Blue Cross Blue Shield Ass'n v. GlaxoSmithKline LLC

417 F.Supp.3d 531

BLUE CROSS BLUE SHIELD ASSOCIATION, et al.

v.GLAXOSMITHKLINE LLC

CIVIL ACTION No. 13-4663

United States District Court, E.D. Pennsylvania.

Signed September 30, 2019

Geoffrey M. Horn, Peter D. St. Phillip, Uriel Rabinovitz, Jennifer Risener, Noelle Ruggiero, Lowey Dannenberg PC, White Plains, NY, Lesley Ann Skillen, Neil V. Getnick, Stuart Altschuler, Courtney Finerty-Stelzner, Erika Nicole Ithurburn, Gregory Krakower, Margaret J. Finerty, Getnick & Getnick LLP, New York, NY, Laura Killian Mummert, Gerald Lawrence, Jr., Lowey Dannenberg PC, West Conshohocken, PA, Mark D. Fischer, Robert C. Griffith, Rawlings & Assoc. PLLC, Lagrange, KY, James J. Breen, The Breen Law Firm PA, Alpharetta, GA, G. Robert Blakey, Paradise Valley, AZ, for Blue Cross Blue Shield Association, et al.

Alex J. Brown, Harvey G. Brown, Jonathan P. Wilkerson, The Lanier Law Firm PC, William Mark Lanier, Houston, TX, David H. Pittinsky, Edward D. Rogers, Leslie E. John, Stephen J. Kastenberg, Daniel Mullin, Elizabeth P. Weissert, Juliana Carter, Thomas J. Gallagher, IV, William B. Igoe, Joanna Rebecca Hess Kunz, Ballard Spahr LLP, Philadelphia, PA, Joseph E. O'Neil, John J. O'Donnell, Campbell Conroy & O'Neil, P.C., Berwyn, PA, Mark H. Lynch, Matthew F. Dunn, Matthew J. O'Connor, Michael M. Maya, Jason C. Raofield, Covington & Burling LLP, Washington, DC, for GlaxoSmithKline LLC

MEMORANDUM

Juan R. Sánchez, C.J. Plaintiffs, 38 private health insurance companies that purchased billions of dollars' worth of adulterated pharmaceutical drugs from Defendant GlaxoSmithKline LLC (GSK), bring claims under the Racketeer Influenced and Corrupt Organizations Act (RICO) and Pennsylvania law, alleging they purchased the drugs at issue based on GSK's misrepresentations that the drugs were manufactured in accordance with the Food and Drug Administration's "current Good Manufacturing Practices."¹ Plaintiffs claim the adulterated drugs were worthless and had they known of the adulteration, they would not have included the drugs in their formularies. GSK has moved for summary judgment as to all claims pursuant to Federal Rule of Civil Procedure 56. Because Plaintiffs' RICO (Counts I - III) and unjust enrichment (Count VII) claims fail as a matter of law, GSK's motion for summary judgment will be granted as to those claims. The motion will be denied as to Plaintiffs' remaining claims for fraud (Count IV), civil insurance fraud pursuant to 18 Pa. Cons. Stat. § 4117 (Count V), negligent misrepresentation (Count VI), and breach of express warranty (Count VIII), and breach of implied warranty of merchantability (Count IX), which present genuine issues of material fact for trial.

BACKGROUND²

A. Current Good Manufacturing Practices and the Food and Drug Administration's Enforcement Authority

The Food and Drug Administration (FDA) oversees compliance and enforcement of the federal Food, Drug and Cosmetic Act (FDCA), 21 U.S.C. § 301, et seq. Pursuant to its rulemaking authority, the FDA promulgates "current Good Manufacturing Practices" (cGMPs). See 21 C.F.R. § 210-11. CGMPs address a variety of aspects of the drug manufacturing process, such as personnel, facilities, equipment, packaging, distribution, laboratory controls, and record keeping. See id. If a manufacturer does not comply with cGMPs, any drug it makes is considered "adulterated" under the FDCA and may not be distributed or sold in the United States. See 21 U.S.C. §§ 331(a), 351(a)(2)(B). The fact that a drug was manufactured under conditions not in compliance with cGMPs, however, "does not mean that there is necessarily something wrong with the drug[ ]." GSK's Mot. for Summ. J. (GSK Mot.) Ex. 1. In fact, "there is some level of [c]GMP nonconforming product" on the market at any given time. Id. Ex. 8, at 299:11-300:3. And in most instances, the FDA advises consumers currently taking such drugs to not interrupt their drug therapy. See id. Ex. 1.

To ensure drugs are manufactured in compliance with cGMPs, the FDA has various regulatory enforcement tools to address violations. The FDA's response to cGMP violations depends on the nature of those violations and on the specific drugs involved. See id. As part of its oversight duties, the FDA inspects drug manufacturing facilities and reviews documentation to verify the manufacturer's compliance with cGMP requirements. See 21 U.S.C. § 374. In instances where the FDA observes a "significant objectionable condition relating to products and/or processes, or other violations of the [FDCA]," the FDA issues a "Form 483" notice, notifying "the inspected establishment's top management in writing" of the observations. GSK Mot. Ex. 3, at § 5.2.3. If a manufacturer fails to address the observations made in the Form 483 notice, the FDA may issue a warning letter when the violations are of regulatory significance. See id. Ex. 4, at 3. The FDA issues numerous warning letters each year. See, e.g. , id. Ex. 5, at 1 (noting from 2000 to 2004, the FDA issued an average to 53 cGMP-related warning letters each year).

