NEW YORK - Bankrupt pharmaceutical firm K-V Discovery Solutions Inc. on Dec. 11 moved in the U.S. Bankruptcy Court for the Southern District of New York for approval of an $85 million deal for post-petition financing, which the company says will enable it to emerge from Chapter 11 bankruptcy (In Re: K-V Discovery Solutions Inc, No. 12-113346, Chapter 11, S.D. N.Y. Bkcy.).
WASHINGTON, D.C. - Standard Chartered Bank (SCB) has agreed to the forfeiture of $227 million to the U.S. Department of Justice and to pay a $100 million penalty to the Federal Reserve Board for violating the International Emergency Economic Powers Act (IEEPA) by engaging in what is being deemed illegal transactions with a number of sanctioned entities, according to a press release issued on Dec. 11 by the U.S. Attorney's Office for the District of Columbia.
KANSAS CITY, Mo. - The Western District Missouri Court of Appeals, Division Two, on Dec. 4 affirmed a trial court ruling denying Medicaid coverage for kidney dialysis treatment to a "legal alien." The appeals court concluded that while a legal alien may receive Medicaid benefits after living in the country for five years or more, or for seeking emergency treatment, the plaintiff had resided in the United States for only three years and her condition was not considered an emergency under state and federal law (Bertha Cruz v. Mo. Department of Social Services, No. WD74667, Mo. App., Western Dist., Div. 2; 2012 Mo. App. LEXIS 1537).
ST. LOUIS - The Eighth Circuit U.S. Court of Appeals on Nov. 30 unanimously affirmed denial of judgment as a matter of law or new trial for compensatory damages in the first Levaquin multidistrict litigation bellwether trial but in a 2-1 split said the trial court erred in denying the same relief for the punitive damage verdict (In Re: Levaquin Products Liability Litigation, John Schedin v. Ortho-McNeil-Janssen Pharmaceuticals, Inc., John Schedin v. Ortho-McNeil-Janssen Pharmaceuticals, Inc., No. 11-3117, 8th Cir.; 2012 U.S. App. LEXIS 24640).
The ruling by the Eighth Circuit preserves plaintiff John Schedin's $630,000 compensatory damage award but reverses his $1,115,000 punitive damage award.
In 2005, John Schedin, then 76, was prescribed Levaquin brand levofloxacin antibiotic and corticosteroids. Schedin subsequently suffered a rupture of his left Achilles tendon and a partial tear of his right Achilles tendon.
Schedin sued Levaquin manufacturer Ortho-McNeil-Janssen Pharmaceuticals Inc. (OMJP) in the U.S. District Court for the District of Minnesota, where the Levaquin MDL is located, alleging that the defendant failed to adequately warn about the risk of tendon rupture in elderly patients taking corticosteroids.
Failure To Warn, Conduct
The case became the first Levaquin bellwether trial. In December 2010, the jury found that OMJP failed to warn Schedin's doctor of the risk of tendon rupture and found the drug company partially liable. It also found that OMJP's conduct warranted the awarding of punitive damages.
OMJP moved for judgment as a matter of law (JMOL) or a new trial. The court denied the motion, and OMJP appealed.
The panel found that Schedin presented adequate evidence that OMJP was negligent for failing to use adequate means to inform Schedin's doctor about a 2001 warning against prescribing Levaquin to elderly patients taking corticosteroids. It said it didn't need to address whether the trial court erred in denying OMJP's motion based on Schedin's "comparative toxicity theory" because any such error was harmless.
Physicians Unaware Of Warning
Considering evidence about a sentence added to the Levaquin label in 2001 and that the Food and Drug Administration received a large number of reports about tendon injuries with Levaquin's use, the panel said "a reasonable jury could infer OMJP should have realized that adverse event reports indicated physicians were unaware of the 2001 warning. The district court did not abuse its discretion in deciding it was not against the preponderance of the evidence or a miscarriage of justice under Minnesota law for the jury to find OMJP had reason to know it needed to do more to inform physicians of the 2001 warning, such as sending 'Dear Doctor' letters or directing sales representatives to warn physicians directly."
The panel said the 2008 FDA letter "provides some corroboration of the probability OMJP has some knowledge of the adverse event reports before Schedin's injury in February 2005. . . . The jury reasonably could have found some reports were made before Schedin's 2005 injury. The district court could have found the letter inadmissible, but did not abuse its considerable discretion in admitting the FDA's 2008 letter."
As to causation, the panel said, "The district court found sufficient evidence of causation, reasoning 'the jury could infer from the fact that [prescribing physician Dr. John] Beecher no longer prescribes Levaquin that some piece of information would have altered his prescribing decision since, in fact, he has changed his prescribing patterns as a result of his increased awareness of the risks of the drug.'"
"Dr. Beecher testified he no longer prescribes Levaquin unless a patient requests it," the panel continued. "Even more to the point, Dr. Beecher declared he would not have prescribed Levaquin for Schedin had Dr. Beecher been aware of the 2001 warning and known what he knows now."
Would Warning Be Ignored?
The panel rejected OMJP's argument that warnings from its sales representatives or from a Dear Doctor letter would have made a difference. It said that although the doctor testified he did no rely heavily on sales representatives, that did not mean he would have ignored a warning.
In addition, the panel said "general study evidence" indicated that "properly worded and highly publicized" Dear Doctor letters may reduce risky prescribing practices. "Although a stretch, the jury reasonably could infer Dr. Beecher would have learned about the changed warning if OMJP warned Dr. Beecher or his colleagues using sales representatives or publicized 'Dear Doctor' letters," the panel said.
"The district court did not abuse its discretion in holding such a jury finding was not against the preponderance of the evidence," the panel said.
Punitive Evidence Speculative
On the issue of punitive damages, however, a two-judge majority said the District Court's finding that OMJP knew of higher tendon toxicity for Levaquin, hid that potential and failed to adequately warn is "mere speculation."
"As a matter of law, the record evidence failed to establish OMJP deliberately disregarded the risk of tendon injuries in elderly patients taking corticosteroids, as required for punitive damages under Minnesota law," the majority wrote. "By warning of that risk in its package insert, OMJP 'actively sought ways to prevent the dangers associated with its product.'"
The majority also noted that the 2001 warning was published in the Physician's Desk Reference, a widely used reference source.
As to OMJP's action regarding the so-called Ingenix study of Levaquin and tendon rupture, the majority said that "we cannot characterize OMJP as hiding information it openly published. The 2001 warning was in Dr. Beecher's physical possession and was specific and clear if read."
"The evidence is neither clear nor convincing, as a matter of law, that OMJP deliberately disregarded the safety of the users of Levaquin," the majority concluded.
Chief Circuit Judge William Jay Riley wrote the majority opinion. He was joined by Circuit Judge Michael J. Melloy.
Circuit Judge Kermit E. Bye concurred with the panel on the motions regarding compensatory damages but dissented regarding its majority ruling on punitive damages. "I believe, however, there was sufficient evidence from which a reasonable jury could conclude OMJP deliberately disregarded the risk of tendon injuries in elderly patients who were prescribed Levaquin in association with corticosteroids," Judge Bye wrote.
"The punitive damage award should not, however, rise or fall on whether the jury reasonably found OMJP manipulated the Ingenix study," Judge Bye said. "Even assuming the jury rejected Schedin's allegations regarding the Ingenix study, the evidence was more than sufficient to allow a reasonable jury to infer that OMJP deliberately acted with indifference to a high degree of probability of injury . . . based on (1) OMJP's knowledge of the serious risks associated with Levaquin's potential for higher tendon toxicity when prescribed to elderly patients in conjunction with corticosteroids, and (2) OMJP deliberately choosing a course of action whereby physicians would not be adequately apprised of the increased risk."
"Schedin presented evidence from which a jury could reasonably infer OMJP was more concerned about its profits, and how those profits would be affected by effective warnings, than it was about the possibility Levaquin could injure elderly patients who were prescribed the drug in association with corticosteroids," the judge continued.
Judge Bye said that when OMJP revised Levaquin's label in 2003, "it deliberately chose not to issue Dear Doctor letters or even to instruct its pharmaceutical representatives to advise physicians of the label change. Instead, OMJP deliberately chose to bury the updated warning - a single twenty-word sentence - inside thirty pages of fine print in the revised package insert, and then took no further action to ensure physicians would be aware of the label's revised warnings."
Inferred Profit Motive
"The jury could reasonably infer OMJP chose this course of action because issuing Dear Doctor letters, or instructing pharmaceutical representatives to spread the word about the increased risk, would have a direct and adverse affect on OMJP's profits," Judge Bye continued.
"Thus, contrary to the majority's conclusion that OMJP's conduct showed the company 'actively sought ways to prevent the dangers associated with its product,'" he wrote, citing case law. "OMJP's deliberate choices virtually guaranteed that physicians would remain unaware of the increased risk of prescribing Levaquin to elderly patients in conjunction with corticosteroids."
"By reversing the punitive damage award we encourage other pharmaceutical companies to make the same devious choices OMJP made, instead of affirming the jury's decision to deter such conduct," Judge Bye concluded.
OMJP is represented by John Dames and William V. Essig of Drinker & Biddle in Chicago, Dana M. Lenahan and Tracey J. Van Steenburgh of Nilan & Johnson in Minneapolis and Charles Lifland and Cynthia Ann Merrill of O'Melveny & Myers in Los Angeles.Schedin is represented by David M. Cialkowski and Ronald S. Goldser of Zimmerman Reed in Minneapolis and Lewis J. Saul and Charles M. Wolfson of Lewis Saul & Associates in New York.
