Hamm v. Rhone-Poulenc Rorer Pharmaceuticals

Decision Date11 February 1999
Docket NumberNo. 98-1063,98-1063
Parties(8th Cir. 1999) John Hamm; Linda Conolly; Elaine Decembrino; Kelly Bohm, Appellants, v. Rhone-Poulenc Rorer Pharmaceuticals, District Court for the Inc., a Delaware corporation; Robert A. District of Minnesota Becker, Inc., a New York corporation; Dr. Alexander Graham Turpie; Does, 1 through 100, inclusive,Appellees. Submitted:
CourtU.S. Court of Appeals — Eighth Circuit

Appeal from the United States Appellees.

[Copyrighted Material Omitted]

[Copyrighted Material Omitted]

[Copyrighted Material Omitted] Before McMILLIAN, JOHN R. GIBSON and MURPHY, Circuit Judges.

McMILLIAN, Circuit Judge.

Appellants are present and former employees of defendant Rhone-Poulenc Rorer Pharmaceuticals, Inc. (RPR), a pharmaceutical company, who are appealing from a final order entered in the United States District Court1for the District of Minnesota,granting summary judgment in favor of RPR (and the other defendants) and dismissing their civil Racketeer Influenced and Corrupt Organizations Act (RICO) claims for failure to state a claim and their pendent state claims for lack of subject matter jurisdiction. Hamm v. Rhone-Poulenc Rorer Pharmaceuticals, Inc., Civil No. 97-1329 (DSD/JMM) (D. Minn. Nov. 25, 1997) (district court order adopting report and recommendation of magistrate judge)2 For reversal appellants argue that the district court erred in (1) converting RPR's Rule 12(b)(6) motion to dismiss into a motion for summary judgment and denying their motion to voluntarily dismiss the action without prejudice and (2) dismissing their civil RICO claims for lack of standing. For the reasons discussed below, we affirm the judgment of the district court.

JURISDICTION

The district court had subject matter jurisdiction pursuant to 28 U.S.C. 1331 (RICO, 18 U.S.C. 1961-1968), 1367(a) (supplemental jurisdiction over state law claims). This court has appellate jurisdiction pursuant to 28 U.S.C. 1291. The district court entered its judgment on November 25, 1997, and appellants timely filed a notice of appeal on December 24, 1997, pursuant to Fed. R. App. P. 4(a).

BACKGROUND FACTS

Appellants filed this class action against RPR, their employer and a manufacturer of prescription and over-the-counter drugs, and defendants Robert A. Becker, Inc. (Becker), an advertising agency that also operated under the fictional name Genecom, Dr. Alexander Turpie, a physician and a Canadian citizen, and other defendants,asserting civil RICO claims and related state law claims. In their second amended complaint, appellants alleged that RPR constructively discharged, defamed or retaliated against them because they criticized or refused to participate in RPR's alleged violations of federal law. Appellants alleged that RPR marketed four pharmaceutical products in an unlawful manner by promoting off-label uses.3 Once the Food and Drug Administration (FDA) approves a drug, physicians may prescribe the drug for use or in a manner not indicated on its FDA-approved label. However, manufacturers are prohibited from promoting such off-label uses.

Appellants alleged that RPR conspired with Becker, Turpie and unnamed physicians and others to illegally promote the use of RPR products prior to FDA approval or for off-label uses with the intent to defraud hospital administrators, physicians and other medical personnel into prescribing or purchasing RPR products, through the use of the mail, wire communications and facilities of interstate commerce, and that appellants were "unwilling pawns" in the fraudulent scheme. More specifically, appellants alleged that RPR improperly marketed four of its pharmaceutical products by promoting those products for off-label use and by compensating physicians for prescribing those products, in violation of applicable federal law. Appellants alleged that RPR carried out its fraudulent scheme by providing information about off-label use of its products to RPR sales representatives, encouraging RPR sales representatives to solicit physicians who would prescribe RPR products for off-label use, arranging speaking events for physicians who prescribed RPR products for off-label use, setting sales quotas that implicitly included off-label sales of RPR products, using Genecom to pay physicians to serve as speakers, and paying physicians to promote off-label uses of RPR products. Appellants alleged that when they reported these unlawful off-label promotional activities to RPR legal officials, those officials told them to rewrite promotional event payment requests and to destroy evidence of illegal promotions. According to appellants, RPR conducted these activities through the use of the mail, wire communications and facilities of interstate commerce.

