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City of Chicago v. Purdue Pharma L.P.

United States District Court, N.D. Illinois, Eastern Division

September 29, 2016

CITY OF CHICAGO, a municipal corporation, Plaintiff,
v.
PURDUE PHARMA L.P., PURDUE PHARMA INC., THE PURDUE FREDERICK COMPANY INC., TEVA PHARMACEUTICALS USA INC., CEPHALON, INC., JOHNSON & JOHNSON, JANSSEN PHARMACEUTICALS, INC., ORTHO-MCNEIL-JANSSEN PHARMACEUTICALS, INC., n/k/a JANSSEN PHARMACEUTICALS, INC., JANSSEN PHARMACEUTICA, INC., n/k/a JANSSEN PHARMACEUTICALS, INC., ENDO HEALTH SOLUTIONS INC., ENDO PHARMACEUTICALS, INC., ALLERGAN PLC, f/k/a ACTAVIS PLC, ACTAVIS, INC., f/k/a WATSON PHARMACEUTICALS, INC., WATSON LABORATORIES, INC., ACTAVIS LLC, and ACTAVIS PHARMA, INC. f/k/a WATSON PHARMA, INC., Defendants.

          MEMORANDUM OPINION AND ORDER

          JORGE L. ALONSO United States District Judge

         On May 8, 2015, the Court issued a Memorandum Opinion and Order (“May Order”) [288] granting most defendants' motions to dismiss. All that remained from plaintiff's first amended complaint were Counts I and II (consumer fraud claims) against the Purdue entities. Plaintiff filed its second amended complaint [328] in August 2015 against all defendants alleging consumer fraud, misrepresentation, false statements, false claims, insurance fraud, and unjust enrichment, and seeking cost recovery for services provided. Plaintiff also alleges conspiracy to defraud as to some defendants. Defendants' motions to dismiss followed. Currently before the Court are: (1) Cephalon, Inc. and Teva Pharmaceuticals USA, Inc.'s (“Cephalon defendants”) motion to dismiss [401]; (2) Allergan plc, Actavis Inc., Actavis LLC, Actavis Pharma, Inc., and Watson Laboratories, Inc.'s (“Actavis defendants”) motion to dismiss [404]; (3) Endo Health Solutions Inc. and Endo Pharmaceuticals Inc.'s (“Endo defendants”) motion to dismiss [407]; (4) Purdue Pharma L.P., Purdue Pharma Inc., and Purdue Frederick Company's (“Purdue defendants”) motion to dismiss [411]; (5) Janssen Pharmaceuticals Inc. and Johnson & Johnson's (“Janssen defendants”) motion to dismiss [416]; (6) defendants' joint motion to dismiss or stay under the primary jurisdiction doctrine [415]; and (7) defendants' joint motion to dismiss for failure to state a claim [423]. For the foregoing reasons, defendants' joint motion to dismiss or stay under the primary jurisdiction doctrine is denied. The other six of defendants' motions are granted in part and denied in part.

         BACKGROUND

         Plaintiff, the City of Chicago, alleges as follows. The defendant pharmaceutical companies, through a deceptive and unfair marketing campaign, reversed the medical understanding of opioids so that prescribing opioids to treat chronic pain long-term would be commonplace. (Second Am. Compl. (“SAC”) ¶ 7.) The City alleges that, to accomplish this goal, defendants, among other tactics, deployed sales representatives to doctors and other prescribers to deliver misleading messages about the use of opioids. (Id. ¶ 8.) These messages were designed to convince doctors that the benefits of using opioids to treat chronic pain outweighed the risks and that opioids could be used safely by most patients. (Id. ¶ 9.)

