RICO Causation: Regression Analysis Aggregate Evidence Satisfies Daubert — Shifting Burden of Proof on Causation — More Relaxed Burden of Proof of Proof on Damages — Good Quotes
In re Neurontin Marketing And Sales Practices Litigation (Kaiser Found. Health Plan, Inc. v. Pfizer, Inc.), 2013 U.S. App. LEXIS 6793 (1st Cir. April 3, 2013):
This is an appeal from verdicts of over $140 million, reached by both a jury and a court, compensating Kaiser, a major health plan provider and insurer, for the injury Kaiser suffered by its payment for four categories of off-label Neurontin prescriptions which had been induced by a fraudulent scheme by Pfizer, the manufacturer of Neurontin. These verdicts followed a settlement that Warner-Lambert, a subdivision of Pfizer, had reached in a criminal case brought by the United States, in which Warner-Lambert pled guilty to two counts and agreed to pay a $240 million criminal fine concerning the off-label marketing of Neurontin; Pfizer agreed to pay an additional $190 million in civil fines. This is one of several related appeals regarding Neurontin, which result in separate opinions, of which this is the lead. We affirm the verdicts for Kaiser.
On February 1, 2005, Kaiser Foundation Health Plan, Inc. and Kaiser Foundation Hospitals (together, "Kaiser"), Aetna, Inc. ("Aetna"), and The Guardian Life Insurance Company of America ("Guardian") filed a coordinated complaint in the U.S. District Court in Massachusetts against Pfizer, Inc. and Warner-Lambert Company (together, "Pfizer"), asserting injury from the fraudulent marketing of Neurontin for off-label uses. The coordinated plaintiffs asserted violations of, inter alia, the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1962, and the California Unfair Competition Law ("UCL"), Cal Bus. & Prof. Code § 17200. Ultimately, Kaiser prevailed, but Aetna and Guardian's claims were dismissed on summary judgment, and Aetna's dismissal is the subject of a separate appeal.
In a related case in which we issue a separate opinion, Harden Manufacturing Corporation ("Harden") filed a class action complaint on May 14, 2004, in the same court, against Pfizer and Parke-Davis (as a division of Warner-Lambert) on behalf of a broad purported class consisting of "[a]ll entities throughout the United States and its territories who, for purposes other than resale, purchased, reimbursed and/or paid for Neurontin for indications not approved by the FDA ('the Class') during the period from January 1, 1994 through the present ('the Class Period')." Harden asserted claims under RICO, as well as state-law claims for common law fraud, violation of consumer protection statutes, and unjust enrichment.
Both the class complaint and the coordinated complaint were part of a larger multidistrict litigation ("MDL") concerning the marketing and sale of Neurontin, which was consolidated in the District of Massachusetts in November 2004. In each case, the defendants moved for summary judgment. On January 8, 2010, on defendants' motion the district court dismissed the claims of Guardian and Aetna; the court denied summary judgment as to Kaiser's claims. See In re Neurontin Mktg. & Sales Practices Litig. (Neurontin Coordinated SJ), 677 F. Supp. 2d 479 (D. Mass. 2010). On December 10, 2010, the court granted summary judgment against all of the Harden purported class plaintiffs except two, whose claims are not relevant to this appeal. See In re Neurontin Mktg. & Sales Practices Litig. (Neurontin Class SJ), 754 F. Supp. 2d 293, 311 & n.4 (D. Mass. 2010).
Beginning on February 22, 2010, the district court held a jury trial on Kaiser's RICO claims against the defendants. On March 25, 2010, after a five-week trial, the jury concluded that "Kaiser prove[d] that Pfizer violated RICO with respect to its promotion of Neurontin for" bipolar disorder, migraine, neuropathic pain, and dosages exceeding 1800 mg per day, and that these "violation[s] of RICO cause[d] Kaiser injury." See In re Neurontin Mktg. & Sales Practices Litig. (Kaiser Findings), No. 04-cv-10739-PBS, 2011 WL 3852254, at *1 (D. Mass. Aug. 31, 2011).
Footnote 2. Neuropathic pain is pain caused by damage to the nerves, as opposed to nociceptive pain, which is pain caused by an injury.***
The jury awarded Kaiser damages in the amount of $47,363,092, which the court trebled to $142,089,276. Id. The jury also rendered an advisory verdict in favor of Kaiser on its state UCL claim, finding that Pfizer had engaged in fraudulent business acts or practices which caused Kaiser damages with respect to bipolar disorder, migraine, neuropathic pain, and doses over 1800 mg, but no liability with respect to nociceptive pain.
