In re Terazosin Hydrochloride Antitrust Litigation
Docket: No. 99-MDL-1317
Court: District Court, S.D. Florida; April 8, 2004; Federal District Court
The Court granted the Indirect Purchaser Plaintiffs’ (IPPs) motions for class certification of state-wide classes of end-payers in various states, including Alabama, California, and Florida, among others. However, the motion for class certification in the District of Columbia was denied, and the motion for New Jersey was denied as moot. The case involves allegations of antitrust injury and unjust enrichment against Defendants Abbott Laboratories, Geneva Pharmaceuticals, and Zenith Goldline Pharmaceuticals, stemming from purported anti-competitive conduct since 1987 related to the drug terazosin hydrochloride, marketed as 'Hytrin.' The IPPs claim that two agreements made in 1998 between Abbott and the generic manufacturers resulted in delayed market competition for terazosin hydrochloride. They further allege that Abbott unlawfully extended its monopoly through patent misuse, noncompliance with FDA regulations, and frivolous litigation against the generic manufacturers. The legal context includes the FDA's regulatory framework for drug approval, which requires either new drug applications (NDA) or abbreviated new drug applications (ANDA), and the implications of the Hatch-Waxman Act for generic drug entry into the market.
The applicant must certify one of the following for FDA approval of an Abbreviated New Drug Application (ANDA): 1) the patent information was not filed with the FDA, 2) the underlying patent is expired, 3) the patent will expire, including the expiration date, or 4) the patent is invalid or will not be infringed by the new drug's manufacture, use, or sale. If the applicant certifies that the patent information has not been filed or that the patent is expired, the ANDA can be approved immediately. However, if the patent is still valid, approval will be delayed until its expiration. A 'paragraph IV certification,' which asserts that the patent is invalid or will not be infringed, requires the applicant to notify the patent holder, who can then initiate a patent infringement lawsuit, resulting in an automatic 30-month delay for ANDA approval.
Abbott holds multiple patents for drugs containing terazosin hydrochloride, with seven patents issued between 1977 and 1996. Indirect Purchaser Plaintiffs allege that only three of these patents were listed with the FDA before March 1995, claiming that Abbott's other patents are invalid 'add-on' patents designed to extend market exclusivity by delaying generic competition. The plaintiffs argue that Abbott improperly listed these patents to trigger infringement lawsuits and automatic delays under the Hatch-Waxman Act.
As generic manufacturers like Geneva and Zenith sought to develop their versions of Hytrin, they filed multiple ANDAs with paragraph IV certifications from 1993 to 1996. Abbott responded by suing Geneva for patent infringement in September 1994, which allegedly stalled Geneva's market entry. Abbott also took legal action against Zenith in 1994 and 1995 after Zenith filed its ANDA.
In March and April 1998, Abbott reached confidential settlement agreements with both Zenith and Geneva to resolve the patent disputes. Under the agreement with Zenith, Zenith received $3 million and an additional $6 million per quarter in exchange for not marketing any terazosin hydrochloride products in the U.S. until generic competition commenced, while also allowing Zenith to eventually market those products.
Under the April 1, 1998 Abbott-Geneva agreement, Geneva agreed to accept a monthly payment of $4.5 million from Abbott to refrain from selling any generic terazosin hydrochloride, including an FDA-approved capsule, until either another drug maker marketed a generic version of Hytrin or Geneva received a final judgment confirming that its generic tablet did not infringe Abbott's patents. Consequently, Abbott maintained exclusive sales of terazosin hydrochloride in the U.S. until August 1999. Both the Abbott-Zenith and Abbott-Geneva agreements ended on August 13, 1999, following a Federal Trade Commission investigation, allowing Geneva to market its generic terazosin capsules, which were priced approximately 46% lower than Hytrin. Subsequent generic entries further reduced the average wholesale price of generics to less than 16% of Abbott's pricing by April 2000.
The Indirect Purchaser Plaintiffs are seeking damages from Defendants based on antitrust and unjust enrichment claims, asserting that the Abbott-Zenith and Abbott-Geneva agreements indicate a conspiracy to restrain trade in violation of state laws. They allege that Abbott's actions, including filing 'add-on' patents, engaging in frivolous litigation, and forming anti-competitive agreements, delayed generic market entry and prolonged Abbott's monopoly over terazosin hydrochloride. The Plaintiffs argue that this delay resulted in excessive profits for Abbott and substantial payments to Geneva to postpone its generic launch.
On September 4, 2001, the Indirect Purchaser Plaintiffs filed for certification of nineteen state-wide classes of 'end-payers' who paid for Hytrin or its generic equivalents between October 15, 1995, and June 30, 2002. Excluded from the class are Defendants, their affiliates, government entities, and purchasers who bought for resale or who did not suffer economic injury from the alleged unlawful conduct.
