Antitrust Law Daily Wrap Up, RICO—E.D. Ill.: Claims against Eli Lilly, other pharmaceutical companies over reimbursement for testosterone drugs survive motion to dismiss, (Aug 4, 2016)

By Michael Menzhuber, J.D., LL.M.

A motion to dismiss an insurance company’ claim that Eli Lilly and certain other pharmaceutical companies violated the Racketeer Influenced and Corrupt Organizations Act (RICO), by engaging in a fraudulent scheme to induce it and other third-party payors (TPPs) to provide reimbursements for allegedly unsafe and ineffective testosterone replacement therapy (TRT) drugs, was denied by the federal district court in Chicago. The court determined that the insurance company’s complaint provided sufficiently particularized allegations to support its RICO and RICO conspiracy claims (Medical Mutual of Ohio v. Abbvie, Inc., August 2, 2016, Kennelly, M.).

Medical Mutual of Ohio initially alleged that certain pharmaceutical companies engaged in a fraudulent scheme to induce it and other TPPs to reimburse their insureds for allegedly unsafe and ineffective TRT drugs. Its RICO claims were dismissed for not alleging fraud with the particularity required by Federal Rule of Civil Procedure 9(b). However, its negligent misrepresentation and RICO conspiracy claims were allowed to proceed because they did not implicate Rule 9(b).

Medical Mutual’s amended complaint alleged new details to satisfy the Rule 9(b) particularity requirements. The defendants denied that the complaint cured the Rule 9(b) deficiencies, asked the court to reconsider whether Rule 9(b) applied to Medical Mutual’s negligent misrepresentation and RICO conspiracy claims, and contended that the claims were deficient because Medical Mutual’s failure to allege that it stopped paying for the defendants’ drugs after it became aware of the misrepresentations belied its assertion that it was injured by the defendants’ misrepresentations.

After reviewing the enhanced allegations in the amended complaint, the court concluded that Medical Mutual provided sufficiently particularized allegations to support RICO claims against the AbbVie defendants (AbbVie), Auxilium Pharmaceuticals, the Eli Lilly defendants (Lilly), and Endo Pharmaceuticals. The court based its finding on the complaint providing: (1) enough new details regarding their alleged misrepresentations to Medical Mutual and its own formulary procedure to satisfy Rule 9(b); and (2) a better explanation of why the complaint lacked certain details; and (3) why certain seemingly extraneous details were actually relevant.

The court did determine, however, that Medical Mutual’s allegations related to the Actavis defendants (Actavis) and GlaxoSmithKline LLC (GSK) were inadequate to support an assertion that either defendant made fraudulent representations to it directly. With respect to GSK, its agreement with Auxilium to promote Auxilium’s drug was not sufficient to support such an assertion. With respect to Actavis, the court found that Medical Mutual made only general and conclusory allegations.

The defendants also argued that Rule 9(b) applies to the RICO conspiracy claims and that Medical Mutual failed to sufficiently allege a conspiracy among the defendants or among the defendants and their third-party promoters. The court agreed that Rule 9(b) applied but disagreed that a plaintiff must provide specific details of an express agreement to state a RICO conspiracy claim. Rather, such an agreement can be inferred from the circumstances. The court determined that Medical Mutual’s allegations with respect to the defendants’ alleged agreement to engage in an unbranded marketing campaign was not an example of "parallel conduct" and was sufficient to support an inference that the defendants agreed to participate in an endeavor which, if completed, would constitute a RICO violation.

Finally, the defendants faulted Medical Mutual for failing to allege whether or how it changed its coverage of TRT prescriptions once it learned about their alleged fraud. The court, however, determined that such information was not necessary because Medical Mutual adequately alleged that it relied on the defendants’ false representations about its TRT drugs’ safety and efficacy when it granted those drugs favorable formulary status.

The case is No. 14 C 8857.

Attorneys: Conlee Schell Whiteley (Kanner & Whiteley, LLC) and Trent B. Miracle (Simmons Hanly Conroy LLC) for Medical Mutual of Ohio. William F. Cavanaugh, Jr. (Patterson Belknap Webb & Tyler LLP) for Abbvie Inc., Abbott Laboratories, Abbott Products, Inc., Solvay America, Inc. and Solvay Pharmaceuticals, Inc.

Companies: Medical Mutual of Ohio; Abbvie Inc.; Abbott Laboratories; Abbott Products, Inc.; Solvay America, Inc.; Solvay Pharmaceuticals, Inc.

Cases: RICO IllinoisNews