On November 3, 2010, the district court found in Kaiser's favor on its claims under the UCL, issuing extensive findings of fact and conclusions of law. In re Neurontin Mktg. & Sales Practices Litig., 748 F. Supp. 2d 34 (D. Mass. 2010), amended and superseded by Kaiser Findings, 2011 WL 3852254. The district court ordered defendants to pay $95,286,518 in restitution, Kaiser Findings, 2011 WL 3852254, at *2, but because this figure reflected the same damage claims encompassed by the jury verdict on Kaiser's RICO claim, the court did not add it to the jury award, id. at *60 n.25. On February 22, 2011, the court entered judgment in favor of Kaiser on its RICO and UCL claims, and on July 27, 2011, the court denied Pfizer's motion for a new trial or, in the alternative, to alter or amend judgment.***
We review de novo defendants' contention that Kaiser's RICO and UCL claims failed as a matter of law, taking the evidence in the light most favorable to the verdict. Tuli v. Brigham & Women's Hosp., 656 F.3d 33, 38 (1st Cir. 2011). Where defendants challenge the district court's findings of fact, we review these findings for clear error. Fed. R. Civ. P. 52(a)(6). We begin by setting out the district court's findings of fact and the jury's conclusions. ***
A. RICO Causation
The civil damages provision of RICO provides that "[a]ny person injured in his business or property by reason of a violation of section 1962 of this chapter may sue therefor . . . and shall recover threefold the damages he sustains and the cost of the suit, including a reasonable attorney's fee." 18 U.S.C. § 1964(c). In relevant part, section 1962 prohibits "any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce" from "conduct[ing] or participat[ing], directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity." Id. § 1962(c). A "racketeering activity" can consist of a wide range of predicate offenses, including, as alleged in this case, mail and wire fraud, see id. § 1961(1), and a "pattern" of such activity requires at least two racketeering acts, id. § 1961(5).
Our RICO causation analysis is controlled by the Supreme Court's decisions in Holmes v. Securities Investor Protection Corp., 503 U.S. 258 (1992), and its progeny. See Anza v. Ideal Steel Supply Corp., 547 U.S. 451 (2006); Bridge v. Phoenix Bond & Indem. Co., 128 S. Ct. 2131 (2008); Hemi Grp., LLC v. City of New York, 130 S. Ct. 983 (2010). In Holmes, the Supreme Court held that the civil RICO provision's "by reason of" language contains both but-for causation and proximate causation requirements. 503 U.S. at 268. In our view, these are two quite distinct questions. Here, the harm to Kaiser plainly was foreseeable, and foreseeability is needed for, but does not end the inquiry as to, proximate causation. The proximate causation question in this appeal concerns whether the chain of events between Pfizer's misrepresentations and Kaiser's payment for the prescriptions is so attenuated that, for legal and policy reasons, Kaiser's claim for recovery should be denied. The but-for causation question, in contrast, is whether, absent Pfizer's fraud, Kaiser would have paid for fewer off-label Neurontin prescriptions.
Pfizer's primary argument is that, as a matter of law, there is no proximate causation in this case because there are too many steps in the causal chain connecting its misrepresentations to the injury to Kaiser, particularly because that injury rests on the actions of independent actors -- the prescribing doctors. As to but-for causation, Pfizer argues that its evidence at trial "falsified" Kaiser's theories of causation, and that some of the evidence Kaiser presented to prove but-for causation was inadmissible. We take these arguments in sequence.
B. Proximate Causation
In Holmes, the Supreme Court upheld entry of summary judgment for the defendant on RICO claims brought by a plaintiff who was subrogated to the rights of others, based on the plaintiff's failure to meet the proximate cause requirement. Id. at 262-64, 271-74. The Holmes plaintiff alleged that the defendant had engaged in an enterprise to manipulate the prices of certain stocks, id. at 261, and complained that this conduct caused the plaintiff to have to pay the claims of customers of two broker-dealers that had become insolvent once the fraud was revealed, see id. at 262-63. The Court determined that, even if this plaintiff were allowed to stand in the shoes of a better-situated plaintiff (namely, the customers), the link was too remote between the alleged stock manipulation scheme and the harm to the customers, because that harm was itself contingent on the harm suffered by the broker-dealers who had purchased the manipulated stock. See id. at 271. The only connection between the RICO conduct and the claimed harm was the broker-dealers' insolvency. Id.
The Holmes Court stated that, "[a]t bottom, the notion of proximate cause reflects 'ideas of what justice demands, or of what is administratively possible and convenient.'" Id. at 268 (quoting W. Keeton, et al., Prosser & Keeton on Law of Torts § 41, at 264 (5th ed. 1984)). As a result, the Court explained, it was "us[ing] 'proximate cause' to label generically the judicial tools used to limit a person's responsibility for the consequences of that person's own acts." Id.
Because of "the infinite variety of claims that may arise" in which a court must analyze proximate causation, it is "virtually impossible to announce a black-letter rule that will dictate the result in every case." Id. at 272 n.20 (quoting Associated Gen. Contractors of Cal., Inc. v. Cal. State Council of Carpenters, 459 U.S. 519, 536 (1983)) (internal quotation marks omitted). Instead, the Court set out certain principles, derived from the common law and from interpretations of analogous statutes, to govern the proximate cause inquiry under RICO.
The Court noted that RICO's civil provision drew its language directly from the Clayton and Sherman Acts, which had for decades been interpreted as incorporating proximate cause requirements. Id. at 267-68; see Associated Gen. Contractors, 459 U.S. at 531-34. In the antitrust context, the Court had identified a number of factors that bear on the proximate cause question, including whether the injury was of the sort that the statutes sought to redress, Associated Gen. Contractors, 459 U.S. at 538; the "directness or indirectness of the asserted injury," including whether the "links" in the "chain of causation" were clear or were only "vaguely defined," id. at 540; the identity of the "immediate victims" of the antitrust conduct, id. at 541; whether the injuries complained of may have been caused by "independent factors," id. at 542; and whether the plaintiffs were part of "an identifiable class of persons whose self-interest would normally motivate them to vindicate the public interest in antitrust enforcement," id.
