Thursday, August 28, 2008

Suffolk County, New York's RICO Suit Just Got a "Boost" From the Ninth Circuit. . . .

NOTE: This case, along with a host of others alleging consumer fraud, have now been settled by an agreed order, since approved by Judge Cavanaugh, requiring the payment by New Merck of money damages. This federal case file was thus closed, effective February 23, 2010.

However, the various putative class actions for securities fraud, and ERISA breach of duties cases, as well as the shareholders' derivative cases, and at least two Congressional investigations, and a host of civil governmental inquiries -- both state and federal -- remain open, active and ongoing.


You'll recall that, last month, this blog was the first (apparently worldwide!) to report on the filing of a lawsuit, by government officials in Suffolk County, New York [which county includes the glitzier environs of "the Hamptons" (uttered through clenched teeth, of course!)], against Schering and Merk, which in addition to Consumer Fraud and False Claims allegations, made RICO allegations -- calling these companies' conduct "indictable acts". [Click on thumbnail, below right.]

While it has not yet happened, fairly shortly, Schering, et al., will make a motion in that suit -- a motion to dismiss for failure to state a claim under a federal Rule called 12(b)(6) -- saying essentially that counties generally have no standing to bring such a suit -- as the counties do not contract directly with the drugmakers for supplies of Vytorin or Zetia. The reasoning has heretofore generally run that only parties in contractual "privity" may generally sue on another, in such cases. Not so, held the Ninth Circuit Court of Appeals, just yesterday.

As Ed, over at Pharmalot notes this morning (albeit in another context), the County of Santa Clara, California has just won an important appeal against Astra USA, Inc., et al. -- Judge Raymond Fisher of the Ninth Circuit has held essentially that Santa Clara County was, in the words of Congress, a "directly intended third party beneficiary" of the main contract for the drugmakers' various drug products.

Thus, Santa Clara may sue the drugmakers directly -- and by inference, it just became far more probable that Suffolk County, New York will be able to survive the highly-predictable Schering motion to dismiss for failure to state a claim, under federal Rule 12(b)(6).

Cool. By the way, Schering-Plough, itself, was also one of the many other drugmakers sued in County of Santa Clara, California v. Astra USA, Inc. et al., ___ F.3d 11761 (Case No. 06-16471, August 27, 2008) -- here's a quote from the "business end" of the opinion:
. . . .Applying the federal common law of contracts, we hold that the covered entities are intended direct beneficiaries of these agreements and thus have the right to enforce the agreements’ discount provisions against the Manufacturers and sue them for reimbursement of excess payments. We have jurisdiction under 28 U.S.C. § 1291, and reverse the district court’s dismissal of the complaint under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim. . . .

. . . .As intended direct beneficiaries of the PPA, covered entities may enforce the Manufacturers’ ceiling price obligations under the federal common law of contracts. Although the statute mandating the PPA does not create a federal private cause of action, allowing Santa Clara’s contract claim to go forward is consistent with Congress’ intent in enacting the legislative scheme. Because it lies within the conventional competence of the courts, that claim is not within the primary jurisdiction of DHHS.


Indeed -- Buckle-up, butter-cup.

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