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In the litigation over alleged illegal pricing tactics used in marketing the prostate cancer drug Lupron, the fate of hundreds of plaintiffs remains unclear despite a federal judge’s approval earlier this month of $150 million in settlements. And complicating the claims of nearly all of the so-called “opt-out” plaintiffs is the fact that their lawyers at the Philadelphia firm Kline & Specter were harshly criticized by the judge for their marketing tactics. In his May 12 decision, U.S. District Judge Richard G. Stearns of the District of Massachusetts faulted Kline & Specter for launching a pair of Internet Web sites that, Stearns said, were “intended to mislead potential members of the [federal multi-district litigation] MDL class.” Stearns also faulted Kline & Specter for sending a “Dear Client” letter to “every person who had registered” on the firm’s Web sites. The letter, according to Stearns, contained “a number of deliberate misrepresentations and falsehoods.” Court records show that Kline & Specter had opposed approval of the federal class action settlement, and that the firm also represents several groups of plaintiffs in proposed class actions pending in state courts in Arizona, North Carolina and New Jersey, as well as a separate suit brought on behalf of the Pennsylvania attorney general. Attorney Shanin Specter declined to be interviewed about the judge’s specific comments, but said that he and his partner, Donald Haviland, are continuing to press their clients’ claims. “We have a duty to zealously represent our clients. We’re also mindful of Judge Stearns’ concerns and we fully intend to be sensitive to those concerns in everything we do,” Specter said in an interview yesterday. “As we go forward, we will continue to aim for the best result for all of our clients,” Specter said. In his 50-page opinion in In re Lupron Marketing and Sales Practices Litigation, Stearns outlined the history of the federal litigation, including the role that Kline & Specter played at various stages in the case. The civil suits over the alleged illegal pricing of Lupron stemmed from a criminal case in which TAP Pharmaceutical Products Inc. — a joint venture of Abbott Laboratories of Illinois and Takeda Pharmaceuticals Co. of Japan — pleaded guilty to charges that it had encouraged doctors to fraudulently bill the Medicare program for free samples of Lupron as part of a “‘brand loyalty’” scheme. Acting in the wake of “whistleblower” suits, federal prosecutors took up the case and argued that the intent of the scheme was to provide incentives to doctors to prescribe Lupron instead of cheaper, similarly effective drugs, such as Zoladex, manufactured by AstraZeneca. Under its plea agreement, TAP paid a $290 million criminal fine and nearly $560 million in restitution, the largest beneficiary of which was the Medicare program, although more than $25 million was paid to the 50 states and the District of Columbia to compensate for overcharges absorbed by their Medicaid programs. According to court papers, at the heart of the scheme was TAP’s overt or tacit encouragement of doctors to bill Medicare for Lupron at an imaginary average wholesale price, or AWP, provided by TAP to the “Red Book,” an industry publication used by Medicare and other third-party payors, to establish payment schedules for reimbursable prescription drugs. Prosecutors argued that TAP knew it could “raise” the average wholesale price of Lupron at any time by simply forwarding to the Red Book a new and higher average wholesale price, in effect allowing TAP to control the maximum Medicare reimbursement paid to a doctor for prescribing Lupron. The civil suits mirrored the government’s allegations. According to the plaintiffs, the AWP reported by TAP for Lupron bore no resemblance to the actual prices being charged to doctors, nor did it bear any relationship to a reasonable interpretation of the terms “average” or “wholesale.” Instead, the suit alleged, the AWP was inflated at the expense of consumers and insurers to funnel hidden profits to doctors. Stearns noted that, in addition to the federal suits — all of which were transferred to Stearns under the Multi-District Litigation Program — several Lupron cases were also filed as either state or nationwide class actions in state courts. Lawyers in some of those cases — including those in California, Texas and Illinois — agreed early on to “coordinate discovery efforts” with the lead lawyers appointed in the federal MDL case,” Stearns noted. But Kline & Specter “refused to join in the cooperative effort,” Stearns wrote, and “instead embarked on a pre-emptive strategy to seize control of the litigation by using the state court proceedings to gain leverage over counsel cooperating with the MDL action.” Soon after the $150 million settlement was proposed in the MDL case, Stearns noted, Kline & Specter filed a motion to intervene on behalf of objectors. In November 2004, Stearns granted preliminary approval of the settlement. This action cleared the way for the class members to be notified. A few weeks later, Stearns said, the lead lawyers on the MDL case filed an emergency motion asking the court to enjoin Kline & Specter from “improper communication” with members of the Lupron purchaser class. The motion accused Kline & Specter of