates the difficulty of proving class-wide causation in a RICO mail-fraud case using generalized proof of third-party reliance. There, a putative class of HBPs sued the pharmaceutical company Eli Lilly, alleging that Lilly had violated RICO by making false representations about the antipsychotic medication Zyprexa, which the FDA had approved to treat schizophrenia and bipolar disorder. 620 F.3d at 124. The plaintiffs alleged that Lilly had concealed evidence of Zyprexa's tendency to cause serious weight gain and diabetes, and had unlawfully marketed Zyprexa for "off-label" conditions such as depression, dementia, and anxiety disorder for which there was no evidence of effectiveness. Id. at 124-25, 127-28.
The Zyprexa plaintiffs advanced two theories of injury, which we termed the "quantity effect" theory and the "excess price" theory. Id. at 129. The former theory—like Plaintiffs' theory of injury in the present case against Aventis—argued that Lilly's misrepresentations caused the HBPs to pay for prescriptions that would not otherwise have been written; the latter theory maintained that Lilly's misrepresentations caused the HBPs to pay more for Zyprexa than they otherwise would have. Id. Both theories depended on the premise that doctors, as opposed to the HBPs themselves, had relied on Lilly's alleged misrepresentations in choosing to prescribe Zyprexa to their patients. To prove that doctors had, in fact, relied on Lilly's misrepresentations in making their prescription decisions, the plaintiffs primarily
This Court held that neither of the plaintiffs' two theories was susceptible to generalized proof of causation on the facts presented, and we therefore reversed the district court's certification of the plaintiff class. With respect to the quantity effect theory in particular (the theory primarily relevant here), we concluded—relying heavily on McLaughlin—that the plaintiffs' attempt to show causation through generalized proof was "thwart[ed]" by the individualized nature of physicians' prescribing decisions. Id. As we explained:
Id. at 135-36. In other words, we viewed a doctor's decision to prescribe Zyprexa as roughly analogous to a smoker's decision to smoke light cigarettes: because the decision could have been made for any numberof a multitude of reasons, we could not reasonably infer that Lilly's misrepresentations were, in fact, a but-for cause (much less the proximate cause) of the excess prescriptions paid for by the plaintiffs. The fact that Zyprexa prescriptions declined markedly following the disclosure of the previously concealed information was not sufficient to support this necessary inference, especially in light of evidence that "at least some doctors were not misled by Lilly's alleged misrepresentations." Id. at 135. Thus, because a reasonable jury would be unable to find RICO causation satisfied for each class member based on the generalized proof offered by the plaintiffs, common questions did not predominate, and class certification under Rule 23(b)(3) was therefore inappropriate.
Here, as in Zyprexa, Plaintiffs' theory of injury requires them to prove third-party reliance by doctors on Aventis's alleged misrepresentations in order to establish that those misrepresentations caused HBPs to pay for Ketek prescriptions that would not have been written otherwise. Aventis argues, and the district court held, that Zyprexa controls this case and forecloses class certification. We agree. As explained below, the proof offered by Plaintiffs here does not differ in any meaningful way from that offered by the Zyprexa plaintiffs, and Zyprexa accordingly establishes that Plaintiffs' generalized proof is insufficient to establish RICO causation
Plaintiffs' attempt to show class-wide causation through generalized proof centers on the premise that, unlike the prescribing decisions described in Zyprexa—which were multifaceted and therefore called for individualized determinations as to whether the prescriptions had in fact been written because of Lilly's alleged fraud—physicians' prescribing decisions regarding Ketek were "more-or-less one-dimensional." Nagareda, supra, at 121. In other words, Plaintiffs argue that this case is more like Klay and U.S. Foodservice than it is like Zyprexa, McLaughlin, and Poulos. Plaintiffs contend that safety is the preeminent consideration in prescribing an antibiotic, so that had physicians known about Ketek's "true" risks, none of them would have prescribed it. On this logic, any Ketek prescription written without notice of the safety information allegedly withheld by Aventis was necessarily written in reliance on Aventis's nondisclosure of that information. This argument is not persuasive, and it entirely fails as a basis for distinguishing Zyprexa.
