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COLUMBIA, S.C. — (Mealey’s) In a 4-1 ruling, the South Carolina Supreme Court on Feb. 25 affirmed that Janssen Global Services LLC engaged in unfair trade practices through its marketing of the atypical antipsychotic drug Risperdal but shortened the violation time period and lowered the civil penalty from $327 million to $136 million (State of South Carolina, ex rel. Alan Wilson, et al. v. Ortho-McNeil-Janssen Pharmaceuticals, Inc., et al. No. 2012-206987, S.C. Sup.).
(Opinion available. Document #28-150305-010Z.)
In January 2007, South Carolina Attorney General Alan M. Wilson and Ortho-McNeil-Janssen Pharmaceuticals Inc. (now Janssen Global Services LLC) agreed to toll the three-year statute of limitations for the South Carolina Unfair Trade Practices Act (SCUTPA). In April 2007, the state sued the defendant in the Spartanburg County Circuit Court alleging that it engaged in unfair competition by willfully failing to disclose known risks and side effects of Risperdal.
The state sought statutory civil penalties for “labeling claims” dealing with the content of written material furnished since 1994 by Janssen with each Risperdal prescription. The second claim, the “Dear Doctor Letter” claim, alleged that Janssen put false information in a November 2003 letter to state doctors.
Janssen argued, in part, that because both claims arose more than three years before the Jan. 24, 2007, tolling agreement, the statute of limitations barred the complaint.
Jury Verdict, Judge’s Penalty
The case went to trial, and in 2011, a jury found Janssen liable on both claims. Judge Roger L. Couch rejected Janssen’s defenses, including the statute-of-limitations defense.
Judge Couch ordered Janssen to pay civil penalties totaling $327,073,700 based on 553,055 separate violations of SCUTPA in connection with its deceptive conduct in the sales and marketing of Risperdal. Janssen appealed directly to the Supreme Court, bypassing the Court of Appeals.
The high court majority affirmed liability on the labeling claim but limited civil penalties to three years from the date of the tolling agreement. It said the tolling agreement “is essentially coextensive with the three-year statute of limitations, subject to an additional three months by virtue of the time period between January 24, 2007, tolling agreement and the filing of the Complaint on April 23, 2007.”
The majority remitted the civil penalties for the labeling claim to $34,545,400.
Dear Doctor Letters
As to the Dear Doctor Letter claim, the majority also affirmed liability but remitted the civil penalties to $101,480,000 for a total of $136,025,400 in penalties.
As to Janssen’s statute-of-limitations argument, the majority said, “[W]e agree with the State regarding the DDL [Dear Doctor Letter] claim, for we find that claim, in the exercise of reasonable diligence, could have been discovered no earlier than April 2004 when the FDA issued its warning letter to Janssen. However, we agree with Janssen concerning the labeling claim insofar as civil penalties were awarded for violations occurring from 1998 until January 24, 2004 (three years prior to the tolling agreement).”
“Under these facts, it was error to award the State civil penalties for violations in connection with the labeling claim outside the statute of limitations,” the majority said. “An award for civil penalties within the statute of limitations was proper.”
Labeling Penalty Excessive
As to the civil penalty, the majority said that while Janssen engaged in substantial deceit, it agreed in part that the company’s conduct had little impact on prescribing physicians. It said “the absence of significant actual harm resulting from Janssen’s deceptive conduct leads us to conclude the trial court erred in part in its penalty assessment.”
The majority said the civil penalty must be reduced first because its statute-of-limitations ruling shortens the time frame for violations. It said that the violation period should be from February 2004 through April 2007, during which time Janssen made 20,575 visits to physicians and distributed 354,454 sample boxes of Risperdal containing the deceptive labeling.
The majority agreed with Janssen that the civil penalty of $300 per sample box is excessive and, based on case law, lowered it to $100 per box for a penalty of $34,545,400.
Dear Doctor Penalty Correct
The majority said the trial court did not abuse its discretion in assessing a civil penalty of $28,736,000 for 7,184 deceptive Dear Doctor Letters. It said the $4,000 penalty per letter is substantial, but so was Janssen’s deception. It affirmed the penalty of $28,736,000 for all the letters.
However, the majority said the $4,000 penalty for 36,000 follow-up physician visits is “excessive as a matter of law under the circumstances.” The majority remitted the penalty to $2,000 per sales call for $72,744,000.
