United States District Court, E.D. New York
SERGEANTS BENEVOLENT ASSOCIATION HEALTH AND WELFARE FUND, et al., Plaintiffs,
SANOFI-AVENTIS U.S. LLP, et al., Defendants
Decided May 9, 2014
[Copyrighted Material Omitted]
For Sergeants Benevolent Association Health and Welfare Fund, Plaintiff: Christopher A. Seeger, LEAD ATTORNEY, Seeger Weiss, LLP, New York, NY; Douglas R Plymale, LEAD ATTORNEY, PRO HAC VICE, Murray Law Firm, New Orleans, LA; Scott A. George, LEAD ATTORNEY, PRO HAC VICE, Seeger Weiss LLP, Philadelphia, PA; Albert M. Myers, III, Kahn Swick & Foti, LLC, New Orleans, LA; David R. Buchanan, Seeger Weiss, LLP, New York, NY; James R Dugan, PRO HAC VICE, Murray Law Firm, New Orleans, LA; Justin Bloom, Justin Bloom, Esq., New York, NY; Lauren G. Barnes, Hagens Berman Sobol Shapiro, LLP, Cambridge, MA; Thomas M. Sobol, PRO HAC VICE, Hagens Berman Sobol Shapiro LLP, Cambridge, MA.
For New England Carpenters Health Benefits Fund, Plaintiff: Douglas R Plymale, LEAD ATTORNEY, PRO HAC VICE, Murray Law Firm, New Orleans, LA; Albert M. Myers, III, Kahn Swick & Foti, LLC, New Orleans, LA; Christopher A. Seeger, David R. Buchanan, Seeger Weiss, LLP, New York, NY; James R Dugan, PRO HAC VICE, Murray Law Firm, New Orleans, LA; Justin Bloom, Justin Bloom, Esq., New York, NY; Lauren G. Barnes, Hagens Berman Sobol Shapiro, LLP, Cambridge, MA; Scott A. George, PRO HAC VICE, Seeger Weiss LLP, Philadelphia, PA; Thomas M. Sobol, PRO HAC VICE, Hagens Berman Sobol Shapiro LLP, Cambridge, MA.
For Allied Services Division Welfare Fund, Plaintiff: Douglas R Plymale, LEAD ATTORNEY, PRO HAC VICE, Murray Law Firm, New Orleans, LA; Albert M. Myers, III, Kahn Swick & Foti, LLC, New Orleans, LA; Christopher A. Seeger, David R. Buchanan, Seeger Weiss, LLP, New York, NY; James R Dugan, PRO HAC VICE, Murray Law Firm, New Orleans, LA; Justin Bloom, Justin Bloom, Esq., New York, NY; Lauren G. Barnes, Thomas M. Sobol, PRO HAC VICE, Hagens Berman Sobol Shapiro LLP, Cambridge, MA; Scott A. George, PRO HAC VICE, Seeger Weiss LLP, Philadelphia, PA.
For State of Louisiana, Louisiana Department of Health and Hospital and on behalf of all others similarly situated, Plaintiff: Christopher A. Seeger, David R. Buchanan, Seeger Weiss, LLP, New York, NY; Douglas R Plymale, James R Dugan, PRO HAC VICE, Murray Law Firm, New Orleans, LA; Justin Bloom, Justin Bloom, Esq., New York, NY; Scott A. George, PRO HAC VICE, Seeger Weiss LLP, Philadelphia, PA.
For Citizens of the State of Louisiana, Plaintiff: Christopher A. Seeger, David R. Buchanan, Seeger Weiss, LLP, New York, NY; Douglas R Plymale, James R Dugan, PRO HAC VICE, Murray Law Firm, New Orleans, LA; Justin Bloom, Justin Bloom, Esq., New York, NY; Scott A. George, PRO HAC VICE, Seeger Weiss LLP, Philadelphia, PA; Thomas M. Sobol, PRO HAC VICE, Hagens Berman Sobol Shapiro LLP, Cambridge, MA.
For Sanofi-Aventis U.S. LLP, Sanofi-Aventis U.S., Inc., Defendants: Alison A. Grounds, Amanda Rachel Gaynor, Dominic Kouffman, Troutman Sanders LLP, New York, NY; Lindsey B. Mann, Lynette E. Smith, William N. Withrow, Troutman Sanders LLP, Atlanta, GA; Stephen George Rinehart, Jenkens & Gilchrist Parker Chapin LLP, New York, NY.
MEMORANDUM AND ORDER
SANDRA L. TOWNES, United States District Judge.