Plaintiffs purport to demonstrate the one-dimensional nature of a physician's decision to prescribe Ketek by presenting evidence showing that sales of Ketek dropped precipitously after the FDA's public health advisory and Ketek's label revisions in 2006. According to Plaintiffs, this sequence of events illustrates that doctors must have prescribed Ketek in reliance on Aventis's misrepresentations prior to the new safety disclosures, because they stopped prescribing Ketek upon learning of that new information. Plaintiffs' expert, Dr. Meredith Rosenthal, testified that the drop in Ketek's sales was so precipitous that she had never seen anything like it—that even a drug's loss of patent protection generally did not cause such a slide in sales. J.A. 1134-35. Despite testifying that Ketek's sales history was unique in her experience, Dr. Rosenthal nonetheless opined that, "[i]n [her] experience," this unprecedented drop must have been caused entirely by the disclosure of Ketek's post-marketing safety data. J.A. 1135.
The decline in Ketek sales, combined with Dr. Rosenthal's testimony, cannot support an inference that all pre-disclosure Ketek prescriptions were written in reliance on Aventis's alleged fraud, because we have already addressed precisely this kind of generalized proof in Zyprexa and held that it was insufficient to show class-wide RICO causation. There, too, the
The same is true here: Ketek's declining sales may have been correlated with the issuance of the FDA's public health advisory and with Ketek's label revisions, but mere correlation does not demonstrate causation. See, e.g., Brown v. Entm't Merchs. Ass'n, ___ U.S. ___, 131 S.Ct. 2729, 2739, 180 L.Ed.2d 708 (2011). Moreover, the weakness of the correlation-based inference that Plaintiffs ask us to draw is particularly stark in light of the fact that Ketek's lower sales were also correlated with significant larger changes in the market for anti-infectives, including some of the dominant market players moving off-patent, as well as a growing scientific consensus that the entire field of anti-infective drugs was of dubious efficacy in treating Ketek's most popular indications, ABS and AECB.
To be sure, it is possible (as the district court recognized) to envision a drug so dangerous that no physician would ever prescribe it to treat a non-fatal condition if that physician were aware of its true risks. And, in such an extraordinary case, a reasonable jury might well be able to infer solely from a precipitous drop-off in sales that any prescription for the drug was necessarily written in reliance on the defendant's concealment of the drug's risks. See Sergeants IV, 20 F.Supp.3d at 327 ("Obviously, in situations where the health risks of a drug are extremely severe, safety considerations might be the sole determinant of a physician's decision."). After all, the multitude of factors recognized in Zyprexa as entering into individual physicians' prescribing decisions—e.g., the age and sex of the patient, the availability of generics, or the patient's past reactions to a drug—would be irrelevant if a physician knew that the drug would cause certain death or, to take a less extreme example, if the physician knew that a drug meant to treat acne would cause blindness in a tenth of the patients who took it. The tradeoff simply would never be worth the risk. In such a case, the dangerousness of the drug would speak for itself, leaving open the possibility of proving class-wide RICO causation through "circumstantial proof," McLaughlin, 522 F.3d at 225 n. 7, such as a precipitous drop-off in sales, rather than through individualized inquiries as to physicians'
Plaintiffs suggest that this is such a case—that Ketek is so dangerous that no reasonable physician would have prescribed it if the safety information allegedly withheld by Aventis had been known. But the record simply does not support this conclusion. The evidence adduced by Plaintiffs shows that Ketek had risks. But it also shows that all antibiotics prescribed to treat respiratory infections have risks, and that Ketek's risks, while perhaps higher than those of most of its competitors, were well within the range of dangerousness typical of similar anti-infectives.
Plaintiffs point to two sources of evidence supporting their argument that no doctor would have prescribed Ketek if its true risks had been known earlier. First, Plaintiffs argue that the FDA's withdrawal of approval for two of Ketek's indications and imposition of a black box warning demonstrate Ketek's dangers. But the record shows that the vote at the December 2006 joint committee meeting to withdraw those indications was not motivated purely or even predominantly by safety: many voting attendees did not mention safety at all, but rather explained their votes on the basis of effectiveness, citing concerns that Ketek might not be any better than a placebo at treating ABS and AECB. And the black-box warning added to Ketek's label had nothing to do with Ketek's hepatic risks: it was imposed in connection with Ketek's tendency to exacerbate the symptoms of patients afflicted with the rare neurological disorder myasthenia gravis. See J.A. 1725.
