Cal. county can sue for the people, not for itself

In re Avandia Marketing, Sales Practices and Products Liability Litigation, 2011 WL 5105503 (E.D.Pa.)

The County of Santa Clara, California, sued GlaxoSmithKline for false advertising, on its own behalf as a government payor for Avandia and Avandia-related injuries and on behalf of the citizens of California, pursuant to California's False Advertising Law. GSK moved to dismiss, and the court gave it some of what it wanted but not all.

Santa Clara alleged that GSK aggressively and falsely marketed Avandia as a safe and effective “wonder drug” for patients with Type 2 diabetes that could even reduce cardiovascular risk, while knowing that Avandia increased the risk of cardiovascular events such as heart attacks and that Avandia shouldn’t be used with insulin because it increased the risk of heart attack. GSK also allegedly misled consumers by claiming superior efficacy compared to older (and cheaper) diabetes drugs, while deliberately failing to conduct studies which could demonstrate relative efficacy.

Santa Clara alleged a violation of California’s FAL, suing on behalf of the people of California, as county counsel are explicitly authorized to do in the law. It also sued on its own behalf as a payor for health care; it allegedly spent about $2 million on Avandia during the ten years Avandia was in Santa Clara’s formulary.

The court found that the facts alleged sounded in fraud and therefore were subject to Rule 9(b), but that Santa Clara had satisfied the rule’s requirements. Santa Clara alleged a long-term marketing and promotional campaign in California, including television and print advertising, press releases, product labeling, ghostwritten articles, and marketing materials and strategies targeting doctors and third-party payors. Santa Clara identified what was misleading about the promotional materials, alleging that GSK knowingly overstated the efficacy and underplayed the cardiac risks in their marketing. It also alleged “a plethora of facts” from which the court could infer that GSK knew or should have known that its marketing messages were false or misleading from the time Avandia went on the market in 1999. This was minimal, but enough.

The court found, however, that Santa Clara couldn’t sue on its own behalf. Though corporations are listed as parties who may sue, and Santa Clara is incorporated, the court found that the failure to list counties as parties who could sue in their own right, coupled with the express authorization for counties to sue on behalf of the people, justified a finding that Santa Clara lacked standing to sue on its own behalf.

The court went on to assess GSK’s argument that Santa Clara failed to adequately allege reliance on GSK’s misleading advertising. Though county counsel suing on behalf of the people is explicitly exempt from needing to plead individualized injury and reliance, the court found that it would not be exempt from those requirements when suing on its own behalf. Santa Clara would need to identify which marketing devices it found material and allege that it relied upon them in making its choices about medication coverage and formularies, and it didn’t do so.

The court noted that formulary coverage is different from individual decisions to buy a drug; formulary decisions “are made by sophisticated and well-funded committees that conduct regular reviews of the published literature (and sometimes even independent research studies) regarding drugs on or proposed for the formulary.” Thus, the county failed to allege facts from which the court could infer that its decision to put Avandia on the formulary was made in reliance upon any of GSK's allegedly false advertisements. In fact, the court commented, Santa Clara's decision to allow the drug to remain on the formulary for two years after the truth about Avandia's risks and efficacy came to light would give rise to an inference that Santa Clara didn’t rely on GSK’s representations.

Turning to available remedies, injunctive relief is generally available under the FAL, but the complaint didn’t set forth facts from which the court could infer that there was a plausible risk that GSK would violate the FAL in marketing Avandia in the future. The county also sought unreasonbly broad relief: an injunction prohibiting GSK's marketing employees from "influencing decisions regarding scientific, medical, or clinical research, analysis or disclosure ..." and "enjoining GSK's existing scientific data publication policy, and requiring GSK to fully and publically disclose all of the source data for completed and ongoing clinical trials ..."

Civil penalties of $2500 per violation are also available. The county asked for per-prescription penalties, but the court thought that would be improper, since the FAL requires a focus on GSK’s conduct. If the county prevailed, the court could penalize instances of marketing misstatements, not prescriptions.

The county also sought restitution, which focuses on the defendant’s wrongful gains rather than purchasers’ losses and can be awarded without individualized proof of deception or loss. The court thought that evaluation of restitution would be premature, but reminded the parties that restitution is about defendant’s profits rather than individual injuries. Moreover, the court noted that restitution is generally awarded in class action lawsuits, but Santa Clara filed a representative action. “Any restitution requested should reflect this difference in posture.” Comment: I don’t get this. Santa Clara represents the people of California; it’s not a class action because the state aggregates the public’s interest. I have the feeling that the court’s warning is related to the move by the defendant’s bar to get courts to treat representative actions like class actions manquee (that is, to treat them with suspicion bordering on contempt), but I don’t see why restitution on behalf of the people shouldn’t cover all of the people.

A final note: since actual damages aren’t available under the FAL, Santa Clara couldn’t recover damages for the amount spent on Avandia or on treatment for Avandia-caused injuries.