In January 2008, plaintiffs Sergeants Benevolent Association Health and Welfare Fund (" SBA" ), New England Carpenters Health Benefits Fund (" NEC" ) and Allied Services Division Welfare Fund (" ASD" ) (collectively " Plaintiffs" ) and others commenced this action on behalf of themselves and others similarly situated, principally alleging that defendants sanofi-aventis U.S. LLP and sanofi-aventis U.S., Inc. (collectively, " Defendants" ) violated the Racketeer Influenced and Corrupt Organizations Act " (RICO" ), 18 U.S.C. § 1961 et seq., and various state laws by misrepresenting the safety and efficacy of Ketek, a prescription antibiotic marketed by Defendants. In December 2011--after this Court denied Plaintiffs' motion to certify a nationwide class--Defendants moved for summary judgment. By order dated January 4, 2012, this Court referred the motion to Magistrate Judge Ramon E. Reyes (" Judge Reyes" ) for a report and recommendation.
On September 17, 2012, Judge Reyes issued his report and recommendation (the " R& R" )-- Sergeants Benevolent Ass'n Health & Welfare Fund v. Sanofi-Aventis U.S., LLP, No. 08-CV-0179 (SLT) (RER), 2012 WL 4336218 (E.D.N.Y. Sept. 17, 2012) (" Sergeants III" )--which recommends that Defendants' motion for summary judgment be granted in its entirety. On October 4, 2012, Plaintiffs collectively filed objections to almost every aspect of the R& R. For the reasons set forth below, this Court, having conducted a de novo review of those portions of the R& R to which Plaintiffs object, now adopts Judge Reyes' R& R except to the extent that it recommends limiting Plaintiffs' cause of action for violations of various consumer protection statutes to claims brought pursuant to the laws of Plaintiffs' home states of New York, Massachusetts and Illinois. However, Defendants are granted leave to file a second motion for summary judgment once Plaintiffs clarify the scope of their state-law claims under Counts III and IV of the Second Amended Complaint.
In setting forth the facts of this case, the R& R incorporates by reference a much more detailed statement of facts contained in Judge Reyes' report and recommendation on Plaintiffs' motion for class certification (the " Prior R& R" ): Sergeants Benev. Ass'n Health & Welfare Fund v. Sanofi-Avenlis US, LLP, No. 08-CV-0179 (SLT) (RER), 2011 WL 824607 (E.D.N.Y. Feb. 16, 2011) (" Sergeants I " ), adopted, 2011 WL 1326365 (E.D.N.Y. Mar. 30, 2011) (" Sergeants II " ). The Prior R& R itself largely relied on facts set forth in Plaintiffs' Second Amended Complaint and Plaintiffs' Proffer of Facts in Support of the Motion for Class Certification (" Plaintiffs' Proffer" ).
The following summary of the facts in this case relies, in part, on the Prior R& R. As indicated by the citations contained in the Prior R& R, not all of these facts may be undisputed. However, to the extent that the facts are disputed, the following summary is based on Plaintiffs' version of events.
Defendants are United States subsidiaries of sanofi-aventis SA, a French pharmaceutical firm (Sec. Am. Complt., ¶ ¶ 5-6; Answer, ¶ ¶ 5-6). According to Defendants, the corporation named by Plaintiffs as Sanofi-Aventis U.S., Inc. is actually named sanofi-aventis U.S. Inc. and is not a proper party to this action (Answer, p. 2); the entity named by Plaintiffs as Sanofi-Aventis U.S., LLP, is actually a limited liability company, sanofi-aventis U.S. LLC ( id., at 1); and some of the acts which Plaintiffs attribute to Defendants were actually committed by a related entity, Aventis Pharmaceutical, Inc. (" API" ) ( see id., ¶ ¶ 5, 14-16). For purposes of this memorandum and order, this Court will attribute acts and omissions on the part of one or more of these related entities to Defendants so as to avoid unnecessary complexity.
Sometime prior to March 2000, Defendants developed a prescription antibiotic, telithromycin, which was marketed under the brand name Ketek (Sec. Am. Complt., ¶ 10; Answer, ¶ 10). Early in 2000, Defendants submitted a New Drug Application (" NDA" ) to the Office of New Drugs at the United States Food and Drug Administration (" FDA" ), seeking approval to sell Ketek in the United States (Sec. Am. Complt., ¶ 12; Answer, ¶ 12). That NDA sought to have Ketek approved for the treatment of four specific conditions or " indications" : acute bacterial sinusitis (" ABS" ), acute exacerbation of chronic bronchitis (" AECB" ), community-acquired pneumonia (" CAP" ), and tonsillopharyngitis ( id.).