Appellants also alleged that defendants conducted or participated in a pattern of racketeering activity, that is, obtaining money from illegal promotions of RPR products by Genecom. Appellants alleged that defendants sent promotional materials and obtained or paid money through the mail (mail fraud, 18 U.S.C. 1341), transmitted promotional materials and made false representations by interstate telephonic communications (wire fraud, 18 U.S.C. 1343), and used the facilities of interstate commerce with the intent to distribute the proceeds gained from illegal kickbacks and payments made to influence the promotion and use of RPR products (18 U.S.C. 1952).

Appellants claimed no injury or damage to themselves as a result of any of RPR's allegedly illegal promotional activities; however, they alleged that the intent and purpose of these promotional activities was to defraud hospital administrators, physicians and other medical personnel by persuading them to prescribe or purchase RPR's products. Appellants also claimed personal injury because they either criticized or refused to participate in RPR's fraudulent scheme and as a result were terminated, denied promotion and compensation, lost stock options, and defamed.

Before filing an answer, RPR filed a Rule 12(b)(6) motion to dismiss the first amended complaint on the ground that appellants did not have standing to assert civil RICO claims and failed to properly plead racketeering activity. (Turpie also filed a motion to dismiss.) The parties agreed that all motions to dismiss applied to the second amended complaint and that all rulings would apply to all party defendants. The district court referred the motion to dismiss to a magistrate judge for a report and recommendation pursuant to 28 U.S.C. 636(b)(1)(B). During oral arguments on the motion to dismiss, the magistrate judge questioned counsel for appellants about the effect, if any, on their civil RICO claims of Bowman v. Western Auto Supply Co., 985 F.2d 383, 385-86 (8th Cir.) (Bowman), cert. denied, 508 U.S. 957 (1993), in which this court held that employees discharged for criticizing or refusing to participate in the employer's racketeering activity lacked standing to bring a civil RICO claim when the underlying violation is based on 18 U.S.C. 162(a), (b) or (c). Counsel for appellants conceded that, under Bowman, appellants could not base a civil RICO claim on allegations of wrongful discharge, denial of promotion, loss of compensation or benefits, harassment or intimidation, and retaliation. That left only appellants' defamation or damage to business reputation claim. Counsel for appellants then argued that appellants had been defamed not because they had criticized or refused to participate in the illegal promotion of off-label uses and kickbacks, but instead because they had actually participated in the illegal scheme. This was the opposite of what was alleged in the second amended complaint.

The magistrate judge recommended that the civil RICO claims be dismissed with prejudice for failure to state a claim and that the state law claims be dismissed without prejudice for lack of subject matter jurisdiction. The magistrate judge noted that appellants did not claim that RPR's fraudulent scheme was directed or targeted at them (the employees); rather, RPR's fraudulent scheme was directed at hospital administrators, physicians and other medical personnel who prescribed and purchased RPR products. The magistrate judge considered the civil RICO claims as pleaded and as supplemented by counsel for appellants during oral argument and concluded that, under either theory, appellants lacked standing to bring civil RICO claims. The magistrate judge also found that any reputational injury was not the direct result of the RICO predicate acts (mail fraud, wire fraud, use of facilities of interstate commerce) and there was no causal link between the injury and the RICO predicate acts. See Report and Recommendation, slip op. at 10-21. That finding meant that appellants also lacked standing to bring a civil RICO conspiracy claim in violation of 18 U.S.C. 162(d) because Bowman limited such standing to individuals who have been harmed by a RICO predicate act committed in furtherance of a conspiracy to violate RICO. See 985 F.2d at 388.

The magistrate judge also found that appellants lacked standing to bring a civil RICO claim because reputation is not "business or property" and thus an injury to one's reputation is not an injury for purposes of RICO. See Report and Recommendation, slip op. at 19, citing 18 U.S.C. 1964(c). The magistrate judge also found that appellants lacked standing to bring a civil RICO claim because RICO was not intended to permit individuals who actually participated in a fraudulent scheme in violation of RICO to then seek treble damages under RICO. See id. at 20.

The magistrate judge also recommended that appellants' civil RICO claims should be dismissed with prejudice because they had already had three opportunities to plead facially valid claims and it would be futile for appellants to amend because, as a matter of law, appellants cannot allege any set of facts under which they would have...

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