Narrow Zyprexa Class Certified, Sealed Files Released

In a partial victory for both sides, a federal judge in New York has certified a narrow class of "third-party payors," such as pension funds, labor unions and insurance companies, in their claim that Eli Lilly committed fraud by overpricing its anti-psychotic drug Zyprexa, while overstating its utility and understating its drawbacks. The judge also ordered the release of about 350 sealed documents that were obtained by a New York Times reporter in a controversial legal end-run.

Mark Fass

New York Law Journal

2008-09-08 12:00:00 AM
A federal judge in Brooklyn, N.Y., has certified a class of "third-party payors," such as pension funds, labor unions and insurance companies, in their claim that the drug giant Eli Lilly committed fraud by overpricing its anti-psychotic drug Zyprexa while overstating the drug's utility and understating its drawbacks.

The decision was a partial victory for both sides, as Eastern District of New York Judge Jack B. Weinstein certified only the plaintiffs' Racketeer Influenced and Corrupt Organizations Act claims and not their state-law ones, and on a narrower basis than the plaintiffs sought. The judge also declined to certify a class of individual-payor claims.

"Total denial of certification would constitute the death knell of the action," Weinstein wrote in Zyprexa Products Liability Litigation, 04-MD-1596. "Almost all plaintiffs' claims would be too small to individually support this costly litigation. Under such circumstances, absent an unusual situation, the rule to be applied in deciding to deny certification is essentially that for summary judgment."

Weinstein's 295-page decision also marks the apparent end of the controversy surrounding approximately 350 sealed documents that were obtained in a legal end-run by New York Times reporter Alex Berenson.

Eighteen months after Weinstein derided the "conspiracy" orchestrated by Berenson and two sympathetic attorneys to obtain the documents -- primarily internal Lilly documents and e-mails between its top managers -- the judge ordered the documents unsealed.

"Public access is now advisable because this litigation involves issues of great public interest, the health of hundreds of thousands of people, fundamental questions about our system of approval and monitoring of pharmaceutical products, and the funding for many health and insurance benefit plans," Weinstein wrote.

"Public and private agencies and organizations have a right to be informed. At this stage public disclosure, congruent with our long tradition of open courts, is desirable."

As summarized by Weinstein in a 78-page decision in February 2007, the Times' Berenson obtained documents, which he knew were subject to a protective order, by convincing an Alaska attorney involved in an "unconnected" case to subpoena them. After that attorney, James B. Gottstein, obtained the documents, he released them to Berenson and others, and they quickly found their way into Times articles and onto the Internet.

In his 2007 decision, Weinstein enjoined a number of the individual conspirators from further disseminating the documents and ordered them to return any in their possession.

Weinstein has now ordered the seal removed, though he referred the unsealing to a special master to "avoid any unnecessary embarrassment" to any party.

"Based on this country's long-standing tradition of open access to the courts and court records, the enormous number of people who have taken or will take Zyprexa, the involvement of government regulatory bodies, absent class members' interest in the proceeding, and the age of the documents, the motions to unseal are granted," Weinstein wrote."

NARROW LIABILITY WINDOW

The present class action is one of the larger suits in the mass of claims waged against Lilly over the last five years regarding Zyprexa, which the company began marketing in 1996 as a wonder drug for schizophrenia and later, bipolar disorder.

Zyprexa quickly became one of Lilly's top sellers, with more than 12 million users and billions of dollars in annual sales.

However, beginning in 2000, a number of studies linked Zyprexa to serious health concerns. In 2006, the Times published the first of its reports on the drug, which alleged that Lilly and its officers misrepresented or failed to disclose Zyprexa's link to diabetes, obesity and heightened blood sugar.

Tens of thousands of Zyprexa users, investors and third-party payors filed suits, including: 30,000 personal injury claims; civil and criminal cases filed by attorneys general; a securities class action recently dismissed as time barred by Weinstein; and the present class action, initiated on behalf of tens of thousands of insurers and unions.

In Friday's decision, Weinstein certified the class of third-party payors, though on a more limited basis than sought by the plaintiffs. The judge defined the class as U.S. entities "at risk ... to pay or reimburse all or part of the cost of Zyprexa prescribed, provided, or administered ... from June 20, 2001 to June 20, 2005."

The four-year window, based on RICO's statute of limitations, provides a much shorter period of potential liability than the one sought by the plaintiffs, whose claims date back to 1996.

Weinstein also declined to certify a class of individual-payor claims.

"It will be difficult to obtain the necessary reliable payment data in most cases," the judge reasoned. "More important, the individual plaintiffs proposed as representatives cannot properly represent the proposed class of individual persons."

Weinstein also took the unusual step Friday of certifying an interlocutory appeal within the decision itself.

"[T]he court continues to be of the opinion that its Order of June 28, 2007, denying Lilly's motion for summary judgment, involves a controlling question of law as to which there is substantial ground for difference of opinion and that an immediate appeal from the Order may materially advance the ultimate termination of the litigation," the judge wrote.

"Primarily that question is whether Lilly is entitled to summary judgment on the ground that plaintiffs cannot satisfy essential elements of their RICO and state law claims, particularly computation of damages."

Fifteen different firms represent the various plaintiffs. A call for comment to Hanly Conroy Bierstein Sheridan Fisher & Hayes, the only New York-based firm among the plaintiff firms, was not returned.

The Philadelphia firm Pepper Hamilton represents Lilly. New York-based partner Samuel J. Abate Jr. could not be reached for comment.