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In re Asacol Antitrust Litigation

United States Court of Appeals, First Circuit

October 15, 2018

IN RE: ASACOL ANTITRUST LITIGATION
v.
WARNER CHILCOTT LIMITED; ALLERGAN, INC., f/k/a Actavis, PLC; ALLERGAN USA, INC.; ALLERGAN SALES, LLC; ALLERGAN, PLC, Formerly known as Actavis, PLC, Defendants, Appellants, UNITED FOOD & COMMERCIAL WORKERS UNIONS AND EMPLOYERS MIDWEST HEALTH BENEFITS FUND, on behalf of itself and all others similarly situated; MARK ADORNEY, Plaintiffs, TEAMSTERS UNION 25 HEALTH SERVICES & INSURANCE PLAN, on behalf of themselves and all others similarly situated; NECA-IBEW WELFARE TRUST FUND, on behalf of themselves and all others similarly situated; WISCONSIN MASONS' HEALTH CARE FUND, on behalf of itself and all others similarly situated; MINNESOTA LABORERS HEALTH AND WELFARE FUND, on behalf of itself and all others similarly situated; AFSCME HEALTH AND WELFARE FUND; PENNSYLVANIA EMPLOYEES BENEFIT TRUST FUND; AHOLD U.S.A., INC.; ROCHESTER DRUG CO-OPERATIVE, INC.; VALUE DRUG COMPANY; MEIJER, INC.; MEIJER DISTRIBUTION, INC., Plaintiffs, Appellees, ZYDUS PHARMACEUTICALS USA INC.; CADILA HEALTHCARE LIMITED; WARNER CHILCOTT (US), LLC; WARNER CHILCOTT SALES (US), LLC; WARNER CHILCOTT COMPANY, LLC, Defendants.

          APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS [Hon. Denise J. Casper, U.S. District Judge]

          J. Mark Gidley, with whom Peter J. Carney, Dana Foster, Matthew S. Leddicotte, Jaclyn Phillips, Maxwell J. Hyman, Robert A. Milne, Jack E. Pace III, Bryan D. Gant, Kelly Newman, and White & Case LLP were on brief, for appellants.

          Richard A. Samp and Marc B. Robertson on brief for Washington Legal Foundation, amicus curiae.

          Justin N. Boley, with whom Kenneth A. Wexler, Tyler J. Story, Wexler Wallace LLP, Tyler W. Hudson, Eric D. Barton, David Barclay, Wagstaff & Cartmell, LLP, Nathaniel L. Orenstein, Todd A. Seaver, Berman Tabacco, Daniel E. Gustafson, Karla M. Gluek, Michelle J. Looby, Joshua J. Rissman, Gustafson Gluek PLLC, Jeffrey L. Kodroff, William G. Caldes, John A. Macoretta, Spector Roseman Kodroff & Willis, P.C., Peter J. Mougey, Levin, Papantonio, Thomas, Mitchell, Rafferty & Proctor, P.A., Jonathan D. Karmel, and Karmel Law Firm were on brief, for appellees.

          Before Lynch, Kayatta, and Barron, Circuit Judges.

          KAYATTA, CIRCUIT JUDGE

         Drug manufacturer Warner Chilcott Limited pulled one of its products -- Asacol -- from the market just months before the drug's patent protection expired. Warner simultaneously introduced a similar but not exactly identical substitute drug called Delzicol, the patent protection for which ran years longer. This coordinated withdrawal and entry of the two drugs allegedly precluded generic manufacturers from introducing a generic version of Asacol, which would have provided a lower-cost alternative to Warner's drugs Delzicol and Asacol HD, a version of Asacol that was also still under patent protection. Crying foul, the named plaintiffs in this case filed a class action alleging a violation of the consumer protection and antitrust laws of twenty-five states and the District of Columbia. On plaintiffs' motion, the district court certified a class of all Asacol purchasers who subsequently purchased Delzicol or Asacol HD in one of those twenty-six jurisdictions. In so doing, the court found that approximately ten percent of the class had not suffered any injury attributable to defendants' allegedly anticompetitive behavior. Nevertheless, the district court determined that those uninjured class members could be removed in a proceeding conducted by a claims administrator. We find this approach to certifying a class at odds with both Supreme Court precedent and the law of our circuit. We therefore reverse.

         I.