The Holmes Court used various phrases to define what it takes to meet RICO's proximate cause standard, such as "some direct relation between the injury asserted and the injurious conduct alleged," 503 U.S. at 268, and whether "the link is too remote" between the conduct and the harm suffered, id. at 271. The Court noted that the proximate cause analysis at common law often included such a "demand for some direct relation"; that is, proximate cause would be lacking if, as in Holmes, the plaintiff "complained of harm flowing merely from the misfortunes visited upon a third person by the defendant's acts." Id. at 268. Later, in Anza v. Ideal Steel Supply Corp., 547 U.S. 451, the Court similarly found proximate cause lacking where the RICO conduct alleged had directly harmed a party other than the plaintiff and the plaintiff's alleged injury was only a collateral result of the direct harm. In that case, the defendant's scheme to underpay sales taxes had directly injured the state by depriving it of tax revenue, whereas the plaintiff's alleged harm related to the competitive effects of the defendant charging lower prices without sales tax. See id. at 458.
Importantly, the Holmes Court also provided three functional factors with which to assess whether proximate cause exists under RICO. First, the Court noted concerns about proof, reasoning that "the less direct an injury is, the more difficult it becomes to ascertain the amount of a plaintiff's damages attributable to the violation, as distinct from other, independent, factors." 503 U.S. at 269. Second were concerns about administrability and the avoidance of multiple recoveries: "[R]ecognizing claims of the indirectly injured would force courts to adopt complicated rules apportioning damages among plaintiffs removed at different levels of injury from the violative acts, to obviate the risk of multiple recoveries." Id. Third, the Court focused on the societal interest in deterring illegal conduct and whether that interest would be served in a particular case: "[T]he need to grapple with [the previous two] problems [may be] simply unjustified by the general interest in deterring injurious conduct, since directly injured victims can generally be counted on to vindicate the law as private attorneys general, without any of the problems attendant upon suits by plaintiffs injured more remotely." Id. at 269-70.
Holmes makes it clear that both the directness concern and the three functional factors are part of the proximate cause inquiry. See id. at 271-74. Indeed, the Court warned that its "use of the term 'direct' should merely be understood as a reference to the proximate-cause enquiry that is informed by the concerns" of justice and administrability. Id. at 272 n.20; see id. at 268. Holmes and its successor, Anza, both found a lack of proximate cause when examining the attenuated relationship between the plaintiffs and the direct victim or victims of the alleged fraud.
In Bridge v. Phoenix Bond & Indemnity Co., 128 S. Ct. 2131, the Court considered the RICO claims of such direct victims. It also relatedly addressed the question of whether first-party reliance on a defendant's misrepresentations is required under RICO, and answered that question "no."
Footnote 10. We disagree with Pfizer's argument that "attempting to proven on-party doctors' reliance through inferences from aggregate sales data invokes the 'fraud on the market' doctrine." The fraud-on-the-market doctrine, utilized in securities law, "relieves the plaintiff of the burden of proving individualized reliance on a defendant's misstatement, by permitting a rebuttable presumption that the plaintiff relied on the 'integrity of the market price' which reflected that misstatement." In re PolyMedica Corp. Sec. Litig., 432 F.3d 1, 7 (1st Cir. 2005) (discussing Basic Inc. v. Levinson, 485 U.S. 224 (1988)). While reliance "is an essential element of the § 10(b) private cause of action," Amgen Inc. v. Conn. Retirement Plans & Trust Funds, S. Ct. , 2013 WL691001, at *4 (2013) (internal quotation marks omitted), first-party reliance is not an element of a private RICO claim predicated on mail fraud, Bridge, 128 S. Ct. at 2134, so the analogy is inapt.
In Bridge, the plaintiffs alleged that the defendants had engaged in a scheme to make misrepresentations to county tax authorities in order to win more bids at tax lien auctions than they would have been able to win absent the fraud. See id. at 2135-36. The plaintiffs were other bidders at the auctions whose bids had tied with defendants' bids, and whose claimed injury was the deprivation of their fair share of winning bids. Id. at 2136.
A unanimous Court held that first-party reliance is not an element of proximate cause in a private RICO claim predicated on mail fraud. Id. at 2134. Thus, even where the plaintiffs did not receive the misrepresentations at issue -- the county was the party that had relied on the misrepresentations -- the plaintiffs had sufficiently alleged proximate causation under RICO. Id. at 2138, 2143-44. Here, like the defendants in Bridge, Pfizer argues that its supposed misrepresentations went to prescribing doctors, and so the causal link to Kaiser must have been broken. Even putting aside the evidence of Pfizer's direct communications to Kaiser, we think Bridge forecloses this argument. The Bridge Court rejected the attempt to impose a direct reliance requirement on top of the statutory language providing a private right of action under RICO, finding no support for it in the common law. See id. at 2139-41. We likewise find none here.
Bridge also supports the conclusion that Kaiser meets the proximate cause requirement for several additional reasons. First, Bridge held that the plaintiffs there "clearly were injured by [defendants'] scheme," as they lost valuable property they would not otherwise have lost. Id. at 2139. In so holding, the Court analogized to a business being harmed by misrepresentations made by a rival to its suppliers and competitors but not to the business itself. See id. The Court rejected the argument that no RICO injury could exist in such circumstances. In doing so, it commented on the fact that a business so injured would be "the primary and intended victim of the scheme to defraud." Id. Here, Kaiser was likewise a "primary and intended victim of [Pfizer's] scheme to defraud."