         The Purdue defendants manufacture, promote, and distribute in Chicago, among other places, OxyContin, Butrans, and Hysingla ER. (Id. ¶¶ 28-29.)[1] The Cephalon defendants manufacture, sell, and distribute in Chicago, among other places, Actiq and Fentora. (Id. ¶¶ 34-35.)[2] The Janssen defendants manufacture, sell and distribute in Chicago, among other places, Duragesic, Nucynta, and Nucynta ER. (Id. ¶¶ 39-41.)[3] The Endo defendants develop, market, and sell in Chicago, among other places, Opana ER and Opana. (Id. ¶¶ 44-45.)[4] The Actavis defendants market and sell, in Chicago, among other places Kadian. (Id. ¶¶ 47-48.)[5]

         Opioids have been regulated by the U.S. Drug Enforcement Administration (“DEA”) since 1970 and “carry black box warnings of potential addiction, ” among other things. (Id. ¶ 58.) Studies from the 1970s and 1980s noted negative outcomes from long-term opioid therapy for pain management. (Id. ¶ 81.) Defendants' marketing overstated the benefits and downplayed the risks of long-term opioid therapy to expand the chronic pain market. (Id. ¶¶ 85-87.) Through their sales representatives and physician speakers, defendants disseminated their misrepresentations to Chicago-area prescribers, thereby generating more prescriptions and profits. (Id. ¶¶ 85, 88-117, 260-340, 376-89, 392-426, 476-92, 496-515, 545-79, 623-32.)

         Defendants acted in concert with key opinion leaders and front groups to create, promote, and control the unbranded marketing of opioids to treat chronic pain, both nationally and in Chicago. (Id. ¶¶ 118-213, 260, 341-75, 391, 427-75, 494, 516-44, 559, 580-622.)[6] Defendants knowingly disseminated unbranded marketing messages that were inconsistent with information on defendants' branded marketing materials. (Id. ¶ 127.) Specifically, plaintiff asserts that each defendant and the third parties with which they conspired: (1) misrepresented that opioids improve function; (2) concealed the link between long-term use of opioids and addiction; (3) misrepresented that addiction risk can be managed; (4) masked the signs of addiction by calling them “pseudoaddiction”; (5) falsely claimed that withdrawal is easily managed; (6) omitted the greater dangers from higher doses of opioids; (7) minimized the adverse effects of opioids and overstated the risks of NSAIDs; and (8) in the case of Purdue, that OxyContin provides a full twelve hours of pain relief. (Id. ¶¶ 215-59.)[7]

         Because of defendants' misleading and fraudulent direct marketing, doctors prescribed opioids to treat chronic pain. (Id. ¶¶ 634, 636.) As a result, doctors and pharmacies submitted false claims for opioid prescriptions to the City's health plans that were paid for by the City as medically necessary, and the City spent over $13 million on fraudulent claims for opioid prescriptions. (Id. ¶¶ 648-54, 660-62, Exs. A & B.) The claims submitted for opioids to treat chronic pain were ineligible for payment because of defendants' deceptive and unfair conduct. (Id. ¶ 663.)

         Additionally, the City states that it has remedied all defects from the first amended complaint, with respect to each defendant, by identifying Chicago-area prescribers who received deceptive marketing messages and wrote opioid prescriptions for which the City paid, as well as specifying each defendant's editorial control over the deceptive and misleading marketing materials. Finally, plaintiff states that its second amended complaint alleges conspiracy claims between defendants and third parties and adds an unfair practices claim.

         STANDARD

         “A motion under Rule 12(b)(6) tests whether the complaint states a claim on which relief may be granted.” Richards v. Mitcheff, 696 F.3d 635, 637 (7th Cir. 2012). Under Rule 8(a)(2), a complaint must include “a short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)(2). The short and plain statement under Rule 8(a)(2) must “give the defendant fair notice of what the claim is and the grounds upon which it rests.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (ellipsis omitted). Under federal notice-pleading standards, a plaintiff's “[f]actual allegations must be enough to raise a right to relief above the speculative level.” Id. Stated differently, “a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 570). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. (citing Twombly, 550 U.S. at 556). “In reviewing the sufficiency of a complaint under the plausibility standard, [courts must] accept the well-pleaded facts in the complaint as true, but [they] ‘need[ ] not accept as true legal conclusions, or threadbare recitals of the elements of a cause of action, supported by mere conclusory statements.'” Alam v. Miller Brewing Co., 709 F.3d 662, 665-66 (7th Cir. 2013) (quoting Brooks v. Ross, 578 F.3d 574, 581 (7th Cir. 2009)).