Indirect Purchaser Plaintiffs must satisfy the class action requirements under Fed. R. Civ. P. 23, necessitating that at least one named class representative has Article III standing to raise each class claim before class certification. The Eleventh Circuit mandates that standing be established prior to any analysis under Rule 23. A named plaintiff must demonstrate personal injury caused by the defendant's actions, as well as that the representative shares the same interests and injuries as the class members. Each claim must be individually assessed to ensure that at least one plaintiff has suffered the injury pertinent to that claim. The proposed classes include both third-party payers and individual consumers, with defendants contesting their inclusion in the same class due to differing claims and potential conflicts of interest. However, the Court finds no conflicts that would hinder class certification and acknowledges the necessary connection between the claims of the two groups. The assessment will determine whether at least one representative from each proposed class has the requisite standing to assert claims of antitrust violations and unjust enrichment. Notably, Cobalt, previously known as UWSI, has been recognized by the Court as having standing to pursue class claims beyond Wisconsin's laws, despite defense objections.
The Court ruled on Defendants' Motion to Dismiss certain state claims from the Indirect Purchaser Plaintiffs' Third Amended Coordinated Complaint, focusing on the standing of Cobalt as a class representative. Standing requirements vary by litigation stage, and since this case has progressed past the pleading stage, the Court evaluated whether record evidence substantiates Cobalt's Article III standing. Cobalt claims to represent class members across fifteen states, with specific prescription reimbursement data provided for each state, including substantial numbers in Wisconsin (79,429) and lesser amounts in others like California (274) and Mississippi (28). However, there is no evidence of reimbursements in Michigan, leading to a lack of standing for Cobalt in that state. Defendants assert that injuries occurred in Wisconsin, suggesting that claims are subject to Wisconsin law, but this argument lacks support. Other courts have allowed class eligibility based on patients' state of residence rather than the location of insurance companies. Consequently, Cobalt is deemed to have standing in the majority of states listed but not in Michigan or New York, the latter due to a lack of qualifying reimbursements post-1998. Notably, the absence of standing in these two states does not impede class certification, as alternative representatives are available. Additionally, Blue Cross/Blue Shield of Alabama and Michigan seek to represent classes in their respective states.
The Court finds sufficient basis to grant standing to two third-party payers for pursuing claims related to the Alabama and Michigan state classes, despite the absence of specific reimbursement evidence. Extensive discovery has occurred regarding these payers, and the Defendants have not disputed their standing. Notably, Defendants’ expert, Dr. Daniel Rubenfeld, referenced reimbursement data and conducted regression analyses involving these payers.
For the Alabama class, Willie O’Neal qualifies as a representative, having purchased Hytrin and generic terazosin from 1997 to 2001, paying more for Hytrin before switching to the generic version. This establishes a shared interest and alleged injury with the class.
In California, Victor Scafani and William Mednick are both appropriate representatives. Scafani's co-payments for Hytrin were $15, while the generic was $10. Mednick faced co-payments between $10 and $15 for Hytrin but only $5 to $9 for the generic. They both demonstrate shared interest and injury with the class.
Clarence Reid, the sole proposed representative for the District of Columbia class, lacks Article III standing, as his testimony reveals no injury from the alleged anticompetitive conduct. His co-payments increased with the generic's availability, but he never purchased it due to becoming asymptomatic, thus failing to demonstrate any injury linked to delayed generic entry.
Lastly, Antonio Lopez-Souto, the proposed representative for the Florida class, also lacks Article III standing, as conceded at the March 12, 2004 hearing. This absence of standing undermines the certification motion for the District of Columbia and Florida classes.
Mr. Lopez-Souto acknowledged in his deposition that he never considered substituting generic terazosin hydrochloride for Hytrin, yet Cobalt has standing in Florida. Maine Class representative David Grund purchased both Hytrin and generic terazosin from 1995 to 2001, making co-payments under his health insurance plan, thereby establishing his standing to represent the class. Michigan Class representative Martin Bernstein bought the same medications from 1999 to 2001, with varying co-payments reflecting a lower cost for the generic; thus, he also has standing. New York Class representatives Albert J. Meyer and Lloyd Latona both purchased the drugs, with Mr. Meyer demonstrating standing by showing he experienced the same injury as the class, while Mr. Latona lacks standing due to insufficient evidence of a price difference. Wisconsin Class representative Lavera Grosskrueger, who paid less for generic terazosin than for Hytrin, has standing as well. The Court concludes that all proposed classes, except the District of Columbia class, have at least one plaintiff with standing. Consequently, the Court will only analyze class certification for the remaining seventeen state classes. The burden of proof for class certification under Fed. R. Civ. P. 23 lies with the Indirect Purchaser Plaintiffs.
The district court has broad discretion in certifying class actions, and its decisions are upheld unless there is an abuse of discretion, as established in Andrews v. Am. Tel. Tel. Co. Certification must adhere to the prerequisites outlined in Fed. R. Civ. P. 23, which requires a rigorous analysis. A class action can only proceed if it meets all Rule 23(a) requirements—numerosity, commonality, typicality, and adequacy of representation—and at least one requirement under Rule 23(b).
