Painters and Allied Trades District Council 82 Health Care Fund, third-party healthcare payor fund; Annie M. Snyder, a California consumer; Rickey D. Rose, a Missouri consumer; John Cardarelli, a New Jersey consumer; Marlyon K. Buckner, a Florida consumer; Sylvie Bigord, a Massachusetts consumer, on behalf of themselves and all others similarly situated, Plaintiffs-Appellants,
v.
Takeda Pharmaceuticals Company Limited, a Japanese Corporation; Takeda Pharmaceuticals U.S.A., FKA Takeda Pharmaceuticals North America, Inc., an Illinois corporation; Eli Lilly and Company, an Indiana corporation, Defendants-Appellees.
Argued
and Submitted June 6, 2019 Seattle, Washington
Appeal
from the United States District Court for the Central
District of California D.C. No. 2:17-cv-07223-SVW-AS Stephen
V. Wilson, District Judge, Presiding
R.
Brent Wisner (argued) and Michael L. Baum, Baum Hedlund
Aristei & Goldman PC, Los Angeles, California;
Christopher L. Coffin and Nicholas R. Rockforte, Pendley
Baudin & Coffin LLP, New Orleans, Louisiana; for
Plaintiffs-Appellants.
Jonathan S. Franklin (argued), Norton Rose Fulbright U.S.
LLP, Washington, D.C.; Darryl W. Anderson and Geraldine W.
Young, Norton Rose Fulbright LLP, Houston, Texas; for
Defendants-Appellees Takeda Pharmaceuticals Company Limited
and Takeda Pharmaceuticals U.S.A.
Randall L. Christian (argued) and Susan E. Burnett, Bowman
and Brooke LLP, Austin, Texas, for Defendant-Appellee Eli
Lilly and Co.
Before: Carlos T. Bea, Jacqueline H. Nguyen, and Paul J.
Watford [*] ,
Circuit Judges.
SUMMARY[**]
Racketeer
Influenced and Corrupt Organizations Act
The
panel reversed the district court's judgment dismissing
civil RICO claims under Fed.R.Civ.P. 12(b)(6) for lack of
RICO standing and remanded for further proceedings.
Plaintiffs
brought a putative class action against pharmaceutical
companies, alleging that the companies refused to change the
warning label of their drug Actos or otherwise inform the
public after they learned that the drug increased a
patient's risk of developing bladder cancer. Plaintiffs
were five patients and a third-party payor ("TPP")
of health and welfare benefits to covered members and their
families. Plaintiffs sought to represent a class of similarly
situated patients and TPPs who paid or incurred costs for
Actos. They alleged that defendants conspired to commit mail
and wire fraud by intentionally misleading physicians,
consumers, and TPPs to believe that Actos did not increase a
person's risk of developing bladder cancer. Plaintiffs
sought to recover economic damages under RICO for the
payments they made to purchase Actos, which they allege they
would not have purchased had they known of the bladder cancer
risk. The district court held that plaintiffs failed to
allege that their harm was "by reason of" the
alleged RICO violation, as required for RICO standing,
because they failed to allege the claimed RICO violation was
the proximate cause of their claimed losses.
Agreeing
with the First and Third Circuits, and disagreeing with the
Second and Seventh Circuits, the panel held that plaintiffs
sufficiently alleged proximate cause. Supreme Court precedent
requires a direct relationship between the injury asserted
and the defendant's conduct. The Supreme Court applies
the Holmes factors, considering (1) whether it would
be too difficult to ascertain what damages are attributable
to defendants' alleged RICO violation, (2) the risk of
multiple recoveries by plaintiffs at different levels of
injury from defendants' acts, and (3) whether holding
defendants liable justifies the general interest of deterring
injurious conduct. The panel concluded that plaintiffs
sufficiently alleged a direct relationship, and the
Holmes factors weighed in favor of permitting their
RICO claims to proceed. The panel thus held that patients and
TPPs suing pharmaceutical companies for concealing an
allegedly unknown safety risk about a drug can satisfy
RICO's proximate cause requirement. The panel concluded
that, although prescribing physicians served as
intermediaries between defendants' fraudulent omission of
Actos's risk of causing bladder cancer and
plaintiffs' payments for Actos, prescribing physicians
did not constitute an intervening cause to cut off the chain
of proximate causation. In addition, plaintiffs adequately
alleged reliance on defendants' alleged
misrepresentations and omissions.
