Sheet Metal Workers v. GlaxoSmithKline: How To Use State Consumer Fraud Laws To Bring Indirect Purchaser Antitrust Class Actions
[UPDATE: Drug and Device Law goes Jersey Shore on me and "creates a situation," as they say. I replied in the comments there, although my comment seems to disappear at times. Perhaps their commenting/moderating software is as frustrating and difficult as mine. I’ve cut and pasted my comment below the fold here.]
I’ve discussed the problems with the Illinois Brick decision before. In short, since "indirect purchasers" cannot bring federal antitrust claims — even if they were injured by antitrust violations — "indirect purchasers" like third-party payors and retailers have to resort to state law. It is not uncommon to see lawsuits filed in a single federal district court that allege violations of the antitrust and unfair trade practices laws in dozens of states, sometimes all 50 states.
Which brings us to Sheet Metal Workers Local 441 Health & Welfare Plan et al. v. GlaxoSmithKline, PLC, et al., 2010 U.S. Dist. Lexis 93520 (E.D. Pa. Sept. 8, 2010). The pension plans have an interesting theory of the case:
In this putative class action, the End-Payor Plaintiffs allege that: (1) GSK unlawfully extended its monopoly over Wellbutrin SR by making fraudulent assertions to the United States Patent and Trademark Office and by engaging in "sham" litigation against generic drug manufacturers seeking to market less expensive versions of the drug; and (2) because the litigation delayed the market entry of generic versions of Wellbutrin SR, the class members were forced to pay unnecessarily high prices for the drug because no generic alternatives were available for nearly two years after GSK’s patent monopoly would have expired.
Since the pension plans are indirect purchasers of the drugs, they can’t bring monopolization claims under Illinois Brick, and so instead have brought a single suit (in Pennsylvania, where GSK is headquartered) alleging a variety of state law claims, including violations of the Pennsylvania Unfair Trade Practices and Consumer Protection Law (PUTPCPL), 73 Pa. Stat. Ann. §§ 201-1, et seq.
As the defense lawyers at Drug and Device Law note, while blasting Judge Stengel’s opinion denying dismissal of those claims, when a federal court interprets a question of state law,
[F]ederal courts may not engage in judicial activism. Federalism concerns require that we permit state courts to decide whether and to what extent they will expand state common law. Our role is to apply the current law of the appropriate jurisdiction, and leave it undisturbed. . . . Absent some authoritative signal from the legislature or the state courts, we see no basis for even considering the pros and cons of innovative theories. We must apply the law of the forum as we infer it presently to be, not as it might come to be.
City of Philadelphia v. Lead Industries Ass’n, 994 F.2d 112, 123 (3d Cir. 1993).
Frankly, I’ve never known what to make of that dictum; it sounds suspiciously similar to "keep your eye on the ball." Of course the federal courts are bound to apply the current law of the state, but, outside of express rulings by a state supreme court, one lawyer’s "extension of the law" is their opponent’s "current law." I’m sure the Sheet Metal Workers’ lawyers take the position that they can recover under "current law."
The folks at Drug and Device Law confidently assert that the dictum means that federal courts should bend over backwards to dismiss state law claims whenever possible — nevermind that the federal appellate courts have never described the principle that way.
To the extent that dictum means something more than "don’t overrule the state’s supreme court," it is an instruction that federal district courts apply the rule of parsimony when interpreting questions of state law. Since Drug and Device Law brought scientific maxims into the case, I will cite one in return: Occam’s Razor. The federal district court should make their analysis of state law "as simple as possible, but not simpler."
If we do that, the PUTPCPL question at issue in Sheet Metal Workers is simple: did the plaintiffs appropriately allege "deceptive conduct" that caused an "ascertainable loss of money or property" to a "person who purchase[d] or lease[d] goods or services primarily for personal, family or household purposes?"