         Rule 9(b) requires a party alleging fraud to “state with particularity the circumstances constituting fraud.” Fed.R.Civ.P. 9(b). This “ordinarily requires describing the ‘who, what, when, where, and how' of the fraud, although the exact level of particularity that is required will necessarily differ based on the facts of the case.” AnchorBank, FSB v. Hofer, 649 F.3d 610, 615 (7th Cir. 2011) (citation omitted); see also Camasta v. Jos. A. Bank Clothiers, Inc., 761 F.3d 732, 737 (7th Cir. 2014). Rule 9(b) applies to “all averments of fraud, not claims of fraud.” Borsellino v. Goldman Sachs Grp., Inc., 477 F.3d 502, 507 (7th Cir. 2007). “A claim that ‘sounds in fraud'-in other words, one that is premised upon a course of fraudulent conduct- can implicate Rule 9(b)'s heightened pleading requirements.” Id.

         DISCUSSION

         Primary Jurisdiction

         Defendants' Joint Motion to Dismiss or Stay [415]

         In its May Order, the Court denied defendants' joint motion to stay or dismiss pursuant to the primary jurisdiction doctrine. Defendants again argue that the Court should stay or dismiss the second amended complaint under the same doctrine because there have been interim FDA developments and new case law, and the claims raised in the second amended complaint are pending before, or have already been rejected by the FDA. Plaintiff responds by arguing that the Court has already rejected defendants' primary jurisdiction arguments and nothing has changed in the meantime that warrants the Court's reversal.

         “Primary jurisdiction is a permissive doctrine that applies when resolving a claim ‘requires the resolution of issues which, under a regulatory scheme, have been placed within the special competence of an administrative body.'” United States ex rel. Sheet Metal Int'l Assoc., Local Union 20 v. Horning Invs., LLC, 828 F.3d 587, 592 (7th Cir. 2016) (quoting United States v. W. Pac. Ry. Co. 352 U.S. 59, 63-64 (1956)). “There is no fixed formula” for applying the doctrine and “the decision to whether to [do so] depends upon a case by case determination whether, in view of the purposes of the statute involved, and the relevance of administrative expertise to the issue at hand, a court ought to defer initially to the administrative agency.” Bradford Sch. Bus Transit v. Chi. Transit Auth., 537 F.2d 943, 949 (7th Cir. 1976) (quotations omitted).

         As previously noted, the Court is not being asked to adjudicate whether opioids are appropriate for the treatment of chronic, non-cancer pain or whether defendants' drugs' labels are accurate, but whether defendants deliberately misrepresented the risks, benefits, and superiority of opioids when marketing them to treat chronic pain, “contrary to . . . scientific evidence and their own labels[.]” (SAC ¶ 214.) “Courts are equipped to adjudicate such claims.” City of Chi. v. Purdue Pharma L.P., No. 14 C 4361, 2015 WL 2208423, at *4 (N.D.Ill. May 8, 2015); see also, e.g., In re Horizon Organic Milk Plus DHA Omega-3 Mktg. & Sales Practice Litig., 955 F.Supp.2d 1311, 1349 (S.D. Fla. 2013) (“Plaintiffs' claims rest on the determination of whether WhiteWave's brain health representations on its products' labeling, in its advertisements, and on its website are false and/or misleading and whether customers purchased WhiteWave's products in reliance on these representations. . . . This is not a technical area in which the FDA has greater technical expertise than the courts-as every day courts decide whether conduct is misleading.”); In re Bextra & Celebrex Mktg. Sales Practices & Prod. Liab. Litig., No. M: 05-1699 CRB, 2006 WL 2374742, at *12 (N.D. Cal. Aug. 16, 2006) (“The issue is not whether Celebrex has fewer GI complications than other over-counter NSAIDs; the FDA has already determined that it does not. The issue is whether contrary to the FDA's findings, Pfizer nonetheless falsely claimed that Celebrex was superior. Courts and juries frequently decide similar false advertising claims.”). Accordingly, the Court finds defendants' arguments about the FDA's ongoing investigations about the benefits and risks of using opioids to treat long-term chronic pain unpersuasive.

