The Second Circuit Tackles the Trouble with Aggregate Proof of Causation
A number of prominent, scholarly people keep trying to explain why aggregate proof of causation should be allowed in order to facilitate class action litigation. Judge Jack B. Weinstein has done it in his opinions. Professor Sam Issacharoff has written about it. And many deans of the plaintiffs' bar have argued for it.
But nobody has been able to explain to my satisfaction how one uses Rule 23 -- which is not supposed to (and constitutionally could not) alter the substantive elements of claims or defenses -- to deprive a defendant of the right to challenge each class member on the element of legal causation, where such factual challenge would be possible if the class members sued individually.
Recently, the Second Circuit took up the question of aggregate proof in a third-party payor case against a pharmaceutical company. In UFCW Local 1776 v. Eli Lilly & Co., No. 09-0222-cv, Slip op. (2d Cir. Sept. 10, 2010), union health benefit plans and other third-party payors for plan members' prescriptions sued the maker of Zyprexa in a class action lawsuit, alleging RICO violations, common law fraud, unjust enrichment, and violations of state consumer protection statutes. In a lengthy opinion, Judge Jack B. Weinstein had certified a class of third-party payors on the theory that they had paid a higher price for Zyprexa than they would have if the maker had not allegedly misrepresented certain product risks and promoted the medicine for unapproved uses. Professor Issacharoff defended the certification on appeal, arguing for aggregate proof of causation.
The Second Circuit reversed, and in doing so, had some important things to say about aggregate proof. The court noted that the market for prescription medicines involves lots of intermediaries:
[D]irect exchanges between consumers and producers are rare. An individual patient does not choose what drug to take; she is prescribed a drug by her physician. Nor does the individual patient always pay directly for that drug. Rather, a TPP, such as her insurance provider, often pays some or all of the drug's cost.
. . . The [TPP's] formulary is usually managed by a Pharmacy Benefit Manager ("PBM"). . . . Drugs placed on a formulary are approved by the PBM's Pharmacy and Therapeutics Committee, made up of physicians and clinical pharmacists. . . .
[I]n the market for prescription drugs, three sets of price negotiations exist: "(1) retail pharmacies and nonretail providers negotiate with pharmaceutical managers and wholesalers, (2) payors (often through PBMs) negotiate with pharmaceutical manufacturers and wholesalers, and (3) payors negotiate with retail pharmacies and nonretail providers. The negotiations over price, moreover, do not intersect with the therapeutic choice of what drug a patient should take, which is a decision made by a physician with only minimal input by her patient or the TPP.
Slip op. at 9-10.
It was precisely because of these intermediaries -- and the independent way in which they make their decisions -- that the court held that "but-for" causation could not be the subject of aggregate proof. Because doctors consider things other than a manufacturer's statements about the efficacy and side effects of its medicine when they are deciding what medicine to prescribe, reliance could not be presumed for each prescription. Id. at 26.
The court also rejected plaintiffs' theory of proximate cause -- namely, that because the manufacturer put out alleged misrepresentations, the doctors necessarily relied on them to prescribe more of the medicine and the TPPs paid for it. The court explained:
This narrative skips several steps and obscures the more attenuated link between the alleged misrepresentations made to doctors and the ultimate injury to the TPPs. In fact, if plaintiffs' factual allegations are correct, the chain of causation runs as follows: Lilly distributes misinformation about Zyprexa, physicians rely upon the misinformation and prescribe Zyprexa, TPPs relying on the advice of PBMs and their Pharmacy and Therapeutics Committees place Zyprexa on their formularies as approved drugs, TPPs fail to negotiate the price of Zyprexa below the level set by Lilly, and TPPs overpay for Zyprexa. . . . [P]hysicians, PBMs, and PBM Pharmacy and Therapeutics Committees all play a role in the chain between Lilly and TPPs.
Id. at 27.
The court also noted that doctors rely on a variety of sources for information about medicines other than the manufacturer, including their own knowledge and experience. Because it was possible -- indeed, even probable -- "that at least some doctors were not misled by Lilly's alleged misrepresentations" and thus did not fall within plaintiffs' theory, the court concluded that "[t]his makes general proof of but-for causation impossible."
Plaintiffs' counsel keep trying to import the concept of aggregate proof from securities litigation, where the presumption of an efficient market suggests that information that is disclosed about a product necessarily affects its price. But that is not how the markets for consumer goods work. Disclosures do not move markets. People buy consumer goods for a variety of reasons -- even irrational ones. The Second Circuit stressed that fact in McLaughlin v. American Tobacco Co., 522 F.3d 215 (2d Cir. 2008). And a defendant accused of consumer fraud is allowed to challenge each person's decisionmaking process and to prove that nothing it said harmed the plaintiff. The fact that it is a class action in which the allegations are made does not change that simple fact.
Hopefully the recent decision in Local 1776 puts the aggregate proof concept to rest in consumer class actions. But it probably won't. My colleagues on the other side of the "v" are creative and indefatigable. As for me -- I'll keep my focus on the fact that Rule 23 doesn't change the substantive rules, no matter what. And as long as one can demonstrate independence of thought and action in the consumer marketplace, the concept of "aggregate proof of causation" or a "presumption of reliance" amounts to a change of the substantive rules just to facilitate class certification. And that's just wrong.
