Trial Court Erred in Certifying Nationwide Class Action Against Merck Arising out of Sale of Vioxx because Class Action Treatment is not Superior to Other Avenues of Redress and because Defense Correctly Argued that Common Questions of Fact or Law do not Predominate New Jersey Supreme Court Holds
Plaintiff – “a joint union-employer Taft-Hartley trust fund” that “acts as a party to benefit contracts, a policy issuer, and a sponsor of health benefit plans that provide prescription drug coverage for its members and beneficiaries” and “is therefore a third-party payor, meaning that it makes payments to pharmaceutical companies for prescription medications for those for whom its benefit plans afford coverage” – filed a putative class action in New Jersey state court against Merck arising out of its manufacture and sale of Vioxx. Int’l Union of Operating Engineers Local No. 68 Welfare Fund v. Merck & Co., Inc., ___ A.2d __, Slip Opn., at 6 (N.J. Sept. 6, 2007). Specifically, the class action complaint alleged that Merck engaged in a “wide-ranging fraudulent marketing scheme” to sell Vioxx, with the class action alleging that Merck “marketed its product as a safer and more effective alternative to other traditional pain medications, thus driving the price of its product substantially higher than the price charged for similar medications.” Id., at 6-7. The class action further alleged that Merck continued to make these marketing representations “through an aggressive marketing campaign” after it knew that Vioxx “was neither more effective nor safer than other available products.” Id., at 7. Plaintiff filed a motion seeking certification of a nationwide class action against Merck; the trial court rejected defense attorney arguments against class action treatment and granted plaintiff’s motion. Id., at 4-5. The New Jersey Supreme Court reversed.
The interest plaintiff had in pursuing a putative nationwide class action is summarized below (see Note). “Central to plaintiff’s class action assertions is its argument that defendant engaged in a fraudulent marketing campaign that induced, or was intended to induce, all third-party payors to accord Vioxx preferred status in their formularies.” Merck, at 12-13. Defense attorneys argued that this “amounts to nothing more than a ‘fraud on the market’ theory that cannot be sustained in accordance with [New Jersey] law.” Id., at 13. The trial court order certifying a nationwide class action was affirmed by the New Jersey Appellate Division, id., at 4-5, but the Supreme Court reversed.
After summarizing New Jersey law on class actions, see Merck, at 14-18, and the findings of the trial court and appellate court on the topics of predominance and superiority, including choice of law, id., at 18-21, the Supreme Court turned to the defense arguments that predominance and superiority were not met, id., at 22. With respect to predominance, the defense conceded that there were “some common questions” in that “[Merck’s] marketing plan and withholding of adverse information did not vary as among potential consumers” and the “facts as they relate to the FDA warning letters or the drug’s eventual withdrawal from the market” were the same. Id., at 22. The Supreme Court explained, however, that in New Jersey the consumer fraud statute does not require a showing of reliance but does require a showing of an “ascertainable loss.” Id., at 23-24. While plaintiff urged the Court to consider generally that Merck’s marketing scheme was the same for all class members, the Supreme Court rejected this limited view of predominance, explaining at pages 26 and 27:
[T]he record speaks loudly in its demonstration that each third-party payor, relying on PBMs and P&T Committees, made individualized decisions concerning the benefits that would be available to its members for whom Vioxx was prescribed. The evidence about separately created formularies, different types of tier systems, and individualized requirements for approval or reimbursement imposed on various plans’ members and, to some extent, their prescribing physicians, are significant. That evidence convinces us that the commonality of defendant’s behavior is but a small piece of the required proofs. Standing alone, that evidence suggests that the common fact questions surrounding what defendant knew and what it did would not predominate.
The fact that the trial court certified a nationwide class action only exacerbated the lack of predominance, particularly because the Court reiterated that “fraud on the market” – the theory relied upon by plaintiff to establish class-wide “ascertainable loss” – is not available outside the securities fraud arena. Id., at 27-29.
Finally, the Supreme Court agreed with defense that class action treatment was inappropriate in this case because each of the putative class members allegedly “have been damaged in large sums.” Merck, at 31. Accordingly, the Court found “no disparity in bargaining power and no likelihood that the claims are individually so small that they will not be pursued” so the superiority test was not satisfied. Id., at 32. Accordingly, the New Jersey Supreme Court reversed the certification of the class action. Id.
NOTE: The New Jersey Supreme Court explained the role of third-party payors in cases such as this at pages 8 and 9 as follows:
Whenever a plan member receives a prescription and takes it to be filled, the plan member must first demonstrate that he or she is covered by a third-party payor plan. In general, the plan member submits membership information, such as a prescription insurance card, to the dispensing pharmacy for verification and approval by the third-party payor. Once the plan member has done so, the dispensing pharmacy verifies that the prescribed medication is one that the third-party payor has authorized for purchase. The drugs that each third-party payor has authorized are included within that third-party payor’s approved purchase listing, known as a formulary.
Third-party payors do not independently select medications for inclusion in their formularies. Instead, each third-party payor relies on Prescription Benefit Managers (PBMs) whose functions include placing prescription drugs on the individual third-party payors’ formularies. PBMs, in turn, utilize specialized committees of pharmacists, physicians, and healthcare professionals, which are known as Pharmacy and Therapeutics Committees (P&T Committees), to develop and maintain the formularies. The P&T Committees do so by conducting their own evaluation of the effectiveness, safety, and cost of each available medication.
Importantly, while the plaintiff’s expert contended that “there is an agreed-upon set of principles and guidelines governing the practices of third-party payors and PBMs in making these decisions,” Merck, at 11, the defense expert countered that “the way in which PBMs…varies greatly,” id., at 11-12.
Additionally, while characterizing the defense objection to the nationwide class and objections to the lower courts’ “choice of law” analysis as “strong,” the New Jersey Supreme Court did not decide whether that aspect of the lower courts’ rulings were correct. Merck, at 23 n.3.