Health Law Daily Provigil ‘pay-for-delay’ class action remanded for numerosity analysis
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Wednesday, September 14, 2016

Provigil ‘pay-for-delay’ class action remanded for numerosity analysis

By Greg Hammond, J.D.

In a pay-for-delay action concerning the prescription drug Provigil, the federal district court in Philadelphia erred in analyzing the numerosity factors for class certification when it considered the late stage of the litigation as relevant to the judicial economy factor and failed to properly consider the ability and motivation of the plaintiffs to proceed as joined, as opposed to individual, parties. The U.S. Court of Appeals in Philadelphia consequently remanded the case to the district court for a rigorous numerosity analysis (In re Modafinil Antitrust Litigation, September 13, 2016, Smith, D.).

Alleged direct purchasers of the sleeping disorder medication modafinil, sold under the brand name Provigil, filed a series of class action suits against pharmaceutical manufacturer Cephalon, Inc. and four generic drug manufacturers for delaying generic competition to Provigil, in violation of Sections 1 and 2 of the Sherman Act. The plaintiffs claimed that the manufacturers entered into reverse payment settlements to resolve patent infringement suits, thereby delaying generic competition for Provigil. Mylan Laboratories, Inc., Mylan Pharmaceuticals Inc., Ranbaxy Laboratories, Ltd., and Ranbaxy Pharmaceuticals, Inc.—the only remaining defendants in this suit—appealed a district court order granting class certification. In particular, Mylan and Ranbaxy challenged the district court’s determinations regarding numerosity and predominance (see No ‘threshold burden’ in Provigil® reverse-payment allegations, January 30, 2015, and Actavis rule of reason standard applied in Provigil® pay-for-delay suit, December 15, 2015).

Numerosity analysis. The appellate court determined that it need not specify a "floor" at which a putative class would fail to satisfy the numerosity requirement. Instead, the court noted that the number of class members is the starting point of its numerosity analysis. Further, to determine whether joinder would be impracticable, the appellate court identified a non-exhaustive list of relevant factors courts should consider, including: judicial economy; the claimants’ ability and motivation to litigate as joined plaintiffs; the financial resources of class members; the geographic dispersion of class members; the ability to identify future claimants; and whether the claims are for injunctive relief or for damages. Not all factors are created equal, the court also stated, noting that both judicial economy and the ability to litigate as joined parties are of primary importance.

Judicial economy. In concluding that judicial economy was best served by trying this case as a class action, the district court looked to the extensive history of the litigation and the exhaustive discovery that had been conducted. However, the late stage of litigation was not by itself an appropriate consideration to take into account as part of a numerosity analysis, the appellate court stated. In complex cases like this, the class certification decision is often delayed until after years of fact and expert discovery has been conducted and dispositive motions have been litigated, according to the court. Consequently, a rule that that would allow courts to consider the late stage of litigation and the sunk costs already incurred in their numerosity analyses would place a thumb on the scale in favor of a numerosity finding for no other reason than the fact that the complex nature of a case resulted in the class certification decision being deferred for years. On remand, the district court should not take into account the sunk costs of the litigation or the need to further delay trial were the class not to be certified, the appellate court decided.

Ability, motivation to be joined. The district court also failed to properly consider the second purpose behind the numerosity requirement—to further the broader class action goal of providing those with small claims reasonable access to a judicial forum for the resolution of those claims. Instead, the lower court focused on whether the individual plaintiffs could have brought their own, individual suits. However, the numerosity rule does not envision the alternative of individual suits; it considers only the alternative of joinder, the appellate court stated.

Predominance. The appellate court next considered the defendants’ predominance arguments. In particular, the defendants first argued that the plaintiffs’ theory of liability runs afoul of the Supreme Court decision Comcast Corp. v. Behrend, 133 S. Ct. 1426 (2013), because, after the grant of summary judgment on the global conspiracy claim, the plaintiffs’ damages model no longer corresponded to their remaining theory of liability that there were four independent Section 1 conspiracies. The court rejected this argument, finding that the plaintiffs’ theory of liability was not that each individual agreement caused an individual harm, such that a new damages model would be required under Comcast. Rather, their theory of liability was that each individual agreement contributed to the market-wide harm, and that all five original defendants were jointly and severally liable for this harm as concurrent tortfeasors.

Mylan and Ranbaxy also argued that predominance could not be demonstrated because the plaintiffs’ remaining theory of liability must isolate the harm that each individual reverse-payment settlement agreement caused each individual class member under the doctrine of antitrust standing. This argument, however, was also rejected because the common law principle of joint and several liability was being invoked by the plaintiffs for the proper purpose of establishing antitrust impact and therefore antitrust standing—which requires the plaintiffs to show they suffered an antitrust injury. Because all four generic pharmaceutical companies allegedly entered into the reverse-payment settlement agreements and prevented a competitive market from forming, each purportedly contributed to the market-wide harm, and each could be held jointly and severally liable for such harm. Thus, any class member would have antitrust standing to sue any or all of the four generic companies and there was no need to pursue an individualized inquiry into the harm caused by each agreement.

Dissent. Judge Rendell dissented, questioning the majority’s conclusion that the lower court abused its discretion by purportedly focusing on a consideration that the appellate court never stated it should not consider. She asked: how can it be that the majority mischaracterizes the late stage of the proceedings as being the focus of the district judge’s ruling when his reasoning actually focused on the considerations that case law dictates it should, and how can it be that in analyzing judicial economy district courts are prohibited from considering the stage of the proceedings? "I am similarly perplexed as to why the Majority is directing the District Court on remand to figure out whether joinder is practicable when the appellants have failed to make that case themselves," Rendell wrote.

The case is No. 15-3475.

Attorneys: Daniel Berger (Berger & Montague P.C.), Erin C. Burns (NastLaw LLC) and Russell A. Chorush (Connelly Baker & Wotring, LLP) for J M Smith Corp. Evan R. Chesler (Cravath, Swaine & Moore LLP), David L. Comerford (Akin Gump Strauss Hauer & Feld) and Catherine E. Creely (Cohn & Marks) for Mylan Laboratories Inc. J. Douglas Baldridge (Venable) and John J. O’Malley (Volpe & Koenig) for Ranbaxy Laboratories Ltd. and Ranbaxy Pharmaceuticals Inc.

Companies: J M Smith Corp.; Mylan Laboratories Inc.; Ranbaxy Laboratories Ltd; Ranbaxy Pharmaceuticals Inc.; Meijer Inc.; Meijer Distribution Inc.

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