         Asacol is a pharmaceutical drug that treats mild to moderate ulcerative colitis, a chronic inflammatory bowel disorder. Developed and first manufactured by Procter and Gamble Pharmaceuticals, Asacol debuted on the market in 1992 and received the protection of two patents. Those patents expired on July 30, 2013. In 2008, Procter and Gamble brought a new variation of Asacol to market, dubbed Asacol HD, which treated moderate, but not mild, ulcerative colitis. This new drug differed from Asacol in two key ways: it included twice the dosage, and it replaced Asacol's single-layer coating with a dual-layer coating. Asacol HD's patent protection extended years beyond that of Asacol. In 2009, Warner Chilcott purchased Procter and Gamble's pharmaceutical portfolio, which included both Asacol and Asacol HD.

         On March 18, 2013, only a few months shy of the end of Asacol's patent protection, Warner stopped selling and marketing Asacol. On the same day, Warner introduced a new drug: Delzicol. Delzicol, like Asacol, treats ulcerative colitis. The two drugs contain the same active ingredient and dosage, and sold for the same price. Unlike Asacol, Delzicol comes in a capsule that does not contain dibutyl phthalate ("DBP"). DBP is a plasticizer, the safety of which appears to have been the subject of a dialogue between the FDA and Asacol's manufacturers.

         On June 22, 2015, several plaintiffs (collectively "plaintiffs," "named plaintiffs," or "class representatives") filed suit on their own behalf and on behalf of a putative class. These plaintiffs are all union-sponsored benefit plans that paid for the purchases of Asacol HD and Delzicol. In their operative complaint, plaintiffs allege that Warner harbored an anticompetitive motivation for its conduct. According to the complaint, Warner's aim in pulling Asacol from the market and introducing Delzicol was to preclude the possibility of market entry of generic drugs, which would have cut into Warner's profits. State law provides the mechanism for this preclusion. Under most state substitution laws, pharmacists can fill a prescription by substituting a generic drug for the prescribed brand drug, but only if the brand drug is listed as a "reference" drug for the generic. This automatic substitution, plaintiffs say, provides the "only viable cost-efficient means" for new generics to "compet[e] with brand drugs." But even a small alteration to the brand drug, such as substituting a tablet form for a capsule form, can prevent a generic equivalent from using the discontinued form as a reference drug. Thus, by pulling Asacol, Warner effectively prevented generic drugs that would have used Asacol as a reference drug from entering the market after the expiration of Asacol's patents.[1] And the introduction of a similar, but not wholly equivalent, drug -- Delzicol -- with the potential for longer-lasting patent protection, allowed Warner to substantially retain its market share. Thus, plaintiffs contend, Warner forced consumers into a "hard switch" and maintained its monopoly power unencumbered by competition from generic entry. Plaintiffs' theory of liability rests on a Second Circuit decision that condemns similar such conduct. See New York ex rel. Schneiderman v. Actavis PLC, 787 F.3d 638 (2d Cir. 2015).

         The named plaintiffs and the putative class members purchased Warner's products not from Warner directly, but from third party intermediaries. That means that they cannot sue Warner for damages under the federal antitrust law. Illinois Brick Co. v. Illinois, 431 U.S. 720, 736 (1977). Plaintiffs therefore seek recovery under the laws of twenty-five states and the District of Columbia that allow indirect purchasers to challenge anticompetitive conduct by manufacturers whose products consumers acquire through intermediaries.[2] All twenty-six jurisdictions, according to plaintiffs, generally interpret state law restraints on anticompetitive activity consistently with federal courts' interpretation of federal antitrust law, but have "Illinois Brick repealer" laws allowing antitrust damage actions by indirect purchasers against manufacturers.

         Plaintiffs moved for class certification on behalf of a class of all similarly situated indirect purchasers, including any individual consumers who purchased the relevant Warner products from drug retailers in the twenty-six jurisdictions. Plaintiffs designed the class to include only those persons or entities that both purchased Asacol prior to July 31, 2013 -- the approximate date on which Asacol's patent protection expired -- and also purchased either Asacol HD or Delzicol after July 31, 2013. Both sides introduced expert evidence regarding the propriety of class certification.

         The district court granted plaintiffs' motion for class certification. Rejecting Warner's argument to the contrary, the district court concluded that the named plaintiffs had standing to prosecute claims on behalf of class members under various state laws even if the named plaintiffs themselves had not made purchases in all those states. Any difference between the claims of the named plaintiffs and those of unnamed class members was a matter for consideration under Rule 23, and not a matter of Article III standing, the court ruled.