Specifically, the numerosity requirement (Rule 23(a)(1)) is satisfied if the class size makes joinder impracticable, which does not necessitate identifying all members or knowing the exact class size. A class can be certified with as few as 25-30 members if other factors, such as geographic diversity and judicial economy, support impracticability. The Defendants did not contest the numerosity of the proposed classes, but the Court conducted its own evaluation. Ultimately, it concluded that the Indirect Purchaser Plaintiffs sufficiently demonstrated that their proposed classes meet the numerosity requirement, confirming that joinder of all members would be impractical.
Plaintiffs in the Fourth Amended Complaint assert that from October 1995 to August 1999, Hytrin generated over $1.75 billion in sales, making it Abbott’s highest-margin product. Using IMS data, Indirect Purchaser Plaintiffs estimate that the number of class members across seventeen states ranges from approximately 3,200 in North Dakota to nearly 150,000 in California, totaling over half a million end payers nationwide. Due to the geographical dispersion and small individual claims of class members, joining all members in a lawsuit is impractical, thus satisfying the numerosity requirement of Rule 23(a)(1).
For the commonality requirement under Fed. R. Civ. P. 23(a)(2), a qualitative assessment is sufficient, and a single common question can meet this criterion. The Court finds that the requirement is met, as the Plaintiffs allege a standardized course of conduct by Defendants affecting all class members, particularly in the context of antitrust claims. Specific common questions identified include whether Defendants' actions violated antitrust laws, restrained competition, inflated prices for Hytrin and its generics, and unjustly enriched themselves at the expense of the class members.
The Court has determined that the common legal and factual questions relevant to the claims of all class members satisfy the requirements of Rule 23(a)(2) for class certification. Regarding typicality, under Rule 23(a)(3), the Court evaluates whether the claims of the named representatives align with those of the class. A sufficient nexus is established when the claims arise from the same events or patterns and share a legal theory. The typicality requirement is generally met if the same unlawful conduct affects both the class representatives and the class, despite variations in individual claims. The Indirect Purchaser Plaintiffs argue they meet this requirement because all proposed class members faced overcharges for Hytrin due to the Defendants’ alleged unlawful actions, based on the same antitrust theories. Although Defendants contend that the unique circumstances of each class member’s claim prevent a finding of typicality, the Court emphasizes that typicality does not require identical factual situations among class members. The presence of varying factual circumstances does not negate the typicality of the claims if the underlying unlawful conduct is consistent across the class.
Indirect Purchaser Plaintiffs assert that both the class representatives and the entire class experienced the same unlawful conduct, characterized by consumers and third-party payers making similar retail payments for terazosin and suffering identical damages due to generic delay. They argue that the principle of typicality in class actions ensures that the claims of the class representatives mirror those of the class members, enabling the representative's individual claim to establish liability for the entire class. The plaintiffs contend that their claims are nearly identical, despite variations in damages, meaning a successful proof of overcharge or unjust enrichment by any representative would substantiate the claims of all class members.
The defendants' attempts to differentiate the claims of individual consumers from those of third-party payers are countered by the assertion that typicality focuses on the nature of the claims rather than individual plaintiff characteristics. The Court affirms that Rule 23(a)(3) does not necessitate that named plaintiffs be identical to each other or to class members, thereby upholding the alignment of interests for class certification.
Regarding Rule 23(a)(4) on adequacy of representation, it is emphasized that both named plaintiffs and class counsel must sufficiently protect the interests of class members. The Court notes the importance of the representative's capability to assert and defend the class's interests, taking into account potential conflicts of interest and the representative's ability to prosecute the action effectively. This assessment is crucial due to the binding nature of res judicata on all class members.
The Eleventh Circuit Court of Appeals has established that substantial conflicts of interest among class members can impede class certification, while minor conflicts do not. A "fundamental" conflict arises when some class members claim harm from conduct that benefits others, preventing named representatives from effectively advocating for the entire class due to conflicting interests. Class conflicts can be demonstrated through direct evidence of disagreement or by implying a realistic possibility of antagonism based on class structure.
Defendants argue that specific conflicts undermine the Indirect Purchaser Plaintiffs’ class certification, including: 1) perceived conflicts between third-party payers and insured consumers, 2) conflicts among third-party payer insurers and pharmacy benefits management companies (PBMs), 3) situations where consumers paid the same co-payment for branded and generic drugs, and 4) brand loyal consumers.
The Court examined these potential conflicts, particularly the objection to including consumers and third-party payers in a single class. Defendants contend that third-party payers have not suffered injuries from alleged antitrust violations, as any overcharges would have been recovered through premiums from insured consumers. They argue that insurers’ premiums reflect the complete claims experience and any cost changes due to generic drug introductions. Ultimately, the Court concluded that these purported conflicts do not prevent the certification of the proposed classes.