In June 2001, the FDA determined that it would not approve Ketek for treatment of tonsillopharyngitis and would only approve Ketek for the treatment of the other three indications if Defendants provided more evidence of Ketek's safety and efficacy ( Sergeants I, 2011 WL 824607, at *1 (citing Plaintiffs' Proffer at 28)). To provide this evidence, Defendants commissioned a large clincal study known as " Study 3014" (Sec. Am. Complt., ¶ 14; Answer, ¶ 14). Defendants hired Pharmaceutical Product Development, Inc. (" PPD" ), a contract research organization, to monitor the study and contracted with another entity, The Copernicus Group, Inc. (" Copernicus" ), to monitor patient safety ( Sergeants I, 2011 WL 824607, at *2).
Early in the course of its evaluation, PPD raised concerns regarding the integrity of data collected by the office of Dr. Marie Anne Kirkman Campbell, a physician who treated the largest number of patients in the study ( Sergeants I, 2011 WL 824607, at *2 (citing Plaintiffs' Proffer at 31)). Thereafter, the FDA's Office of Criminal Investigation (" the OCI" ) determined that there had been misconduct and protocol violations at several other sites with high patient enrollment ( id. (citing Plaintiffs' Proffer at 38-39)). However, after the FDA again declined to approve Ketek and requested more information regarding Study 3014, Defendants issued a report that, Plaintiffs claim, not only omitted any mention of the study's problems but falsely represented that the study had been conducted in accordance with good clinical practice ( id. (citing Sec. Am. Complt., ¶ 26)). According to Plaintiffs, Defendants also claimed Ketek's safety and efficacy profile matched that of other antibiotics, even though they (i) knew " that Study 3014 actually showed that Ketek
was almost three times more likely to result in a possibly medication-related, serious adverse event; (ii) knew that Ketek was neither more efficacious nor as safe as widely available alternatives; and (iii) knew that claims that Ketek did better against antibiotic resistant pathogens were not scientifically supported" ( id. (citing Plaintiffs' Memorandum In Support Of Class Certification at 3, nn. 10-14)).
In April 2004, after receiving Defendants' report, the FDA approved Ketek for three indications: ABS, AECB and CAP (Defendants' Statement of Undisputed Material Facts in Support of their Motion for Summary Judgment (" Defendants' 56.1" ), ¶ 1; Plaintiffs' Response to Defendants' Local Rule 56.1 Statement of Undisputed Facts (" Plaintiffs' 56.1" ), ¶ 1). Immediately thereafter, Defendants launched a marketing campaign, seeking to have Ketek prescribed for " off-label" uses in addition to the three indications for which it was approved ( Sergeants I, 2011 WL 824607, at *3). The parties agree that physicians are legally permitted to prescribe Ketek for an indication for which it was never approved, and that physicians frequently did so (Defendants' 56.1, ¶ 50; Plaintiffs' 56.1, ¶ 50).
That marketing campaign, which was aimed at physicians and other members of the healthcare community, initially proved successful. According to the Prior R& R, Ketek was prescribed over 3 million times in 2005 and had been prescribed over 6.1 million times by 2006 ( Sergeants I, 2011 WL 824607, at *3). However, Ketek sales began to decline in January 2006 after the FDA released a public health advisory that warned physicians to monitor Ketek patients for potential liver problems ( id.). In June 2006, after " [twenty-three] cases of acute severe liver injury and [twelve] cases of acute liver failure, [four] of them fatal, had been linked to Ketek," Defendants changed Ketek's label to include additional warnings, precautions, contraindications, and adverse reactions pursuant to FDA requirements and sent letters to healthcare professionals about these risks ( id. (citing Plaintiffs' Proffer at 81) (brackets in Sergeants I )). In early February 2007, after Ketek had been " implicated in [fifty-three] cases of hepatotoxic effects" ( id. (brackets in Sergeants I )), the FDA withdrew its approval for two indications: ABS and AECB (Defendants' 56.1, ¶ 3; Plaintiffs' 56.1, ¶ 3). Even though Ketek remained an FDA-approved drug for the treatment of CAP, Defendants thereafter ceased actively promoting Ketek in the United States (Defendants' 56.1, ¶ ¶ 4-5; Plaintiffs' 56.1, ¶ ¶ 4-5).
The Plaintiffs Herein
Plaintiffs are health benefit providers (" HBPs" ), which provide health care benefits, including prescription drug benefits, to their members or beneficiaries. SBA, which has its principal place of business in New York, is a not-for-profit benefit fund, established and maintained to provide comprehensive health care benefits to active and retired sergeants of the New York City Police Department and their dependents (Sec. Am. Complt. at ¶ 2; Defendants' 56.1, ¶ 8; Plaintiffs' 56.1, ¶ 8). NEC has its principal place of business in Massachusetts and is an employee welfare benefit plan, as defined in section 3(1) of the Employee Retirement Income Security Act (" ERISA" ), 29 U.S.C. § 1002(1) (Sec. Am. Complt. at ¶ 3; Defendants' 56.1, ¶ 9; Plaintiffs' 56.1, ¶ 9). ASD, which has its principal place of business in Illinois, is a multiemployer employee welfare benefit plan, within the meaning of section 3(37) of ERISA, 29 U.S.C. § 1002(37)(Sec. Am. Complt. at ¶ 4; Defendants' 56.1, ¶ 10; Plaintiffs' 56.1, ¶ 10).