         Defendants also cite to a state superior court case in California where a factually similar case was stayed in August 2015, not under the doctrine of primary jurisdiction, but pursuant to the court's inherent authority to manage its own cases. In a tentative ruling staying the case, the court noted that the case would require the court to determine what the public and doctors need to be told about opioids and entailed much more than determining issues of false and misleading marketing. People v. Purdue Pharma L.P., 2015 WL 5123273, at *2 (Cal. Super. Ct. Aug. 27, 2015). This non-binding ruling does not persuade the Court that a stay is warranted here. See Tex. Indep. Producers & Royalty Owners Ass'n v. EPA, 410 F.3d 964, 980 (7th Cir. 2005) (“‘[T]he power to stay proceedings is incidental to the power inherent in every court to control the disposition of the causes on its docket with economy of time and effort for itself, for counsel, and for litigants.'”) (quoting Landis v. N. Am. Co., 299 U.S. 248, 254 (1936)). Nothing in plaintiff's allegations, defendants' arguments, or the law has changed since the Court's May Order that merits the Court's invocation of the primary jurisdiction doctrine or a stay. Accordingly, defendants' motion to dismiss or stay [415] is denied.

         Motions to Dismiss Under 12(b)(6)

         The Court will describe the arguments in support of and in opposition to each motion before addressing them below count by count.

         Defendants' Joint Motion to Dismiss [423]

         In addition to their individual motions to dismiss, all defendants join together to assert that plaintiff has again failed to sufficiently plead fraud allegations pursuant to Fed.R.Civ.P. 8(a), 9(b), and 12(b)(6). First, the defendants allege that plaintiff has violated Rule 9(b) by lumping all defendants together as if they were a single company manufacturing one product and by failing to plead any of its claims in the particularized manner that the rule requires. Defendants further allege that plaintiff has failed to adequately plead causation for five of the counts in its second amended complaint and also fails to allege a cognizable injury. Defendants also argue that each of plaintiff's counts have claim-specific deficiencies. Specifically, they argue that: Count I must be dismissed to the extent it seeks relief for fraud prior to the November 19, 2008 enactment of MCC § 2-25-090, the Chicago ordinance concerning consumer fraud; Count II must be dismissed because it does not allege facts showing the conduct to be unfair; Counts IV through VI and VIII must be dismissed because they fail to plead a false claim with any specificity and do not sufficiently allege causation; Count VII must be dismissed because it fails adequately allege causation or injury; Count IX must be dismissed because plaintiff fails to allege an agreement to violate the law or an act in furtherance of such an agreement with the required particularity; and Count X must be dismissed because plaintiff has failed to adequately allege it was harmed or that defendants caused harm.