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WASHINGTON, D.C. - The U.S. Supreme Court on Nov. 30 said it will review a First Circuit U.S. Court of Appeals ruling that a defective design claim involving a generic drug is not preempted by federal law, placing in jeopardy a $21 million verdict for a New Hampshire woman who suffered burnlike injuries from generic sulindac (Mutual Pharmaceutical Company, Inc. v. Karen L. Bartlett, No. 12-142, U.S. Sup.).
The decision followed a Nov. 30 conference by the court to consider the petition for a writ of certiorari by Mutual Pharmaceutical Co. Inc.
Karen Bartlett was prescribed Clinoril, a prescription nonsteroidal anti-inflammatory drug to treat shoulder pain. The pharmacy dispensed sulindac, the generic version of Clinoril.
Bartlett subsequently developed Stevens-Johnson syndrome and toxic epidermal necrolysis, reactions that resulted in burnlike damage to 60 to 65 percent of her body. She spent 70 days in a hospital, including a burn unit, and suffered permanent tissue damage and near-blindness.
Design Defect Only Survived
Bartlett sued three defendants in New Hampshire state court. Mutual Pharmaceutical removed the case to the U.S. District Court for the District of New Hampshire.
Eventually, most of Bartlett's claims were dismissed by the court or by the plaintiff, and only the design defect claim remained against Mutual, the sole defendant at trial. Bartlett's failure-to-warn claim was dismissed because Bartlett's prescribing doctor testified that he had not read the warning label.
At trial, the sole theory of design defect was whether sulindac's risks outweighed its benefits, making it unreasonably dangerous to consumers, despite the fact that the Food and Drug Administration had never withdrawn Clinoril's designation as "safe and effective."
After a 14-day trial in 2009, a jury awarded Bartlett $21.06 million in compensatory damages. The court denied Mutual's motion for judgment as a matter of law or a new trial.
1st Circuit Affirms
Mutual appealed to the First Circuit U.S. Court of Appeals, but in May an appeals panel ruled that design defect claims are not preempted. The panel said generic drug manufacturers could avoid conflict between their duties under state court and under federal regulations for generic drugs by not making the drugs at issue.
The panel also said the Supreme Court should decide the issue and later granted Mutual's motion to stay entry of judgment pending the filing of a petition for a writ of certiorari.
In July, Mutual Pharmaceutical filed its petition. It argued that the First Circuit panel's decision is plainly at odds with the Supreme Court's generic drug preemption ruling in Pliva, Inc. v. Mensing (131 S. Ct. 2567 ; See 7/7/11, Page 4).
Opposition: No Circuit Conflict
In her Oct. 31 brief in opposition, Bartlett said the First Circuit's decision creates no conflict with other circuit courts. In addition, Bartlett said Mutual's petition does not present a question of recurring national importance.
Sulindac is not an essential drug, Bartlett said. District court cases cited by Mutual do not justify Supreme Court review, she said.
The First Circuit correctly concluded that compliance with federal and state law is not impossible in her case, Bartlett said, adding that New Hampshire law imposes strict, but not automatic, liability for unreasonably dangerous drugs.
Nothing in federal law precluded Mutual from complying with New Hampshire law, Bartlett said.
Bartlett said Pliva involved a different state law duty - failure to warn - than the defective design claim in her case. The state law did not require Mutual to perform any act prohibited by federal law, she said.
In addition, Bartlett said New Hampshire law does not require Mutual to change the design of its drug.
Mutual is represented on the petition by Jay P. Lefkowitz of Kirkland & Ellis in New York and Michael W. McConnell, Michael D. Shumsky and John K. Crisham of Kirkland & Ellis in Washington.
Bartlett is represented by Keith M. Jensen of Jensen & Associates in Fort Worth, Texas, and Steven M. Gordon and Christine M. Craig of Shaheen & Gordon in Concord, N.H.
Amicus curiae Morton Grove Pharmaceuticals Inc., Aurobindo Pharma USA Inc., Amneal Pharmaceuticals LLD, Teva Pharmaceuticals USA Inc., Impax Laboratories Inc. and Ranbaxy Pharmaceuticals Inc. are represented by Steffen N. Johnson, Scott H. Blackman and Andrew C. Nichols of Winston & Strawn in Washington and George C. Lombardi, W. Gordon Dobie, James F. Hurst, Maureen L. Rurka and William P. Ferranti of Winston & Strawn in Chicago.
Amicus Generic Pharmaceutical Association is represented by Ray M. Aragon of McKenna, Long & Aldridge in Washington and Clem C. Trischler and Jason M. Reefer of Pietragallo, Gordon, Alfano, Bosick & Raspanti in Pittsburgh.
ATLANTA - The Georgia Court of Appeals on Nov. 28 overturned summary judgment for the defendants in a medical malpractice action, concluding that the plaintiffs presented evidence showing that a delay in proper medical attention led to a man's finger being amputated (Ryan S. Dailey, et al. v. Dr. Gihan Abdul-Samed, et al., No. A12A1109, Ga. App.; 2012 Ga. App. LEXIS 1002).
WILMINGTON, Del. - A group of secured creditors in the Chapter 11 bankruptcy of alternative energy company Satcon Technology Corp. (STC) on Nov. 27 filed a brief in the U.S. Bankruptcy Court for the District of Delaware objecting to the debtor's emergency motion seeking authorization to enter a settlement in which it would incur post-petition trade debt (In Re: Satcon Technology Corporation, No. 12-12869, Chapter 11, D. Del. Bkcy.).
NEW YORK - The chairman of the restructuring group in the Chapter 11 bankruptcy case of Eastman Kodak Co. on Nov. 19 filed a brief in the U.S. Bankruptcy Court for the Southern District of New York arguing that the bankruptcy court should approve additional post-petition funding for Kodak to emerge from bankruptcy quickly (In Re: Eastman Kodak Company, No. 12-10202, Chapter 11, S.D. N.Y. Bkcy.).
CHICAGO - Bankrupt Tribune Co. on Nov. 16 issued a statement in which it said that based on the approval it has gained from the Federal Communications Commission for broadcast licenses, the company will be able to emerge from Chapter 11 bankruptcy (In Re: Tribune Company, No. 08-13141, Chapter 11, D. Del. Bkcy.). Subscriber may view the statement available within the full article.
NEW YORK - Twinkie maker Hostess Brands Inc., which had been proceeding with a bankruptcy reorganization plan, today moved in the U.S. Bankruptcy Court for the Southern District of New York for authorization to convert its proceeding to Chapter 7, which would result in liquidation of the company (In Re: Hostess Brands Inc., No. 12-22052, Chapter 11, S. D. N.Y. Bkcy.).
Hostess filed for Chapter 11 bankruptcy on Jan. 11. Yesterday, the company issued a statement saying that if striking union employees did not return to work by 5 p.m. Eastern Standard Time, it would move for liquidation and close operations.
Today, the company filed an emergency motion in the Bankruptcy Court seeking orders pursuant to 11 U.S. Code Sections 105, 363, 365 and 503(c) approving a plan to wind down its business and sell its assets.
Hostess also seeks approval to conduct going-out-of-business sales, to implement an employee retention plan and to implement a management incentive plan and authorization to take any and all actions needed to wind down the business.
From the outset of its Chapter 11 cases until only recently, Hostess says it was focused on, and pursued, the reorganization of its businesses as economically viable.
The reorganization process depended on Hostess' ability to make modifications to its collective bargaining agreements (CBAs) with its unions, the company says. Also, according to demands made by its third-party investors, Hostess needed to modify its multiemployer pension benefit obligations. Without those modifications, Hostess would not be able to attract investors willing to provide capital to the reorganized company, it says.
Hostess on Jan. 25 moved to reject certain CBAs and modify certain retiree benefit obligations pursuant to 11 U.S. Code Sections 1113(c) and 1114(g). The two biggest unions involved were the International Brotherhood of Teamsters (IBT) and the Bakery, Confectionery, Tobacco and Grain Millers International Union (BCTGM).
Hostess says that it tried to negotiate with the unions but that the BCTGM refused.
11 U.S. Code Section 1113
The Bankruptcy Court held a trial on Hostess' motions pursuant to 11 U.S. Code Sections 1113 and 1114. The Bankruptcy Court ruled that Hostess could not reject the CBAs but said it would grant the motions as long as Hostess made certain changes to the relief requested. The Bankruptcy Court's ruling made clear that Hostess' exit from the multiemployer pension plans would very likely be necessary for it to successfully emerge from bankruptcy.
Hostess then held discussions with the IBT, some of the company's key lenders and the only potential outside equity investor that had made a viable proposal, the company says. The IBT indicated that its participation in any reorganization plan was conditioned upon Hostess remaining in all of the IBT multiemployer pension plans. Consequently, Hostess' only viable outside investor indicated that it was no longer willing to invest in the debtors' businesses, the company says.
As a result, Hostess now seeks approval of a wind down process in which it will sell those assets that can be operated on a going-concern basis. Under the wind-down plan, buyers of the assets will assume as many of the related administrative expenses and other claims as possible. Hostess says it hopes to complete the wind down and the sale of substantially all of its assets in approximately one year.
Hostess says it estimates that it holds approximately $29.3 million worth of excess ingredients and has less than $1 million in generic packaging materials. It also says that the costs associated with the wind down and disposition of each of its plants and their related assets are approximately $17.58 million over the first 13 weeks of the wind down.
Hostess is represented by Corinne Ball, Heather Lennox, Lisa Laukitis and Veerle Roovers of Jones Day in New York and Ryan T. Routh of the Cleveland office of Jones Day.
NEW YORK - Investors on Tuesday asked a federal judge in New York to preliminarily approve a potential $80.25 million settlement of claims that defendants concealed that the investors' funds were being placed in accounts that were part of Bernard L. Madoff's massive Ponzi scheme (Pasha S. Anwar, et al. V. Fairfield Greenwich Ltd., et al., No. 09-0118, S.D. N.Y.).