If the manufacturer does not correct the deficiencies identified in the warning letter, the FDA may request that the manufacturer voluntarily recall the drugs it sold which did not meet cGMP regulations. See id. Ex. 4, at 3. The FDA may also seize affected drugs or enjoin the manufacturer from producing the drug in question. See id.; see also 21 U.S.C. §§ 332, 334. If the FDA proceeds by way of a seizure or injunction, it may enter into a consent decree with the manufacturer requiring the manufacturer to take certain steps to correct the cGMP violations or stop manufacturing at the offending plant. The FDA has the discretion to choose its enforcement mechanism, and "[t]he FDA's decision-making process with respect to seizures and consent decrees is complex and involves a variety of legal and practical considerations." See GSK Mot. Ex. 13, at ¶ 10.

B. SB Pharmco and the Cidra Plant

From 2000 to 2005 (the Relevant Period), SB Pharmco Puerto Rico Inc. (SB Pharmco) owned and operated a pharmaceutical manufacturing plant in Cidra, Puerto Rico (the Cidra Plant). See Pls.' Resp. in Opp'n to Mot. for Summ. J. (Pls.' Opp'n) Ex. 5, at 126:9-17. Originally built in 1978 to manufacture a single drug, the Cidra Plant was manufacturing 267 different drugs by 2004. See id. Ex. 3 GSK-ECK-10-25620. Among the drugs SB Pharmco manufactured at the Cidra Plant were the seventeen drugs at issue in this case—Albenza, Avandia, Avandamet, Bactroban, Compazine, Coreg, Denavir, Dibenzyline, Dyazide, Dyrenium, Factive, Horowitz, Kytril, Paxil IR, Paxil OS, Stelazine, and Thorazine (collectively, the At-Issue Drugs).³ See id. Ex. 12, at 4-6.

SB Pharmco, a Puerto Rican corporation, and GSK, a Delaware Limited Liability Company, are both indirect subsidiaries of GlaxoSmithKline plc, a United Kingdom holding company. See id. Ex. 2. SB Pharmco was responsible for manufacturing the At-Issue Drugs while GSK was responsible for marketing and selling the At-Issue Drugs in the United States. Plaintiffs' contend a drug product's "label and other written material convey a drug company's assurance that its drugs are properly manufacture and conform to their representative properties."⁴ See Pls.' Opp'n Ex. 142 ¶¶ 17, 36, 40, 40 n.18; Id. Ex. 18 at ¶ 14; id. Ex. 89, at 47:25-48:3. GSK marked products manufactured at the Cidra Plant as "best-in-class" and the "gold standard," and asserted their "superior potency, efficacy, and safety profile." Id. Ex. 143, at 161:14-17, 186:5-10, 131:6-12:214:21-215:3.

C. Plaintiffs and Their Purchase of the At-Issue Drugs

Plaintiffs are 38 of the largest health insurance providers in the United States, collectively representing approximately 60% of the United States market for non-governmental health insurance. During the Relevant Period, Plaintiffs provided health insurance coverage pursuant to the terms of plan benefit contracts with plan sponsors, i.e., employers and individuals. See GSK Mot. Ex. 20, at ¶ 20; id. Ex. 21, at 103:15:23. Each plan sponsor "would have a contract that describes the services and the scope" of coverage provided under the plan and would be issued a "benefit plan document." Id. Ex. 22, at 76:8-14. Plaintiffs also provided services pursuant to "administrative services only" plans for self-insured, self-funded, and government plans. See, e.g. , Pls.' Opp'n Ex. 148; id. Ex. 151.

During the Relevant Period, each Plaintiff maintained one or more formularies of prescription drugs, which provided the list of the drugs covered by the health benefit plans Plaintiffs administered. See Am. Compl. ¶ 181. Most Plaintiffs, during at least a portion of the Relevant Period, were advised by one or more Pharmacy and Therapeutics committees (P&T committee), which members typically included physicians and pharmacists.⁵ See id. The P&T committees advised Plaintiffs on the content of their formularies, including whether to provide or discontinue coverage for a drug. In developing their recommendations, P&T committees typically reviewed information supplied by the drug's seller, as well as clinical and scientific studies. See Pls.' Opp'n Ex. 188, at 30:7-15; id. Ex. 152, at 251:11-20. For some Plaintiffs, the P&T committee worked with a third-party pharmacy benefit manager (PBM), which provided certain administrative services. In some cases, the PBM supplied the P&T committee with clinical information and recommended formularies, while in others, Plaintiffs would adopt formularies as developed by their PBM.⁶ See id. Ex. 152, 222:24-223:18; id. Ex. 206, at 21:8-22:8; id. Ex. 207, at 122:23-123:11; id. Ex. 149, at 112:1-16; id. Ex. 201, at 70:17-71:2; id. Ex. 159, at 97:3-19, 98:13-25, 103:1-12.

During the Relevant Period, Plaintiffs most commonly operated "open formularies," which provided that "any drug that is an FDA-approved drug would be covered [or] eligible for coverage under the formulary," subject to exclusions in the plan benefit contract. See GSK Mot. Ex....