Footnote 11. In using this language, we do not suggest that a defendant can escape RICO liability to a foreseeably and actually injured plaintiff by saying it did not "intend" such a result. Pfizer could not plausibly make such a claim here in any event.
Its injury was a "foreseeable and natural consequence" of Pfizer's scheme, id. at 2144 -- a scheme that was designed to fraudulently inflate the number of Neurontin prescriptions for which TPPs [third-party payors] paid. The evidence that Pfizer had specifically targeted Kaiser for Neurontin sales in general supports the conclusion that Kaiser's injury was a natural consequence of Pfizer's fraudulent scheme, but such evidence was not required, given the mechanisms by which Pfizer's marketing plan operated. As Judge Posner stated in the Bridge case, after remand: "The doctrine of proximate cause . . . protects the ability of primary victims of wrongful conduct to obtain compensation . . . ." BCS Servs., Inc. v. Heartwood 88, LLC, 637 F.3d 750, 756 (7th Cir. 2011). Here Kaiser was a primary victim.
Further, the Bridge Court saw no risk of multiple recoveries or other policy reasons to limit recovery. See 128 S. Ct. at 2144 (citing Holmes, 530 U.S. 258; Anza, 547 U.S. 451). Nor did it see a "more immediate victim . . . better situated to sue." Id. So too here: none of the three functional problems that the Holmes test is meant to avoid are present in this case. To the contrary, the functional interests in justice and administrability work in Kaiser's favor. Because Kaiser was both the natural and foreseeable victim of the fraud and the intended victim of the fraud, there is no risk of duplicative recovery. See id. Neither the individual physicians, nor the DIS members [Kaiser’s Drug Information Service], nor the P & T Committee members [each regional Permanente Medical Group’s Pharmacy and Therapeutics Committee which manages each PMG's formulary, or list of medications that treating physicians may prescribe] -- the parties to whom Pfizer directly made its misrepresentations -- ever paid anything toward a Neurontin prescription, so there is no risk of multiple recoveries due to a suit by another of those actors.
Footnote 12. There are, of course, other potential victims of Pfizer's scheme, such as uninsured individuals who paid for their own prescriptions. But any such injury would be different in kind from Kaiser's injury and could not be considered "multiple" in that respect. At oral argument, Pfizer raised the possibility that premium payers might also sue as victims of Pfizer's scheme, but the question of whether any injury to such payers was proximately caused by this scheme is not before us in this case.
See Holmes, 503 U.S. at 269. Kaiser is also in the best position to enforce the law because Kaiser is the party that directly suffered economic injury from Pfizer's scheme. See id. at 269-70. And, as we explain below, Kaiser was able to present sufficient evidence to ascertain the amount of its damages attributable to Pfizer's conduct. See id. at 269.
In our view, Kaiser has met both the direct relationship and functional tests articulated in Holmes and its progeny. We reject Pfizer's core defense that there are too many steps in the causal chain between its misrepresentations and Kaiser's alleged injury to meet the proximate cause "direct relation" requirement as a matter of law. Pfizer characterizes this causal relationship as involving at least four steps: Pfizer communicating tainted information about Neurontin to Kaiser's DIS; the DIS producing monographs that rely on the misrepresentations; those monographs influencing the PMGs [regional Permanente Medical Groups] in their formulary decisions; and the prescribing physicians (who exercise independent medical judgment) acting within the formulary to issue the prescriptions. We think this characterization misconstrues the way in which the Court has framed the direct relation test. Moreover, the adoption of Pfizer's view would undercut the core proximate causation principle of allowing compensation for those who are directly injured, whose injury was plainly foreseeable and was in fact foreseen, and who were the intended victims of a defendant's wrongful conduct.
Footnote 13. The Supreme Court's recent decision in Hemi Group, LLC v. City of New York, 130 S. Ct. 983, does not, as Pfizer argues, lead to a contrary conclusion. As an initial matter, that case produced a 4-1-3 decision with no majority on the proximate cause question. See id. at 995 (Ginsburg, J., concurring in part and concurring in the judgment) (providing fifth vote to overturn the decision below," [w]ithout subscribing to the broader range of the Court's proximate cause analysis"). But in any event, the factual situation here is easily distinguished.
In Hemi Group, the defendant's alleged RICO conduct was using the mails to violate the federal Jenkins Act, which requires out-of-state cigarette vendors to report customer information to the customers' states of residence. See id. at 987 (plurality opinion). Thus, if the defendant's scheme could even be said to have a foreseen or intended victim, it was New York State (to whom Hemi Group owed the Jenkins Act reports), not the plaintiff New York City. Cf. id. at 990 (identifying the state as a "better situated" plaintiff).
Further, Hemi Group raised a policy problem not at issue here: in that case, allowing the city to bring what was essentially a Jenkins Act claim under the rubric of RICO would have risked "turning RICO into a tax collection statute." Id. at 993 n.2; see id. at 995 (Ginsburg, J., concurring in part and concurring in the judgment) (stating that Justice Ginsburg would have rejected the city's claim because it was an attempt to make an "end-run" around the scope of the Jenkins Act). Kaiser's case involves no such unusual policy risk. If anything, the risk cuts in the other direction: accepting Pfizer's argument on proximate cause as a matter of law would effectively preclude TPPs from bringing suit under RICO as the primary victims of fraudulent off-label drug marketing, and from recovering for their economic injuries. That could mean that no viable plaintiffs would remain to "vindicate the law as private attorneys general." Holmes, 503 U.S. at 269-70. Given the high costs imposed by fraud in our health care system, and Kaiser's status as a primary victim, this result would not be in the service of either justice or accountability.
