Third party payors (“TPPs”) responsible for paying the costs of prescriptions for their beneficiaries sued Cephalon, Inc., alleging that it engaged in unlawful off-label marketing of Actiq, a drug approved to manage breakthrough cancer pain in certain patients. Plaintiffs argued that Cephalon’s conduct caused plaintiffs to make excessive off-label prescription payments for Actiq to treat conditions not approved by the FDA and for whom less expensive pain management drugs were appropriate and less dangerous. The Pennsylvania district court declined to certify the class.
The court’s choice of law analysis and plaintiffs’ attempt to satisfy Rule 23(b)(3) by grouping the 50 states and Washington D.C. based on their respective treatment of unjust enrichment are of particular interest.
Choice of Law
The court presumed that putative class members will reside in every state, so it sought to determine the laws of each state on unjust enrichment. Plaintiffs argued that no material difference distinguishes the states’ common law on unjust enrichment. Cephalon, however, identified bases upon which states’ laws purportedly conflict, including differences in statutes of limitations and accrual rules.
Cephalon’s guilty plea established that it engaged in off-label promotion of Actiq as early as 2001. Therefore, the filing of this suit in October 2007 may or may not have been within a state’s statute of limitations and the court could not say that application of different statutes of limitations would yield the same result. It therefore concluded that a true conflict exists.
The court then analyzed the relevant contacts: First, the crux of the parties’ relationship is in the TPPs’ home states because that is where Cephalon directed its sales efforts, where the drug was prescribed, and where TPPs conferred payments to Cephalon. Second, the state where Cephalon received the alleged benefit was Pennsylvania and, therefore, this factor favored application of Pennsylvania law. Third, the place where the acts resulting in enrichment occurred was the TPPs’ home states because payments for Actiq prescriptions originated there. Fourth, in considering the parties’ residence, the court found that this factor weighed slightly in favor of applying Pennsylvania law because it is likely that class members will reside in all U.S. jurisdictions and, therefore, no single state has a greater relationship to the case. Finally, the jurisdiction where a physical thing, substantially related to the enrichment, was situated at the time of the enrichment favors the TPPs’ home states because the Actiq lozenges purchased by beneficiaries were located in those states. In sum, three of the five factors weighed in favor of applying the laws of the TPPs’ various home states.
Policy considerations also lead to the same conclusion. Plaintiffs’ home states have a regulatory interest in providing redress to its citizens for acts of wrongdoing and in ensuring that corporations conducting business within their borders are doing so fairly. The court concluded that these interests outweighed Pennsylvania’s interest in regulating a resident corporation.
The court pointed out that variations in the law do not conclusively foreclose class certification if grouping is possible. To this end, plaintiffs provided a chart demonstrating how the 50 states and Washington, D.C. are grouped based on their treatment of unjust enrichment claims. The court commented that plaintiffs’ notable grouping efforts still did not account for individual fact issues such that common issues would predominate.
Because the polestar of the unjust enrichment inquiry is whether the defendant has been unjustly enriched, resolution of this question is, by nature, fact-sensitive. Plaintiffs had some common proof regarding equitable circumstances. For example, Cephalon’s marketing and distribution of Actiq was coordinated across the country and thus common to all class members.
Nevertheless, plaintiff’s class-wide showing of whether Cephalon’s enrichment was unjust was more complicated. Plaintiffs were unable to show how proving Cephalon’s non-compliance with its risk management program, designed to ensure proper use of the drug, also proves that all payments for off-label prescriptions are unjust. Moreover, if doctors would have written Actiq prescriptions even if Cephalon complied with the risk management plan, then payment for prescriptions beyond the set limit would not be unjust. Patients also played a role, making their own decisions regarding coverage for Actiq prescriptions.
The court similarly found that the TPPs had a variety of methods by which they could manage prescription costs of Actiq and records and employee testimony showed that TPPs treated claims for Actiq reimbursement differently throughout the proposed class period.
Ultimately, the court concluded that an inquiry into equitable circumstances cannot be undertaken by common proof since TPPs had varying degrees of control over prescription benefits and various cost-saving measures available to them.
The court commented that the largest impediment to a finding of superiority is the difficulty of managing a class action in which the laws of TPPs’ various home states apply and individual questions of fact predominate. The court also noted that TPPs had already brought and lost individual suits against Cephalon alleging violations of RICO and state claims including consumer fraud, misrepresentation, and unjust enrichment. It acknowledged that failure to certify a class could result in numerous individual suits, but found that an interest in fairness in adjudicating individual issues outweighed the judicial burden of such suits. It therefore concluded that plaintiffs did not establish that class action treatment was superior.