Antitrust Law Daily Wrap Up, RICO—N.D. Ill.: Failure to plead sufficiently direct causation precludes RICO claims against Abbott, (Jun 30, 2016)

By Mark Engstrom, J.D.

Health benefits providers could not proceed with class action RICO claims against Abbott Labs and AbbVie Inc. for alleged misrepresentations regarding the efficacy of the prescription drug Depakote for off-label uses, the federal district court in Chicago has ruled. Because the plaintiffs failed to adequately plead proximate cause, their complaint was dismissed, but without prejudice (Sidney Hillman Health Center of Rochester v. Abbott Laboratories, June 29, 2016, Ellis, S.).

Plaintiffs Sidney Hillman Health Center of Rochester and Teamsters Health Services and Insurance Plan Local 404 (collectively, the "Funds") provided prescription drug coverage and other health benefits to their members. The Funds sought to represent a nationwide class of third-party payors ("TPPs") that had paid or reimbursed "all or some" of the purchase price of Depakote, a prescription drug that was developed by Abbott and marketed by AbbVie.

The Funds sued Abbott and AbbVie (collectively, "Abbott") for RICO violations, unjust enrichment, and deceptive business practices. According to the complaint, Abbott marketed Depakote for off-label uses even though: (1) it lacked reliable evidence of the safety or efficacy of the drug for off-label conditions and (2) in some cases, it had evidence that the drug was ineffective or unsafe for those conditions. Abbott sought dismissal.

Analysis. The district court noted that other courts that considered RICO claims by TPPs—for the off-label use of prescription drugs—reached different conclusions regarding the directness of the link between the alleged misrepresentations of drug companies and the alleged injuries of the TPPs. Although some courts have found that the chain of causation involved too many independent steps or actors, other courts found that the proximate cause element was satisfied if: (1) the alleged misrepresentations regarding off-label use caused TPPs to place the drug on their formularies and (2) the TPP was the intended victim of the alleged scheme.

One key distinction between the facts in those cases was whether the drug companies had made the alleged misrepresentations directly to the TPPs or indirectly to the physicians who prescribed the drugs that the TPPs would cover. In this case, the Funds argued that the distinction between direct and indirect misrepresentations was misplaced. In the Funds’ view, the proximate cause analysis should focus on foreseeability.

The court acknowledged that the U.S. Supreme Court had described the plaintiffs’ injury in Bridge v. Phoenix Bond & Indemnity Co., 553 U.S. 639 (2008) as the direct result of the defendants’ fraud because the injury was a "foreseeable and natural consequence" of the defendants’ scheme. Nevertheless, the Bridge decision did not change the "direct relationship" requirement for RICO causation, in the district court’s view, because the foreseeability issue in Bridge had arisen in the context of deciding whether the alleged injury was the direct result of the claimed fraud. Moreover, just two years after Bridge, the Supreme Court reiterated in Hemi Group, LLC v. City of New York, 559 U.S. 1 (2010), that the focus in the RICO context was on "the directness of the relationship between the conduct and the harm." According to the district court, foreseeability did not play a role in the Hemi analysis.

The district court noted that a line had to be drawn to "distinguish the direct consequences in a close causal chain from more attenuated effects influenced by too many intervening causes." The court concluded that the "distinguishing characteristic" was whether the drug maker had made direct misrepresentations to the TPP; otherwise, intervening factors—such as a physician’s independent medical judgment or a patient’s own decisions—interrupted the chain of causation.

In this case, the Funds did not allege that Abbott had made a direct misrepresentation that caused them to place Depakote on their formularies or to pay for the drug when it was prescribed. Instead, their amended complaint focused on allegations that Abbott and its co-conspirators had: (1) misrepresented the safety and efficacy of Depakote—for off-label uses—to doctors, patients, and caregivers and (2) encouraged the use of Depakote in greater amounts.

In the court’s view, those allegations introduced additional steps into the chain of causation. Moreover, the additional steps between the defendants’ alleged misrepresentations and the Funds’ alleged overpayments for Depakote (a doctor’s independent medical decision to prescribe Depakote over other medications, for example, and a patient’s decision to fill the prescription) made the causal chain too attenuated to establish proximate cause. Finally, the intervening steps were not automatic or predictable events that could be disregarded.

Ultimately, establishing damages would require individualized inquiries into the decision-making processes of prescribing physicians and individual patients and would thus create difficulties in assessing the damages that the directness requirement was intended to prevent. For that reason, the court concluded that the pleadings did not establish a direct relationship between the alleged misrepresentations and the alleged injury. Because the Funds failed to adequately plead proximate cause, their RICO claims were deficient and dismissal was warranted.

The case is No. 13 C 5865.

Attorneys: Edmund S. Aronowitz (Grant & Eisenhofer, P.A.) and James J. Pizzirusso (Hausfield LLP) for Sidney Hillman Health Center of Rochester and Teamsters Health Services and Insurance Plan Local 404. William F. Cavanaugh, Jr. (Patterson, Belknap, Webb & Tyler, LLP) and Jonathan Richard Lahn (Kirkland & Ellis LLP) for Abbott Laboratories and Abbvie, Inc.

Companies: Sidney Hillman Health Center of Rochester; Teamsters Health Services and Insurance Plan Local 404; Abbott Laboratories; Abbvie, Inc.

Cases: RICO IllinoisNews