Premiums paid by consumers and employers vary with the availability of generic drugs, without the insurer needing to track specific generic launches, as claims experiences reflect overall drug prices and decline with generic entries. Indirect Purchaser Plaintiffs contend that Defendants misinterpret the premium-setting process. Defendants rely on testimonies from Janet McGowin (Alabama Blue) and Michael Murray (Cobalt), asserting that premiums are set based on past claims and projections of future costs, which include all drug expenses. However, it is acknowledged that third-party payers do not account for the impact of individual drugs, such as Hytrin, when determining premiums. Murray's testimony confirms that Cobalt assesses drug costs in aggregate without considering potential price increases for specific drugs. Consequently, Defendants’ assertion that overcharges for Hytrin were passed on to consumers through higher future premiums lacks support. Furthermore, any increase in premiums due to monopolistic drug activities cannot be characterized as a "pass on" of current charges, as future projections aim to estimate anticipated costs rather than recover past expenditures. McGowin also stated that if claims exceed premiums, the deficit is recorded as a loss with no retroactive premium increase. The burden of proving class certification lies with Indirect Purchaser Plaintiffs, as asserted by Defendants.
Class certification cannot be denied solely based on unsupported allegations of conflict among potential class members, as established in precedent. The Court must evaluate the evidence presented by Defendants to determine if a genuine conflict exists or if there's a realistic possibility of antagonism. If the Defendants' evidence is found to be inaccurate or unreliable, the plaintiffs can still fulfill their burden for class action under Rule 23(a)(4). In this case, thorough discovery has been conducted regarding the alleged "pass on," with Defendants failing to demonstrate any significant conflict or realistic antagonism that would hinder class certification.
Defendants also argue that conflicts between third-party payers and pharmacy benefit managers (PBMs) prevent certification. PBMs, acting as intermediaries for insurers and self-funded plans, manage pharmacy benefits and process claims. Defendants claim the complex roles of PBMs create irreconcilable intra-class conflicts, making it impossible to determine class-wide impacts and damages. They assert that if a PBM incurs costs from overcharges, it would be classified as a class member instead of the insurer, complicating damage calculations. Additionally, they argue that PBMs benefiting from delayed generic entry could have conflicts of interest, as their compensation might incentivize higher-cost brand purchases. However, Defendants have not provided sufficient record evidence to support these claims of conflict or to indicate a realistic probability of antagonism.
Indirect Purchaser Plaintiffs acknowledge that Pharmacy Benefit Managers (PBMs) may be considered part of the class if they incur overcharges, which is factored into their damages model. Defendants argue that including PBMs complicates the case due to potential individualized inquiries; however, these issues can be resolved during the claims administration phase. Defendants' claims of intra-class conflicts are based on speculation regarding the financial dynamics between PBMs and pharmacies, including alleged "spreads" and capitation arrangements. The plaintiffs counter that there is no evidence supporting the existence of these "spreads" or significant capitation agreements affecting damages. Despite extensive discovery, Defendants have not provided evidence that PBMs’ rebates create a substantial intra-class conflict. Consequently, the presence of PBMs does not impede class certification.
Defendants also contend that including class members who were unharmed or benefited from delayed generic entry is inappropriate. They reference insured consumers with flat co-payments who cannot demonstrate harm from generic delays. The Court agrees that flat co-payers, who experienced no economic injury, are not suitable class members. However, the plaintiffs’ class definition effectively excludes these individuals, thus not obstructing class certification. Lastly, Defendants challenge the adequacy of representation due to brand loyalists included in the proposed class.
Brand loyalists, as defined by Defendants, are consumers who would not have switched from the brand Hytrin to its generic version, terazosin, even if the generic had been available. Defendants argue that these loyalists would have gained from delayed generic entry, as Hytrin prices rose post-generic introduction. Consequently, they claim that the inclusion of brand loyalists undermines class certification under Rule 23(a)(4). Conversely, Indirect Purchaser Plaintiffs aim to include brand loyalists in their classes, arguing that those who paid lower prices for branded Hytrin after generic entry were harmed by the delay. However, the record lacks evidence supporting the existence of injured brand loyalists or that they benefitted from the delay. The Court notes that Indirect Purchaser Plaintiffs have not substantiated their claims regarding such injuries, leading to the exclusion of brand loyalists from the class definition at this litigation stage.
Regarding the prosecution of class claims, Rule 23(a)(4) requires class representatives and counsel to vigorously pursue class claims. The Court finds that the claims of the class representatives are typical, aligned with unnamed class members, and that no conflicts exist. Co-Lead Counsel is deemed knowledgeable and experienced in antitrust and complex litigation, satisfying the vigorous prosecution requirement.
For class certification under Rule 23(b)(3), Indirect Purchaser Plaintiffs must demonstrate that common questions of law or fact predominate over individual issues and that a class action is the superior method for resolving the controversy. The Court will examine the evidence presented by plaintiffs to support their claims while avoiding unnecessary determinations on the merits at this stage.
Common questions of law or fact must predominate over individualized questions in a class action, meaning that issues applicable to the entire class must outweigh those that pertain only to individual members. The predominance inquiry is more rigorous than the commonality requirement of Rule 23(a) and focuses on the legal or factual questions that define each class member's case as a legitimate controversy. While common questions need to predominate, they do not have to be determinative of the outcome of the case.
Courts assess the causes of action asserted on behalf of the class to determine if common issues prevail. This determination includes evaluating the significance of class-wide issues in relation to each member's claims. If generalized evidence can establish or refute an element across the class, the predominance standard is met. The predominance requirement is satisfied unless individual issues significantly overshadow common questions, rendering the class action ineffective.