Under the terms of the partial settlement, which is subject to court approval, 10 officers and directors of FG or one of its subsidiaries will pay "$80,250,000, including a minimum of $50,250,000 that will be distributed to the Settlement Class (the 'Settlement Fund') upon final approval and an additional $30,000,000 that will be distributed if not used to resolve other claims."
"In addition to this guaranteed recovery of $50,250,000, the Settling Defendants, funded by the FG Defendants, also will transfer $30,000,000 into a separate account (the 'Escrow Fund'), which will be distributed to the Settlement Class to the extent it is not used to pay certain other claims or judgments against the FG Defendants. In the event that the Escrow Fund is used to settle claims against the Settling Defendants that have been brought by the Trustee in the liquidation of BLMIS [Bernard L. Madoff Investment Securities LLC], the Settling Defendants must make an additional payment to the Settlement Fund of up to $5,000,000, measured by 50% of the amount, if any, by which such a settlement exceeds $50,125,000," the investors say.
"As additional consideration, the Settling Defendants have agreed to waive (i) indemnification claims they hold against the Funds for the $80,250,000 payments that they will make under the Settlement; and (ii) $20,000,000 of indemnification claims they hold against the Funds for legal fees and expenses incurred in defending the Action."
Not Subject To Settlement
Claims against defendants PricewaterhouseCoopers (PwC) International Ltd. and member firms PwC LLP and PwC Accountants Netherlands N.V. (collectively, PwC defendants); Citco Group Ltd., five of its subsidiaries (collectively, Citco) and directors Brian Francoeur and Ian Pilgrim; and GlobeOp Financial Services LLC (collectively, nondismissed defendants) are not subject to the stipulation of settlement.
The stipulation of settlement also contains provisions barring the nondismissed defendants "from asserting claims against the FG Defendants for contribution and indemnification and providing for reduction of any judgment that may be entered against the Non-Dismissed Defendants to account for Plaintiffs' recovery under the instant Settlement."
"The Stipulation is subject to additional terms, including terms contained in a Supplemental Agreement dated as of November 6,2012, which provides that if class members representing a Net Loss of principal in excess of a certain amount seek exclusion from the Settlement Class, the Settling Defendants may terminate the Settlement. In the event the Settling Defendants elect to terminate, but the Net Loss of opt-outs does not exceed a separate threshold specified in the Supplemental Agreement, the Settling Defendants shall incur a break-up fee in the amount of $1,000,000, which shall remain in the Settlement Fund," the investors state.
Moreover, the investors seek certification of a class of "All Beneficial Owners of shares or limited partnership interests in the Funds as of December 10, 2008 (whether as holders of record or traceable to a shareholder or limited partner account of record), who suffered a Net Loss of principal invested in Fairfield Sentry Limited, Fairfield Sigma Limited, Fairfield Lambda Limited, Greenwich Sentry L.P. or Greenwich Sentry Partners, L.P."
FG, which managed several funds that invested in Madoff and BLMIS, was sued by a number of investors who lost money in the scheme and now are seeking to recover under various tort and contract theories. The cases were consolidated in the U.S. District Court for the Southern District of New York under Judge Victor Marrero.
The investors filed an amended complaint in the District Court, alleging that FG, five of its subsidiaries, 10 officers and directors of FG or one of the subsidiaries (collectively, the FG defendants); 13 FG partners (the fee defendants); the PwC defendants; Citco; Francoeur; Pilgrim; and GlobeOp Financial violated Sections 10(b) and 20(a) of the Securities Exchange Act and Securities and Exchange Commission Rule 10b-5 by concealing FG's exposure to the Madoff Ponzi scheme.
Additional Claims Made
Additional claims for fraud, negligent misrepresentation, negligence, breach of fiduciary duty, third-party beneficiary breach of contract, constructive trust, mutual mistake, gross negligence, aiding and abetting breach of fiduciary duty, aiding and abetting fraud and unjust enrichment were made.
On July 29, 2010, Judge Marrero ruled that the investors' state law claims are not preempted by New York's Martin Act (Anwar I), and in an Aug. 18, 2010, ruling (Anwar II), Judge Marrero held that the investors have properly stated a claim against the FG defendants and the fee defendants and have properly pleaded their securities law claims under the group pleading doctrine.
The investors are represented by David Boies of Boies, Schiller & Flexner in Armonk, N.Y.; David A. Barrett and Howard L. Vickery of Boies Schiller in New York; Stuart H. Singer, Carlos M. Sires and Sashi Bach Baruchow of Boies Schiller in Fort Lauderdale, Fla.; Robert C. Finkel, Carl L. Stine and James A. Harrod of Wolf Popper in New York; Christopher Lovell and Victor E. Stewart of Lovell Stewart Halebian in New York; Robert S. Schachter and Hilary Sobel of Zwerling Schachter & Zwerling in New York; Steven J. Toll and S. Douglas Bunch of Cohen Milstein Sellers & Toll in Washington, D.C.; Daniel W. Krasner and Gregory M. Nespole of Wolf Haldenstein Adler Freeman & Herz in New York; and David A Gehn of Gusrae, Kaplan, Bruno & Nusbaum in New York.
PwC Accountants N.V. is represented by William R. Maquire, Sarah L. Cave, Savvas A. Foukas and Gabrielle S. Marshall of Hughes Hubbard & Reed in New York. Francoeur is represented by Kenneth A. Zitter of New York. GlobeOp is represented by Jonathan D. Cogan and Michael S. Kim of Kobre & Kim in New York and Grant B. Rabenn of Kobre & Kim in Washington, D.C.
The Citco defendants are represented by Lewis N. Brown and Amanda M. McGovern of Gilbride, Heller & Brown in Miami and Eliot Lauer and Michael Moscato of Curtis, Mallet-Prevost, Colt & Mosle in New York. Lion Fairfield Capital Management Ltd. is represented by Lawrence P. Eagel, Paul D. Wexler and Jeffrey A. Carpenter of Bragar Wexler Eagel & Squire in New York. PwC International is represented by Howard M. Shapiro, Fraser L. Hunter Jr., Anne K. Small and Brad E. Konstandt Wilmer Cutler Pickering Hale and Dorr in New York.
PwC LLP is represented by Andrew M. Genser of Kirkland & Ellis in New York and Emily Nicklin and Timothy A. Duffy of Kirkland & Ellis in Chicago. The fee defendants are represented by Edward M. Spiro of Morvillo, Abramowitz, Grand, Iason, Anello & Bohrer in New York and Mark G. Cunha, Michael J. Chepiga and Peter E. Kazanoff of Simpson Thacher & Bartlett in New York.
The FG defendants are represented by Cunha, Chepiga and Kazanoff of Simpson Thacher in New York; Marc E. Kasowitz and Daniel J. Fetterman of Kasowitz Benson Torres & Friedman in New York; Andrew Levander and David Hoffner of Dechert in New York; Glenn Kurtz and Andrew Hammond of White & Case in New York; and Mark Goodman and Helen Cantwell of Debevoise & Plimpton in New York.
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WASHINGTON, D.C. - A shareholder plaintiff and a pharmaceutical company debated in front of the U.S. Supreme Court whether a securities lawsuit may proceed as a class action even if the plaintiff is unable to plead materiality (Amgen Inc., Kevin W. Sharer, Richard D. Nanula, Roger M. Perlmutter and George J. Morrow v. Connecticut Retirement Plans and Trust Funds, No. 11-1085, U.S. Sup.).
Arguing for petitioners Amgen Inc., Kevin W. Sharer, Richard D. Nanula, Roger M. Perlmutter and George J. Morrow, attorney Seth P. Waxman of Wilmer Cutler Pickering Hale and Dorr said that "ur case is about whether the claim of liability is in a fundamental sense class wide or individual."
Waxman argued that an inability to prove to a judge at the class certification stage "that class-wide reliance can be - that class-wide reliance exists because the statement was material doesn't preclude a plaintiff like [shareholder] Connecticut Retirement [Plans and Trust Funds (CRPTF)], which has said it's going to proceed whether there's a class or not, or any other member of the class, from coming to court and saying either, 'I directly relied on this statement and here's my proof that it's material to the trier-of-fact,' because the decision that the judge makes at certification is not binding on the trier-of-fact; or even to say, 'I relied on the integrity of the market price, and I have proof that the market price was affected because here are three investors, they're all reasonable people, and they say that it was relevant, important to them in the total mix of information involved.'"
But Justice Elena Kagan questioned whether, if at the class certification stage, the court "holds that a statement is immaterial, it's immaterial for all members of the class, and the suit has to be dismissed? Isn't that right?"
Justice Kagan also questioned whether, under Amgen's theory, the class certification stage becomes a sort of "super merits inquiry."
Arguing for CRPTF, attorney David C. Frederick of Kellogg, Huber, Hansen, Todd, Evans & Figel said, "In a fraud-on-the-market case, the idea of reliance, the only theory of reliance that is being advanced, is indirect reliance on the integrity of the market."
"There is no other theory of reliance," Frederick said.
CRPTF sued the defendants in the U.S. District Court for the Central District of California under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Securities and Exchange Commission Rule 10b-5.
CRPTF alleged that Amgen made misrepresentations regarding the safety of two of its products, Aranesp and Epogen, causing artificial inflation of the market price for Amgen stock. CRPTF moved to certify a class of people who bought Amgen stock from April 22, 2004, through May 10, 2007. The start of the period corresponds to a public statement by Amgen regarding a May 2004 Food and Drug Administration advisory committee meeting. CRPTF alleges that Amgen misrepresented that the meeting would not focus on the safety of Aranesp. The end of the class period corresponds with a later meeting of the same FDA committee. CRPTF alleged that the meeting constituted a corrective disclosure.
