Antitrust Law Daily Wrap Up, RICO—D.N.J.: Consumer state law deception and unfairness claims about alleged insulin price concealment survive dismissal, (Jan 10, 2025)

By Justin Marcus Smith, J.D.

The court did not find anything to suggest that Medicare enjoined additional disclosures in conjunction with quarterly WAC (wholesale acquisition cost) reporting.

Certain consumer RICO claims against insulin manufacturers called for dismissal, under the law of the case doctrine, where the court had already dismissed them in connection with manufacturer list pricing, held the federal court in Newark, New Jersey, in an unpublished opinion. However, the court declined to dismiss the consumers’ state law deception claims as federally preempted where Medicare regulations did not specify how to calculate the “list price” underlying the WAC (wholesale acquisition cost). Turning to state law unfairness, the court found the consumers failed to allege a required “ascertainable loss” under the New Jersey Consumer Fraud Act. However, the court rejected the manufacturers’ dismissal arguments in connection with the dormant Commerce Clause, where the manufacturers did not explain how uniformly applying consumer protection statutes to the list prices of all manufacturers, regardless of location, was meant to benefit in-state economic interests by burdening out-of-state competitors. The court dismissed the reasserted RICO claims, but it allowed the state law unfairness and deception claims to proceed (In Re: Insulin Pricing Litigation, No. 2:17-cv-00699-BRM-RLS (D.N.J. Dec. 31, 2024)).

Background. Analog insulin consumers (consumers) alleged that Novo Nordisk, Inc. (Novo Nordisk), Sanofi-Aventis U.S. LLC (Sanofi), and Eli Lilly and Company (Eli Lilly) (collectively, the manufacturers) engaged in unfair and unconscionable pricing of their analog insulin products. The consumers’ fourth amended complaint (FAC) defined three classes: 1) a nationwide mail-order RICO class; 2) a nationwide consumer fraud deception class under New Jersey law; and 3) single-state consumer fraud deception damages classes under the respective laws of most states.

According to the court’s characterization of the consumers’ allegations, the manufacturers set the Wholesale Acquisition Cost (WAC), i.e., the manufacturer’s list price for their prescription drugs as charged to U.S. wholesalers and direct buyers exclusive of prompt pay or other discounts and rebates. The WAC is the reference point for pharmacy benefit managers (PBM) and drug manufacturers to negotiate rebates. PBMs ostensibly use their leverage in setting formularies to extract manufacturer rebates. The manufacturers offer PBMs higher spreads in exchange for positions on the BPM formularies in lieu of lowering their list prices. The consumers alleged that the manufacturers’ “fraudulent conduct” in supposedly trying to conceal analog insulin pricing structures caused injury to the various class members in the form of hundreds of millions of dollars of overpayment based on artificially inflated list prices.

After the court ordered a partial dismissal, a partial exclusion of manufacturer expert testimony, and denied the consumers’ motion for class certification, the court ordered the consumers to file a fourth amended complaint with new proposed classes. After the consumers filed their fourth amended complaint, the defendants moved to strike or dismiss.

No strike. The court declined to strike the consumers’ pleading despite the manufacturers’ contention that the fourth amended complaint exceeded the limited scope of amendment the court previously granted. Dismissal would suffice instead. The manufacturers acknowledged that the court gave the consumers leave to propose new classes, but the manufacturers argued the FAC essentially “reset the entire case” by reasserting RICO claims already dismissed, at class certification, based on the consumers’ discarded fraud theory. The manufacturers contended the new RICO claims were prejudicial because the consumers did not previously advance them based on allegations that some consumers bought insulin from mail-order pharmacies. The manufacturers urged the court should not permit the consumers to resuscitate their fraud theory in this way. They cited undue delay in amendment, and they also said the amendment was futile because it would not survive a motion to dismiss.

The consumers countered that the court’s order permitting amendment did not limit the scope of amendment. They said they followed the amendment order consistent with the court’s class certification opinion and based on the same three legal theories of state consumer law deception; state law unfair or unconscionable business practices; and federal racketeering. The consumers denied any prejudice or delay.

