United States: New Jersey Court Affirms Nationwide Class in Vioxx Recoupment Litigation

See International Union of Operating Engineers Local No. 68 Welfare Fund v. Merck & Co., 894 A.2d 1136 (N.J. Super. Ct. App. Div. 2006).

The recoupment of healthcare costs by third-parties (such as government,insurers,unions,and the like) remains a relatively immature liability theory in products litigation. The approach was largely pioneered by state attorneys general who banded together in the mid-1990s to run similar cases against the tobacco industry, mostly in state courts across the county.¹

The emergence of this kind of litigation in the U.S. in the pharmaceutical context, and its potential consequences for European-based drug companies,was the focus of a recent article by two Chadbourne lawyers, in which they explored judicial treatment of such cases, noting:

And so they have -- most recently in New Jersey. In International Union, an intermediate appellate court upheld certification of a nationwide class of all non-government, third-party payors of health benefit plans who had funded the purchase of the prescription drug Vioxx, on claims that Merck fraudulently misrepresented and concealed information regarding the comparative safety and efficacy of Vioxx, forcing plaintiff and others to pay higher prescription costs than would have been the case absent Merck’s alleged fraud. Id. at 1139-1140.³

On appeal, Merck claimed error in the lower court’s finding that common issues predominated and, further, that the class action format was superior to other methods of adjudication. More particularly, it argued that class members would have to prove proximate cause and "ascertainable loss" attributable to Merck’s supposed fraud on an individual basis, and that the need to apply multi-state law precluded class certification. Rejecting Merck’s arguments, the Appellate Division held that class-wide expert testimony could adequately establish both "ascertainable loss" and the requisite causal nexus, and that (while admittedly rare) the trial court’s decision to apply New Jersey law across the board was neither unprecedented nor error. Applying the governmental interest test to its choice-oflaw analysis, the court found that New Jersey’s "contacts with the dispute are both extensive and weighty." Id. at 1148.⁴

The decision bears further on another issue generally common to third-party payor actions, that being the question of causal remoteness or proximate cause -- on which ground most suits of this sort have typically foundered. See, e.g., Laborers Local 17 Health and Benefit Fund v. Philip Morris, Inc., 191 F.3d 229 (2d Cir. 1999). In this regard, plaintiff alleged that by virtue of Merck’s alleged fraud,Vioxx (which was more expensive than other pharmaceuticals in its class) gained a favored position on the drug formularies used by insurers, benefit plans, and others to determine coverage for prescription drugs,which in turn encouraged doctors to prescribe the drug more frequently, leading ultimately to decision by benefit plans like plaintiff to cover the costs to members associated with purchase of the drug.

While acknowledging that "the causal chain appears somewhat elongated," the court reasoned it could not say "the alleged fraud was not a cause of [plaintiff’s] loss." Id. at 1144.

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