In fact, the causal chain in this case is anything but attenuated. Pfizer has always known that, because of the structure of the American health care system, physicians would not be the ones paying for the drugs they prescribed. Pfizer's fraudulent marketing plan, meant to increase its revenues and profits, only became successful once Pfizer received payments for the additional Neurontin prescriptions it induced. Those payments came from Kaiser and other TPPs. See Bridge, 128 S. Ct. at 2144 (noting that other auction bidders, not the county officials who immediately relied on defendants' misrepresentations, were the intended victims of defendants' RICO conduct); BCS Servs., 637 F.3d at 756. Kaiser sought only economic recovery in this case, and its economic injury occurred when it paid for fraudulently induced Neurontin prescriptions.
Footnote 14. While first-party reliance was not needed, the evidence as to Kaiser's reliance on Pfizer's misrepresentations was particularly strong, and it came directly from Pfizer itself. Pfizer had specifically identified Kaiser as a potential target for increased Neurontin sales and had developed a five-point plan for promoting Neurontin to Kaiser. That plan included making contact with members of the DIS and the P & T Committees. Kaiser Findings, 2011 WL 3852254, at *11. This strategy shows that Pfizer did not view the various arms within Kaiser as "third and even fourth parties," Hemi Grp., 130 S. Ct. at 992 (plurality opinion); rather, it viewed the Kaiser organization as a single entity to which Pfizer could pitch Neurontin in order to create effects that would reach prescribing physicians.
With respect to the mechanisms by which Pfizer marketed Neurontin to PMG doctors through detailing and educational programs, Pfizer fraudulently marketed to physicians with the intent that those physicians would write prescriptions paid for by Kaiser. The fraudulent scheme worked as intended, inducing a huge increase in Neurontin prescriptions for off-label uses. Pfizer now argues that because doctors exercise independent medical judgment in making decisions about prescriptions, the actions of these doctors are independent intervening causes. But Pfizer's scheme relied on the expectation that physicians would base their prescribing decisions in part on Pfizer's fraudulent marketing. The fact that some physicians may have considered factors other than Pfizer's detailing materials in making their prescribing decisions does not add such attenuation to the causal chain as to eliminate proximate cause. Rather than showing a lack of proximate causation, this argument presents a question of proof regarding the total number of prescriptions that were attributable to Pfizer's actions. This is a damages question. Cf. Anza, 547 U.S. at 466 (Thomas, J., concurring in part and dissenting in part) ("Proximate cause and certainty of damages, while both related to the plaintiff's responsibility to prove that the amount of damages he seeks is fairly attributable to the defendant, are distinct requirements for recovery in tort.").
The doctrine of proximate cause, as Judge Posner has noted, "does its work" in situations where
too many unexpected things had to happen between the defendant's wrongdoing and the plaintiff's injury, in order for the injury to occur -- so many unexpected things that the defendant couldn't have foreseen the effect of his wrongdoing and therefore couldn't have been influenced, in deciding how much care to employ in the activity that produced the wrongful act, by the prospect of inflicting such an injury as occurred.
BCS Servs., 637 F.3d at 754. That is not the situation here. Holding Pfizer liable will have an effect in deterring wrongful conduct. And the effect of that wrongful conduct was clear in foresight, not hindsight. See id. at 755. Upholding the finding of proximate cause here will "protect the ability of primary victims of wrongful conduct to obtain compensation; simplif[y] litigation; recognize the limitations of deterrence . . . and eliminate some actual or possible but probably minor causes as grounds of legal liability." Id. at 756. The district court correctly concluded that Kaiser met the proximate causation requirement.
C. But-For Causation
Kaiser introduced several categories of evidence at trial which clearly demonstrated but-for causation. It produced evidence that (1) its employees directly relied on Pfizer's misrepresentations in preparing monographs and formularies, which, in turn, influenced doctors' prescribing decisions; and (2) Pfizer's fraudulent off-label marketing directed to physicians caused PMG doctors to issue more Neurontin prescriptions than they would have absent such marketing. The latter type of evidence came from Dr. Rosenthal's report as well as inferences from other data. Pfizer has argued both that the direct reliance evidence was insufficient and that Dr. Rosenthal's aggregate evidence was inadmissible and insufficient. Pfizer's insufficiency claims rest on the argument that certain evidence, introduced at trial and considered by the jury and district court, "falsified" Kaiser's theories of causation. We reject both of Pfizer's arguments.
1. But-For Reliance Evidence
Kaiser presented ample evidence of the ways in which its reliance on Pfizer's misrepresentations regarding the effectiveness of Neurontin for the four relevant off-label uses met the but-for causation requirement. Kaiser received Pfizer's misrepresentations through Pfizer's contacts with Kaiser's DIS, which disseminated information throughout the Kaiser organization. See Kaiser Findings, 2011 WL 3852254, at *3-4. The DIS also relied on publicly available information about Neurontin, id. at *3, which, because of Pfizer's publication strategy, omitted important information about negative study results, see id. at *7-8. A reasonable fact finder could readily conclude that misinformation received by the DIS would be widely disseminated, utilized, and relied upon throughout the Kaiser organization to cause but-for injury.***
2. Regression Analysis Aggregate Evidence
Pfizer relies heavily on its argument that the aggregate statistical evidence presented by Dr. Rosenthal was also insufficient to show causation (or injury) as a matter of law, and was inadmissible as well.