Amgen opposed class certification principally on the ground that CRPTF did not, and could not, establish that the alleged misrepresentations were material. The District Court rejected Amgen's arguments and granted CRPTF's motion for class certification, holding that CRPTF could invoke the presumption of reliance arising from the fraud-on-the-market theory because to trigger the presumption, CRPTF "need only establish that an efficient market exists." Amgen appealed to the Ninth Circuit U.S. Court of Appeals, which affirmed. The Ninth Circuit rejected Amgen's contention that CRPTF must provide proof of materiality at the class certification stage.
On March 1, Amgen and the individual defendants filed a petition for writ of certiorari with the U.S. Supreme Court.
The petition presented two questions: "Whether, in a misrepresentation case under SEC Rule 10b-5, the district court must require proof of materiality before certifying a plaintiff class based on the fraud-on-the-market theory" and "Whether, in such a case, the district court must allow the defendant to present evidence rebutting the applicability of the fraud-on-the-market theory before certifying a plaintiff class based on that theory."
The Supreme Court granted the petition on June 11. On Aug. 18, the petitioners filed a petitioners' brief, and on Sept. 20, CRPTF filed a respondent's brief.
Former SEC commissioners and officials and law and finance professors filed an amicus curiae brief in support of the petitioners on Aug. 14.
On Sept. 27, the following entities each filed amicus curiae briefs in support of CRPTF: the United States; the National Association of Shareholder and Consumer Attorneys; Public Justice P.C., civil procedure and securities law professors; AARP, New York City pension funds and the Colorado Public Employees' Retirement Association of the City of New York; Public Citizen Inc.; and financial economists.
The petitioners are represented by Noah A. Levine of Wilmer Cutler in New York, Waxman, Louis R. Cohen, Andrew N. Vollmer, Daniel S. Volchok and Weili J. Shaw of Wilmer Cutler in Washington, and Steven O. Kramer, John P. Stigi III, John M. Landry and Jonathan D. Moss of Shephard, Mullin, Richter & Hampton in Los Angeles. CRPTF is represented by Frederick, Derek T. Ho and Emily T.P. Rosen of Kellogg, Huber, Hansen, Todd, Evans & Figel in Washington and Edward Labaton, Jonathan M. Plasse and Christopher J. McDonald of Labaton Sucharow in New York.
The former SEC commissioners and officials and law and finance professors are represented by Timothy S. Bishop, Joshua D. Yount and Frank M. Dickerson of Mayer Brown in Chicago. The United States is represented by Mark D. Cahn, Michael A. Conley, Jacob H. Stillman, John W. Wavery, Benjamin L. Schiffrin and Jeffrey A. Berger of the Securities and Exchange Commission in Washington and Donald B. Verrilli Jr., Malcolm L. Stewart and Nicole A. Saharsky of the Department of Justice in Washington. The National Association of Shareholder and Consumer Attorneys is represented by William C. Fredericks and Ann M. Lipton of Bernstein Litowitz Berger & Grossman in New York.
Public Justice P.C. is represented by Arthur Bryant of Public Justice P.C. in Oakland, Calif., and Earl Landers Vickery of Austin, Texas. The civil procedure and securities law professors are represented by David Marcus of the University of Arizona Rogers College of Law in Tucson, Ariz., and Darren J. Robbins and Eric Alan Isaacson of Robbins Geller Rudman & Dowd in San Diego. AARP is represented by Jay Sushelsky of AARP Foundation Litigation and Michael Shuster of AARP, both in Washington. The New York City pension funds are represented by Michael A. Cardozo of the City of New York.
The Colorado Public Employees' Retirement Association of the City of New York is represented by Gregory W. Smith of the Colorado Public Employees' Retirement Association in Denver. Public Citizen Inc. is represented by Scott L. Nelson and Allison M. Zieve of the Public Citizen Litigation Group in Washington. The financial economists are represented by Ernest A. Young in Durham, N.C., and William C. Fredericks and Ann M. Lipton of Bernstein Litowitz Berger & Grossman in New York.
CENTRAL ISLIP, N.Y. - A New York federal jury on Nov. 2 found Novartis Pharmaceuticals Corp. liable for a woman's osteonecrosis of the jaw (ONJ) and awarded her $10.45 million, according to the parties (Barbara Davids v. Novartis Pharmaceuticals Corporation, No. 2:06-431, E.D. N.Y.).
The jury in the U.S. District Court for the Eastern District of New York awarded Barbara Davids $350,000 for past damages, $100,000 for future damages and $10 million in punitive damages, a plaintiff's source told Mealey Publications.
In a Nov. 5 statement, a Novartis spokesperson said, "We are disappointed and disagree with the jury's verdict. We are reviewing our appellate options."
Fosamax, Zometa Use
In 2001, Davids was diagnosed with stage 1 *** cancer. Later that year, Davids' primary care physician prescribed Fosamax, an oral bisphosphonate drug, to treat Davids' osteoporosis.
In 2003, Davids' cancer metastasized to her bones, and she was prescribed Femara. Later that year, she was treated with Zometa, an intravenous bisphosphonate drug made by Novartis.
In 2006, Davids sued Novartis in the District Court. Her case was transferred into the Aredia/Zometa multidistrict litigation and was remanded in 2011.
As of April, her claims were for strict liability, negligent manufacture, negligent failure to warn and breach of express and implied warranty.
According to a September pretrial order, Novartis argued that the warnings about Zometa's adverse side effects were adequate and that it did not have to warn Davids' oncologist. It also denied that any failure to warn caused Davids' injuries.
Instead, Novartis said, Davids' ONJ was spontaneous and possibly related to extensive dental treatment prior to her starting Zometa.
In addition, the defendants argued that Davids' claims are barred by the learned intermediary doctrine. Novartis also denied that there was any manufacturing or design defect.
The trial began Oct. 4.
Davids' expert witnesses were Wayne A. Ray, Ph.D.; Suzanne Parisian, M.D.; James Vogel, M.D.; Robert E. Marx, D.D.S.; and Richard A. ***, D.D.S. Novartis' experts were Janet Arrowsmith, M.D.; Kenneth Fleisher, D.D.S.; Arthur Goldberg, M.D.; Theresa Guise, M.D.; Mitchell Levine, M.D.; Allan Lipton, M.D.; Graham Russell, M.D., Ph.D.; and Stuart Super, D.M.D.
Judge Arthur D. Spatt presided.
Concurrent Fosamax Claim
Davids has also sued Merck & Co. Inc., the manufacturer of Fosamax, in the Southern District of New York, where the Fosamax multidistrict litigation is located.
Davids is represented by Bart T. Valad and John J. Vecchione of Valad & Vecchione in Fairfax, Va., Terrence J. Sweeney of New York and Deborah N. Misir of Lally & Misir in Mineola, N.Y. Novartis is represented by Anne Marla Friedman, Bruce J. Berger, Katharine R. Latimer and Robert E. Johnston of Hollingsworth in Washington, D.C., and Jesse J. Graham and David Richman of Rivkin Radler in Uniondale, N.Y.
PORTLAND, Ore. - The Iraq War contractors accused by Oregon National Guard members in the U.S. District Court for the District of Oregon of exposing them to hexavalent chromium during a Restore Iraqi Oil mission were found liable by a jury under the theory of negligence but not fraud Nov. 2 in the 19th day of a bellwether trial; each of the 12 test plaintiffs was awarded $850,000 in compensatory damages and $6.25 million in punitive damages (Rocky Bixby, et al. v. KBR, Inc., et al., No. 09-632, D. Ore.).
Rocky Bixby, a staff sergeant in Charlie Company of the Oregon National Guard, is the lead plaintiff among 34 guard members alleging claims against KBR Inc. and its subsidiaries, KBR Technical Services Inc., Kellogg, Brown & Root Services Inc., Overseas Administration Services Ltd. and Services Employees International Inc.
The guard members provided security at Qarmat Ali while the companies worked under contract to the U.S. Army Corps of Engineers to repair a pumping station, which injected water to extract crude oil from wells in Iraq. The initiative is known as Restore Iraqi Oil (RIO), and Task Order 3 delineates the contractors' duties, according to the record.
Claims against Halliburton Co. and Halliburton Energy Services were dismissed with prejudice on July 28 for lack of jurisdiction.
In the fifth amended complaint, the guard members seek to recover under theories of negligence and fraud, according to the record. The guard members allege that they were exposed to sodium dichromate while they were stationed at Qarmat Ali in May 2003 through September 2003. As a result of the exposure, the guard members allege, they have hexavalent chromium poisoning.
Magistrate Judge Paul Papak presided over the trial. The jury was selected Oct. 9. The parties gave opening statements on Oct. 10, and the guard members began presenting their case. The plaintiffs completed their case on Oct. 24, according to the record. The defendants began presenting their case on Oct. 25.
Magistrate Judge Papak instructed the jury on Oct. 30, the 16th day of the trial. In the definitions portion of the instructions, he said "plaintiffs" means Jason Arnold, Rocky Bixby, Ronald Bjerklund, Colt Campredon, Charles Ellis, Byron Greer, Matthew Hadley, Brian Hedin, Vito Pecheco, Lawrence Roberta, Charles Seamon and Aaron St. Clair. The defendants for purposes of the jury instructions are KBR Inc. and Kellogg, Brown & Root Services, according to Magistrate Judge Papak.
The jury answered affirmatively the questions of whether each of the guard members filed his claim within the Oregon two-year statute of limitations, whether the defendants were negligent and whether the negligence was a cause of damage to the guard member.
The jury found insufficient evidence that Roberta contributed to his injuries under the theory of comparative fault.
The jury also concluded that the guard members did not show that the defendants were liable under the theory of fraud.