Plaintiffs and other HBPs are also called third-party payers or " TPPs" because they pay certain medical costs on behalf of their
members. However, the decision regarding what medications will be prescribed for Plaintiffs' members is made by the members' physicians. The parties agree that a variety of factors contribute to a physician's decision, including patient-specific factors and the physician's own experience with, and knowledge about, the various options (Defendants' 56.1, ¶ ¶ 38-41; Plaintiffs' 56.1, ¶ ¶ 38-41). Plaintiffs maintain that safety is " paramount" concern which impacts every prescription decision (Plaintiffs' 56.1, ¶ ¶ 38-41), but neither Plaintiffs nor Defendants maintain that safety is the sole determinant. Plaintiffs and Defendants agree that Ketek has competitors, some of which are more expensive than Ketek and some of which are lower-priced generics (Defendants' 56.1, ¶ 48; Plaintiffs' 56.1, ¶ 48). In addition, the parties agree that those physicians who elect not to prescribe Ketek for AECB and ABS are likely to prescribe one of these competing antibiotics (Defendants' 56.1, ¶ 47; Plaintiffs' 56.1, ¶ 47).
The prescription drug benefits offered by Plaintiffs are administered by Pharmacy Benefit Managers (" PBMs" ). In addition, at least one of the Plaintiffs--NEC--has delegated to a PBM the decision regarding what medications to include in the " formulary" --the list of drugs for which the TPP will pay (Defendants' 56.1, ¶ 13; Plaintiffs' 56.1, ¶ 13). PBMs typically use Pharmacy and Therapeutics (" P& T" ) Committees comprised of pharmacists, physicians and other healthcare professionals to determine what medications to include (Defendants' 56.1, ¶ 14; Plaintiffs' 56.1, ¶ 14). If a particular drug is prescribed for a plan's participant and is included in a plan's formulary, the HBP pays for that prescription in an amount determined by the formulary.
While Plaintiffs all included Ketek in their formularies at the time relevant to this action, not all Plaintiffs employed the same type of formulary or provided the same extent of coverage. Two of the three Plaintiffs in this case--NEC and ASD--employed a " three tiered formulary," in which a beneficiary's co-payment for a particular drug depends on the tier in which that drug is placed (Defendants' 56.1, ¶ 24; Plaintiffs' 56.1, ¶ 24). The first tier, in which co-payments are the lowest, typically includes generic drugs (Defendants' 56.1, ¶ 23; Plaintiffs' 56.1, ¶ 23). The second tier typically includes preferred brand-name drugs and the third tier includes non-preferred brand-name drugs ( id.). The third Plaintiff, SBA, did not employ a tiered formulary (Defendants' 56.1, ¶ 25; Plaintiffs' 56.1, ¶ 25).
The degree to which Plaintiffs covered prescriptions for Ketek is unclear. The parties agree that, between 2002 and 2008, Sav-Rx provided formulary services to ASD-(Defendants' 56.1, ¶ 26; Plaintiffs' 56.1, ¶ 26). However, the corporate representative provided by ASD during discovery did not know the tier in which Ketek appeared, or whether Ketek had been moved from one tier to another during the time in which Sav-Rx served as PBM (Defendants' 56.1, ¶ 27; Plaintiffs' 56.1, ¶ 27). ASD switched to another PBM in 2008, which listed Ketek in Tier 2 as of March 2010 (Defendants' 56.1, ¶ ¶ 28-29; Plaintiffs' 56.1, ¶ ¶ 28-29).
NEC has employed at least two different PBMs since June 1, 2004 (Defendants' 56.1, ¶ 31; Plaintiffs' 56.1, ¶ 31). Although Ketek has always remained a covered drug under NEC's plan, it was apparently moved to Tier 3--the tier with the highest co-payment--at some point in December 2006 (Defendants' 56.1, ¶ 32; Plaintiffs' 56.1, ¶ 32).