         Plaintiff responds by arguing that its second amended complaint meets Rule 9(b)'s pleading standard and adequately apprises each defendant of the claims against it. Further, plaintiff asserts that defendants have demanded, and the Court has rejected, the application of an unrealistic particularity standard as it relates to tying misrepresentations about specific drugs made to particular prescribers and the prescriptions written in reliance on those misrepresentations. Plaintiff contends that defendants have the records of when their particular sales representatives met with prescribers and what was said. Additionally, plaintiff asserts that the Court recognized in its May Order that causation and injury are not elements of the consumer fraud claims. Moreover, plaintiff argues that whether defendants' marketing messages are misleading and therefore actionable consumer fraud is a question of fact that cannot be resolved at the motion to dismiss stage. Plaintiff also argues that defendants' deceptive and unfair marketing caused providers to submit claims to the City for opioids prescribed for chronic pain, impliedly certifying that the prescriptions were medically necessary, eligible for coverage, and were therefore paid by plaintiff.

         Cephalon Defendants' Motion to Dismiss [401]

         In addition to the arguments set forth in the joint motion to dismiss, the Cephalon defendants argue that plaintiff's Unbranded Promotion Theory seeks to hold them responsible for lawful activities and that the Branded Promotion Theory conflates off-label promotion with fraud.[8] Finally, the Cephalon defendants argue that plaintiff's conspiracy claim must fail because it has not asserted a claim against any third-party organization.

         Plaintiff responds by arguing that is has identified eight Chicago-area prescribers who confirmed they received allegedly deceptive marketing messages from Cephalon regarding Actiq and Fentora. Plaintiff further asserts that the marketing campaign was deceptive because it falsely implied that the drugs were FDA-approved as safe and effective for the treatment of chronic pain and minimized the risk of addiction. Further, plaintiff argues it has alleged a sufficient basis to infer Cephalon's endorsement and control of those messages both directly and through third parties. Plaintiff also argues that the SAC alleges that misrepresentations were made to specific prescribers and that specific opioid prescriptions written by those prescribers, along with other facts which require the inference that defendants' deceptive messages caused false claims to be presented to and paid by the plaintiff. Next, plaintiff argues that its allegations of conspiracy with the American Pain Foundation (“APF”) are sufficient to state a claim because, among other things, Cephalon created and disseminated deceptive materials to promote the use of opioids to treat chronic pain. Finally, plaintiff argues that it has sufficiently alleged claims for recovery for the cost of municipal services and unjust enrichment because it has identified specific prescribers who wrote City-reimbursed prescriptions as a result of defendants' deceptive conduct.

         In reply, Cephalon states that plaintiff has failed to plead facts demonstrating that it made a misrepresentation or material omission in connection with any branded or unbranded promotional materials to any Chicago prescriber that caused that prescriber to write one of the prescriptions at issue.

         Actavis Defendants' Motion to Dismiss [404]

         In addition to the argument that plaintiff's complaint should be dismissed for failing to meet the pleading requirements of Rules 8(a) and 9(b), the Actavis defendants argue that (1) they are not liable for any conduct related to Kadian before January 1, 2009 because none of the defendants owned or marketed Kadian before then and (2) the Court lacks personal jurisdiction over Allergan plc and Actavis, Inc.

         Plaintiff responds by arguing that its second amended complaint identifies seven Chicago-area prescribers who confirmed that they received allegedly deceptive marketing messages regarding Kadian. Plaintiff further asserts that prescribers cannot recall when particular visits by defendants' sales representatives occurred and that defendants are in a much better position to know those details because they track such information. Additionally, plaintiff asserts that it does not need to plead that any physician wrote a prescription in reliance on defendants' misrepresentations because the consumer fraud claims do not require it, it has explained why defendants' misrepresentations are false, and defendants can be held liable for omitting the risk of addiction notwithstanding their drug labels. Finally, plaintiff contends that the Court has already determined that it has personal jurisdiction over Allergan plc and Actavis, Inc. and there is no reason to revisit this ruling.

         The Court will briefly address the personal jurisdiction issue. In its May Order, the Court held that Actavis, Inc.'s predecessor, Actavis Group, tracked the number of prescriptions Illinois doctors wrote for Kadian, and ranked the doctors by the number of prescriptions they wrote. City of Chi., 2015 WL 2208423, at *6. Additionally, there was evidence that showed that Actavis Inc.'s predecessor, Actavis Group, kept a “target list” of Illinois doctors and marketed to them. Id.; see [254-2] and [254-5]-[254-13]. Accordingly, the Court found that these contacts were sufficient to give the Court specific jurisdiction over Actavis, Inc. Id.