Second, Plaintiffs argue that data from Study 3014—data that they claim Aventis withheld from the FDA—revealed that Ketek was three times more likely than Augmentin to cause serious hepatic adverse events. But Plaintiffs' position throughout this litigation, including on appeal, has been that Study 3014 was plagued with fraud and therefore unreliable. And on this point, Plaintiffs are absolutely
As the foregoing discussion illustrates, Plaintiffs' theory in this case is effectively all-or-nothing: Plaintiffs seek to persuade us that every individual physician's decision to prescribe Ketek was truly a "one-dimensional" decision based entirely on safety, and that the safety information allegedly withheld by Aventis was so significant that it would dictate every physician's decisionmaking, based on nothing more than a decline in Ketek's sales figures. We have explained why this theory fails: on this record (as in Zyprexa), given the number of factors that enter into doctors' prescribing decisions, it is simply not reasonable to infer from just that decline in sales that all pre-decline Ketek prescriptions were written in reliance on the alleged misrepresentations about Ketek's safety. In contrast to the hypothetical case of an extremely dangerous drug, the record here does not suggest that the safety information allegedly withheld by Aventis—which revealed Ketek to be at most marginally more dangerous than comparable antibiotics—would reasonably be expected to have such a significant impact on the number of prescriptions written. This strongly suggests that something other than Aventis's alleged misrepresentations was at least partly responsible for the decline in sales, which in turn suggests that physicians' pre-decline prescription decisions were not, in fact, based solely on their misperception of Ketek's relative safety. Plaintiffs' all-or-nothing theory thus simply does not hold up.
We wish to note, however, that it may be possible to demonstrate class-wide RICO causation in a case such as this one by adducing generalized proof from which a reasonable jury could conclude that only some prescriptions paid for by each class member were written based on the defendant's alleged misrepresentations. In other words, not all claims of this type must necessarily be all-or-nothing claims. In cases in which first-party reliance is a necessary part of the plaintiffs' chain of causation—as in McLaughlin and Poulos—the plaintiff class has no choice but to show through generalized proof that each one of them relied on the defendant's alleged misrepresentations; otherwise, the misrepresentations could not have caused an injury to each class member. The situation is arguably somewhat different in a third-party reliance case like this one. Here, the question is whether Aventis's misrepresentations caused an injury to each HBP, and because each HBP paid for numerous Ketek prescriptions, each would have been injured by Aventis's misrepresentations so long as at least some of the prescriptions for which it paid were written in reliance on those misrepresentations. While a RICO plaintiff must always show that the defendant's conduct caused an "actual, quantifiable injury," McLaughlin,
Even if we were to read Plaintiffs' claim to be of this more nuanced type, requiring only a showing that Aventis's alleged misrepresentations caused each HBP to suffer an injury, Plaintiffs' generalized proof in this case still falls short. At least where (as here) there is no basis for inferring that the drug in question was so dangerous that no doctor would prescribe it if its true risks were disclosed, Zyprexa establishes that mere correlation between a decline in prescriptions and a disclosure of allegedly withheld information is insufficient to prove class-wide RICO causation on the theory that the defendant's withholding of safety information caused doctors to write excess prescriptions. To ultimately find a defendant liable, a jury must be able to base its decision on something firmer than speculation. See Anderson v. Liberty Lobby, 477 U.S. 242, 247-52, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). As in Zyprexa, the kind of correlation evidence presented here does not furnish a sound basis to find causation on a class-wide basis.
Plaintiffs did not attempt to offer anything beyond mere correlation that might support a reasonable inference that Aventis's alleged withholding of safety information played a legally sufficient causal role in the number of Ketek prescriptions written. Significantly, Dr. Rosenthal conceded that she had not been asked by Plaintiffs' counsel to perform the kind of regression analysis that might have isolated the relative causal effect of the numerous variables bearing on the decline in Ketek's sales. See J.A. 1163 ("Q: [Y]ou haven't attempted in this case, to undertake a cause-and-effect analysis relating to the various factors that could have led to the decline in Ketek's sales . . ., correct?" "A: That's correct. . . . I was not asked to conduct a specific regression analysis which might be the kind of analysis that an economist would undertake.").