In contrast, the parties agree that SBA's coverage of Ketek has remained the same since the drug was approved by the FDA
in 2005 (Defendants' 56.1, ¶ 30; Plaintiffs' 56.1, ¶ 30). However, the parties disagree about the degree of coverage. Defendants maintain that SBA's formulary covered all FDA-approved drugs and did not distinguish between preferred, non-preferred and generic drugs (Defendants' 56.1, ¶ 25). In contrast, Plaintiffs maintain that, at all relevant times, SBA employed a " mandatory generic program" to " promote the use of cost-effective generic alternatives" (Plaintiffs' 56.1, ¶ 25). However, SBA did not cease paying for brand-name drugs that have a generic equivalent until January 1, 2009 ( Id.).
The Instant Action
The three Plaintiffs and Louisiana Attorney General Charles C. Foti, Jr.--acting in his official capacity and on behalf of, inter alia, the Louisiana Department of Health and Hospitals--commenced this action against Defendants on January 14, 2008. The original complaint sought to bring a class action pursuant to Rule 23 of the Federal Rules of Civil Procedure on behalf of " a class of consumers and third-party payors that have paid or incurred costs for ... Ketex" (Complaint at ¶ 2). In an amended complaint filed approximately two weeks later, the proposed class was amended to omit " consumers." The amended complaint identified the class that Plaintiffs sought to represent as " consisting of all health insurance companies, third-party administrators, health maintenance organizations, self-funded health and welfare benefit plans, third-party payers and any other health benefit provider, including governmental entities, which paid or incurred costs for ... Ketex" (Am. Complt., ¶ 1).
The original complaint and the amended complaint both alleged that this Court had subject-matter pursuant to 28 U.S.C. § 1332(d)(2), which provides for original jurisdiction over class actions in which the matter in controversy exceeds $5 million and " any member of a class of plaintiffs is a citizen of a State different from any defendant" (Complt., ¶ 9; Am. Complt. at ¶ 9). The amended complaint raised only two causes of action or " counts," both of which were based on violations of state law. The first cause of action alleged that Defendants engaged in unfair competition or unfair or deceptive acts or practices in violation of various state consumer protection statutes, including laws of New York, Massachusetts and Illinois--the States in which Plaintiffs are based. The second cause of action alleged unjust enrichment.
On May 21, 2008, Attorney General Foti filed a notice of voluntary dismissal, dismissing the Louisiana plaintiffs' claims against Defendants without prejudice. About two weeks later, Plaintiffs filed a Second Amended Complaint. That pleading not only deleted all references to the Louisiana defendants but also added two RICO claims: one count alleging a substantive violation of 18 U.S.C. § 1962(c), and a second count alleging a RICO conspiracy in violation of 18 U.S.C. § 1962(d).
The substantive RICO claim alleges that the " association-in-fact" between Defendants, PPD, and Copernicus constituted a criminal enterprise, which Plaintiffs dub the " study 3014 Enterprise." According to Plaintiffs, the members of the criminal enterprise had " a common purpose--to enable Sanofi-Aventis to fraudulently represent that Ketek had valid regulatory approval for broad antibiotic uses" (Sec. Am. Complt., ¶ 74). To that end, they participated in a criminal scheme " calculated to ensure that Ketek was approved, and approved for as many indications as possible, despite the lack of adequate safety studies, the lack of superior efficacy and inferior safety profile compared to other safer, less expensive antibiotics already sold in the U.S. market" ( Id. at ¶ 80). In furtherance
of the scheme, Defendants allegedly " conducted and participated in the affairs of the study 3014 Enterprise through patterns of racketeering activity," including " acts indictable under 18 U.S.C. § 1341 (mail fraud), § 1343 (wire fraud), § 1512 (tampering with witnesses), and § 1952 (use of interstate facilities to conduct unlawful activity)" (Sec. Am. Complt., ¶ 77) (parentheses in original).
The RICO conspiracy claim alleges that the Defendants violated 18 U.S.C. § 1962(d) by conspiring to violate § 1962(c) in the manner described above. According to the Second Amended Complaint, the " object of this conspiracy was and is to conduct or participate in, directly or indirectly, the conduct of affairs of the study 3014 Enterprise ... through a pattern of racketeering activity" (Sec. Am. Complt., ¶ 88). In furtherance of the conspiracy, Defendants allegedly committed numerous overt acts, including " (a) [m]ultiple instances of mail and wire fraud violations of 18 U.S.C. § § 1341 and 1342; (b) [m]ultiple instances of mail fraud violations of 18 U.S.C. § § 1341 and 1346; (c) [m]ultiple instances of wire fraud violations of 18 U.S.C. § § 1341 and 1346; and (d) [m]ultiple instances of unlawful activity in violation of 18 U.S.C. § 1952 (Sec. Am. Complt., ¶ 92) (parentheses and brackets added).