Even if we simply read the word "deceptive" right out of the act — as D&D Law says we should — Pennsylvania uses a broad definition of "fraud," a definition that includes deception. See Moser v. DeSetta, 589 A. 2d 679 (Pa. 1991)("It is well established that fraud consists of anything calculated to deceive, whether by single act or combination, or by suppression of truth, or suggestion of what is false, whether it be by direct falsehood or by innuendo, by speech or silence, word of mouth, or look or gesture."). The Sheet Metal Workers opinion is thus right on the money: the plaintiffs are "persons" who were "deceived" into "purchase[ing] or lease[ing] goods or services primarily for personal, family or household purposes," thereby causing them an "ascertainable loss of money or property."
Simple, right? "Don’t be a pioneer" and all that.
But D&D Law doesn’t like simplicity. Instead, they argue a federal district court is bound to exceed the plain meaning of a state statute and perform a several steps of analytical gymnastics to divine that the Pennsylvania Supreme Court would somehow find that a party which was deceived into purchasing a consumer good nonetheless cannot bring a claim under the state’s consumer deception statute.
There is just one problem: neither of the Pennsylvania Supreme Court decisions they referenced held anything of the sort.
Weinberg v. Sun Co., Inc., 777 A. 2d 442 (Pa. 2001) held that it was not error for a trial court to deny, as is its discretion, to certify a class action.
We’re not at certification yet: the District Court expressly said that it would reserve class certification issues for a later date. The issue here wasn’t if the plaintiffs could certify a class — the actual issue in Weinberg — but if the named plaintiffs themselves adequately alleged individual violations. The District Court held they did, consistent with the elements laid out by the statute and by Weinberg.
Toy v. Metropolitan Life Ins. Co., 928 A. 2d 186 (Pa. 2007) is similarly irrelevant; Toy merely held that "justifiable reliance" was an element of PUTPCPL claims. Here, that’s indisputable; the plaintiffs alleged that specifically.
But let’s dive deeper into that as-yet-undecided class certification issue. Drug and Device Law claims that the judge "violated fundamental principles of federalism" by not following state court precedent in considering the certification of class claims in this federal litigation.
Put aside that Weinberg didn’t say plaintiffs could never certify a consumer fraud class action, but rather affirmed a trial court holding it couldn’t certify that particular consumer fraud class action. See anything wrong with the claimed federalism issue?
How about Shady Grove v. Allstate, in which the United States Supreme Court expressly held that Federal Rule of Civil Procedure 23 — which provides the standards for class certification in federal district courts — trumps state law, even state law specific to class certification of state claims.
Sure, prior to Shady Grove, some federal courts have looked to state law (e.g., Iorio v. Allianz Life Ins. Co. of N. Am., 2008 U.S. Dist. LEXIS 118344, at *87 (S.D. Cal. July 8, 2008)("the California Supreme Court has applied a presumption of reliance where the misrepresentation appeared in a document that class members were required to sign."), but other courts — including the Third Circuit — have established their own precedent in interpreting the propriety of class action certification, like so:
As the Supreme Court noted in Amchem, "[p]redominance is a test readily met in certain cases alleging consumer or securities fraud or violations of the antitrust laws …. [e]ven mass tort cases arising from a common cause or disaster may, depending upon the circumstances, satisfy the predominance requirement." [Amchem Products, Inc. v. Windsor, 521 U.S. 591 (1997)], 117 S.Ct. at 2250 (citing Adv. Comm. Notes, 28 U.S.C.App., p. 697). This case, involving a common scheme to defraud millions of life insurance policy holders, falls within that category. The district court’s opinion sets forth a litany of common issues which the class must demonstrate in order to prevail. See supra § IV.B.1 and n. 47-48. While individual questions may arise during the course of this litigation, we agree with the district court that the presence of individual questions does not per se rule out a finding of predominance. In particular, the "presence of individual questions as to the reliance of each investor does not mean that the common questions of law and fact do not predominate." Eisenberg v. Gagnon, 766 F.2d 770, 786 (3d Cir.1985).