The jury answered affirmatively the question of whether each guard member had produced evidence of noneconomic damages and awarded each plaintiff $850,000. The jury also awarded each guard member punitive damages of $6.25 million.
Magistrate Judge Papak instructed the jury Oct. 30 on the definitions of "reasonable care," causation, foreseeability and comparative fault definitions relative to negligence. The nonparties to which comparative fault may apply include the U.S. Army and the U.S. Army Corps of Engineers, according to Magistrate Judge Papak.
The jury was instructed that the factors to find fraud are a material false representation the defendant knew to be false or recklessly made with the intention or reckless disregard of whether it was misleading that was relied upon and damaged the plaintiff as a result. Magistrate Judge Papak also provided definitions of false representation, fraudulent misrepresentation and half-truth fraudulent misrepresentation.
Regarding damages, Magistrate Judge Papak instructed that the jury may consider noneconomic and punitive damages. He defined noneconomic damages as pain, mental suffering, emotional distress and/or humiliation and inconvenience or interference with normal activities. Magistrate Judge Papak instructed the jury that it may not award noneconomic damages for an increased risk of developing cancer. The jury may award emotional distress damages based on a determination that the plaintiff experienced the distress because of the possibility of developing cancer. The jury was instructed that it may consider aggravation of a pre-existing injury but may not award noneconomic damages for the earlier injury.
To award punitive damages, the jury was instructed to consider how "reprehensible" the behavior was, the reasonability of the relationship between the amount of punitive damages and the harm and the financial condition of the defendants.
Amanda G. Halter, Jeffrey L. Raizner, Michael P. Doyle and Patrick Mason Dennis of Doyle Raizner in Houston; David F. Sugerman of David F. Sugerman Attorney in Portland; Gabriel A. Hawkins of Cohen & Malad in Indianapolis; and Stuart Bruce Esner of Esner, Chang & Ellis in Glendale, Calif., represent the guard members.
Randall Jones of Serpe, Jones and Andrews, Callender & Bell in Houston; Raymond B. Biagini, Kurt Hamrock and Lora A. Brzezynski of McKenna, Long & Aldridge in Washington, D.C.; Chanler A. Langham, Geoffrey L. Harrison, J. Hoke Peacock III and Jordan W. Conners of Susman Godfrey in Houston; and Jeffrey S. Eden of Schwabe, Williamson & Wyatt in Portland represent the KBR defendants.
ALBANY, N.Y. - The New York Court of Appeals on Oct. 30 affirmed an appellate court order that the state's Department Of Health failed, and will likely continue to fail, to timely respond to requests for emergency medical assistance benefits. The high court agreed that the "likely to recur" mootness doctrine should be applied to the plaintiff's claim seeking damages for lack of notification of benefits availability (Barbara Coleman, etc., v. Richard F. Daines, M.D., etc., No. 152, N.Y. App.; 2012 N.Y. LEXIS 3263).
BALTIMORE - Boehringer Ingelheim Pharmaceuticals Inc. will pay $95 million to the federal government to resolve civil allegations that it marketed three drugs for off-label uses, promoted high doses of two drugs and paid kickbacks to health care professionals, according to a settlement agreement filed Oct. 25 in Maryland federal court (United States of America, ex rel. Robert Heiden v. Boehringer Ingelheim, et al., No. 1:05-484, D. Md.).
The federal government will get $78.4 million plus interest and state Medicaid programs will get $16.5 million plus interest.
The settlement stems from a 2005 False Claims Act, 31 U.S.C.S. § 3729-3733, lawsuit filed by Robert Heiden against Boehringer and Abbott Laboratories. Heiden will be paid his statutory share of $17 million plus interest out of the federal recovery.
Boehringer will pay Heiden's attorney fees and costs under a separate agreement. The fees and costs were not specified.
According to the settlement agreement filed in the U.S. District Court for the District of Maryland, Boehringer marketed Aggrenox, Combivent and Micardis for off-label uses. Aggrenox is approved to treat secondary strokes.
Combivent is approved to treat continued symptoms of bronchospasm in patients with chronic obstructive pulmonary disease (COPD) who are already using a bronchodilator. Micardis is approved to treat hypertension.
Heiden alleged that Boehringer marketed Aggrenox for a variety of uses, including certain cardiovascular events such as myocardial infarction and peripheral vascular disease, both of which are off-label uses not covered by federally funded health care programs.
Heiden alleged that Boehringer marketed Combivent as a primary or first-line treatment of COPD, an off-label use not covered by federal health care programs.
Micardis was marketed for treatment of early diabetic kidney disease, another off-label use not covered by federal health care programs, Heiden alleged.
Heiden also alleged that Boehringer knowingly promoted the sale and use of Combivent and Atrovent at doses that exceeded those covered by federal health care programs. Atrovent is another COPD drug.
Boehringer also made unsubstantiated claims about the efficacy of Aggrenox, Heiden alleged, including claiming that the drug was superior to Plavix, a competing clot-preventing drug.
All of Boehringer's actions resulted in false claims being filed with federally funded health care programs, such as Medicare and Medicaid, Heiden alleged.
Finally, Heiden alleged that Boehringer paid kickbacks to health care professionals in return for them prescribing Aggrenox, Atrovent, Combivent and Micardis.
Boehringer does not admit liability, according to the settlement agreement.
On Oct. 22, the federal government told the court it elected to intervene in the allegations against Boehringer but declined to intervene in the allegations against Abbott Laboratories that are made in the same lawsuit. The court unsealed Heiden's fourth amended complaint, which was filed in November 2010, along with the government notice and settlement, but left the rest of the docket sealed.
Corporate Integrity Agreement
In addition to the settlement agreement, Boehringer entered into a five-year corporate integrity agreement with the U.S. Office of Inspector General. That agreement requires implementation of a compliance program, the hiring of ethics compliance officers and restrictions on the use of marketing materials and the sponsorship of medical education programs.The federal government is represented by Assistant U.S. Attorneys Thomas F. Corcoran and Roann Nichols of the U.S. Attorney's Office in Baltimore; Joyce R. Branda, Dan Anderson and Brian McCabe of the U.S. Justice Department in Washington, D.C.; Gregory E. Demske of the Office of Inspector General in Washington; Paul J. Hutter of the U.S. Defense Department in Washington; and Shirley R. Patterson and David Cope of the U.S. Office of Personnel Management in Washington.
Heiden is represented by Collette G. Matzzie and Peter Chatfield of Phillips & Cohen in Washington.
Boehringer is represented by J. Sedwick Sollers, Mark Jensen and Elizabeth White of King & Spalding in Washington.
NEW ORLEANS - The U.S. Supreme Court's ruling that preempts failure-to-warn claims involving generic drugs does not change Louisiana state law and make manufacturers of brand-name versions liable, a Fifth Circuit U.S. Court of Appeals panel ruled today (Julie Demahy v. Schwarz Pharma, Incorporated, et al., No. 11-31073, 5th Cir.).
In addition, the Fifth Circuit panel said plaintiff Julie Demahy does not have any claims against generic manufacturing defendant Actavis Inc. that survived post-Mensing dismissal by the U.S. District Court for the Eastern District of Louisiana.
Demahy was prescribed metoclopramide from 2002 to 2007 and developed tardive dyskinesia, a permanent neurological disorder that causes involuntary movements similar to Parkinson's disease. In 2008, Demahy sued Wyeth Inc. and Schwarz Pharma Inc., which had made Reglan, the brand-name predecessor of metoclopramide.
Demahy also sued Actavis, which made the metoclopramide she took and was allegedly injured by. She asserted various tort claims against all defendants under Louisiana state law.
Brand-Name Defendants Dismissed
In 2008, Demahy agreed to dismiss her claims against Wyeth and Schwarz without prejudice.
Actavis moved to dismiss claims against it as preempted by federal law. The District Court denied the motion, and on appeal, the Fifth Circuit affirmed.
Actavis petitioned the U.S. Supreme Court for a grant of certiorari, and in 2010, the court granted the petition in that and another metoclopramide case that raised the same preemption issue. In 2011, the Supreme Court issued its ruling in the other case, Pliva, Inc. v. Mensing (131 S. Ct. 25676, 2573 ), which found that failure-to-warn claims against generic drug manufacturers are preempted.
The high court said federal law requires generic drugs to contain the same warnings as their brand-name predecessor drugs. It said that generic drug makers cannot change their labels and that it would be impossible for the generic defendants to comply with state law failure-to-warn requirements.
Remand, Dismissal, Motions
Demahy's case was remanded, and the District Court entered judgment in favor of Actavis and dismissed the case with prejudice.
Demahy then filed a motion under Federal Rule of Civil Procedure 60(b)(5) for relief from the 2008 order dismissing Wyeth and Schwarz. She also moved, under Rules 59(e), 52(b) or 60(b)(6), to amend the court's dismissal of Actavis to state that not all her claims are dismissed.
The District Court denied both motions, and Demahy appealed.
State Law Not Altered
Demahy argued that Mensing significantly altered case law that had protected brand name drug makers from liability for injuries caused by generic versions of their drugs.
In a per curiam, unpublished and nonprecedential order, the Fifth Circuit panel considered Demahy's Rule 60(b)(5) motion as a motion to amend under Rule 59(e). It said the only ground for amending judgment against Actavis was an intervening change in the Louisiana Products Liability Act (LPLA), which provides exclusive remedies for product liability claims.
Demahy argued that Mensing undermined the logic of the Fourth Circuit U.S. Court of Appeals' ruling in Foster v. American Home Products Corp. (29 F.3d 165 [4th Cir. 1994]), which was the foundation for Louisiana rulings protecting defendants from liability for injuries caused by products they did not make.