In May 2010, Plaintiffs moved to certify a class including all TPPs which paid or incurred costs for Ketek between April 1, 2004, and February 12, 2007. This Court referred the motion to Judge Reyes for a report and recommendation. On February 16, 2011, Judge Reyes issued the Prior R& R-- Sergeants I --recommending that class certification be denied because Plaintiffs could not establish through generalized proof that Defendants' alleged RICO violations caused Plaintiffs' alleged injuries. In reaching that determination, Judge Reyes principally relied on UFCW Local 1776 v. Eli Lilly & Co., 620 F.3d 121 (2d Cir. 2010) (" Zyprexa " )--a case which had been decided approximately six months before Judge Reyes issued his Prior R& R.
Plaintiffs timely objected to portions of the Prior R& R. However, in a memorandum and order dated March 30, 2011-- Sergeants II --this Court concluded that those objections were without merit and adopted the Prior R& R in its entirety. Plaintiffs then petitioned the Second Circuit Court of Appeals for leave to appeal this Court's order on class certification, but that petition was denied on July 28, 2011, on the ground that immediate appeal was unwarranted.
Defendants' Motion for Summary Judgment
On December 22, 2011, Defendants moved for summary judgment with respect to all four causes of action or " counts" listed in the Second Amended Complaint. Defendants' motion essentially consists of two parts, which are discussed separately and in some detail in the Discussion section below. First, Defendants argue that the RICO claims set forth in Counts I and II fail as a matter of law because Plaintiffs cannot prove causation under RICO and cannot establish that they themselves suffered any injury as result of the alleged RICO violations. Second, Defendants argue that Plaintiffs' state-law claims fail as a matter of law because Plaintiffs cannot prove a violation of any of the state consumer protections statutes listed in Count III of the Second Amended Complaint and cannot make out unjust enrichment under New York, Massachusetts or Illinois law.
On January 4, 2012, the Court referred Defendants' motion for summary judgment to Judge Reyes for a report and recommendation. On September 17, 2012, Judge Reyes issued the R& R-- Sergeants III --
in which he recommends that Defendants' motion be granted in its entirety. On October 4, 2012, Plaintiffs collectively filed objections to the R& R, specifically addressing almost every portion of the R& R. Judge Reyes' recommendations with respect to each portion of Defendants' motion and Plaintiffs' objections thereto are discussed below.
I. Standards of Review
In reviewing a plaintiff's objection to a report and recommendation issued by a magistrate judge, the district court applies the standard of review set forth in 28 U.S.C. § 636(b)(1) and Rule 72(b)(3) of the Federal Rules of Civil Procedure. Under both provisions, a district court is to " make a de novo determination of those portions of the report or specified proposed findings or recommendations to which objection is made." 28 U.S.C. § 636(b)(1); accord Fed.R.Civ.P. 72(b)(3). Upon de novo review, the district court " may accept, reject, or modify, in whole or in part, the findings or recommendations made by the magistrate judge." 28 U.S.C § 636(b)(1). A district court, however, is not required to review the factual or legal conclusions of the magistrate judge as to those portions of a report and recommendation to which no objections are addressed. See Thomas v. Arn, 474 U.S. 140, 150, 106 S.Ct. 466, 88 L.Ed.2d 435 (1985).
In conducting de novo review of those portions of the R& R which recommend granting summary judgment, this Court is mindful that summary judgment is appropriate only when " there is no genuine issue as to any material fact and the movant party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(a); see Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). " [G]enuineness runs to whether disputed factual issues can reasonably be resolved in favor of either party, [while] materiality runs to whether the dispute matters, i.e., whether it concerns facts that can affect the outcome under the applicable substantive law." Mitchell v. Washingtonville Cent. Sch. Dist., 190 F.3d 1, 5 (2d Cir. 1999) (internal quotation marks omitted; brackets added).
The moving party bears the burden of showing that there is no genuine issue of fact. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). If the movant meets this burden, the non-movant must set forth specific facts showing that there is a genuine issue for trial. Western World Ins. Co. v. Stack Oil, Inc., 922 F.2d 118, 121 (2d Cir. 1990); see Fed.R.Civ.P. 56(e). The non-movant cannot avoid summary judgment " through mere speculation or conjecture" or " by vaguely asserting the existence of some unspecified disputed material facts." Western World, 922 F.2d at 121 (internal quotations and citations omitted), Moreover, the disputed facts must be material to the issue in the case, in that they " might affect the outcome of the suit under the governing law." Anderson, 477 U.S. at 248.
