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Sidney Hillman Health Center of Rochester v. Abbott Laboratories and Abbvie Inc.

United States Court of Appeals, Seventh Circuit

October 12, 2017

Sidney Hillman Health Center of Rochester and Teamsters Health Services and Insurance Plan Local 404, Plaintiffs-Appellants,
Abbott Laboratories and AbbVie Inc., Defendants-Appellees.

          Argued September 12, 2017

         Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 13 C 5865 - Sara L. Ellis, Judge.

          Before Easterbrook, Kanne, and Williams, Circuit Judges.

          Easterbrook, Circuit Judge.

         The Food and Drug Administration has approved the use of Depakote (divalproex sodium) to treat seizures, migraine headaches, and some conditions associated with bipolar disorder. Physicians are free to prescribe it to treat other conditions, called off-label uses, but a drug's manufacturer can promote it only as suitable for uses the FDA has found to be safe and effective. Abbott Laboratories, which makes Depakote, encouraged intermediaries to encourage Depakote's off-label uses while hiding its own involvement. This promotion, for conditions including schizophrenia, dementia, and attention deficit hyperactivity disorder (ADHD), was detected, and prosecution followed. In 2012 Abbott pleaded guilty to unlawful promotion and paid $1.6 billion to resolve the criminal case and settle qui tarn actions that had been filed against it under the False Claims Act, 31 U.S.C. §§ 3729-33. The next year saw the transfer of Depakote sales in the United States to Abb Vie, a fraternal corporation, but for simplicity we ignore Abb Vie.

         Two welfare-benefit plans that paid for some of Depakote's off-label uses filed this suit in 2013 seeking treble damages under the civil-liability provision in the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. §1964. They asked the district court to certify a class comprising all third-party payors of drug expenses. (The parties call them TPPs; we prefer Payors.) The district court dismissed the suit as untimely. 64 F.Supp.3d 1146 (N.D. 111. 2014). Civil RICO actions must be commenced within four years after injury was or should have been known. Agency Holding Corp. v. Malley-Duff & Associates, Inc., 483 U.S. 143 (1987); Rotella v. Wood, 528 U.S. 549 (2000). The judge observed that off-label promotion began in 1998 and the first qui tarn suit was filed in 2007. But the qui tarn suits began under seal, which lasted until 2011, and alleged that Abbott had concealed its role in the off-label promotions. These considerations led us to remand so that the parties could explore through discovery when a reasonable Payor first should have understood that it was paying for drugs that had been prescribed in response to an undercover marketing campaign. Sidney Hillman Health Center of Rochester v. Abbott Laboratories, Inc., 782 F.3d 922 (7th Cir. 2015).

         Discovery did not occur. Nor was a class certified. Instead the district judge dismissed the complaint on a different ground, this time ruling, see 192 F.Supp.3d 963 (N.D. 111. 2016), that the plaintiffs could not hope to show proximate causation, another of RICO's requirements. See, e.g., Hemi Group, LLC v. New York City, 559 U.S. 1 (2010); Anza v. Ideal Steel Supply Corp., 547 U.S. 451 (2006); Holmes v. Securities Investor Protection Corp., 503 U.S. 258 (1992). The judge observed that the improper marketing was directed at physicians and concluded that tracing loss through the steps between promotion and payment would be too complex.

         To the extent the district judge believed that it is never permissible to base RICO damages on injury to one person caused by wrongs against another, the decision conflicts with Bridge v. Phoenix Bond & Indemnity Co., 553 U.S. 639 (2008). The plaintiffs in Bridge alleged that defendants had conspired to submit multiple bids in an auction whose rules limited to one the number of bids allowed to any person or group. Plaintiffs contended that the extra bids did not harm the auctioneer but diminished their own chances of profitable transactions. The Court held that a RICO recovery is possible when a wrong against A directly injures B. Our plaintiffs say that their situation is identical: unlawful sales tactics don't injure doctors, who do not use or pay for the drugs they prescribe, but directly injure Payors. The Supreme Court several times has stated in RICO litigation that the initially injured person can recover, and indeed that "[t]he general tendency of the law, in regard to damages at least, is not to go beyond the first step/' Holmes, 503 U.S. at 271-72, quoted with approval in Hemi Group, 559 U.S. at 10. Plaintiffs insist that Payors are the "first step" and so are entitled to proceed with the suit.

         Payors part with money, to be sure, but it is not at all clear that they are the initially injured parties, let alone the sole injured parties.

         The relators in the qui tarn actions alleged, as did the criminal prosecutor, not simply that Abbott promoted Depakote for unapproved uses, but also that Depakote was not effective, or even was harmful (compared with placebos or other drugs), for some of those uses. Abbott commissioned studies that it hoped would show the benefits of Depakote for additional maladies, and the relators asserted that one of these studies was discontinued because Depakote was harming the patients, while the result of another was suppressed because it showed no benefit compared with a placebo. According to the qui tarn suits, however, Abbott went right on marketing Depakote for off-label uses. This description of the conduct implies that the Payors are not the only, or even the most directly, injured parties.

         Patients suffer if they take Depakote even though it is useless to them and may be harmful. They suffer adverse health effects if Depakote (a) aggravates their medical conditions, (b) produces side effects not justified by medical benefits, or (c) dissuades them from taking drugs that would alleviate their conditions. Many patients also incur financial loss. Filling prescriptions usually entails out-of-pocket costs to patients even when health insurance or welfare-benefit plans cover most of the expense. The patients' health and financial costs come first in line temporally; that pharmacies then send bills to Payors, which cover the remainder of the expense, does not make those Payors the initial losers from the promotional scheme to which Abbott pleaded guilty.

         Physicians also may lose, though less directly. People with medical conditions such as schizophrenia or ADHD want help. If a physician prescribes an ineffective medicine and so does not provide that help, patients may turn elsewhere. Physicians affected by off-label promotions thus may lose business and revenue.

         Plaintiffs contend that Payors bear the principal costs of off-label promotions, because they pay for most of the cost of the drugs, but comparing the patients' health costs (and ...

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