When analyzing whether Rule 23(b)(3) is fulfilled, the court must consider how the plaintiffs intend to prove liability, the fact and extent of injury, and whether evidence is common or unique to individual class members. The merits of the claims are not evaluated at this stage; rather, the focus is on whether each element can be proven with generalized evidence. The court concludes that in examining the antitrust and unjust enrichment claims, common legal and factual questions indeed predominate over individual issues, thus satisfying the requirements of Rule 23(b)(3).
Claims from proposed state classes arise from alleged illegal conduct by Defendants, focusing on monopolization and conspiracy in restraint of trade. Despite each class being governed by different state laws, class certification under Rule 23(b)(3) is justified due to shared substantive legal principles. Indirect Purchaser Plaintiffs have referenced case law that aligns state antitrust statutes with federal laws, indicating that the core elements of their claims are largely consistent across jurisdictions and can be proven with common evidence.
For conspiracy to restrain trade, plaintiffs must demonstrate three key factors: existence of a conspiracy, antitrust injury, and extent of damages. Evidence of the alleged conspiracy among Defendants is uniform across state classes, with previous rulings affirming that the presence of conspiracy is central in price-fixing cases, which supports class certification even with individual issues. Plaintiffs plan to use common evidence, notably Defendants' covert agreements, to substantiate their claims.
In addressing monopolization, the plaintiffs need to show possession of monopoly power and anti-competitive actions to acquire or maintain that power. Proof of monopolization is also common across classes. The existence of monopoly power is determined by the ability to control market prices or exclude competition, irrespective of actual price increases or competitive exclusion. Courts will evaluate whether the seller can impose burdensome terms on a significant number of buyers in the market to ascertain market power.
Key issues in the case focus on Abbott's market power, which can be determined using common proof applicable to all class members, rather than requiring individualized assessments. The relevant market definition central to market power is common to all class members, ensuring that the determination of Abbott’s market power is also uniform. Indirect Purchaser Plaintiffs assert that Abbott possesses market power in the U.S. market for tera-zosin hydrochloride, with each class member adopting the same definition. The resolution of this question affects all members of the proposed classes.
To establish the second element of a monopolization claim, the Plaintiffs must demonstrate that Abbott willfully maintained monopoly power by impairing competition in a restrictive manner. Once Abbott is identified as a monopolist, the Plaintiffs will focus their arguments on specific agreements, namely Abbott-Geneva and Abbott-Zenith, to support this claim.
The predominance test for the Plaintiffs' monopoly claims has been satisfied, as common evidence can be used to establish antitrust impact, a critical element requiring proof that Plaintiffs suffered injury due to Defendants’ conduct. In an overcharge scenario, impact can be demonstrated by showing that Defendants charged inflated prices and class members made purchases at these prices. Courts in the Eleventh Circuit recognize a presumption of impact in cases where defendants possess market power and are alleged to have conspired with competitors. Indirect Purchaser Plaintiffs have provided substantial common evidence, including market data and expert testimony, to support their claims, reinforcing the appropriateness of class treatment for their antitrust allegations.
Indirect Purchaser Plaintiffs aim to demonstrate antitrust impact through several key points:
1. Hytrin and its AB-rated generics are interchangeable, with generics priced significantly lower.
2. The entry of generics into the market leads to substantial savings for consumers and increases market share for generics.
3. Following the launch of Geneva's generic terazosin in August 1999, sales of the generic rose and the price of terazosin fell.
4. Class members paid inflated prices for Hytrin from 1995 until August 12, 1999, supported by market data.
5. Class members could have purchased terazosin hydrochloride at lower prices if not for the Abbott-Geneva and Abbott-Zenith agreements and Abbott’s alleged misuse of patents.
6. Defendants used similar data and methodology to assess the economic impacts of generic competition for Hytrin.
Defendants challenge the impact element by asserting that third-party payers passed overcharges to consumers, the complexity of Pharmacy Benefit Managers (PBMs) creates individualized proof issues, and some class members were not harmed. The court has previously rejected these arguments, clarifying that any individualized inquiries would pertain to damages rather than the fact of injury, supporting the sufficiency of common proof for class certification.
Additionally, the issue of whether Defendants were unjustly enriched can be established through common evidence. The Restatement (First) of Restitution outlines that unjust enrichment occurs when a person retains a benefit at another's expense. A four-part test for unjust enrichment claims involves demonstrating an unjust retention of a benefit received at the expense of another. The Plaintiffs will present common evidence to prove that Abbott’s invalid patents and agreements with Geneva delayed generic competition, substantiating the unjust enrichment claims for all class members.
The delay in generic competition allegedly resulted in significant profits for Abbott and/or Geneva, which came at the expense of consumers, necessitating Abbott to return these excess profits to the end-payers. The unjust enrichment claims parallel the antitrust claims, drawing on shared factual grounds. Indirect Purchaser Plaintiffs intend to establish that Abbott’s profits were directly linked to consumer purchases through testimonies from the pharmaceutical distribution chain. They will demonstrate the excess profits attributable to Abbott’s purportedly invalid patents and efforts to impede generic competition, focusing on Abbott's gains rather than the losses of the plaintiffs. Success in proving unjust enrichment is critical for the entire class rather than individual members, fulfilling the requirements for class certification under Rule 23(b)(3).
