Friday, October 22, 2010

Certification of RICO Class of Prescription Drug Purchasers Reversed

This posting was written by Mark Engstrom, Editor of CCH RICO Business Disputes Guide.

A district court abused its discretion by certifying a class of labor unions and insurance companies that allegedly paid too much for the prescription drug Zyprexa, the U.S. Court of Appeals in New York City has ruled.

According to the plaintiffs, drug manufacturer Eli Lilly misrepresented the safety and efficacy of Zyprexa, which resulted in a greater demand and a higher price for the drug.

The plaintiffs’ RICO claims were inappropriate for class treatment, however, because common issues of reliance and causation did not predominate over individual issues.


Common issues predominated when the resolution of common legal or factual questions, such as injury and proximate cause, could be achieved through generalized proof, and when those issues were more substantial than the issues that were subject to individualized proof, the court noted. In this case, a generalized proof of proximate cause was not possible under the plaintiffs’ “excess price” theory of injury.

The plaintiffs described a chain of causation in which the manufacturer distributed misinformation about Zyprexa, doctors relied on that misinformation and prescribed the drug for their patients, and then plaintiffs, as third-party payors (TPPs), paid an excessive price for the patients’ prescriptions.

Link Between Misrepresentations, Overpayment

This narrative, the court observed, skipped over several steps and obscured the attenuated link that existed between the alleged misrepresentations that were made to doctors and the overpayment injuries that were incurred by the plaintiffs.

Before the TPPs made any payments, for example, they: (1) relied on the advice of pharmacy benefit managers and their own Pharmacy and Therapeutics Committees in placing the drug on their formularies and (2) failed to negotiate a lower price for the drug.

The plaintiffs’ theory of liability thus rested on the independent actions of third and even fourth parties, the court explained. Moreover, the TPPs alone were in a position to negotiate a lower price for Zyprexa.

Therefore, proximate cause with respect to price could have been shown through reliance by the TPPs alone; it could not have been shown through reliance by the doctors, according to the court.


Doctors did not generally take price into consideration when they made decisions regarding prescriptions. Therefore, even if proximate cause with respect to price could have been shown through doctor reliance, that reliance did not constitute a but-for cause of the excessive price that the plaintiffs had paid for each prescription, in the court’s view.

The decision is UFCW Local 1776 v. Eli Lily and Co., CCH RICO Business Disputes Guide ¶11,936.

Further information about CCH RICO Business Disputes Guide appears here.

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