         Actavis, Inc., submits identical declarations and makes identical arguments to those it made in the first round of motions to dismiss, save for one. (Compare 1st and 2d Hirt Decls. from FAC [221-1] and [221-2] with 1st and 2d Hirt Decls. from SAC [405-1] and [405-2].) Its new contention is that there are no allegations in the SAC that the entity known as “Actavis Group” is the predecessor of Actavis, Inc. or that such an entity ever existed. However, as plaintiff points out, Sheldon V. Hirt's declaration verifies that “[o]n October 31, 2012, Watson Pharmaceuticals, Inc. completed its acquisition of the Actavis Group” and subsequently “changed its corporate name to Actavis, Inc.” (2d Hirt Decl. ¶¶ 4-5 [405-2].) Actavis argues, in a footnote, that the phrase “Actavis Group” is “used solely as a term of convenience to describe the group of separate and distinct corporations that were acquired by Watson Pharmaceuticals, Inc. in 2012.” (Actavis Mem. in Support of Mot. to Dismiss at 22 n.27.) [405]. Nonetheless, the plain language of the declaration is more persuasive than this unsworn allegation. Absent new evidence, the Court stands by its prior ruling that specific jurisdiction exists as to Actavis, Inc.

         The Court also found that there was sufficient evidence to make a prima facie case of jurisdiction as to Allergan plc when it concluded that the record suggested that Allergan plc continued the business of Actavis, Inc. City of Chi., 2015 WL 2208423, at *6. Allergan plc argues, as it did previously, that Actavis Inc. is a legally distinct entity from Allergan plc. Allergan plc presents no new evidence or argument that persuades the Court to reconsider its previous ruling. Accordingly, the Court rejects the argument that it lacks jurisdiction over Allergan plc.

         Endo Defendants' Motion to Dismiss [407]

         The Endo defendants assert that plaintiff does not adequately allege a causal nexus between their alleged misconduct and any resulting injuries and that any causal chain that does exist is too attenuated to establish proximate cause. Endo also argues that plaintiff has failed to allege that any of the statements it made were fraudulent, that Endo exercised control over third-party organizations that made the alleged fraudulent statements, or that Endo conspired with a third party to commit an unlawful act.

         Plaintiff responds by arguing that it cannot be decided as a matter of law that defendants' actions were or were not misleading; that is a question of fact that must be left for the jury. Further, plaintiff argues that it has identified ten Chicago-area prescribers who confirmed that they received allegedly deceptive messages from Endo sales representatives regarding Opana and Opana ER. Plaintiff also asserts that it has alleged facts that support the inference of an agreement between Endo and third parties to promote opioid therapy.

         Purdue Defendants' Motion to Dismiss [411]

         In addition to what is laid out in the defendants' joint motion to dismiss, the Purdue defendants argue that the alleged misrepresentations are not misleading as a matter of law because they comport with the labeling approved by the FDA and could not have created a plausible likelihood of deception to prescribing physicians or claims administrators and that plaintiff has not sufficiently alleged Purdue exercised control over unbranded third-party materials. Finally, Purdue argues that plaintiff's revised allegations clarify that the two surviving claims against Purdue are now deficient as a matter of law.

         Plaintiff responds by arguing that whether defendants' conduct creates a likelihood of deception is a factual question that should be left for the jury, it has sufficiently pleaded that Purdue deceptively marketed OxyContin to Chicago-area prescribers, and it has alleged that Purdue had control over third-party publications. Plaintiff further maintains that it has sufficiently detailed Purdue's conspiracy with APF to state a claim.

         Janssen Defendants' ...


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