Furthermore, the plaintiffs must show that damages can be calculated using common proof. They are not required to provide an exact damage formula at the certification stage; instead, they must demonstrate that their proposed methods are not insubstantial. The court found that the plaintiffs’ expert, Dr. Raymond S. Hartman, presented reasonable methodologies for calculating class-wide and individual damages related to both antitrust and unjust enrichment claims. These methodologies, including a "before-and-after" regression analysis and a yardstick model, are widely accepted in antitrust cases and applicable to both claims, differing only in underlying assumptions. The defendants’ objections regarding the precision of Hartman’s methodologies do not undermine class certification.
For class certification, plaintiffs are not required to provide a precise damage formula, and the Court does not need to determine the best approach for the case's specifics. It is sufficient to acknowledge the existence of methodologies and the flexibility granted by Rule 23(c)(1) and (d) to address individual damages issues that may arise. Defendants' objections to Dr. Hartman’s methodologies focus on the allocation of damages among class members rather than the computation of aggregate damages for the class, which can be managed through a court-approved allocation plan. Individualized damage questions are common in antitrust class actions and do not prevent certification. Indirect Purchaser Plaintiffs must demonstrate that their proof is sufficiently generalized to ensure that the class action will save time and effort for the Court. The Court finds that common issues of Defendants' liability predominately outweigh potential individual damage issues.
Under Rule 23(b)(3), the Court assesses whether a class action is the superior method for fairly and efficiently adjudicating the case, considering factors such as the interest of class members in controlling separate actions, ongoing litigation by class members, the desirability of concentrating claims in a particular forum, and the management challenges of a class action. The analysis indicates that a class action is superior due to the significant savings in time, effort, and expense for both litigants and the Court. The potential number of class members reinforces the superiority of the class mechanism, as multiple lawsuits by thousands of consumers across seventeen states would be inefficient and burdensome. The class action is especially suitable for consumers, allowing them to pool claims that would be uneconomical to litigate individually. Without the class mechanism, consumers with short-term purchases who suffered injuries due to Defendants’ alleged anticompetitive actions would have limited means to recover damages, highlighting the necessity of the class action framework.
Litigation costs for individual claims, particularly due to extensive scientific expert analysis, may be prohibitively high, making it advantageous to consolidate claims in this forum. Although some third-party payer class members could pursue separate actions, the shared economic injuries from the same alleged anti-competitive conduct support class action consolidation. Defendants assert that the proposed classes are unmanageable due to the need for individualized choice of law analyses, variations in state unjust enrichment laws, and the impracticality of the proposed damage methodologies. However, these arguments overlook that common issues regarding injury predominately exist. The Court, having previously determined that common issues outweigh individual questions, finds that despite the challenges of managing multiple state classes, the benefits of class treatment are substantial. Indirect Purchaser Plaintiffs have effectively demonstrated class manageability through common evidence related to Defendants’ alleged illegal actions, satisfying the superiority requirement of Rule 23(b)(3).
On June 6, 2000, the Court appointed Lowey Dannenberg Bemporad Selinger, P.C. and Cohen, Milstein, Hausfeld, Toll, P.L.L.C. as co-Lead Counsel for the Indirect Purchaser Plaintiffs, later adding Gauthier, Downing, LaBerre, Beiser, Dean as additional Co-Lead Counsel, who was eventually replaced by Wallace, Jordan, Ratliff, Brandt, LLC. The Court now formally appoints class counsel for the certified Indirect Purchaser Classes, considering the counsel's prior work on the case, experience in class actions and related litigation, knowledge of applicable law, and resources committed to representing the class, in accordance with the amended Rule 23.
The Court retains the authority to evaluate any relevant factors concerning legal counsel's capability to represent the interests of the class adequately. It may require proposed class counsel to submit additional information as necessary. On February 9, 2004, the Court instructed the Indirect Purchaser Plaintiffs to provide supplemental details about their proposed class counsel, specifically LDBS, CMHT, and WJRB. The Plaintiffs demonstrated that Co-Lead Counsel explored all recovery options for the end-payer classes, including dismissed claims, and have undertaken extensive efforts, such as reviewing millions of documents and conducting nationwide depositions. They have invested approximately $1,000,000 in this litigation and plan to continue substantial financial commitments. The Court found Co-Lead Counsel’s experience and knowledge in antitrust and complex litigation particularly compelling, citing their roles in significant cases like In re Cardizem and Buspirone. With no objections from the Defendants regarding counsel’s qualifications, the Court concluded that Co-Lead Counsel has adequately represented the end-payer classes and appointed LDBS, CMHT, and WJRB as class counsel for the ongoing proceedings.
The Court granted the Indirect Purchaser Plaintiffs’ Motions for Class Certification for multiple states, including Alabama, California, and Florida, among others, while denying the motion for the District of Columbia and deeming the New Jersey motion moot due to a prior dismissal of claims.