a. Admissibility of Rosenthal Testimony
We review a district court's ruling on the admissibility of an expert witness's testimony for abuse of discretion. In re Pharm. Indus. Average Wholesale Price Litig. (AWP), 582 F.3d 156, 198 (1st Cir. 2009). Under Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993), expert testimony must have a "reasoning or methodology" that is "scientifically valid," id. at 592-93, and that methodology must also have a "valid scientific connection to the pertinent inquiry" -- that is, a proper "fit" with the facts of the case, id. at 591-92. Admissibility does not turn on a determination by the trial court of "which of several competing scientific theories has the best provenance," nor does it turn on convincing the trial court that the proffered expert is correct. Milward v. Acuity Specialty Prods. Grp., Inc., 639 F.3d 11, 15 (1st Cir. 2011) (quoting Ruiz-Troche v. Pepsi Cola of P.R. Bottling Co., 161 F.3d 77, 85 (1st Cir. 1998)) (internal quotation mark omitted).
It is clear that Dr. Rosenthal's evidence met several requirements of Federal Rule of Evidence 702. Dr. Rosenthal is a witness with the requisite "knowledge, skill, experience, training, or education," Fed. R. Evid. 702, and her opinion would assist the trier of fact to understand the evidence or to determine a fact in issue, Fed. R. Evid. 702(a). Yet Pfizer argues that Dr. Rosenthal's testimony should have been excluded, attacking both the methodology and the "fit" of the Rosenthal report.
As to the methodology, regression analysis is a well recognized and scientifically valid approach to understanding statistical data, and courts have long permitted parties to use statistical data to establish causal relationships. See, e.g., Wards Cove Packing Co., Inc. v. Atonio, 490 U.S. 642, 657-58 (1989) (holding that under Title VII of the Civil Rights Act of 1964, "specific causation" is shown and a "prima facie case" is "establish[ed]" when plaintiff identifies a specific employment practice linked to a statistical disparity); Watson v. Fort Worth Bank & Trust, 487 U.S. 977, 994 (1988) (opinion of O'Connor, J.) (explaining that, to establish a prima facie case under Title VII, "[o]nce the employment practice at issue has been identified, causation must be proved; that is, the plaintiff must offer statistical evidence of a kind and degree sufficient to show that the practice in question has caused the exclusion of applicants for jobs or promotions because of their membership in a protected group"); Duren v. Missouri, 439 U.S. 357, 366-67 (1979) (permitting petitioner to establish prima facie violation of fair cross-section requirement of Sixth and Fourteenth Amendments by using "statistics and other evidence" to show that "the under representation of women, generally and on his venire, was due to their systematic exclusion in the jury-selection process"); Times-Picayune Pub. Co. v. United States, 345 U.S. 594, 621 (1953) (in antitrust case, looking to "economic statistics" to determine whether "demonstrably deleterious effects on competition may be inferred"); In re High Fructose Corn Syrup Antitrust Litig., 295 F.3d 651, 660-61 (7th Cir. 2002) (permitting use of regression analysis to show causation in antitrust case); Conwood Co., L.P. v. U.S. Tobacco Co., 290 F.3d 768, 794 (6th Cir. 2002) (finding regression analysis "to be admissible on the issue of causation" in antitrust case (emphasis omitted) (quoting Jahn v. Equine Servs., PSC, 233 F.3d 382, 390 (6th Cir. 2000))).
Pfizer argues that Dr. Rosenthal's analysis is nonetheless unreliable in this instance because it did not account for other factors that may have led a doctor to prescribe Neurontin for off-label use, particularly because the model did not include a "time trend." [Footnote 16. Dr. Rosenthal described a "time trend" as a variable that is "introduced to capture some conglomeration of variables believed to have a pattern over time . . . . [I]t's a hypothetical based on the idea that there are some things [other than promotional spending] over time that drive sales."] Pfizer also argues that the methodology must be unsound because the data contradict the results of Dr. Rosenthal's regression in three ways: (1) gabapentin prescriptions continued to grow after October 2004, when marketing spending plummeted as Neurontin lost patent protection; (2) the model improperly controlled for a spike in promotional spending in 2003, when Neurontin prescriptions remained relatively flat; and (3) the model attributed 85% of Neurontin prescriptions for nociceptive pain to alleged fraudulent marketing, but the fact finders found that there was no fraudulent marketing for that indication.
The district court acted well within its discretion in concluding that Dr. Rosenthal's methods met the scientific validity standard under Rule 702. "So long as an expert's scientific testimony rests upon 'good grounds, based on what is known,' it should be tested by the adversarial process, rather than excluded for fear that jurors will not be able to handle the scientific complexities." Milward, 639 F.3d at 15 (citation omitted) (quoting Daubert, 509 U.S. at 590). Pfizer's own expert witness admitted that peer-reviewed, published studies do not always contain time trends. Moreover, Dr. Rosenthal explained her reason for declining to use a time trend: because the case involved only a single drug (as opposed to other studies involving multiple drugs), the time trend would likely be a confounding variable, because its inclusion would produce results showing that promotional spending had no statistically significant effect on prescriptions -- a conclusion that would not comport with basic economics. Indeed, Pfizer's own documents and testimony show that it expected and believed that off-label marketing of Neurontin would increase off-label prescriptions, and that its marketing had that result. The choice not to use a time trend did not make Dr. Rosenthal's methodology unreliable.
