UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK
November 26, 2007
IN RE: REZULIN PRODUCTS LIABILITY LITIGATION
The opinion of the court was delivered by: Lewis A. Kaplan, District Judge.
(MDL No. 1348)
This Document Relates to: 05 Civ. 8397
This action was brought by Charles A. Foti, Jr., in his official capacity as the Attorney General of the State of Louisiana and as parens patriae on behalf of Louisiana and its citizens, the State of Louisiana, and the Louisiana Department of Health and Hospitals ("LDHH"). The matter is before the Court on the motion of defendants Warner-Lambert Company LLC and Pfizer Inc. for summary judgment dismissing the complaint.
Plaintiff here seeks to recover amounts paid to fill Rezulin prescriptions for Louisiana Medicaid recipients and to treat their illnesses allegedly caused by Rezulin. Their claims are premised on their allegations that Louisiana would not have paid for Rezulin prescriptions filled by Medicaid recipients had it known information that allegedly was withheld or misrepresented by Warner-Lambert and that Louisiana Medicaid recipients would not have used the drug had the State not paid for it. The facts pertinent to this motion, however, are undisputed.*fn1 As they all relate to the legal framework of the Medicaid program, they are discussed below.
Louisiana's Legal Obligation to Pay for Rezulin Federal statutory provisions regulating Medicaid govern what can be included in or excluded from State Medicaid formularies. They also mandate the medications for which Louisiana is required to pay and the exclusive circumstances under which it could refuse such payment. Under those provisions and Louisiana statutes enacted to implement them, the State of Louisiana was required to pay to fill Rezulin prescriptions for Louisiana Medicaid recipients.
Medicaid is a federal program established in 1965 as part of the Social Security Act to provide medical assistance, including the cost of prescription drugs, to low-income individuals and their families by authorizing federal grants to States to accomplish that purpose.*fn2 To participate in the Medicaid program and receive federal funding, States must comply with a comprehensive federal statutory and regulatory scheme.*fn3
Under 42 C.F.R. § 431.10(b), States must provide the federal government with a detailed plan of operation that, among other things, specifies "a single State agency established or designated to administer or supervise the administration of the [Medicaid] plan." Louisiana has designated LDHH to administer the Medicaid program in Louisiana.
The LDHH was created in 1988 to "be responsible for the development and providing of health and medical services for the prevention of disease for the citizens of Louisiana" and to provide "health and medical services for the uninsured and medically indigent citizens of Louisiana."*fn4 In Louisiana, the LDHH is the sole agency designated to administer the Medicaid program. The program is directed by the Secretary of the LDHH.*fn5
The Social Security Act has a detailed statutory and regulatory framework that sets forth specific requirements for Medicaid programs, such as that administered by the LDHH, which received federal funding. Under federal law, a "covered outpatient drug" is one "which may be dispensed only upon prescription" and "which is approved for safety and effectiveness as a prescription drug" under the Federal Food, Drug and Cosmetic Act the "FDCA").*fn6 At all times, while it was marketed, Rezulin was a prescription drug that was approved as safe and effective for the treatment of Type II diabetes by the FDA under the FDCA.*fn7 Thus, Rezulin was a "covered outpatient drug."
Federal law expressly limits a State's ability not to pay for "covered outpatient drugs" under the Medicaid programs.*fn8 Under federal law, a "State may establish a formulary if the formulary meets" certain specified requirements.*fn9 Among those requirements is that the formulary must "[i]nclude the covered outpatient drugs of any manufacturer which has entered into and complies" with a rebate agreement with the Secretary of Health and Human Services.*fn10 To have its drugs qualify for Medicaid reimbursement, federal law requires that a manufacturer enter into a "rebate agreement" with the Secretary of Health and Human Services pursuant to which the manufacturer pays rebates in statutorily mandated amounts to States based on Medicaid sales of its covered outpatient drugs.*fn11 At all times while Rezulin was marketed, Warner-Lambert was a party to a "rebate agreement" with the Secretary of Health and Human Services,*fn12 which made Rezulin eligible for medicaid reimbursement.
Rezulin was withdrawn from the market in the United States on March 21, 2000.*fn13
Prior to June 13, 2001, however, the applicable Louisiana statute provided, in pertinent part, that:
"(2) The department shall provide reimbursement for any drug prescribed by a physician that, in his professional judgment and within the lawful scope of his practice, he considers appropriate for the diagnosis and treatment of the patient.
"(3) The department shall not establish a drug formulary that restricts by any prior or retroactive approval process a physician's ability to treat a patient with a prescription drug that has been approved and designated as safe and effective by the Food and Drug Administration . . . ."*fn14
Hence, the LDHH could not have had a restricted formulary, i.e., one that excluded Rezulin or other covered outpatient drugs, during any part of the period in which Rezulin was on the market. Nor could LDHH have refused payment for Rezulin because LDHH was prohibited from "establish[ing] a drug formulary that restricts by any prior or retroactive approval process a physician's ability to treat a patient with a prescription drug that has been approved and designated as safe and effective" by the FDA.*fn15 Reflective of the requirements of this statutory provision, the March 24, 2005 LDHH report to the Governor and the Legislature stated "prior to 2001 Louisiana had an open formulary law which required Medicaid reimbursement of all FDA approved legend drugs, with a few exemptions"*fn16 none of which is applicable here.*fn17 In sum, the State of Louisiana was required by federal and Louisiana law to pay pharmacies for the cost of Rezulin prescriptions for Medicaid recipients.