"We do not view Mensing as overruling Foster because the court in Foster did not reach its holding by relying on the ability of a plaintiff to sue generic manufacturers," the Fifth Circuit panel wrote. "The Foster court's opinion in dicta on the viability of suits against generic manufacturers was proved wrong, but this fact does not impose on name-brand manufacturers a duty of care to customers using generic products. Likewise, decisions that relied upon Foster to create a similar rule in Louisiana remain valid."
No Effect On Louisiana Law
Even if Mensing did undermine Foster, the panel said, the implicit reversal of the Fourth Circuit "would have no effect on Louisiana law."
"The Court is bound by Louisiana law and we cannot create a new remedy," it said. "Thus, because the Supreme Court's decision in Mensing had no effect on Louisiana state law, the district court's denial of Demahy's motion to amend the judgment under Rule 59(e) was not an abuse of discretion."
The panel affirmed the District Court's denial of the motion to reinstate alleged nonpreempted claims against Actavis, saying the court was bound by the mandate rule.
Demahy argued that the District Court's dismissal was only for her failure-to-warn claim.
All Actavis Claims Dismissed
The panel said Actavis sought to dismiss all claims as preempted. It said that on remand and under mandate, the District Court dismissed all claims, leaving Demahy with none.
Therefore, the panel said, the District Court could not grant Demahy's motion to alter or amend its judgment without being in derogation of the mandate rule. The panel said the District Court did not err in dismissing the claims against Actavis.
The panel said that even if it were to find that Demahy's failure-to-warn claim survived dismissal, it would still affirm the dismissal "insofar as the claims are, at base, failure-to-warn claims, which would be preempted in light of Mensing."
Majority Of Federal Courts
The only claims that are arguably not failure-to-warn are those for breach of express warranty and design defect, the panel said, the former applying only to Wyeth and the latter to Actavis. The panel said that since Mensing, a majority of federal district courts have found state-law tort claims to be preempted "based on the fact that the plaintiff's claims are failure-to-warn claims under different names."
In addition, the panel said the courts have held that design defect claims against metoclopramide defendants are preempted by Mensing. "Thus, although unnecessary for the disposition of this case, we are persuaded that Demahy's design defect claim would be preempted," the panel wrote.
The panel was composed of Senior Circuit Judge Fortunato P. Benavides and Circuit Judges Priscilla R. Owen and Leslie H. Southwick.
Demahy is represented by Terrence J. Donahue Jr. of McGlynn, Glisson & Mouton in Baton Rouge, La., and Brian L. Glorioso, Kristine K. Sims and Richard A. Tonry II of Tonry, Brinson & Glorioso in Slidell, La.
Wyeth (now Pfizer Inc.) is represented by Kannon K. Shanmugam and James M. McDonald of Williams & Connolly in Washington, D.C. Schwarz is represented by Henniger Simmons Bullock and Andrew J. Calica of Mayer Brown in New York and Megan Haggerty Guy, Gregory F. Rouchell and Martin A. Stern of Adams & Reese in New Orleans.
Actavis is represented by Richard A. Dean, Irene C. Keyse-Walker and Kristen Lepke Mayer of Tucker Ellis in Cleveland.
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CHICAGO - Resolving a split between two district courts, the Seventh Circuit U.S. Court of Appeals today ruled that plaintiffs' motions to consolidate 10 Illinois state court cases involving Abbott Laboratories' anti-seizure drug Depakote were sufficient to create a mass action that makes them subject to removal to federal court under the Class Action Fairness Act (CAFA) (In Re: Abbott Laboratories, Inc., Nos. 12-8020, 12-8021, 12-8022, 12-8023, 12-8024, 12-8025 and 12-8026; In Re: Abbott Laboratories, Inc., No. 12-8027, 7th Cir.).
Between August 2010 and November 2011, several hundred plaintiffs filed 10 lawsuits in the St. Clair County Circuit Court or the Cook County Circuit Court. The plaintiffs alleged personal injuries caused by Depakote, an anti-seizure drug made by Abbott Laboratories, that the plaintiffs claim causes birth defects when taken by pregnant patients.
In December 2011, the plaintiffs asked the Illinois Supreme Court to consolidate their cases and transfer them to the St. Clair Circuit Court. Abbott opposes the motion, on which the state high court has not ruled.
Removal To Federal Court
Abbott removed the cases to two federal courts: the U.S. District Court for the Northern District of Illinois and the Southern District of Illinois. The plaintiffs moved to remand.
In April, Judge G. Patrick Murphy of the Southern District granted remand. Judge John W. Darrah of the Northern District denied remand.
The plaintiffs and Abbott cross-appealed the District Court remand orders to the Seventh Circuit. Abbott argued that the motion to consolidate the cases in one state court constitutes a proposal to try the cases jointly, thus triggering the "mass action" provision of CAFA.
Joint Trial Sought
The panel held that the motion to consolidate did propose a joint trial and that removal to federal court under CAFA was proper.
The plaintiffs argued that they are not proposing a joint trial because they did not address how trials would be conducted. Instead, they argued that the cases be coordinated through trial.
The panel said that although the plaintiffs never specifically asked for a joint trial, a proposal for one can be implied. "In short, a joint trial can take different forms as long as the plaintiffs' claims are being demonstrated jointly," the panel held.
"Plaintiffs may not have explicitly asked that their claims be tried jointly, but the language in their motion comes very close," the panel continued, noting that the plaintiffs asked for consolidation "through trial" and not solely for pretrial proceedings.
'Difficult To See'
"We agree with Abbott that it is difficult to see how a trial court could consolidate the cases as requested by plaintiffs and not hold a joint trial or an exemplar trial with the legal issues applied to the remaining cases," the panel said. "In either situation, plaintiffs' claims would be tried jointly."
Citing case law, the panel said: "Although plaintiffs assert that the transferee court will decide how their cases proceed to trial, 't does not matter whether a trial covering 100 or more plaintiffs actually ensues; the statutory question is whether one has been proposed.'"
The panel rejected the plaintiffs' arguments that removal was improper because they were filed in the trial courts and not in the Supreme Court, where their motion to consolidate was filed. The panel said CAFA does not say where a proposal for a joint trial must be made, "but a reasonable conclusion is that it must be made to a court that can effect the proposed relief."
"In all likelihood, the Supreme Court would transfer these actions back to one of the judicial circuits in which the suits are currently pending," the panel said. "As a result, plaintiffs' motion to consolidate was sufficient to create a mass action."
1 Reversed, 1 Affirmed
The panel reversed Judge Murphy's remand order and affirmed Judge Darrah's order.
Circuit Judge Michael S. Tinder wrote the opinion. Other panel members were Circuit Judges Diane P. Wood and John D. Tinder.
Abbott is represented by James F. Hurst and Kathleen B. Barry of Winston & Strawn in Chicago and Paul F. Strain and Stephen E. Marshall of Venable in Baltimore.
The plaintiffs are represented by Michael W. Rathsack of Chicago; Ralph D. McBride of Bracewell & Guiliani in Houston; Jeffrey D. Meyer of the Meyer Law Firm in Houston; Tommy Fibich of Fibich, Hampton & Leebron in Houston; John T. Boundas of Williams Kherkher Hart Boundas in Houston; Allen N. Schwartz of Kralovec, Jambois & Schwartz in Chicago; Robert L. Salim of Natchitoches, La.; William M. Audet of Audet & Partners in San Francisco; Lloyd M. Cueto of the Law Office of Lloyd M. Cueto in Belleville, Ill; and Christopher Cueto of the Law Office of Christopher Cueto in Belleville.
FRANKFORT, Ky. - A Kentucky appeals court panel on Oct. 12 vacated verdicts totaling more than $130.7 million against two drug makers for publishing inflated average wholesale prices (AWPs), saying the Kentucky Medicaid program was well aware of the practice and was complicit in the scheme (Sandoz Inc. v. Commonwealth of Kentucky, ex rel. Jack Conway, et al., No. 2011-CA-000225-MR, AstraZeneca, LP, et al. v. Commonwealth of Kentucky, ex rel. Jack Conway, et al., No. 04-CI-01487, Ky. App.).
In 2004, the Kentucky attorney general sued more than 40 drug companies in the Franklin County Circuit Court, alleging that they provided fraudulent drug-pricing information to publisher First DataBank and that the state Medicaid program relied on that information to determine how much to reimburse pharmacies for prescriptions for Medicaid recipients.
The case against one defendant, Sandoz Inc., went to trial, and a jury found the company liable to the state under the Kentucky Medicaid Fraud Statute, False Advertising Statute and the Consumer Protection Act for misrepresenting AWPs. The jury awarded the commonwealth $16 million in compensatory damages.
The state's case against AstraZeneca LP and AstraZeneca Pharmaceuticals LP also went to trial, and a jury found the related companies liable under the Medicaid and consumer protection statutes for misrepresenting AWPs. The jury awarded the commonwealth $14.7 million in compensatory damages, $100 million in punitive damages and additional civil penalties under the Consumer Protection Act.
Panel: Kentucky Was Aware
In separate rulings, Judge Roger L. Crittenden denied the defendants' motions for judgment notwithstanding verdict (JNOV). Sandoz and AstraZeneca appealed, and their cases were consolidated.
The Court of Appeals panel said JNOV should have been granted because the commonwealth failed to establish causation for damages. "ince the Commonwealth was aware for decades that the AWPs were inflated, it could not have relied upon them as accurate figures, and thus, no damages resulted," the panel wrote.
The panel agreed with the defendants that the commonwealth failed to show that it would have paid less for Medicaid prescriptions if the AWPs had not been false, fraudulent, misleading or unfair.
"The result reached by the jury was clearly unreasonable," the panel said. "Indeed, there was a complete absence of proof on the issue of causation of damages."