The simplistic nature of Dr. Rosenthal's analysis here distinguishes this case from the First Circuit's decision in In re Neurontin Marketing & Sales Practices Litigation—another case in which Dr. Rosenthal served as the plaintiffs' expert. In Neurontin, the plaintiffs were HBPs who alleged that the pharmaceutical company Pfizer had violated RICO by fraudulently marketing the drug Neurontin, which had only been approved by the FDA for the treatment of seizures, as an effective off-label treatment for bipolar disorder, neuropathic pain, and migraines. 712 F.3d at 27-28. The First Circuit's decision did not involve class certification, but in the course of affirming a jury verdict in the plaintiffs' favor, the court rejected Pfizer's contention that the plaintiffs had offered insufficient proof that Pfizer's misrepresentations caused doctors to write excess prescriptions paid for by the plaintiffs. The plaintiffs did not rely on individualized evidence that doctors had, in fact, relied on Pfizer's misrepresentations, and instead presented an aggregate "regression analysis" performed by Dr. Rosenthal "on sales information against promotional spending on detailing, professional journal advertising, and the retail value of samples, while controlling for other variables." Id. at 30. The First Circuit concluded that Dr. Rosenthal's analysis, which determined that "Pfizer's [off-label] marketing had a causal effect on prescribing behaviors," id. at 45, was sufficient to support the jury's finding of RICO causation, id. at 45-47. Significantly, the Neurontin court stressed the differences between Dr. Rosenthal's analysis there and the mere correlation evidence relied upon by the plaintiffs in Zyprexa, which did "not come close to resembling Dr. Rosenthal's evidence." Id. at 46; see also id. (noting that in Zyprexa, "the plaintiffs' aggregate evidence of causation . . . involv[ed] only an extrapolation from the fact that the number of off-label prescriptions for Zyprexa fell after Eli Lilly's fraud became known").
In any event, we need not (and do not intend to) express any view here on whether or when an aggregate regression analysis similar to the one deployed in Neurontin might be sufficient to prove causation on a class-wide basis in other pharmaceutical-marketing cases alleging a pattern of mail fraud actionable under RICO. Here, Plaintiffs' causation evidence—apparently by their own choice—is akin to the simplistic proof introduced by the Zyprexa plaintiffs, and not to the far more sophisticated proof offered in Neurontin. Because Zyprexa controls, we conclude that Plaintiffs are unable to show RICO causation by generalized proof, and we accordingly conclude that the district court did not err in denying Plaintiffs' class-certification motion.
The district court granted summary judgment to Aventis on Plaintiffs' RICO claims, relying on Zyprexa to hold that generalized proof of causation was impossible because of the intervening actions of prescribing physicians. As explained above, this conclusion—that Plaintiffs cannot prove third-party reliance, and thus causation, by generalized proof—is sound. On appeal, Plaintiffs do not criticize the district court's decision on any grounds particular to summary judgment, but rather continue to argue, as they did in the class certification context, that they can prove their claim by generalized evidence. As we have explained, they cannot.
This might be the end of the inquiry, but we observe that Zyprexa declined to extend its class certification holding regarding the quantity effect theory to also decide Lilly's motion for summary judgment: "while that theory cannot support class certification," the Zyprexa Court noted, "it is not clear that the theory is not viable with respect to individual claims by some [HBPs] or other purchasers." 620 F.3d at 136. The Zyprexa court thus "decline[d] to consider whether summary judgment with respect to the quantity effect theory is appropriate in the first instance." Id.
In keeping with the distinction drawn in Zyprexa, we reaffirm that a plaintiff is not necessarily foreclosed from bringing a RICO claim merely because its attempt to certify a class using generalized proof has failed. As noted, moreover, it may be possible for a plaintiff to establish its own claim (as opposed to the claims of each class member) using aggregate statistical proof—i.e., without having to show the individual reliance of thousands of prescribing doctors—provided that such proof is more robust, and therefore more probative of causation, than the simplistic correlation
We affirm the dismissal of Plaintiffs' state-law claims for substantially the reasons stated by the district court in its well-reasoned opinion.
We have considered Plaintiffs remaining contentions and find them to be without merit. For the foregoing reasons, we
