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From Antitrust Law Daily, October 16, 2018

Class certification in ulcerative colitis drug market monopolization case reversed

By Robert B. Barnett Jr., J.D.

The First Circuit has reversed a Massachusetts district court’s certification of a class in a suit by consumers alleging that Warner Chilcott Limited attempted to monopolize the ulcerative colitis drug market by pulling the drug Asacol off the market and replacing it with a similar substitute just before its Asacol patent expired, in order to thwart generic versions. The First Circuit ruled that the lower court misapplied the law when it permitted an approach in which a claims administrator would review potentially thousands of affidavits based on an unidentified court-approved formula to determine which class members suffered an injury-in-fact, because that approach would deprive Warner of its right to challenge individual class members. This much-disputed question of establishing which class members have suffered an injury-in-fact has created a split among circuits. The First Circuit, contending that it has joined with the Second, Third, Fifth, Eighth, and DC circuits, has articulated its position as follows: "In a case where an injury-in-fact is a required element, as in antitrust cases, a class cannot be certified based on an expectation that the defendant will have no opportunity to press at trial genuine challenges to allegations of injury-in-fact." In so ruling, the First Circuit acknowledged that the problem of how to address conduct that inflicts small amounts of damage on large numbers of people remains unsolved (In re Asacol Antitrust Litigation, October 15, 2018, Kayatta, W.).

Background. A few months shy of the end of Warner’s patent protection for Asacol, Warner stopped selling it. On the same day, it introduced Delzicol, a similar but not identical drug that also treats ulcerative colitis. In 2015, several purchasers of Asacol (four union-sponsored benefit plans) sued Warner in Massachusetts federal court for antitrust violations. Because federal antitrust law does not permit indirect purchasers to sue Warner for damages (see Illinois Brick Co. v. Illinois, 431 U.S. 720, 736 (1977)), the consumers sued Warner under the laws of 25 states and the District of Columbia, all of which have so-called "Illinois Brick repealer laws" that permit indirect purchasers to sue manufacturers.

The district court granted the consumers’ motion for class certification, ruling that they had sufficiently asserted injury-in-fact to satisfy the Article III requirements for standing. The class consisted only of those persons or entities that both bought Asacol before the patent expired and bought Delzicol (or Asacol HD, another Warner offering) after the patent expired. The court ruled that the class had standing even if the named plaintiffs had not themselves made purchases in all 26 jurisdictions. Moving from Article III to Federal Rule of Civil Procedure 23(b)(3), the court concluded that the class satisfied all requirements and that common questions predominated over individual questions. The key consideration for the court in reaching its decision was the presence of uninjured class members. It concluded, based on expert testimony, that about 10% of those who bought Asacol would not have switched to a generic (for example, because they had no copay and, thus, no financial incentive to switch). As a result, the court concluded, the number of uninjured class members was de minimis, and it accepted the consumers’ argument that the uninjured persons could be removed from the class with the help of a claims administrator, who would review individual affidavits from the class members. The district court relied heavily on Nexium Antitrust Litig., 777 F.3d 9 (1st Cir. 2015) in making its ruling. Because the circuits are split on the question, the First Circuit granted a special interlocutory appeal of the decision rather than wait for final judgment.

Article III standing. Warner argued that the four named consumers lacked standing because no named plaintiff could successfully bring a claim in the other 22 jurisdictions. The First Circuit’s focus was on "the incentives of the named plaintiffs to adequately litigate issues of importance to them." Its analysis concluded that nothing required the named plaintiffs’ claims be in all respects identical to the claims of each class member. Rather than ask whether differences exist between class members, the appropriate inquiry is whether the differences that exist are of the type that leaves the class representatives with an insufficient personal stake in the adjudication of all class member claims. The court concluded that they did not in this case (with one exception, which was moot because Warner had failed to contest it). The First Circuit also concluded that its finding that these consumers had Article III standing was consistent with decisions in other circuits. The split among circuits on this question, therefore, does not involve Article III standing.