"The crux of the Commonwealth's failure to prove causation stems from the Commonwealth's knowledge that AWPs were inflated and that AWPs did not represent actual prices," the panel continued. "Because the Commonwealth was aware AWPs were inflated prices, and was further aware of the degree of inflation, it could not show that the Appellants' conduct was 'a substantial factor' in causing it to over-reimburse pharmacies."
The panel said there was "ample evidence" for a jury to properly determine that Sandoz did submit AWPs in a false, misleading or deceptive manner. It said the manner in which AstraZeneca priced drugs resulted in an "ever-increasing spread between the actual wholesale prices and the AWP, thus creating greater profits for pharmacies."
"However, none of this information was unknown to the Commonwealth and that is the real crux of this case," the panel said. "The protection of spread through inflated AWPs was endemic in the system, and states across the nation were aware that pharmaceutical companies were reporting bloated AWPs."
"Further," the panel continued, "the Commonwealth itself commissioned a private study of AWP and discovered that AWP was significantly inflated; that Kentucky pharmacies were making a substantial profit off the Medicaid program, and that Medicaid reimbursements could be cut significantly and pharmacists would still make a profit. Despite this information, the Commonwealth chose not to implement the suggested reimbursement reductions."
"It is of particular note that the Commonwealth even took affirmative action on occasion to protect spreads due to fear that pharmacies would stop filling prescriptions for Kentucky Medicaid users if the profit margin was not high enough," the panel said. "Clearly, the Commonwealth was aware that AWPs were not the actual prices paid for generic drugs."
"In light of this fact, it is wholly untenable for the Commonwealth to now claim millions of dollars in compensatory damages for harm caused by the false or fraudulent reporting of AWPs to price publishers," the panel said.
"Because the Commonwealth was fully aware of the practices in the industry with respect to AWP, there can be no causation of damages," the panel said. "Frankly, it is appalling that the Commonwealth had actual knowledge of this 'shell game' method of pricing employed by the drug companies, the wholesalers, and the pharmacists. However, even more appalling is the fact that, in spite of that knowledge, it acquiesced, billed accordingly, and now seeks reimbursement by way of compensatory and punitive damages."
Saying the commonwealth was "entirely complicit" in the drug-pricing system, the panel said "basic equitable principles also prohibit the Commonwealth from recovering. In situations such as the present one, where a party's actions are in pari delicto with the tortfeasor, recovery is barred by the principles of equity."
"Here, the Commonwealth's actions were in pari delicto with the drug companies and other players in the Medicaid reimbursement scheme - a scheme in which the Commonwealth systematically participated by submitting those same figures to the federal government as true and accurate," the panel concluded.
Senior Judge Joseph E. Lambert, sitting as a special judge by assignment, wrote the opinion. The other panel members were Judges Sara Walter Combs and Joy A. Moore.
Sandoz is represented by William E. Johnson of Johnson, True & Guarnieri in Frankfort, David V. Kramer of Dressman Benzinger Lavelle in Crestview Hills, Ky., and Vincent R. Fitzpatrick Jr., Joseph Angland, Heather K. McDevitt and Michael J. Gallagher of White & Case in New York.
AstraZeneca is represented by Margaret E. Keane and Holland N. McTyeire V of Bingham & Greenbaum in Louisville, Ky., Joel M. Cohen of Gibson, Dunn & Crutcher in New York and Gerson A. Zweifach, John E. Schmidtlein, Mark E. Haddad and Paul J. Zidlicky of Williams & Connolly in Washington, D.C.
Kentucky is represented by Attorney General Jack Conway and C. David Johnstone and LeeAnn Applegate of the Attorney General's Office in Frankfort and George F. Galland Jr. and Robert S. Libman of Miner, Barnhill & Galland in Chicago.
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ATWATER, Calif. - An official in the City of Atwater, Calif., on Oct. 8 confirmed that the City Council has declared a fiscal emergency, which is seen as the first step toward officially filing for Chapter 9 bankruptcy.
WASHINGTON, D.C. - The U.S. Supreme Court today denied a petition by a Johnson & Johnson subsidiary asking the high court to find that state law failure-to-warn claims involving over-the-counter (OTC), nonprescription drugs are preempted under the court's 2011 ruling in which it found that warning claims involving generic prescription drugs are preempted (McNeil-PPC, Inc. v. Christina Hoyt Hutto, No. 12-122, U.S. Sup.).
In 2003, a hospital nurse told Christina Hoyt Hutto and Eric Hutto to give their daughter, Brianna Hutto, 5 months old, a teaspoon of Tylenol-brand acetaminophen. The Huttos had been giving Brianna Infant's Tylenol Concentrated Drops. The nurse, however, was referring to Children's Tylenol but did not specify that product.
The Huttos gave teaspoon doses of their Infant's Tylenol to Brianna, and because it has a higher concentration of acetaminophen than Children's Tylenol, the child developed acute liver injury and died while awaiting a liver transplant.
The Huttos sued the hospital and McNeil-PPC Inc., a subsidiary of Johnson & Johnson and the maker of Infants' Tylenol, in the St. Landry Parish, La., District Court. After a trial, the jury found McNeil 23 percent liable, and the court entered a $1,157,774 judgment against the company.
Appeals Court Affirms
McNeil appealed, and the Third District Louisiana Court of Appeal in December affirmed the verdict against all defendants and the apportionment. The appeals court found that the Huttos' claims were not preempted by federal law because McNeil admitted that it did not attempt to have all the warnings the Huttos sought included on the Infant's Tylenol label.
On July 26, McNeil filed a petition for a writ of certiorari. The defendant said the Supreme Court's generic drug preemption ruling in PLIVA, Inc. v. Mensing (131 S. Ct. 2567 ) should apply to state law failure-to-warn claims challenging an OTC drug label.
McNeil argued that the Infant's Tylenol label was consistent with the applicable OTC monograph for acetaminophen and that the label could not be changed by McNeil without prior approval from the Food and Drug Administration.
McNeil said the Supreme Court should summarily reverse the Louisiana appeals court ruling or grant review, vacate the lower court ruling and remand the case (GVR) on the grounds that the Huttos' failure-to-warn claims are "plainly preempted" by Mensing. Alternatively, McNeil asked the high court to grant review and hold that federal law preempts state law failure-to-warn claims for drugs marketed pursuant to an OTC monograph.
No Preemption, Changes OK
In their Aug. 27 opposition, the Huttos said Congress has expressly preserved state court product liability claims involving OTC drugs from preemption. They said manufacturers of OTC drugs may add warnings to their labels without prior FDA approval "unless such warnings are prohibited by an applicable final monograph."
The Huttos said that at the time of Brianna's overdose, there was no final monograph for acetaminophen. In addition, they said, there is no evidence that the FDA would have prohibited the warnings that they argue should have been provided.
McNeil did not preserve its Mensing preemption argument for Supreme Court review, the Huttos said. Additionally, the lower court decision does not conflict with any Supreme Court decision, they said.
The case, the Huttos continued, does not squarely present the issue of the preemptive effect of a final OTC monograph.
Alito Sits Out
The court considered the case at its Oct. 5 conference and denied certiorari in its Oct. 9 orders. Justice Samuel Alito did not take part in the discussion or decision, according to the case docket.
McNeil was represented by Charles C. Lifland of O'Melveny & Myers in Los Angeles; Kathleen A. Manning of McGlinchey Stafford in New Orleans; Jonathan D. Hacker, Loren L. Alikhan and Laura L. Conn of O'Melveny & Myers in Washington; and Debra D. O'Gorman and Michael E. Planell of Dechert in New York.
The Huttos were represented by Louis M. Bograd of the Center for Constitutional Litigation in Washington and Cle Simon and Barry L. Domingue of the Simon Law Offices in Lafayette, La.
Amicus curiae Consumer Healthcare Products Association and Personal Care Products Council were represented by Robert A. Long Jr., Gerald F. Masoudi, Christopher H. Pruitt and Emily S. Ullman of Covington & Burling in Washington. Amicus Product Liability Advisory Council Inc. was represented by Nancy J. Marshall and Joseph L. McReynolds of Deutsch, Kerrigan & Stiles in New Orleans.
NEW YORK - In what is being called the largest settlement of a credit-crisis-related securities class action lawsuit, Bank of America Corp. (BoA) has agreed to a $2.43 billion settlement on claims that it and certain of its executive officers and directors misrepresented the company's business and financial condition, as well as the business and financial condition of Merrill, Lynch & Co. Inc. prior to BoA's acquisition of Merrill, according to a BoA press release issued Friday (In re: Bank of America Corp. Securities, Derivative, and ERISA Litigation, No. 09-MDL-2058, S.D. N.Y.).
According to the press release, under the terms of the settlement, which are subject to court approval, BoA and the officers and directors will pay the $2.43 billion and institute a number of corporate governance policies.
"The amount to be paid under the proposed settlement will be covered by a combination of Bank of America's existing litigation reserves and incremental litigation expense to be recorded in the third quarter of 2012. The company estimates total litigation expense will be approximately $1.6 billion for the three months ended September 30, 2012, which includes the incremental costs of the related settlement above previous accruals and other litigation-related items," according to the press release.
"The settlement agreement also contemplates that Bank of America will institute and/or continue certain corporate governance enhancements until January 1, 2015, including those relating to majority voting in director elections, annual disclosure of noncompliance with stock ownership guidelines, policies for a board committee regarding future acquisitions, the independence of the board's compensation committee and its compensation consultants, and conducting an annual 'say-on-pay' vote by shareholders."
