Ahead of the Class

This guest post was authored by our colleague Jennifer E. Canfield, an associate in Montgomery McCracken’s Litigation Department and a member of its Class Action Defense practice group. Her practice focuses on defense of consumer class actions, commercial litigation and appellate litigation. She can be reached at jcanfield@mmwr.com or 215.772.7319.

On March 23, 2015, the United States District Court for the Eastern District of Pennsylvania denied certification of a nationwide class of third party payors (“TPPs”) asserting unjust enrichment claims against Cephalon, Inc. In re Actiq Sale and Marketing Practices Litig., No. 07-4492, ___F.R.D.___, 2015 WL 1312015, at *1 (E.D. Pa. Mar. 23, 2015). Chief Judge Petrese B. Tucker held the TPPs could not establish Rule 23(b)(3)’s predominance or superiority requirements because (1) the elements and defenses of an unjust enrichment claim varied throughout the fifty states, and (2) proving unjust enrichment on a class-wide basis required individual inquiry.

In 2004, the U.S. Attorney’s Office investigated Cephalon for off-label promotion of Actiq, a drug approved by the FDA only for “management of breakthrough cancer pain in patients with malignancies who are already receiving and who are tolerant to opioid therapy for their underlying persistent cancer pain.” Id. at *4, 8.   Because Actiq carried “a serious risk of death in vulnerable patients,” the FDA approval fell under a regulation permitting the FDA to disallow any off-label marketing. Id. at *4. But in 2001, Cephalon launched a marketing campaign promoting Actiq “for, among other things, lower back pain, adhesions, headache, osteoarthritis, fibromyalgia, rheumatoid arthritis, and lupus.” Id. “Actiq proved effective for alleviating” many patients’ pain. Id. at *6.   Cephalon eventually pled guilty to introducing “into interstate commerce … drugs that were misbranded through off-label promotion, … arising from Cephalon’s off-label promotion of its drugs Provigil, Gabitril, and Actiq between January 2001 and October 1, 2001.” Id. at *8.

In 2007, TPPs that paid for Actiq prescriptions sued Cephalon, alleging, inter alia, unjust enrichment claims for its off-label marketing. Id. The TPPs sought certification of a nationwide unjust enrichment class of TPPs that paid for Actiq between January 2002 and December 2006 when Actiq was “prescribed for indications other than cancer.” Id. at *2. “Cephalon insist[ed] that its distribution of Actiq was proper throughout the proposed class period and that no unjust enrichment occurred in light of intervening physician and TPP decisions.” Id. at *18.

Engaging in a conflict of laws analysis, Chief Judge Tucker recognized the disagreement in the district courts within the Third Circuit as to whether a material conflict between the states’ unjust enrichment laws exists. Id. at *10. But she agreed with the courts that held a true conflict exists because of variations in statutes of limitations, whether unjust enrichment is an independent cause of action, the need in some states to show the lack of an adequate remedy at law, the requirement in some states “that a benefit be obtained at the direct expense of the plaintiff, the level of misconduct a plaintiff must prove, and the availability of defenses such as unclean hands and laches.” Id. at *11-12. In the second step of the conflict of laws analysis, the Court concluded the TPPs’ home states had “the greatest interest in the application” of their own unjust enrichment laws to the claim. Id. at *13.

After concluding that the unjust enrichment laws of each TPP’s state applied, Chief Judge Tucker moved to her class certification analysis. First, she concluded individual issues would predominate because of the variation in unjust enrichment laws. Id. at *14-15. Moreover, grouping the TPPs’ states into sub-classes depending on the elements and defenses of their respective unjust enrichment laws would not solve the problem. Id. at *15-16. Determining “whether Cephalon’s enrichment was unjust” on a class-wide basis would require the Court to engage in individual inquiries, including why each doctor prescribed Actiq, whether Actiq effectively relieved the patient’s pain, how each TPP determined whether to cover Actiq, and what steps each TPP implemented regarding coverage for Actiq. Id. at *16-17. This examination of not only Cephalon’s actions, “but also of individual TPPs and prescribing doctors” precluded class certification. Id. at *17.

Chief Judge Tucker distinguished this case from In re Pa Baycol Third-Party Payor Litigation, No. 1874, 2005 WL 852135 (Pa. Com. Pl. Apr. 4, 2005), on two grounds. First, the Pennsylvania standard for class certification “requires only a prima facie showing that the criteria are met” rather than the “rigorous analysis” required under Rule 23. Id. at *17. Second, the manufacturer in Baycol voluntarily stopped selling the drug, advised patients to stop using it, and refunded co-pay costs for unused Baycol to patients but not TPPs. Id. at *18. Because the TPPs in Baycol “sought relief only to the extent that they paid for Baycol that the defendant subsequently urged consumers not to use,” the court there found common proof of unjust enrichment. Id. Cephalon’s insistence that it properly distributed Actiq “throughout the proposed class period and that no unjust enrichment occurred in light of the intervening physician and TPP decisions” distinguished this case from Baycol. Id.

Next, Chief Judge Tucker held a class action was not a superior method of adjudication of the TPPs’ claims. Superiority requires “a class action is superior to other available methods for fairly and efficiently adjudicating the controversy.” Id. She found “the largest impediment to a finding of superiority is the difficulty of managing a class action in which the laws of TPPs’ various home states apply and individual questions of fact predominate.” Id. at *18.

Whether courts in the Third Circuit agree with Chief Judge Tucker’s conclusion that there is a true conflict in the states’ unjust enrichment laws, or with the cases concluding there is no conflict, leaves uncertainty regarding this recurring issue in class action litigation—and could ultimately lead to a decision by the Third Circuit.