Rule 23(b)(3). The lower court’s conclusion that questions of law or fact predominated over questions affecting only individual members was, however, more problematic. In evaluating the lower court’s determination, the First Circuit was forced to dive into the thorny question of injury-in-fact. The certified class clearly included consumers who would have continued to purchase a brand drug even if a cheaper generic was available. The First Circuit did not disagree with the lower court’s determination that that number was about 10% of the class. Rule 23(b)(3) tests whether the dissimilarity among class members can be dealt with in a manner that is not inefficient or unfair (Amgen, Inc. v. Connecticut Ret. Plans & Tr. Funds, 568 U.S. 455, 469 (2013)). Inefficiency would be forcing thousands of class members to testify. Unfairness would be doing away with a party’s right to raise plausible individual challenges. In Nexium, the decision the lower court relied upon, the First Circuit had said that a class may be certified as long as the adjudication can be both administratively feasible and protective of the defendant’s Seventh Amendment and due process rights. The lower court interpreted Nexium to bless an approach in which a claims administrator would evaluate each affidavit pursuant to some court-approved formula and determine who suffered injury-in-fact, which the court would approve or adjust as necessary.

The First Circuit, however, ruled that this interpretation misconstrued Nexium. The Nexium decision had permitted certification using affidavits only if the consumer testimony about buying generic drugs was "unrebutted." The record is clear here that Warner intends to challenge the affidavits. The First Circuit’s inability to presume that the consumers could rely on unrebutted testimony in affidavits to prove injury-in-fact was fatal to the consumers’ motion for certification. Because the affidavits are inadmissible hearsay, the only evidence will be from those class members who testify at trial (having thousands come and testify would be inefficient). Warner, however, has Seventh Amendment and due process rights that must be protected. The need to identify the potentially thousands of class members who suffered no injury will predominate and would render an adjudication unmanageable, in the absence of unrebutted affidavits or some other mechanism that could remove uninjured parties while protecting the parties’ rights. Whatever that mechanism might be, it is not the one that the lower court proposed.

In reaching its conclusion, the First Circuit acknowledged that it has not resolved the problem of dealing with cases that involve small amounts of damage to large numbers of people. It suggested that Rule 23 may be a resource. Other possible tools for redress might include regulator suits, government parens patriae claims, presumptions available to all class members, and private lawyer threats of res judicata and fee shifting to induce settlements.

This ruling, the First Circuit said, comports with the rulings of most jurisdictions, leaving only the Fifth and Ninth Circuits in opposition. The First Circuit also went out of its way to reiterate that it was not requiring that every class member demonstrate standing when a class is certified. It was saying, instead, that where injury-in-fact is a required element, the defendant must have the opportunity to challenge allegations of injury-in-fact. The courts must "offer a reasonable and workable plan for how that opportunity will be provided in a manner that is protective of the defendant’s constitutional rights and does not cause individual inquiries to overwhelm common issues." No such plan was offered in this case.

The appellate court, therefore, reversed the lower court’s ruling on class certification and remanded the case for further proceedings.

Concurrence. Judge Barron filed a concurring opinion, agreeing that the lower court misconstrued Nexium. He also noted, however, that he would not rule out the possibility that a plaintiff who sought to prove injury in such a case by relying on affidavits might be able to satisfy the predominance requirement. A plaintiff, for example, might be able to establish through undisputed evidence, such as health plan purchasing records, that only a small subset of the class members would need to rely on individualized testimony. In such a case, a court might conclude that resolving the injury issue might not require an impermissibly large number of individualized determinations. The consumers in this case, he reiterated, made no such showing, and, as a result, he concurred with the result.

This case is No. 18-1065.

Attorneys: Justin N. Boley (Wexler Wallace LLP) for United Food & Commercial Workers Unions and Employers Midwest Health Benefits Fund and Teamsters Union 25 Health Services & Insurance Plan. Jonathan D. Karmel (Karmel & Gilden) for United Food & Commercial Workers Unions and Employers Midwest Health Benefits Fund, Neca-Ibew Welfare Trust Fund and Wisconsin Masons' Health Care Fund. Kevin C. Adam (White & Case LLP) and Nicole J. Benjamin (Adler Pollock & Sheehan PC) for Warner Chilcott Ltd., Allergan, Inc. f/k/a Actavis, PLC, Allergan USA, Inc. and Allergan Sales, LLC.

Companies: United Food & Commercial Workers Unions and Employers Midwest Health Benefits Fund; Teamsters Union 25 Health Services & Insurance Plan; Neca-Ibew Welfare Trust Fund; Wisconsin Masons' Health Care Fund; Warner Chilcott Ltd., Allergan, Inc. f/k/a Actavis, PLC, Allergan USA, Inc.; Allergan Sales, LLC.

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