In re Prudential Ins. Co. America Sales Litigation, 148 F.3d 283, 314-315 (1998).
Thus, when the District Court gets around to the class certification issue, there is indeed a "fundamental principle of federalism" at stake — if the District Court expressly chooses Weinberg over Shady Grove and In re Prudential, it just might violate the Supremacy Clause, the same Supremacy Clause defense lawyers trot out every time they want to assert implied preemption of state law claims.
Let’s hope that the District Court continues to apply Pennsylvania consumer deception law as it currently stands, rather than "expanding" it into an unenforceable nullity to suit the defense bar.
UPDATE: Here’s the comment I posted to Drug & Device Law.
Hold your girl back and come at me, bro.
You ignored the first big issue entirely: your whole post was predicated on showing how class action certification was improper due to justifiable reliance, but that issue wasn’t even decided by the Sheet Metal decision.
Onto the "fundamental principle of federalism" that state law should be contorted to the benefit of defendants, you’re on sturdier ground citing Travelers Indem., which was quoting Werwinski for "we should opt for the interpretation that restricts liability," but let’s look at that whole quote:
"Finally, even if we were torn between two competing yet sensible interpretations of Pennsylvania law and did not find the district court’s deductive reasoning to be persuasive, we should opt for the interpretation that restricts liability, rather than expands it, until the Supreme Court of Pennsylvania decides differently. See City of Philadelphia v. Beretta U.S.A. Corp., 277 F.3d 415, 421 (3d Cir.2002); Home Valu, Inc. v. Pep Boys, 213 F.3d 960, 965 (7th Cir.2000) ("Where, as in this case, we are faced with two equally plausible interpretations of state law, we generally choose the narrower interpretation which restricts liability, rather than a more expansive interpretation which creates substantially more liability." (internal quotation marks omitted))."
Before we evaluate that, consider the facts of those cases themselves. The issue in Werwinski was whether the Third Circuit should make an "intentional fraud exception" to the economic loss doctrine. Travelers Indemn. similarly considered whether to the New Jersey Product Liability Act created an implied exception to the economic loss doctrine. There was no need to slant the field in favor of defendants — on the plain facts and claims of both, the interpretation suggested by plaintiffs from novel. Thus, those remarks are at most merely dicta; those courts never said they had "two competing yet sensible interpretations" or "two equally plausible interpretations of state law," they said the defendants won under state law.
But let’s look at the bigger picture and consider if this is all a "fundamental principle of federalism" on part with Erie. The language in Travelers Indem. and Werwinski just puts the cart before the horse: at what point does a particular view graduate to being "sensible?" How do you measure them as being "equally plausible?" It’s nebulous dicta, not a "fundamental principle of federalism" on par with Erie and the like. There’s no constitutional requirement that a federal court favor one side or the other; at most, there is a constitutional requirement the court try to interpret state law as would the state, which is at odds with your head-I-win-tails-you-lose suggestion.
So let’s look again at Sheet Metal. In Travelers Indem. and Werwinski, the law was admittedly defense-friendly and the plaintiffs were trying to carve out an exception. But that’s not the case in Sheet Metal — there, the statute plainly supports the plaintiff’s cause of action, as does the precedent.
I can envision your reply now: "but the Pennsylvania Supreme Court has interpreted the act to require justifiable reliance." Maybe so, and maybe that would impair the ability to certify a class action, but the opinion did not reach that question: the opinion was limited to the issue of whether or not the plaintiffs had adequately alleged their individual claim, which they indisputably did. Indeed, the defendants apparently did not even argue that the plaintiffs had failed to allege "justifiable reliance" for their individual claims.
As for Shady Grove, well, that’s just like your opinion, man. Shady Grove says Federal procedural rules trump State procedural laws, every time. There’s no reason EDPA should be looking to Pennsylvania procedural precedent when considering certifying a class action.