The court noted that Fed. R. Civ. P. 12(f) motions to strike, albeit discretionary, are disfavored because they call for a drastic remedy. The court agreed with the manufacturers that allowing the amendments in their entirety would be prejudicial, but striking them, albeit a close call, was unnecessary. Instead, the court would grant dismissal of the RICO claims, with prejudice.

Law of the case dismissal. The court agreed with the manufacturers that, because the court had already considered and dismissed the FAC RICO claims, they should be dismissed under the law of the case doctrine and as barred by the indirect purchaser rule. The court disagreed with the consumers’ contention that the court’s earlier order for amendment permitted them to revise and narrow their RICO claims to only consumers who made mail order purchases. The court also reviewed how it had already found, on two prior amendments of the complaint, that the consumers did not have standing under the indirect purchaser rule. The court saw that the consumers actually removed an earlier footnote that they were not reasserting federal RICO claims.

The court held the restructuring of the FAC went beyond the scope of the court’s order to amend with new proposed classes. The court said that alone was enough to warrant discretionary dismissal of the RICO claims, with prejudice. Perhaps more importantly, the court’s two prior dismissals of federal RICO claims meant the claims were now barred under the law of the case doctrine. The consumers did not assert any new evidence, new supervening law, or court error, so the court granted the manufacturers’ motion to dismiss the reasserted RICO claims, with prejudice, under the law of the case doctrine.

State law deception. The court declined to dismiss the consumers’ state law deception claims on the basis of preemption. The manufacturers argued federal law requires pharmaceutical manufacturers to report WACs that exclude any rebates or other price reductions. The consumers said their claims here had not changed since the court sustained them in 2019. The consumers said the manufacturers had also mischaracterized their argument. The consumers said they were not contending a WAC reporting problem. Rather, the manufacturers should have set their list prices in a way that reflected the “true price of the drug.”

The court acknowledged that federal Medicare law requires manufacturers to report a single quarterly WAC for each product they sell. Accompanying regulations defined the WAC as list price excluding prompt pay, other discounts, rebates, or reductions in price. However, the regulations did not otherwise specify how to calculate the underlying “list price” and left that determination to the manufacturer. The manufacturers again cited to a prior determination of the instant court on this point, but the court said it was not persuaded that the consumers were asking the court to enjoin WAC reporting in accord with federal Medicare regulations. There was nothing to suggest that Medicare enjoined additional disclosures in conjunction with quarterly WAC reporting. The court found the manufacturers did not show any conflict or impossibility preemption. The court accordingly denied the manufacturers’ motion to dismiss the consumers’ deception claims.

State law unfairness. Although the consumers were correct that the court previously upheld their consumer protection claims, it specifically sustained them under their since-abandoned fraud theory, not their unfairness theory. The court said it had also already distinguished the instant claims from other cases involving unconscionable commercial practices based on substantive statutory violation. In addition, the relevant New Jersey statute supporting the “fraud on the market” approach had also been repealed. The court therefore found the consumers failed to allege a required “ascertainable loss” under the New Jersey Consumer Fraud Act.

Dormant commerce clause. The court found dismissal of the consumers’ claims based on the manufacturers’ dormant Commerce Clause concerns to be “premature.” At this juncture, the manufacturers did not explain how uniformly applying consumer protection statutes to the list prices of all manufacturers, regardless of location, was meant to benefit in-state economic interests by burdening out-of-state competitors. The relevant Pike balancing test was fact-intensive. See Pike v. Bruce Church, Inc., 397 U.S. 137, 142 (1970). The Pike test called for more factual development.

The case is No. 2:17-cv-00699-BRM-RLS.

Judge: Martinotti, B.

Attorneys: Donald A. Ecklund (Carella, Byrne, Cecchi, Olstein, Brody & Agnello, PC) for Velada Chaires, Sara Hasselbach and Susan Marsh. Christopher T. Walsh (Gibbons PC) for Novo Nordisk Inc. Melissa A. Geist (Reed Smith LLP) for Eli Lilly and Co. Liza M. Walsh (Walsh Pizzi O'Reilly Falanga LLP) for Sanofi-Aventis U.S. LLC.

Companies: Novo Nordisk Inc.; Eli Lilly and Co.; Sanofi-Aventis U.S. LLC

Cases: RICO StateUnfairTradePractices NewJerseyNews