         Moving to the Rule 23 analysis, the district court first found that plaintiffs' proposed class satisfied the four elements of Rule 23(a): numerosity, commonality, typicality, and adequacy. See Fed.R.Civ.P. 23(a). The district court also concluded that the proposed class passed muster under Rule 23(b)(3) because common questions predominated over individual questions and a class action presented a superior method for resolving plaintiffs' claims.

         In making those determinations, the district court grappled with a problem that has been the source of much debate among the circuits: the presence of uninjured class members. The district court presumed that approximately ten percent of class members had not been injured by Warner's allegedly anticompetitive conduct because, even had a lower-priced generic alternative been available, these consumers would not have switched to it.[3] The court based this conclusion on the reports of both sides' experts. Those experts used the experiences of similar pharmaceutical products as benchmarks from which to infer likely market dynamics had a lower-priced generic form of Asacol been introduced. Defendants' expert, Dr. Bruce Strombom, pointed to a benchmark product in which the prevalence of consumers who stuck with the higher-priced brand decreased to 10.6% within approximately three years after generic entry. Dr. Rena Conti, plaintiffs' expert, looked to different benchmark products, from which she concluded that the market share of generic Asacol would have grown to approximately 88.8% within a year of generic entry, and would then have risen to about 91.4% thirty-one months after generic entry. From these two reports, the district court presumed that "by the end of the relevant period, somewhere around 10% of the class members would have opted for Asacol HD or Delzicol even in the presence of generic Asacol." In re Asacol Antitrust Litig., 323 F.R.D. 451, 482 (D. Mass. 2017).

         The district court nevertheless concluded that the number of these uninjured class members was "de minimis." The district court also accepted plaintiffs' contention that they could remove these uninjured persons from the class with the assistance of a so-called claims administrator. Our opinion in Nexium, plaintiffs argue, permitted such a process. See In re Nexium Antitrust Litig., 777 F.3d 9 (1st Cir. 2015).

         The district court's order certifying the class raises issues on which circuits are split and that are likely to arise in other cases in this circuit before an appeal from a final judgment would -- if ever -- ripen in this case. A panel of this court therefore found "special circumstances" justifying the grant of leave to pursue an interlocutory appeal under Rule 23(f). See Fed.R.Civ.P. 23(f); Waste Mgmt. Holdings, Inc. v. Mowbray, 208 F.3d 288, 293-94 (1st Cir. 2000). In accord with this grant, Warner presents two primary challenges. First, it argues that, because the named plaintiffs only made purchases in four states, they lack Article III standing to assert claims under the laws of states in which they did not make purchases. Second, Warner takes issue with the district court's decision to certify a class containing uninjured class members.

         II.

         We review de novo the existence of Article III standing required to invoke the jurisdiction of a federal court. See Anderson ex rel. Dowd v. City of Boston, 375 F.3d 71, 92 (1st Cir. 2004). The named plaintiffs in this case indisputably have standing to litigate their own claims against Warner. They plausibly allege an injury in the form of lost money fairly traceable to an allegedly unlawful supra-competitive price, and seek classic redress in the form of a damage award. See generally Lujan v. Defs. of Wildlife, 504 U.S. 555, 560-61 (1992). Nor does the standing requirement of Article III erect any impediment to the named plaintiffs' ability to litigate as class representatives materially identical claims by other persons under the same laws under which the named plaintiffs' claims arise. Gratz v. Bollinger, 539 U.S. 244, 267 (2003).

         Warner challenges, instead, the named plaintiffs' standing to bring claims on behalf of class members whose claims arise under the laws of the twenty-two states within which no named plaintiff has either resided or purchased the relevant Warner products during the class period. These states, apparently, apply their relevant law only to claims that arise out of purchases made within the state or by state residents. Therefore, says Warner, because no named plaintiff can successfully bring a claim under the laws of any of those twenty-two states, they necessarily lack standing to bring such claims as representatives of persons who might sue successfully in those states.