The
panel addressed additional claims in a concurrently filed
memorandum disposition.
OPINION
BEA,
CIRCUIT JUDGE
Today
we confront an issue of first impression in our circuit, and
one that has caused an apparent circuit split among four of
our sister circuits: In civil actions brought under the
Racketeer Influenced and Corrupt Organizations Act
("RICO") against pharmaceutical companies, do
patients and health insurance companies who reimbursed
patients adequately allege the required element of proximate
cause where they allege that, but for the defendant's
omitted mention of a drug's known safety risk, they would
not have paid for the drug?
I.
FACTUAL BACKGROUND
This
appeal arises from a putative class action against Takeda
Pharmaceuticals USA, Inc., its parent company Takeda
Pharmaceutical Company Ltd., and Eli Lilly & Co.
(collectively, "Defendants"). Together, Defendants
developed and marketed a drug named Actos. Actos was intended
to lower blood sugar in type 2 diabetics. Defendants obtained
Food and Drug Administration ("FDA") approval for
Actos in 1999. The plaintiffs allege that despite learning
through multiple studies over the next several years that
Actos increased a patient's risk of developing bladder
cancer, Defendants refused to change Actos's warning
label or otherwise inform the public of such risk. Further,
the plaintiffs allege that Defendants convinced the FDA that
studies revealing that Actos increased the risk of bladder
cancer were wrong. Defendants are alleged to have actively
misled prescribing physicians, consumers, and third-party
payors into believing that Actos did not increase a
person's risk of developing bladder cancer. Defendants
did all of this, the plaintiffs allege, simply to increase
their profits from the sale of Actos.
On
September 17, 2010, after further studies of Actos revealed
an increased risk of bladder cancer, the FDA announced that
it was conducting a safety review of Actos. On June 15, 2011,
the FDA released an official warning to the public that Actos
may be linked to bladder cancer in patients who use it over
prolonged periods of time. Following the FDA's official
warning, Defendants changed Actos's warning label to warn
of a bladder cancer risk. The sales of Actos are alleged to
have dropped shortly after the FDA issued its alert in 2010,
and then again when the FDA issued its official warning in
2011, by a total of approximately 80%.
A group
of patients who developed bladder cancer after ingesting
Actos and their family members then brought personal injury
and wrongful death claims against Defendants in the Western
District of Louisiana. After a 37-day trial in 2014, the jury
returned a verdict in favor of the plaintiffs, but the
parties later agreed to a global settlement program for all
eligible personal injury claimants who used Actos before
December 1, 2011 and had been diagnosed with bladder cancer.
In re Actos (Pioglitazone) Prods. Liab. Litig., MDL
No. 6:11-MD-2299, 274 F.Supp.3d 485, 503 (W.D. La.
2017).[1]
The
present action was also originally filed in the Western
District of Louisiana. But in late 2017, the parties
stipulated to transfer the case to the Central District of
California. The plaintiffs in this case comprise five
individual patients from different states (collectively,
"Patients") and Painters and Allied Trades District
Council 82 Health Care Fund ("Painters Fund")
(together, "Plaintiffs").