Pfizer's objections regarding data that allegedly contradict the reliability of the model also do not show that the district court abused its discretion. These objections presented a question for the jury. ***
As to the "fit" between Dr. Rosenthal's model and the facts at issue in the case, Pfizer objects that: (1) Dr. Rosenthal did not analyze the effect of the distorted studies or educational events on prescriptions, but rather the effect of promotional spending on prescriptions; (2) she did not analyze the effect of formulary expansion on the number of prescriptions written; (3) the analysis used national drug utilization data, as opposed to drug utilization data of Kaiser; (4) the analysis assumes all off-label marketing expenditures for Neurontin were for fraudulent marketing; and (5) the diagnostic codes used to determine what condition the drug was prescribed for indicate a patient's primary condition, so Neurontin could have been prescribed for an on-label use, but appear to be off-label. The basic thrust of Pfizer's argument is that Dr. Rosenthal's analysis does not provide insight into the quantity of prescriptions written as a result of Pfizer's alleged fraudulent marketing.
None of these arguments demonstrate that the district court abused its discretion under the "fit" criterion in admitting Dr. Rosenthal's testimony. ***
Pfizer's objection does not go to the question of whether Dr. Rosenthal's regression had a close enough "fit" to satisfy Daubert; rather, it is a question of damages.
b. Sufficiency of Aggregate Evidence
Having found that Dr. Rosenthal's testimony was admissible, we turn to Pfizer's argument that it was insufficient evidence to support the jury's and district court's findings of causation. We reject the argument, while pointing out that her testimony was not the only evidence of but-for causation.
Pfizer insists that Dr. Rosenthal's testimony cannot be credited because it does not take into account the patient-specific, idiosyncratic decisions of individual prescribing physicians. Thus, according to Pfizer, the report was legally insufficient proof of causation. Indeed, Pfizer purports to find support for its position in the district court's rulings entering summary judgment against Aetna and Harden. See Neurontin Class SJ, 754 F. Supp. 2d at 310-11; Neurontin Coordinated SJ, 677 F. Supp. 2d at 485, 494-95.
A tort plaintiff need not "prove a series of negatives; he doesn't have to 'offer evidence which positively exclude[s] every other possible cause of the accident.'" BCS Servs., 637 F.3d at 757 (alteration in original) (quoting Carlson v. Chisholm-Moore Hoist Corp., 281 F.2d 766, 770 (2d Cir. 1960) (Friendly, J.)). "Once a plaintiff presents evidence that he suffered the sort of injury that would be the expected consequence of the defendant's wrongful conduct," the burden shifts to the defendant to rebut this causal inference. Id. at 758.
Pfizer's argument is a repetition of its assertion that there is an intervening cause -- individual physicians' independent medical judgment -- which precludes a finding of causation based on aggregate evidence. But "the burden of proving an 'intervening cause' -- something which snaps the 'causal chain' (that is, operates as a 'superseding cause,' wiping out the defendant's liability) that connects the wrongful act to the defendant's injury -- is on the defendant." Id. at 757 (citation omitted). Pfizer did offer the testimony of doctors who said that their decisions to prescribe Neurontin were not influenced by Pfizer's fraudulent marketing, and the jury and district court, within their powers, rejected the argument.
Pfizer also argues that its testimony from doctors who stated that they prescribed Neurontin for off-label uses without relying on Pfizer's misrepresentations "falsified" Kaiser's statistical analysis. Not so. The existence of some doctors who purportedly were not influenced by Pfizer's misinformation would not defeat the inference that this misinformation had a significant influence on prescribing decisions which injured Kaiser. Indeed, Dr. Rosenthal noted the scientific invalidity of looking to physician-by-physician accounts of their prescribing decisions. Weighing the individual testimony presented by Pfizer against the aggregate evidence presented by Kaiser was a task for the jury and district court.
Pfizer next argues that the Rosenthal report merely demonstrated "correlation" and not "causation." But if Pfizer's information could not be expected to affect a single doctor's decision making, the company's choice to undertake the marketing campaign would be inexplicable. Cf. id. at 758 ("The object of [the defendants'] conspiracies was to obtain liens that would otherwise go to [the plaintiffs and other] bidders -- there could be no other reason for wanting to pack the room in violation of the County's rule. . . . How likely is it that [plaintiffs] lost no bids to bidders who had 13 arms in the room but should have had only three?").
More generally, Pfizer argues that Kaiser's use of aggregate evidence is precluded by the decisions of other courts in pharmaceutical marketing RICO fraud cases. Pfizer relies on a series of cases that it argues have rejected evidence like Kaiser's. See, e.g., In re Schering Plough Corp. Intron/Temodar Consumer Class Action, 678 F.3d 235 (3d Cir. 2012); Ironworkers Local Union 68 v. Astra Zeneca Pharm., LP, 634 F.3d 1352 (11th Cir. 2011); UFCW Local 1776 v. Eli Lilly & Co., 620 F.3d 121 (2d Cir. 2010); Se. Laborers Health & Welfare Fund v. Bayer Corp., 655 F. Supp. 2d 1270 (S.D. Fla. 2009). But we disagree with Pfizer's characterization of these cases and find them either supportive of our result or inapposite. We see no split in authority.
