[Drug and Device Law] Is This The End of RICO?
The short answer is “no.” We are just borrowing a line from one of the original gangster movies, “Little Caesar,” which readers other than McConnell would most likely know from references in “The Sopranos,” if they know it at all. (Or from here.) The titular character in that flick was known as “Rico.” RICO (Racketeer Influenced and Corrupt Organizations Act), on the other hand, was an anti-gangster law, enacted in 1970 as part of the Organized Crime Control Act. In a number of posts (like here), we have decried the gangster tactics used by plaintiffs—particularly quasi-public plaintiffs—to use the threat of RICO’s treble damages and cost-shifting provisions to extort settlements from drug and device manufacturers. Particularly for prescription medical products, RICO seems like an inappropriate vehicle for addressing alleged harms allegedly caused by such standard product liability allegations as inadequate disclosure of risks or off-label promotion. A small blow to curtail the expansion of RICO was struck in Short v. Janssen Pharms., Inc., No. 1:14-CV-1025, 2015 U.S. Dist. LEXIS 61123 (W.D. Mich. May 11, 2015).
Short is yet another case stemming from pediatric use of Risperdal. We have posted many times on various Risperdal cases with various theories of recovery, usually tied to the idea that the drug was improperly promoted for off-label use without disclosing the true risk of gynecomastia and other prolactin disorders, like here, here, here and here. In Short, the plaintiff allegedly took Risperdal as a minor, developed gynecomastia, and sued in his own behalf under RICO and state consumer protection and product liability acts. His problems were that he never paid a cent for the drug and that he was from Michigan. We suspect the latter may be why RICO was at issue at all.
Statutory standing under RICO requires that the plaintiff have been “injured in his business or property” by the racketeering of the defendant(s). The Short plaintiff, as makes sense for a minor taking a prescription drug, alleged that his insurance company paid for the drug and his mother maybe paid a co-pay. The insurer and mother may have had standing, but they were not plaintiffs. Drawing on Sixth Circuit authority that RICO had “evolved into something quite different from the original conception of its enactors,” the court was comfortable finding no standing where plaintiff did not “actually pay[] anything himself” and merely asserted personal injuries. Id. at **7-8. Plaintiff “must, at a minimum, show some direct, pecuniary injury to his own pocket that is unrelated to the claimed personal injury.” Id. at *8. Plaintiff offered two creative arguments for why he did allege a pecuniary injury sufficient for standing without spending any of his own money. First, he argued that he “incurred the expense” of the drug, even though someone else paid it. “This is no different than ordering lunch in a restaurant: ordering lunch may obligate you to pay for it, but if your friend picks up the tab, you haven’t suffered any pecuniary injury at all.” Id. at *9 (contraction and smack down in the original). Second, he argued that he had subrogation rights from his insurer paying for the drug, but Michigan law is clear that the insurer is “the only real party in interest.” Id. at *12. So, RICO liability does not extend to a plaintiff who used a product paid for entirely by others. That is good. On plaintiff’s state law claims, the Michigan legislature has seen fit to enact fairly pro-manufacturer legislation. Our readers know that this includes immunity from product liability claims for FDA approved drugs absent the application of a narrow exception. The exception urged here, intentional withholding of key information in connection with the drug’s approval, has been held by the Sixth Circuit and most courts to consider the issue have found this exception to be preempted—unless the FDA had concluded that such a fraud had occurred. Id. at *15. Plaintiff argued that allegations of off-label use change the way the immunity and exception work, but that argument had already been rejected by the Sixth Circuit and various other courts. Id. at *16. Michigan’s legislature also put in a provision in its consumer protection act that exempted “transactions[s] . . . specifically authorized under laws administered by a . . . officer acting under the statutory authority of this state or the United States.” Plaintiff argued that FDA approval did not authorize off-label promotion, but the Michigan Supreme Court had already construed this statutory language to make the inquiry “whether the general transaction is specifically authorized by law, regardless of whether the specific misconduct alleged is prohibited.” Id. at **13-14. We can add Short to our collection of cases applying consumer protection safe harbors to FDA actions. So, plaintiff’s state law claims were also dismissed. Because all of this was not a matter of mere pleading, it looks like the dismissals of all of plaintiff’s claims were with prejudice. Thus, even if this is not the end of RICO, it should be the end of Short.
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Posted By Eric Alexander to Drug and Device Law at 5/28/2015 09:02:00 AM --
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