Painters
Fund is a third-party payor ("TPP") of health and
welfare benefits to covered members and their families. As a
TPP, Painters Fund reimburses its members' claims for
drugs, including Actos, submitted by pharmacies and
healthcare providers covered by its plan. Painters Fund
"relies on each member to submit claims for prescription
medications that are medically reasonable and necessary for
treatment," with the expectation that patients and their
prescribing physicians will "make informed decisions
about which drugs will be prescribed and, in turn, submitted
to [Painters Fund] for reimbursement." Painters Fund
"has the authority to determine which drugs are covered
under its plan, although, [it] entrusts the administration of
claims and formulary determinations to Prime Therapeutics,
LLC, based in Eagan, Minnesota."[2]
Patients
are individuals with type 2 diabetes who were prescribed
Actos by their physicians and who took Actos to help lower
their blood sugar. Each patient paid an out-of-pocket sum for
Actos. Patients each allege that neither they nor their
physicians knew about Actos's risk of bladder cancer when
they began taking the drug and that they immediately stopped
taking Actos once they learned that it increased their risk
of developing bladder cancer. Patients also allege that they
never would have purchased Actos had they known that it
increased their risk of developing bladder cancer, and thus,
that they never would have submitted claims for reimbursement
for purchases of Actos to their respective TPPs. Only one
patient, Annie Snyder from California, alleges that prior to
starting her prescription, she read and relied upon the Actos
label. But Plaintiffs generally allege that Patients relied
on Defendants' misrepresentations about Actos, by act or
omission, in purchasing the drug, that physicians relied on
such misrepresentations in prescribing Actos for their
patients, and that TPPs relied on such misrepresentations in
agreeing to pay for Actos prescriptions for their members.
Plaintiffs
seek to represent a class of similarly situated patients and
TPPs "who paid or incurred costs for the drug Actos, for
purposes other than resale, between 1999, i.e., when the drug
was approved, and the present," excluding "those
consumers who are presently seeking a personal injury claim
arising out of their use of Actos." Plaintiffs argue
that Defendants conspired to commit mail and wire fraud under
18 U.S.C. §§ 1341, 1343 by intentionally misleading
physicians, consumers, and TPPs to believe that Actos did not
increase a person's risk of developing bladder cancer.
Plaintiffs seek to recover economic damages under RICO for
the payments they made to purchase Actos under the assumption
that it was a safe drug, which they allege they would not
have purchased had they known that Actos increases a
person's risk of developing bladder cancer (this is
called the "quantity effect theory" of
damages).[3] Plaintiffs do not, however, seek to
recover economic or non-economic damages caused by any
person's actual ingestion of Actos.
The
district court dismissed with prejudice Plaintiffs' RICO
claims under Federal Rule of Civil Procedure 12(b)(6) in a
single paragraph, holding that Plaintiffs failed adequately
to allege facts sufficient to establish that Defendants'
acts and omissions were the proximate cause of their claimed
damages. This appeal followed.[4]
II.
ANALYSIS
A.
Standard of Review
We
review de novo the district court's grant of a
Rule 12(b)(6) motion to dismiss. Bain v. Cal. Teachers
Ass'n, 891 F.3d 1206, 1211 (9th Cir. 2018). We take
all of Plaintiffs' factual allegations as true, and we
may affirm the dismissal "only if it appears beyond
doubt that [Plaintiffs] can prove no set of facts in support
of [their] claim[s] which would entitle [them] to
relief." Id. (internal quotation marks
omitted).
B.
Plaintiffs' RICO Claims
The
crux of Plaintiffs' complaint rests on their civil RICO
claims. Although the RICO statute was originally enacted to
combat organized crime, "it has become a tool for
everyday fraud cases brought against respected and legitimate
enterprises." Sedima, S.P.R.L. v. Imrex Co.,
473 U.S. 479, 499 (1985) (internal quotation marks omitted).
Broadly speaking, there are two parts to a civil RICO claim.
The civil RICO violation is defined under 18 U.S.C. §
1962, [5] while "RICO standing" is defined
under 18 U.S.C. § 1964(c). The district court dismissed
Plaintiffs' RICO claims only for lack of standing, and
thus we address only that portion of Plaintiffs' RICO
claims.
To
allege civil RICO standing under 18 U.S.C. § 1964(c), a
"plaintiff must show: (1) that his alleged harm
qualifies as injury to his business or property; and (2) that
his harm was 'by reason of' the RICO violation."
Canyon County v. Syngenta Seeds, Inc., 519 F.3d 969,
972 (9th Cir. 2008). Defendants do not dispute that
Plaintiffs have alleged an injury to their business or
property. Rather, as the district court held, Defendants
argue that Plaintiffs have failed to allege that their harm
was "by reason of" the ...