Louisiana's Fraud on the Market Theory
Plaintiffs sue entirely on Louisiana state law theories, all of which require proof of causation.*fn18 They therefore are obliged to adduce admissible evidence that, if credited, would be sufficient to permit a finding of proximate cause. They argue that they are entitled to recover because defendants misled patients and the medical community concerning the safety and efficacy of Rezulin in consequence of which, they claim, Louisiana was called upon to reimburse for prescriptions that otherwise would not have been written at prices that otherwise could not have been charged. This, as defendants maintain, is "a quintessential fraud-on-the-market" theory.
The fraud-on-the-market theory is a creature of the federal securities laws. As the Second Circuit recognized not long ago, "courts repeatedly have refused to apply the fraud on the market theory to state common law cases despite its widespread acceptance in the federal securities fraud context."*fn19 Only this year, the New Jersey Supreme Court reversed a grant of class certification and rejected application of the fraud-on-the market theory in a suit relating to the ethical drug Vioxx in circumstances identical to those at Bar.*fn20 Other cases are to similar effect.*fn21 Plaintiffs have given the Court no reason to believe that Louisiana's Supreme Court would reach a different result.*fn22 Plaintiffs' reliance on two RICO decisions by Judge Weinstein*fn23 therefore is misplaced.*fn24
Finally, plaintiffs seek to draw comfort from the Second Circuit's decision in DeSiano v. Warner-Lambert Co.,*fn25 where it upheld the legal sufficiency of a complaint by health benefit plan providers ("HBPs"). But DeSiano made clear that it upheld the complaint because the HBP plaintiffs alleged that they themselves had been misled as purchasers of the drug:
"In the instant case, . . . Plaintiffs allege an injury directly to themselves; an injury, moreover, that is unaffected by whether any given patient who ingested Rezulin became ill. Plaintiffs' claim is that the Defendants' wrongful action was their misrepresentation of Rezulin's safety, and that this fraud directly caused economic loss to them [i.e., to the third-party payers] as purchasers, since they would not have bought Defendants' product, rather than available cheaper alternatives, had they not been misled by Defendants' misrepresentations. Thus the damages -- the excess money Plaintiffs paid Defendants for the Rezulin that they claim they would not have purchased 'but for' Defendants' fraud -- were in no way 'derivative of damage to a third party.'"*fn26
Here, in contrast, plaintiffs allege that they were injured because patients and the medical community were misled. The undisputed facts show that Louisiana allegedly was injured only because it was obligated by law to pay for the drugs prescribed for Medicaid recipients and not because Louisiana itself was deceived. DeSiano therefore has no bearing here.
The Claim of Inadequate Discovery
Plaintiffs resist summary judgment also on the ground that they have conducted no discovery in this case and refer also to FED. R. CIV. P. 56(f). These assertions are frivolous.
As an initial matter, plaintiffs served discovery requests which the defendants answered in August 2007. The responses brought to plaintiffs' attention the comprehensive discovery already conducted over a period of years by the Plaintiffs' Executive Committee. Plaintiffs to this day have not indicated any dissatisfaction with defendants' responses.*fn27
Even putting aside the inaccuracy of plaintiffs' claim that there has been no discovery, the fact remains that this case was docketed in this Court on September 28, 2005, over two years ago, pursuant to a Multidistrict Panel transfer. If in fact plaintiffs had conducted no discovery either prior or subsequent to the transfer, they would have had no one to blame but themselves. Their inaction cannot afford a basis for denying or deferring summary judgment.
Even more basically, this Circuit has made crystal clear the showing that is required under Rule 56(f) where a party seeks to avoid the entry of summary judgment on the ground that it believes that more discovery is necessary:
"[A] party resisting summary judgment on the ground that it needs discovery in order to defeat the motion must submit an affidavit showing '(1) what facts are sought [to resist the motion] and how they are to be obtained, (2) how those facts are reasonably expected to create a genuine issue of material fact, (3) what effort affiant has made to obtain them, and (4) why the affiant was unsuccessful in those efforts.'"*fn28
"Indeed, the failure to file such an affidavit is fatal to a claim . . . even if the party resisting the motion for summary judgment alluded to a claimed need for discovery in a memorandum of law."*fn29
Here, plaintiffs have submitted no Rule 56(f) affidavit. They have not shown what facts are sought to resist the motion and how they are to be obtained. They have made no effort to show how those facts might create a genuine issue of material fact. By their own admission, they have made no effort to obtain them. They have failed utterly to make the requisite showing.
For the foregoing reasons, defendants' motion for summary judgment dismissing the complaint [00 Civ. 2843 docket item 5030] is granted and the action dismissed.