In states where the Court has granted motions for certification of a state-wide class of end-payers, the class includes all individuals and entities that paid for Hytrin or its AB-rated generic equivalents between October 15, 1995, and June 30, 2002, excluding various groups such as the Defendants, their affiliates, government entities, and those who purchased for resale. The definitions of these classes may be modified based on changing circumstances before the final decision is made.
On September 11, 2002, the Court partially granted and denied the Defendants’ motion to dismiss specific state claims, dismissing with prejudice the claims of New Jersey indirect purchasers, leading to the denial of their class certification motion as moot. A settlement between Zenith (now Ivax Pharmaceuticals, Inc.) and Indirect Purchaser Plaintiffs was preliminarily approved on August 23, 2002, and finalized on December 19, 2002.
The document highlights the significant sales of Hytrin for Abbott, amounting to $481 million in 1998, which represented about 20% of its pharmaceutical net sales. Under Supreme Court precedent, indirect purchasers lack standing to claim damages under federal antitrust law; however, the current indirect purchaser state classes are pursuing claims under Illinois Brick repealer statutes or unfair trade practices laws, which align with federal antitrust elements. Third-party payers (TPPs) are categorized into traditional insurers and self-funded employer health benefit plans, with specific representatives listed.
The proposed class definition by the Indirect Purchaser Plaintiffs has been slightly modified to establish a class period ending on June 30, 2002, which is described as a reasonable endpoint despite no particular significance. The Plaintiffs assert that while some damages may have continued post-date, prices had stabilized. Defendants have not objected to this date. A key modification also excludes indirect purchasers who did not suffer economic injury from the alleged unlawful conduct, reducing potential conflicts in relation to Rule 23(a)(4). The Court notes that, despite the Eleventh Circuit's requirement for separate standing analysis, the shared facts underlying both the antitrust and unjust enrichment claims suggest that class representatives with standing for one claim have standing for the other as well. Defendants’ arguments against Cobalt’s standing in South Dakota and West Virginia, based on the timing of alleged monopolization, lack support, as Rule 23 does not require identical claims among class representatives and members. The Court references a precedent indicating that class membership based on geographic factors could lead to inconsistent outcomes across different jurisdictions. Finally, while the Plaintiffs did not dispute the Defendants' interpretation of the Donnelly Act, they argued that the statute of limitations claims presented by the Defendants should not be considered in the class certification motion.
A class representative whose claim is time-barred cannot represent the class in the relevant claim, as established by the Eleventh Circuit in *Piazza v. Ebsco Indus. Inc.* and *Carter v. West Publ’g Co.*. The court has not reached a final decision on the merits of the defendants' statute of limitations argument but suggests that Cobalt's New York claims may not proceed. Alabama Blue and Michigan Blue's motion to join as named class representatives was denied as untimely, and if evidence shows they lack standing, the court may amend its order before final judgment. Indirect Purchaser Plaintiffs' counsel argued that Mr. Reid would have switched to a generic product if available sooner, but conceded that his claim under antitrust laws is speculative, thus lacking standing. They suggested Mr. Reid may have standing for unjust enrichment claims; however, they failed to demonstrate how he has standing since he did not incur any overcharge or economic damage. The Eleventh Circuit adopted all prior decisions of the former Fifth Circuit up to October 1, 1981, as binding precedent. Additionally, IMS compiles prescription data for various customers, including pharmaceutical companies, and Abbott has not disputed its reliance on IMS data for market predictions. The court noted that once class size estimates reach thousands, the impracticability of joinder is satisfied, focusing on manageability and superiority of class actions compared to other adjudication methods. While defendants acknowledge the presence of common legal or factual questions for Rule 23(a)(2), they argue that these do not predominate over individual member issues, a point to be addressed in the Rule 23(b)(3) analysis later.
Commonality and typicality under Rule 23(a) are closely related, both assessing the connection between the claims of named class representatives and those of individual class members necessary for class certification. Commonality focuses on group characteristics, while typicality emphasizes the individual traits of the named plaintiff. Defendants challenge the Indirect Purchaser Plaintiffs’ compliance with Rule 23(a)(3), but their arguments mainly address Rule 23(a)(4) and 23(b)(3), lacking clarity regarding typicality. The overlapping nature of Rule 23 elements complicates their analysis. The Eleventh Circuit evaluates potential antagonism by examining the economic interests of named and unnamed class representatives, which is pertinent to both typicality and adequacy of representation. Defendants argue that conflicting interests between consumer and third-party payers inhibit class certification. Indirect Purchaser Plaintiffs assert that the pass-on issue should not influence class certification, viewing it as an affirmative defense requiring factual and legal resolution beyond the class certification stage. They cite Hanover Shoe to support their position, but the Eleventh Circuit previously rejected the notion that it precludes examination of Rule 23 requirements. Consequently, the Court has independently analyzed the evidence regarding potential conflicts, noting that Defendants' argument about third-party payers seeking maximum damages at the expense of consumers has been previously dismissed by the Court.