         One might think that we could reject this argument merely by observing that whether a plaintiff may represent persons who themselves have standing to bring the claims alleged is a question to be addressed under Rule 23, rather than a question of standing. After all, that is how one would presumably proceed in seemingly analogous situations outside of Rule 23. For example, in deciding whether a fiduciary, a parent, a personal representative, or a partner may prosecute a claim on behalf of another person, courts generally focus not on whether the putative representative independently satisfies Article III standing, but rather on whether that party qualifies under the applicable law as a representative of the one who does have standing. See, e.g., Sam M. ex rel. Elliot v. Carcieri, 608 F.3d 77, 83 n.5 (1st Cir. 2010); Goodwin v. C.N.J., Inc., 436 F.3d 44, 49 (1st Cir. 2006); Pérez v. Clinica Dr. Perea, 915 F.2d 1556, 1990 WL 151307, at *3 (1st Cir. July 9, 1990) (unpublished); Levin v. Berley, 728 F.2d 551, 555-56 (1st Cir. 1984). And sometimes the authority for such a person to bring a suit as a representative of another resides in the Federal Rules of Civil Procedure. See, e.g., Fed.R.Civ.P. 17(c)(2) (allowing a "next friend" to sue on behalf of a minor with no requirement that the next friend possess standing to bring such a claim on behalf of herself or himself).

         Precedent, though, forecloses such a simple and quick answer. See Warth v. Seldin, 422 U.S. 490, 502 (1975); Blum v. Yaretsky, 457 U.S. 991, 1000-01 (1982); see also 1 William B. Rubenstein, Newberg on Class Actions § 2:5 (5th ed. 2012) ("In a class action suit with multiple claims, at least one named class representative must have standing with respect to each claim."). In Blum, the Supreme Court confronted an effort by two plaintiffs to represent a class of Medicaid patients challenging the decisions of a state committee to transfer them to different levels of nursing home care, allegedly without sufficient procedural safeguards. The two named plaintiffs, who had been threatened with transfers to lower levels of nursing care, also sought to press the claims of persons who might object to being transferred to facilities providing higher levels of care. 457 U.S. at 1000-02. The named plaintiffs had not been transferred or threatened with transfers to facilities providing higher levels of care. Furthermore, the conditions under which transfers to such facilities occurred were sufficiently different from transfers to facilities providing lesser care "that any judicial assessment of their procedural adequacy would be wholly gratuitous and advisory." Id. at 1001. For that reason, the plaintiffs lacked "the necessary stake in litigating conduct . . . to which [the plaintiffs] ha[d] not been subject." Id. at 999.

         In keeping with this precedent, we have trained our Article III focus in class actions on "the incentives of the named plaintiffs to adequately litigate issues of importance to them." Plumbers' Union Local No. 12 Pension Fund v. Nomura Asset Acceptance Corp., 632 F.3d 762, 770 (1st Cir. 2011). This focus is in many respects simply an application to aggregate litigation of the basic Article III requirement that a plaintiff possess "such a personal stake in the outcome of the controversy as to assure . . . concrete adverseness." Baker v. Carr, 369 U.S. 186, 204 (1962).

         Nothing in this precedent, though, suggests that the claims of the named plaintiffs must in all respects be identical to the claims of each class member. See Gratz, 539 U.S. at 262-68. Requiring that the claims of the class representative be in all respects identical to those of each class member in order to establish standing would "confuse[] the requirements of Article III and Rule 23." Fallick v. Nationwide Mut. Ins. Co., 162 F.3d 410, 421 (6th Cir. 1998). Indeed, such an approach would render superfluous the Rule 23 commonality and predominance requirements because any case that survived such a strict Article III analysis would by definition present only common issues. So the question of standing is not: Are there differences between the claims of the class members and those of the class representative? Rather, the pertinent question is: Are the differences that do exist the type that leave the class representative with an insufficient personal stake in the adjudication of the class members' claims? Here, with one exception, we think not.

         Importantly, the claims of the named plaintiffs parallel those of the putative class members in the sense that, assuming a proper class is certified, success on the claim under one state's law will more or less dictate success under another state's law. Even while arguing that there may be a few subtle differences in the attitudes of some state courts toward such claims, Warner concedes that the "parties do agree that Plaintiffs' liability theories as to monopolization are limited to a construction of state antitrust laws that parallel the federal Sherman Act." Under those parallel laws, all plaintiffs who were forced to pay a higher price in the absence of generic competition have a substantial and shared interest in proving that the higher price was the result of unlawful monopolizing conduct that is redressable by an award of damages. And the fact that judgments for some class members will nevertheless enter under the laws of states other than the states under which any of the class representatives' judgments will enter, where those laws are materially the same, has no relevant bearing on the personal stake of the named plaintiffs in litigating the case to secure such judgments. See Morrison v. YTB Int'l, Inc., 649 F.3d 533, 536 (7th Cir. 2011) (holding that a state law's limit to in-state events is an "application of choice-of-law principles [that] has nothing to do with standing" (emphasis in original)). Indeed, the fact that the judgments will enter under different statutes ...


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