When evaluating a motion for summary judgment, " [t]he court must view the evidence in the light most favorable to the party against whom summary judgment is sought and must draw all reasonable inferences in his favor." L.B. Foster Co. v. Am. Piles, Inc., 138 F.3d 81, 87 (2d Cir. 1998) (citing Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986)). " No genuine issue exists if, on the basis of all the pleadings, affidavits and other papers on file, and after drawing all inferences and resolving all ambiguities in favor of the non-movant, it appears that the evidence supporting the non-movant's case is
so scant that a rational jury could not find in its favor." Chertkova v. Conn. Gen. Life Ins. Co., 92 F.3d 81, 86 (2d Cir. 1996). " If the evidence [presented by the non-moving party] is merely colorable, or is not significantly probative, summary judgment may be granted." Scotto v. Almenas, 143 F.3d 105, 114 (2d Cir. 1998) (quoting Liberty Lobby, 477 U.S. at 249-50) (brackets in Scotto).
II. The RICO Claims
A. Defendants' Motion for Summary Judgment on Counts I and II
In the first portion of their motion for summary judgment, Defendants focus primarily on causation, one of the elements of a RICO claim. Defendants note that, in order to prove this element, Plaintiffs must prove that the predicate acts underlying the RICO violations alleged in Counts I and II of the Second Amended Complaint were both the but-for cause and proximate cause of an injury to Plaintiffs. Defendants' Memorandum of Law in Support of their Motion for Summary Judgment (" Defendants" Memo" ) at 9. Citing to Zyprexa, Defendants argue that Plaintiffs cannot prove but-for causation through generalized proof, since the individual physicians' decisions to prescribe Ketek for Plaintiffs' beneficiaries were based on many factors and not solely on Plaintiffs' exaggerated claims regarding Ketek's safety and efficacy. Id. at 10. Defendants maintain that " for each Ketek prescription that allegedly caused Plaintiffs injury," Plaintiffs have to prove that the " physician would not have prescribed Ketek but for the Defendants' alleged fraud." Id. at 11.
In addition, Defendants argue that Plaintiffs cannot establish proximate causation through generalized proof. Defendants note that a member's physician's decision to prescribe Ketek would not result in injury to a Plaintiff unless Ketek was included in that Plaintiffs' formulary. Id. at 12. Defendants assert that " to prove RICO causation, Plaintiffs must ... prove that Defendants' alleged fraud caused the P& T Committees to approve the use and reimbursement of Ketek in a manner that was different from what would have occurred absent Defendants' alleged fraud" and " prove that the P& T Committees' decisions that were based on Defendants['] alleged fraud actually resulted in Plaintiffs paying for more Ketek prescriptions than they otherwise would have." Id. at 12-13. Defendants then argue that there is no evidence to prove that Plaintiffs' PBMs relied on Defendants' alleged fraud in making formulary decisions regarding Ketek and that generalized proof on this issue will not suffice. Id. at 13-15.
Finally, Defendants contend that Plaintiffs cannot establish that they were injured as a result of the RICO violations unless " they can prove that they made a prescription drug payment that they would not have made absent Defendants' alleged fraud." Id. at 17. Defendants note that " [i]t is undisputed that, had physicians not prescribed Ketek for AECB and ABS, they likely would have prescribed some other antibiotic," id., and that " Plaintiffs admit that several of the alternative[s] ... were more expensive than Ketek." Id. at 18. Again relying on Zyprexa, Defendants assert that Plaintiffs cannot prove by common evidence what antibiotic would have been prescribed in lieu of Ketek. Defendants note that Plaintiffs do not offer any individualized proof, but instead assume that " every prescription for a non-CAP indication caused the class members injury in an amount equal to the amounts they paid for the Ketek prescriptions." Id. (emphasis in original).
B. Plaintiffs' Opposition
In their Opposition to Defendants' Motion for Summary
(" Plaintiffs' Opposition" ), Plaintiffs acknowledge that, in order to establish RICO causation, Plaintiffs must establish a " sufficiently direct" relationship between Defendants' alleged RICO violations and Plaintiffs' alleged injury. Plaintiffs' Opposition at 10. However, Plaintiffs maintain that, despite the presence of other factors in the causal chain, a sufficiently direct relationship may exist " so long as the plaintiff's injury was 'a foreseeable and natural consequence of the defendant's misconduct." Id. (citing Bridge v. Phoenix Bond & Indem. Co., 553 U.S. 639, 658, 128 S.Ct. 2131, 170 L.Ed.2d 1012 (2008)). Plaintiffs emphasize that Bridge and other Supreme Court cases establish that plaintiffs need not prove that they themselves relied on Defendants' misrepresentations in order to make out RICO causation. Id. at 11.