disseminating “false, misleading and confusing information” to class members about the MDL settlement and the status of other state court cases. The motion also accused Kline & Specter of improperly soliciting opt-outs from the MDL settlement. As evidence, the motion cited Web sites established by Kline & Specter under the domain names www.lupronlaw.com and www.lupronclass.com that offered to “welcome” potential members to “the class” and invited purchasers of the drug “to register for the Lupron class action.” After reviewing the Web sites, Stearns issued an order in which he found that the sites were intended to mislead potential members of the MDL class. Stearns said he concluded “the typical registrant on a Kline & Specter Web site would not know that he or she was opting out as a participant in the MDL class by ‘registering’ with Kline & Specter. Moreover, neither of the Web sites explained that a registrant who opted for inclusion ‘in litigation in the state courts’ might (depending on his or her state of residence) be left with no means of recovery.” The ruling said that while Kline & Specter were “perfectly free to criticize the proposed settlement agreement … they are not privileged to engage in deceptive conduct manipulating the very consumers they claim to protect.” Stearns ordered Kline & Specter to remove the “registration” form from the Web sites and to prominently display a banner stating that the sites had not been authorized by the MDL court. He also ordered that a complete list of all “registrants” be produced to the court, under seal, for inspection. Stearns said he later learned that Haviland had sent a “Dear Client” letter to every person who had registered on the firm’s Web sites. According to court records, the letter began by noting that the national class that had previously been certified in North Carolina had “recently” been decertified and said that nonresidents of North Carolina were “no longer included in and being protected by the North Carolina case.” The letter then advised registrants “to affirmatively protect their rights going forward” by opting out of the MDL settlement and by completing a Kline & Specter retainer agreement. Stearns found that the letter also “presented a distorted picture of the MDL settlement, including the patently false statement that MDL claimants would be paid only 3 cents for each dollar of their actual damages.” The letter was signed by Haviland as “Co-Lead Counsel for State Court Plaintiffs and the State Court Classes,” Stearns noted, “without any disclosure of the fact that Kline & Specter was serving as lead counsel in pending Lupron actions in only two states.” Stearns said that the “Dear Client” letter contained “a number of deliberate misrepresentations and falsehoods,” and ordered that a “curative notice” be sent by Kline & Specter to all of the letter’s recipients. After the curative notice was mailed, Stearns said he sent letters to the state court judges presiding over the North Carolina and New Jersey cases that “noted the misinformation disseminated by Kline & Specter and the efforts undertaken by the court to provide prospective MDL class members with a full understanding of their rights.” That letter also asked the state court judges to defer ruling on dispositive motions or proceeding with any potentially preclusive trials until this court could convene a hearing and rule on the fairness of the proposed MDL settlement. Kline & Specter then moved to disqualify Stearns from continuing to preside over the MDL proceedings, arguing that his “unsolicited” communications with the state court judges gave “an objective appearance of partiality, if not actual partiality,” and showed that Stearns had aligned himself with the MDL litigants in an effort to deprive the opt-out of their day in court. Stearns flatly rejected the disqualification motion, noting that there is a “longstanding federal policy encouraging MDL judges to communicate directly with state court judges presiding over parallel cases in the interests of avoiding conflicts and conserving judicial resources.” In the May 12 opinion, Stearns also rejected all of Kline & Specter’s objections to the fairness of the federal settlement. Kline & Specter argued that the settlement unfairly favored insurance companies over ordinary consumers. Specter and Haviland also argued that the defendants’ impetus to settle arose from the impending trial in the New Jersey case, and that the defendants found the MDL steering committee to be a more pliant negotiating partner than Kline & Specter, which would have insisted on a larger settlement fund in exchange for a release. “This would be a persuasive argument if it were true,” Stearns wrote. Instead, Stearns said he credited the defendants’ claim that “the global peace that they desired could never have been negotiated with Kline & Specter.” Stearns noted that Kline & Specter “represents less than 5 percent of the national pool of consumer-purchasers,” and, significantly, represents “almost none” of the third-party payor plaintiffs. Those entities hold claims to 90 percent of the damages. “As a consequence, a settlement with Kline & Specter was never considered a realistic alternative, and hence no global negotiations were ever undertaken with the firm,” Stearns wrote.

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