After the Judicial Panel on Multidistrict Litigation consolidated 31 separate but similar class action, derivative and Employee Retirement Income Security Act lawsuits into the Southern District of New York on June 10, 2009, five pension funds named as lead plaintiffs filed a consolidated complaint in the District Court on behalf of all purchasers of BoA common stock from Sept. 15, 2008, to Jan. 21, 2009, excluding "any shares of BoA common stock acquired by exchanging the stock of Merrill Lynch & Co. Inc. for BoA stock through the merger between the two companies consummated on January 1, 2009," who "held BoA common stock or 7% Cumulative Redeemable Preferred Stock, Series B as of October 10, 2008, and were entitled to vote on the merger between BoA and Merrill" or who "purchased BoA common stock issued under the Registration Statement and Prospectus for the $10 billion offering of BoA common stock that occurred on or about October 7, 2008, and were damaged thereby."
The lead plaintiffs named BoA and Merrill, as well as BoA CEO Kenneth D. Lewis, former Chief Financial Officer Joe L. Price, Chief Accounting Officer Neil A. Cotty and Merrill CEO John A. Thain (collectively, the officer defendants), the BoA board of directors and underwriters Banc of America and Merrill subsidiary Merrill Lynch, Pierce, Fenner & Smith Inc. as defendants.
The lead plaintiffs alleged that the defendants violated Sections 10(b), 14(a) and 20(a) of the Securities Exchange Act of 1934, Securities and Exchange Commission Rules 10b-5 and 14a-9 and Sections 11, 12 and 15 of the Securities Act of 1933 by issuing a series of false and misleading statements concerning BoA's due diligence in preparing its multibillion-dollar acquisition of Merrill and its ensuing payment of millions of dollars in executive year-end performance bonuses and compensation to Merrill officers and directors. The lead plaintiffs sought damages and costs associated with litigating the action.
Defendants' Argument Rejected
On July 29, 2011, Judge Kevin Castel found that the lead plaintiffs could bring securities fraud claims against Lewis and Price, saying the plaintiffs sufficiently alleged that Lewis and Price acted recklessly when they did not disclose to shareholders that Merrill was losing billions of dollars. On Feb. 6, Judge Castel certified the class.
The lead plaintiffs are represented by Robert N. Kaplan and Frederic S. Fox of Kaplan Fox & Kilsheimer in New York, Max W. Berger and Steven B. Singer of Bernstein Litowitz Berger & Grossmann in New York and David Kessler and Gregory M. Castaldo of Kessler Topaz Meltzer & Check in Radnor, Pa.
The defendants are represented by Mitchell A. Lowenthal and Lewis J. Liman of Cleary Gottlieb Steen & Hamilton in New York and Peter C. Hein, Eric M. Roth, Joshua A. Naftalis, Kevin S. Schwartz and Olivia A. Maginley of Wachtell Lipton Rosen & Katz in New York.
SAN FRANCISCO - The Ninth Circuit U.S. Court of Appeals today said design defect and failure-to-warn claims filed by the parents of a child who died after getting vaccinated are preempted by the federal vaccine law, but noted that parents may pursue some state law claims on their own and outside of the national vaccine injury compensation program (Erin Holmes, et al. v. Merck & Co., Inc., No. 08-16557, 9th Cir.).
Jacob Holmes, age 1, received a measles-mumps-rubella (M-M-R II) vaccine and then experienced seizures, developed encephalopathies and died six months later. His parents, Erin and Shawn Holmes, filed a petition for benefits under the federal National Childhood Vaccine Injury Act (Vaccine Act) and were given a death benefit of $250,000.
Later, the Holmeses, acting on their own behalf, filed a wrongful death lawsuit against vaccine manufacturer Merck & Co. Inc. in a Nevada state court alleging negligence, strict product liability, negligent design, failure to warn, misrepresentation, breach of express warrant, breach of implied warranty of fitness for a particular purpose and punitive damages. Merck removed the case to the U.S. District Court for the District of Nevada.
The District Court eventually granted Merck's motions for summary judgment, finding that all claims are foreclosed by the Vaccine Act. The Holmeses appealed, arguing that the District Court misapplied Section 22 of the Vaccine Act to their claims of design defect and failure to warn.
Express Preemption Of 2 Claims
The Ninth Circuit deferred submission of the case pending the U.S. Supreme Court's resolution of another vaccine case, Bruesewitz v. Wyeth (562 U.S. __, 131 S. Ct. 1068 ; See 3/3/11, Page 4).
The Ninth Circuit panel found that although parents of vaccine-injured children are not bound by the requirement of Section 11 that they exhaust their Vaccine Act remedies before filing a civil suit, Section 22 expressly preempts design defect claims seeking compensation for injury or death caused by a vaccine's unavoidable side effects.
"But despite Plaintiffs' protests to the contrary, applying Section 22 to their claims does not leave them without a remedy for their injuries," the panel held. "Plaintiffs alleged eight claims plus a claim for punitive damages in their state wrongful death action. Application of Section 22 affects only two of these claims - the strict products liability and negligence claims to the extent that they were based upon allegations of design defect and failure to warn.
"Therefore six of Plaintiffs' claims remain unaffected by the Act and each of these provide a possible remedy to the injuries that they suffered as a result of Jacob's illness and death," the panel said. "Accordingly, our conclusion is in keeping with the strong presumption that Congress does not, 'without comment, remove all means of judicial recourse for those injured by illegal conduct,'" the panel said, citing Supreme Court case law.
But Plaintiffs Are Limited
Having concluded that Section 22 generally applies to limited tort liability in a parent's claim for individual injuries, the court said it must consider if a civil damage action for vaccine-related injury or death is limited by the Vaccine Act. "We conclude that the Plaintiffs' suit is so limited," the panel said.
"For these reasons, there is no cause to disturb the district court's application of Section 22 to Plaintiffs' state law products liability claims of design defect and failure to warn," the panel held. "Nor was the district court's grant of summary judgment in favor of Merck error."
"During the proceedings below, Merck produced evidence that it had complied with all regulatory requirements related to M-M-R II," the panel continued. "But Plaintiffs failed to submit evidence sufficient to show that the vaccine had not been properly prepared or that it had not been accompanied by proper directions and warnings."
The panel noted that the Holmeses do not appeal the District Court's rulings on their state law claims that were not preempted by the Vaccine Act.
Circuit Judge Sidney R. Thomas wrote the opinion. Circuit Judges Betty B. Fletcher and N. Randy Smith concurred.
Eckly M. Keach of Eckly M. Keach Chartered and Robert E. Murdock of Murdock & Associates, both in Las Vegas, represent the Holmeses. The government is represented by Denice Barton of Morris Peterson in Las Vegas and Donald F. Zimmer of King & Spalding in San Francisco.
WASHINGTON, D.C. - The U.S. Supreme Court today agreed to hear an appeal of a Second Circuit U.S. Court of Appeals ruling allowing the Securities and Exchange Commission to seek penalties against defendants for securities fraud for conduct that was not fraudulently concealed and that had ceased more than five years prior to the SEC bringing the lawsuit (Marc J. Gabelli, et al. v. Securities and Exchange Commission, No. 11-1274, U.S. Sup.).
The question presented is: "Section 2462 of Title 28 of the United States Code provides that 'except as otherwise provided by Act of Congress' any penalty action brought by the government must be 'commenced within five years from the date when the claims first accrued.' (emphasis added). This Court has explained that 'n common parlance a right accrues when it comes into existence.' United States v. Lindsay, 346 U.S. 568, 569 (1954)."
"Where Congress has not enacted a separate controlling provision, does the government's claim first accrue for purposes of applying the five-year limitations period under 28 U.S.C. [U.S. Code] § 2462 when the government can first bring an action for a penalty?"
The SEC filed a complaint in the U.S. District Court for the Southern District of New York naming Gabelli Global Growth Fund portfolio manager Marc J. Gabelli and Chief Operating Officer of funds adviser Gabelli Funds LLC, Bruce Alpert as defendants.
The SEC alleged that the defendants violated Section 10(b) of the Securities Exchange Act of 1934, Section 17(a) of the Securities Act of 1933 and SEC Rule 10b-5 by failing to disclose certain favorable treatment provided to one of the fund's investors in preference to others.
Additional claims for violation of Sections 206(1) and 206(2) of the Investment Advisers Act were also made, and the SEC sought injunctive relief, disgorgement and civil monetary penalties.
In particular, the SEC contended that while the defendants prohibited other investors from engaging in a form of short-term trading called "market timing," it allowed one investor, Headstart Advisers Ltd., to market time the fund in exchange for an investment in a hedge fund managed by Gabelli.
Statute Of Limitations
The District Court dismissed the Section 10(b) and Section 17(a) claims; denied dismissal of the Advisers Act claims but ruled that the SEC may not seek civil penalties for the claims because it was not brought with the statute of limitations period for such claims and the SEC is not authorized to seek monetary penalties for claims for aiding and abetting violations of the Advisers Act; and dismissed the SEC's prayer for injunctive relief because the SEC "has not plausibly alleged that Defendants are reasonable likely to engage in future violations."
The SEC appealed the District Court's dismissal of the Exchange Act and Securities Act claims to the Second Circuit, and the defendants cross-appealed, arguing that the District Court erred in denying their motions to dismiss the SEC's prayer for disgorgement under the Advisers Act and, more generally, in denying their motions to dismiss with prejudice the SEC's claim for aiding and abetting violations of the Advisers Act.
The Second Circuit reversed and remanded, granting the SEC's appeal in all respects and dismissing the cross-appeals "for want of appellate jurisdiction."
The defendants filed their petition for writ of certiorari in the Supreme Court on April 20.
The SEC is represented by Solicitor General Donald B. Verrilli Jr. of the U.S. Department of Justice in Washington.
The defendants are represented by Lewis J. Liman of Cleary Gottlieb Steen & Hamilton in New York.
ATWATER, Calif. - The Atwater City Council on Sept. 19 issued a report in which it recommended that the city manager declare a fiscal emergency pursuant to state code in order to prepare the way for the municipality to file a Chapter 9 bankruptcy petition.