In particular, Pfizer leans heavily on the Second Circuit's decision in UFCW Local 1776 v. Eli Lilly & Co., 620 F.3d 121, which reversed a district court's certification of a class of TPP plaintiffs who claimed that Eli Lilly's fraudulent marketing of Zyprexa caused them to pay an inflated price for that drug and to pay for prescriptions that would not have otherwise been written. Id. at 123, 137. To begin, the district court in Eli Lilly granted class certification on the former (excess pricing) claim, and the Second Circuit reversed on that basis. See id. at 133. By contrast, the claimed injury to Kaiser resembles the latter (excess quantity) theory. The Second Circuit found a lack of but-for causation only on the excess pricing theory, because doctors do not generally consider the price of a drug when they make prescribing decisions. Id. at 133-34. On the other hand, doctors would certainly consider information about the efficacy of a drug when deciding whether to prescribe it for their patients.
As to the excess quantity theory, the Second Circuit described the plaintiffs' aggregate evidence of causation as involving only an extrapolation from the fact that the number of off-label prescriptions for Zyprexa fell after Eli Lilly's fraud became known. See id. at 135. This does not come close to resembling Dr. Rosenthal's evidence, which examined contemporaneous data that reflected what was actually happening with regard to spending and prescriptions while Pfizer's fraud was ongoing. Finally, the Second Circuit specifically noted that, "while [the excess quantity] theory cannot support class certification, it is not clear that the theory is not viable with respect to individual claims by some TPPs." Id. at 136. Kaiser's case, of course, is just such an individual claim by a TPP.
The other cases on which Pfizer relies are distinguishable. The Eleventh Circuit, addressing alleged fraudulent marketing claims involving the drug Seroquel, specifically declined to decide the case on causation grounds. Ironworkers, 634 F.3d at 1359-60. Instead, that court held that the TPP plaintiffs had failed to show economic injury because the prescriptions at issue were merely less cost-effective than the alternatives, rather than being "medically unnecessary or inappropriate." Ironworkers, 634 F.3d at 1360. Kaiser, in contrast, staked much of its case on proving that Neurontin was ineffective for the promoted off-label uses, and the district court so found. See Kaiser Findings, 2011 WL 3852254, at *34-45.
The Third Circuit addressed the causation question as a matter of Article III standing rather than RICO doctrine. In re Schering Plough, 678 F.3d at 246. It also did not address the use of aggregate evidence at all, finding merely that the TPP plaintiff in that case had not connected the pharmaceutical company's alleged fraudulent marketing scheme as to two drugs to the TPP's payment for a third drug owned by the same company. Id. at 247-48. The Ninth Circuit, in an unpublished decision, did not mention aggregate evidence. United Food & Commercial Workers Cent. Pa. & Reg'l Health & Welfare Fund v. Amgen, Inc., 400 F. App'x 255, 257-58 (9th Cir. 2010).
Footnote 19. Further, some courts appear to have conflated the proximate and but-for causation inquiries in evaluating aggregate evidence and the role of doctors' medical judgments. See, e.g., Se. Laborers, 655 F. Supp. 2d at 1280-81 (stating that court was performing proximate cause inquiry, but proceeding to analyze but-for cause question of whether doctors would have prescribed drug at issue in the absence of misrepresentations). And to the extent that some district courts may have endorsed Pfizer's position that aggregate evidence is legally insufficient to prove but-for causation, we disagree, at least on the facts of this case.
Courts' treatment of aggregate evidence is not as Pfizer represents. Earlier we cited to the use of such aggregate evidence to show causation under several causes of action. We see no reason to reach a different conclusion for the specific subset of RICO claims based on fraudulent marketing.***
Because Kaiser met both causation requirements with legally sufficient evidence and proved that it suffered economic injury from Pfizer's fraudulent scheme, we move to the separate challenges to the amount of damages awarded. "On that phase of the case the plaintiff has a more relaxed burden of proof . . . , especially if as in this case the defendants' conduct has made it difficult for the plaintiff to prove the precise extent of his damages." BCS Servs., 637 F.3d at 759; see also Thermo Electron Corp. v. Schiavone Constr. Co., 958 F.2d 1158, 1166 (1st Cir. 1992). Under such circumstances, damages do not need to be proven "with mathematical certainty, provided an award has a rational basis in the evidence." Thermo Electron, 958 F.2d at 1166 (quoting Jay Edwards, Inc. v. New Eng. Toyota Distrib., Inc., 708 F.2d 814, 819 (1st Cir. 1983)) (internal quotation mark omitted); see Restatement (Second) of Torts § 912 cmt. a. "Otherwise 'the more grievous the wrong done, the less likelihood there would be of a recovery.'" BCS Servs., 637 F.3d at 759 (quoting Bigelow v. RKO Radio Pictures, Inc., 327 U.S. 251, 265 (1946)).***
The burden of proof as to damages is lower than that for causation, and the fact finder is afforded a greater deal of freedom to estimate damages where the defendant, as here, has created the risk of uncertainty. See Ocean Spray Cranberries, Inc. v. PepsiCo, Inc., 160 F.3d 58, 63 (1st Cir. 1998). The damages inquiry does not allow a defendant to benefit from the scope of its wrongdoing; this is why "[e]ven 'speculation has its place in estimating damages, and doubts should be resolved against the wrongdoer.'" BCS Servs., 637 F.3d at 759 (quoting Mid-Am. Tablewares, Inc. v. Mogi Trading Co., 100 F.3d 1353, 1365 (7th Cir. 1996)).
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