[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.

Simple.

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.

Simple.

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.Continue Reading Sheet Metal Workers v. GlaxoSmithKline: How To Use State Consumer Fraud Laws To Bring Indirect Purchaser Antitrust Class Actions