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Ninth Circuit:
Dissenter Assails Class Certification Based on ‘Flawed’ Analysis
In Action by Third-Party Payors Asserting RICO Violations Against Drug Makers Alleging Hiding of Risks, Majority Approves Reliance on Declining Sales to Show Commonality
By a MetNews Staff Writer
A divided Ninth U.S. Circuit Court of Appeals has held that certification was properly granted to a class of third-party payors in an action alleging that the drug makers behind the diabetes medication Actos committed fraud and violated racketeering laws by concealing an alleged increased risk of bladder cancer, causing the plaintiffs to pay for more prescriptions than would have otherwise been issued.
Circuit Judge Eric D. Miller penned a dissent to Monday’s memorandum decision upholding the first-of-its-kind class certification in an action against pharmaceutical companies brought under the Racketeer Influenced and Corrupt Organizations Act (“RICO”), arguing that the case relies on faulty statistics to do a creative end-run around the general rule that fraud claims are not amenable to class-wide resolution.
He wrote:
“In this putative class action, plaintiffs allege that Takeda Pharmaceutical Company Limited and Eli Lilly and Company fraudulently concealed the risks of a drug that they distributed. An essential element of any fraud claim is reliance on the defendant’s allegedly fraudulent statements. Because reliance must ordinarily be established with evidence particular to each plaintiff, fraud claims are not normally suitable for class actions—at least outside of the securities context, in which the fraud-on-the-market theory allows courts to presume reliance on the part of all purchasers of publicly traded securities.”
Miller added:
“If plaintiffs were patients who used the defendants’ drug, or physicians who prescribed it, they would not be able to bring fraud claims in a class action. But the lawyers who brought this case have tried to circumvent that limitation: Rather than suing on behalf of those directly injured by the alleged fraud, they have instead sued on behalf of third-party payors who reimbursed the cost of drugs that were prescribed and used by others. In an effort to bring what is effectively a fraud-on the-market class action, plaintiffs rely on supposed statistical proof to establish that the prescriptions they reimbursed were issued in reliance on the defendants’ alleged fraud.”
Putative Class Action
The question arose after Annie M. Snyder, an Actos user in San Bernardino County, and three other consumers, filed a putative class action complaint, together with third-party payor Painters & Allied Trades District Council 82 Health Care Fund, against Takeda Pharmaceutical Company Limited, the developer of the drug, and Eli Lilly, which agreed to help market the medication.
They asserted that the defendants failed to disclose a known risk of bladder cancer. In May 2023, District Court Judge John W. Holcomb of the Central District of California declined to certify the proposed California consumer class but did certify a national class of third-party payors, appointing Painters as class representative.
Takeda and Eli Lilly appealed the order as to the third-party class. At issue is whether Holcomb properly found that common issues predominate and that class-wide relief is superior, as required for certification, in light of RICO’s standing requirement that a plaintiff show actual injury.
The plaintiffs relied on a report by UCLA Professor of Health Policy and Management William S. Comanor which considered a regression on sales following a 2010 announcement by the Food and Drug Administration that it was conducting a review on Actos based on an apparent increased risk of bladder cancer. Comanor extrapolated an estimate of the lowered number of prescriptions that would have been written each month if the purported dangers had been known.
In yesterday memorandum opinion, signed by Senior Circuit Judge Sidney R. Thomas and by Senior District Court Judge Lee Hyman Rosenthal of the Southern District of Texas, sitting by designation, the majority found that “the Comanor Report’s ‘market-share extrapolation’ analysis does not make the report insufficient to show classwide causation and injury” and wrote:
“Comanor used regression models to show that the decline in prescriptions was caused by the failure to disclose.”
No Rigorous Analysis
Miller faulted Holcomb with failing to conduct the “requisite rigorous analysis of plaintiffs’ statistical theory” and said that if he had sone so, he “would have determined that the theory fails to establish reliance on a class-wide basis,” adding:
“Because individual questions predominate and class adjudication of this case is unlikely to be workable, I would reverse the grant of class certification.”
He pointed out that the plaintiffs have attempted to establish injury by showing reliance on the defendants’ misrepresentations about the drug’s safety and that “they must do so with common proof” in order to make class certification appropriate.
Noting that the matter involved a “battle of the experts,” he remarked that, in such a case, “the district court’s rigorous analysis cannot stop with finding plaintiffs’ expert evidence to be admissible” and argued that Holcomb did not weigh the conflicting evidence between the reports submitted by both sides to resolve the disputes between them.
Critical Objections
The jurist pointed to a failure to “grapple with…critical objections raised by Takeda and Lilly, each of which casts doubt on whether plaintiffs can establish the effects of the alleged fraud by common proof.” He remarked:
“[T]he defendants’ expert witness…explained why [Comanor’s] approach is inadequate to show but-for causation: Comanor’s data consists of a single time series of observations between October 2010 and December 2013, but one cannot use such data to identify causal effects because there is no way to separate the effect of the…FDA announcement from the effect of other events, such as the introduction of new treatment options, the launch of generic drugs, and changes in drug prices. Even if Comanor had included all possible confounding factors as independent variables in his analysis,…his single time-series regression cannot conclusively show and isolate the causal effect of the bladder cancer risk. Furthermore, a regression performed on a single 39-month time series after the relevant class period does not give rise to an inference of causation during the 134-month class period.”
Acknowledging that a similar analysis might be sufficient to prove causation on a class-wide basis under different circumstances, he said that “it does not follow that this regression analysis is sufficient to prove causation.” He declared that this failure is “fatal to class certification, as the only common proof that plaintiffs offered to prove injury and causation was Comanor’s expert evidence.”
Feasible Exclusion Method
Miller added that “even accepting Comanor’s regression analysis, plaintiffs lack a feasible method of identifying those class members who suffered no injury,” and noted:
“Here again, plaintiffs rely on Comanor’s analysis. Using his estimate that 56 percent of Actos prescriptions were fraudulently induced—and, thus, that 44 percent were not—he calculated that ‘the probability of a [third-party payor] paying for one or more fraudulently induced prescriptions in a randomly selected sample of five’ is 98 percent….Having defined the class as those third-party payors who ‘purchased at least five independent prescriptions of Actos,’ plaintiffs infer that no more than two percent of class members were uninjured.”
Rejecting his analysis, the judge reasoned:
“Comanor’s calculation is correct as far as it goes, but it depends entirely on the assumption that each prescription is statistically independent of the others—in other words, that the fact that one of a third-party payor’s prescriptions was fraudulently induced does not increase the likelihood that its other prescriptions were also fraudulently induced. Only on that assumption can one validly multiply the probability of fraudulent inducement of individual prescriptions to arrive at an overall probability that a third-party payor was injured.”
He pointed out that Takeda and Lilly “advance individualized affirmative defenses based on physicians’ prescribing decisions” and that two medical professionals who treated individual plaintiffs in the failed consumer class testified at depositions that they continued to prescribe Actos even after the cancer risks were disclosed. Under these circumstances, he said:
“[E]ven if Comanor’s statistical methodology could show causation and demonstrate that all but a de minimis number of class members were injured, Takeda and Lilly would still be entitled to present and litigate defenses to the claims of individual class members.”
The case is Painters & Allied Trades District Council 82 Health Care Fund v. Takeda Pharmaceutical Company Limited, 23-55742.
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