Hypothetical conflicts concerning proof of damages do not undermine class certification at this stage. Defendants challenge the predominance requirement under Rule 23(b)(3), asserting that the involvement of Pharmacy Benefit Managers (PBMs) introduces individualized issues that obstruct class treatment. They argue that the inclusion of PBMs necessitates individualized inquiries to establish impact, complicating class-wide damage calculations and potentially creating intra-class conflicts between PBMs and their insurer clients. These issues are interconnected and will be addressed together.
Defendants cite two main sources of alleged risk for PBMs: first, that PBMs manipulate "spreads"—the difference between what they pay pharmacies for prescriptions and what they receive from insurers—resulting in unjust profits at the insurers' expense. They suggest that if there was an overcharge on Hytrin, PBMs would share in that burden due to these spreads. Second, they claim that PBMs with capitated fee arrangements bear the risk of overcharges, thus protecting insurers from such costs.
Defendants reference two recent state court complaints from California and Ohio, where plaintiffs allege improper benefits obtained by PBMs from processing Hytrin prescriptions. They assert that these lawsuits indicate a real conflict among potential class members, but this claim is deemed incorrect. A fundamental class conflict must be supported by record evidence of actual disagreements, which the existence of untested allegations does not satisfy. The court will address Defendants’ concerns regarding Dr. Hartman's methodologies for calculating class-wide damages in relation to the predominance issue later in the analysis.
Defendants argue that Dr. Hartman has failed to quantify the number of brand loyal consumers in the proposed classes and has not established a method to determine this without individual inquiries. These issues relate to the Rule 23(a)(4) conflict analysis, but are better suited for the Rule 23(b)(3) analysis. The Rule 23(a)(4) analysis overlaps with typicality under Rule 23(a)(3) because if claims are not typical, the class representative lacks incentive to pursue the claims of other class members. The Attorneys General from Florida and Kansas are deemed adequate representatives for their consumer classes, as they will vigorously prosecute claims on behalf of consumers and state agencies that purchased Hytrin. During the March 12, 2004, oral argument, it was clarified that class counsel has allowed the Attorneys General to take the lead in representing consumer claims in these states, operating in a "co-counsel" capacity. Their primary role will focus on civil penalties and representing individual consumer interests in mediation. The court acknowledges that class determination is intertwined with the factual and legal issues of the plaintiffs' claims, and that in complex Rule 23(b)(3) actions, there is a greater connection to the merits of the case. Certification issues require courts to move beyond the pleadings to fully understand claims, defenses, and applicable law. There will often be overlap between Rule 23(a) and (b) requirements and the question of the plaintiff's likelihood of success on the merits. Notably, under state antitrust laws, indirect purchasers can pursue claims if they demonstrate injury from the defendants' actions. However, the Indirect Purchaser Plaintiffs have not clearly articulated their common proof on impact in support of class certification, though their submissions suggest a reliance on generalized evidence to establish this impact.
Standards for evaluating unjust enrichment claims across various states are largely consistent, as courts recognize them as universally accepted causes of action. Numerous states, including Alabama, California, and New York, have adopted the Restatement’s definition of unjust enrichment. However, Florida, Maine, and South Dakota do not explicitly cite the Restatement, but their elements align closely with it, requiring an additional factor of defendants' knowledge or appreciation of the benefit conferred by plaintiffs. Indirect Purchaser Plaintiffs (IPPs) plan to demonstrate this appreciation element through common evidence, which does not hinder class certification despite the Restatement's absence of such a requirement. The plaintiffs allege that Abbott’s illegal actions led to inflated prescription prices for terazosin, unjustly enriching the defendants, warranting equitable relief for the plaintiffs. Dr. Hartman’s analysis quantifies damages by calculating the price of Hytrin compared to a hypothetical "but-for" price without illegal conduct, taking into account various market factors. The court has options under Rule 23 to address any challenges related to damage allocation, and the proximity to trial does not necessitate a predetermined damages methodology before Daubert hearings.
When traditional individual lawsuits are economically unfeasible, the class action mechanism becomes essential for aggrieved parties to seek effective redress. The Court finds the Indirect Purchaser Plaintiffs' argument compelling, asserting that they are not trying to apply a single state's law to a nationwide class but rather to apply state law to specific state classes of purchasers of Hytrin. Each state's antitrust law will govern its respective class's claims, and the similarities in the substantive laws mitigate manageability concerns. The Southern District of New York has previously indicated that damage calculation issues should not impede class certification in antitrust cases. In situations where damage complexities arise, the Court may alter class certification, bifurcate liability and damages phases, or appoint a special master to aid in damage calculations.
Defendants previously stayed individual and class cases in state courts, arguing that this Court is the superior forum for resolving state law claims, thus conceding the class action's appropriateness for these disputes. The Court acknowledges the involvement of WJRB as Co-Lead Counsel, which has a history of representing end-payer classes in significant mass tort litigation. Indirect Purchaser Plaintiffs must submit additional information about their counsel’s qualifications, resources for class representation, and proposed terms for attorneys' fees. Class representatives for each state class of end-payers are detailed in a prior section.