Plaintiffs assert that Zyprexa --the Second Circuit case on which Defendants rely and on which Judge Reyes relied in recommending that this Court deny Plaintiffs' motion for class certification--was incorrectly decided. Specifically, Plaintiffs assert that the Second Circuit " misreads" Hemi Group LLC v. City of New York, 559 U.S. 1 (2010), 130 S.Ct. 983, 175 L.Ed.2d 943--the most recent of the Supreme Court's four opinions on RICO causation--in holding that a physician's prescribing decision interrupted the causal chain between a pharmaceutical company's misrepresentations and a TPPs injuries. Plaintiffs' Opposition at 14. Plaintiffs read Zyprexa as holding that " independent actions" of third or fourth parties render the relationship between the company's wrongdoing and the TPPs' injuries insufficiently direct, and assert that Hemi Group held only that " there is no proximate cause when those non-party actions are 'independent' of the RICO scheme." Plaintiffs' Opposition at 14. Plaintiffs assert that this case is analogous to Desiano v. Warner-Lambert Co., 326 F.3d 339 (2d Cir. 2003), and BCS Services, Inc. v. Heartwood 88, LLC, 637 F.3d 750 (7th Cir. 2011)--cases in which courts found RICO causation under facts which, Plaintiffs assert, are similar to the facts herein. Plaintiffs' Opposition at 15.
Plaintiffs concede that physicians may consider individual factors in determining what medication to prescribe, but argue safety considerations lie at the " heart of every prescription decision." Plaintiffs' Opposition at 17. Plaintiffs reason that Defendants' " omission of critical health risk information necessarily affected, and was a substantial contributing factor for, every prescription decision by a physician as well as Plaintiffs' coverage and payment decisions." Id. at 18. Plaintiffs do not specifically address Defendants' claims that Plaintiffs have failed to prove that Defendants' alleged misconduct affected the PBMs' decision making, arguing that " [w]here Ketek existed on Plaintiffs' formularies is irrelevant." Id. at 16 (brackets added). Plaintiffs argue that what is relevant is that " Plaintiffs paid for Ketek prescriptions that would not have been written but for [Defendants'] fraud." Id. (brackets added). In support of the latter proposition, Plaintiffs cite to testimony from their expert, Dr. Meredith Rosenthal, for the proposition that " the most important factor [is] that [Ketek] went from a blockbuster drug within eighteen months to virtually zero." Id. at 17 (brackets in original). Plaintiffs note that their own experiences also support this proposition, noting that SEA paid for nearly 1,000 Ketek prescriptions between 2004 and the end of 2006, 24 prescriptions in 2007, and no prescriptions at all in 2008. Id.
C. Judge Reyes' Recommendations
In his R& R, Judge Reyes concludes that " Plaintiffs' RICO claims fail as a matter of law" because Plaintiffs cannot
establish causation, an essential element of such claims. Sergeants III, 2012 WL 4336218, at *4. Quoting Zyprexa, Judge Reyes notes that in order to make out a RICO claim, a plaintiff must establish, inter alia,
that the RICO violation was the proximate cause of plaintiff's injury. In the
Civil RICO context, proximate causation requires a " direct relationship between
the plaintiff's injury and the defendant's injurious conduct." Id. at *3 (quoting Zyprexa, 620 F.3d at 132). However, Judge Reyes holds that, in this case as in Zyprexa, " 'the independent actions of prescribing physicians' interrupt the causal relationship between the predicate act and Plaintiffs' harm, thereby 'thwart[ing] any attempt to show proximate cause through generalized proof.'" Id. (quoting Zyprexa, 620 F.3d at 135) (brackets in Sergeants III ). Construing Zyprexa as " recogniz[ing]
that prescribing decisions are based, to varying degrees, on factors independent
of the alleged misrepresentation," Id. at *4, Judge Reyes concludes that individualized proof is required to show proximate cause under RICO and that " Plaintiffs' generalized proof is insufficient." Id.
The R& R specifically addresses some of Plaintiffs'
arguments in opposition to summary judgment. First, Judge Reyes rejects
Plaintiffs' contention that " a party who suffers an injury that is a
'foreseeable and natural result' of a defendant's conduct may satisfy RICO
causation even where intervening factors are present." Id. at *3. Judge Reyes notes that the Supreme Court has emphasized that " in the RICO context, the focus is on the directness of the relationship between the conduct and the harm," rather than on foreseeability. Id. (quoting Hemi Group, 559 U.S. at 12). Second, Judge Reyes responds to Plaintiffs' assertion that Zyprexa " misreads" the Supreme Court's decision in Hemi Group by noting that " district courts are bound 'to follow controlling precedents of the courts of appeals for their circuits.'" Id. (quoting Jackson v. Good Shepherd Servs., 683 F.Supp.2d 290, 292 (S.D.N.Y.
2009)). Third, in response to Plaintiffs' argument that " Defendants' alleged
omission of critical health information necessarily affected every physician's
prescribing decision because physicians always consider safety in making
treatment decisions," Id. at *4, the magistrate judge notes that " [a]lthough safety may be a fundamental consideration in a physician's prescription ...