The majority rejected Janssen’s argument that the original $327 million penalty is unconstitutional. It said the original award “bears a rational relationship to the gravity of Janssen’s conduct in perpetuating a marketing scheme in South Carolina designed to be unfair and deceptive under our law.”
The majority said the original penalty was not “grossly disproportionate to Janssen’s pattern of unfair and deceptive behavior.”
No Due Process Denial
In addition, the majority said the original penalty does not violate Janssen’s right to due process. “While the penalty award against Janssen is quite large, the penalty must be analyzed in context in view of the clear legislative attempt of SCUTPA to deter unfair and deceptive behavior in the conduct of trade and commerce in South Carolina,” the majority wrote.
In its opinion, the majority addressed Janssen’s arguments about the reference to profits in the state’s opening and closing arguments, the admission of marketing warning letters from the Food and Drug Administration, the lack of adverse impact, the exclusion of defense expert witness Dr. William Wecker, its free speech rights under the First Amendment to the U.S. Constitution, the jury instructions and exceptions to SCUTPA. The majority said some of the issues were not preserved for appeal and even if they were, it would result in no different outcome.
The majority also rejected Janssen’s argument that the Dear Doctor Letter claim is preempted by federal law. The majority said that under the U.S. Supreme Court’s drug preemption ruling in Wyeth v. Levine (555 U.S. 555, 129 S. Ct. 1187, 173 L. Ed. 2d 51 ), the claim is not expressly preempted.
Janssen also did not preserve its preemption argument for appeal, the majority said. Even if it had, the majority said it would be without merit.
Chamber Of Commerce Addressed
Finally, the panel said addressed arguments by the South Carolina Chamber of Commerce that the $327 million penalty is hostile to business. The majority said Janssen is not being singled out but instead was the subject of litigation about Risperdal “throughout the country,” including a federal civil and criminal case that resulted in penalties of more than $2 billion.
The majority said the chamber’s suggestion that the South Carolina attorney general “stands alone” in pursuing “amorphous and subjective claims” against Janssen is without merit. “Surely, the Chamber desires a legal system that honors the rule of law and one which does not insulate businesses from liability for unfair and deceptive practices,” the majority said.
The majority said its “clear guidance for the business community” in defining actionable conduct under SCUTPA is “precisely the type of clarity the Chamber seeks.”
The majority opinion was written by Justice John E. Kittredge. He was joined by Chief Justice Jean Hoefer Toal and Justices Donald W. Beatty and Kaye G. Hearn.
Justice Costa M. Pleicones dissented. He said he agreed with reducing the violation time period based on the statute of limitations but disagreed with applying the continuous accrual doctrine to the penalty.
Justice Pleicones said reducing the labeling penalty does not cure prejudice to Janssen, and he would reverse the jury’s liability finding as time-barred.
As to the Dear Doctor Letters, Justice Pleicones said he would find that the trial judge did not abuse his discretion in awarding $174 million for the mailing of 7,184 letters.
A.G. Happy, Janssen Less So
In a Feb. 26 statement, the Attorney General’s Office called the high court’s ruling “fair and thoughtful” and “legally sound.” It did not state if it thought there are grounds for appeal to the U.S. Supreme Court.
In its Feb. 26 statement, Janssen said it is disappointed that the Supreme Court did not reversed the verdict in its entirety but is pleased that the court substantially reduced the penalty by nearly two-thirds. It said it maintains that it did not violate SCUTPA and is reviewing all its legal options.
Janssen is represented by Steven W. Hamm and Steven J. Pugh of Richardson, Plowden & Robinson in Columbia, C. Mitchell Brown, William C. Wood Jr., A. Mattison Brogan and Miles E. Coleman of Nelson, Mullins, Riley & Scarborough in Columbia and Edward M. Posner and Chanda A. Miller of Drinker, Biddle & Reath in Philadelphia.
South Carolina is represented by John B. White Jr. and Donald C. Coggins Jr. of Harrison, White, Smith & Coggins in Spartanburg, S.C.; John S. Simmons of the Simmons Law Firm in Columbia; Deputy Attorney General Robert D. Cook, Assistant Deputy Attorney General C. Havird Jones Jr. and Wilson of the South Carolina Attorney General’s Office in Columbia; and Fletcher V. Trammell, Robert W. Cowan and Elizabeth W. Dwyer of Bailey Peavy Bailey in Houston.
Amicus curiae South Carolina Chamber of Commerce is represented by Gray T. Culbreath and Laura W. Jordan of Gallivan, White & Boyd in Columbia.
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