Sidney Hillman Health Ctr. of Rochester v. Abbott Labs., Inc.

• Decision Date: 13 April 2015
• Docket Number: 14–2909.,Nos. 14–2282,s. 14–2282
• Citation: 782 F.3d 922
• Parties: SIDNEY HILLMAN HEALTH CENTER OF ROCHESTER, et al., Plaintiffs–Appellants, v. ABBOTT LABORATORIES, INC., and AbbVie, Inc., Defendants–Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

782 F.3d 922

SIDNEY HILLMAN HEALTH CENTER OF ROCHESTER, et al., Plaintiffs–Appellants

v.ABBOTT LABORATORIES, INC., and AbbVie, Inc., Defendants–Appellees.

Nos. 14–2282

14–2909.

United States Court of Appeals, Seventh Circuit.

Argued Feb. 20, 2015.

Decided April 13, 2015.

Adam J. Levitt, Attorney, Grant & Eisenhofer, Chicago, IL, for Plaintiffs–Appellants.

William F. Cavanaugh, Jr., Attorney, Patterson, Belknap, Webb & Tyler LLP, New York, N.Y., for Defendants–Appellees.

Before RIPPLE, KANNE, and TINDER, Circuit Judges.

Opinion

TINDER, Circuit Judge.

Appellants are a group of multi-employer benefit funds challenging the dismissal of their putative class action alleging that Abbott Laboratories, Inc., and its subdivision AbbVie, Inc. (collectively, “Abbott”), violated the Racketeer Influenced and Corrupt Organizations Act (“RICO”) through efforts to promote the anticonvulsant medication Depakote for ineffective and unsafe uses. The district court dismissed the case with prejudice as barred by the statute of limitations, concluding that a reasonable benefit fund would have discovered its injuries in 1998, when the funds first reimbursed the cost of an “off-label” prescription for Depakote. We reverse.

I. BACKGROUND

According to the allegations in the complaint, which we accept as true for purposes of this appeal, see Fox v. Am. Alt. Ins. Corp., 757 F.3d 680, 681 (7th Cir.2014), Abbott engaged in a scheme from 1998 to 2012 to illegally market Depakote for applications that had not been approved by the Food and Drug Administration (“FDA”). Unapproved applications are known as “off-label” uses. See United States v. King–Vassel, 728 F.3d 707, 709 (7th Cir.2013). Physicians may, and often do, prescribe drugs for off-label uses, id., but pharmaceutical companies are generally prohibited from marketing drugs for those same applications, see, e.g., United States ex rel. Wilson v. Bristol–Myers Squibb, Inc., 750 F.3d 111, 113 (1st Cir.2014) ; Wash. Legal Found. v. Henney, 202 F.3d 331, 332–33 (D.C.Cir.2000). The funds allege that Abbott, in promoting Depakote, not only misrepresented its safety and efficacy for off-label uses but also paid kickbacks to physicians, and established and funded intermediary entities like the Council for Excellence in Neuroscience Education, to promote the drug for off-label uses. Abbott then took steps to conceal its role in these activities. These efforts dramatically increased Depakote sales, which reached a high of $1.5 billion by 2007.

The funds were not the first to bring Abbott's marketing scheme to light. Four qui tam actions were filed against Abbott between October 2007 and January 2010, alleging that its off-label marketing of Depakote violated the False Claims Act and caused excessive charges to government benefit programs. These actions were unsealed in February 2011, when the federal government and multiple state governments intervened. Meanwhile, in November 2009, Abbott disclosed in a public filing with the Securities and Exchange Commission (“SEC”) that the Department of Justice (“DOJ”) was investigating its marketing of Depakote. In May 2012, Abbott pleaded guilty to illegally promoting Depakote from 2001 through 2006 for uses that had not been shown to be effective in clinical trials. In connection with this plea, Abbott agreed to pay $1.6 billion to settle the criminal and qui tam actions against it.

Fifteen months later, in August 2013, the funds filed this lawsuit asserting that Abbott's off-label marketing of Depakote constituted a civil RICO violation. The funds sought to represent a class of “[a]ll third party purchasers in the United States and its territories who, during the period from 1998 through 2012, reimbursed and/or paid some or all of the purchase price for Depakote for indications not approved by the FDA.” They also sought to bring state-law claims of deceptive business practices and unjust enrichment on behalf of New York, Illinois, and Massachusetts subclasses.

Abbott moved to dismiss in part on the basis of timeliness, arguing that, because the lawsuit alleges injury dating back to 1998, it falls outside the four-year statute of limitations for civil RICO claims. In response, the funds argued that equitable tolling or estoppel should apply, contending that they could not have discovered the existence of their claims before the 2012 guilty plea because Abbott had taken steps to conceal its marketing scheme. They also noted that it is unusual to dismiss a case as untimely at the pleadings stage because the statute of limitations is an affirmative defense that typically depends on factual determinations. The funds argued that nothing in the complaint could serve as an admission that the limitations period had expired and “[t]here are thus unresolved factual determinations that make it inappropriate for the Court to grant Defendants' motion to dismiss on statute of limitations grounds.”

The district court granted Abbott's motion and dismissed the funds' claims with prejudice pursuant to Federal Rule of Civil Procedure 12(b)(6). In doing so, the court concluded that the statute of limitations for the RICO claim began to run in 1998, when the funds initially reimbursed a prescription for off-label use of Depakote. The court acknowledged that “[o]ff-label prescription of drugs is not illegal and is a routine practice among physicians.” But the court decided that, given that third-party purchasers are sophisticated entities in the business of monitoring prescription reimbursements, a reasonable benefit fund would have discovered its injuries from Abbott's actions when it began paying for off-label prescriptions for Depakote. The court applied similar reasoning to bar the state-law claims.

The district court further rejected the funds' equitable arguments. The court refused to toll the limitations period until the time of the guilty plea in 2012 because, it reasoned, tolling is appropriate only for “relatively brief” delays and should not shift the start of the limitations period from the time of the initial injury to when a plaintiff becomes aware of possible racketeering. The court additionally concluded that equitable estoppel did not apply because, in its view, Abbott's efforts to conceal its off-label promotion of Depakote were not designed to hinder potential lawsuits.

II. DISCUSSION

The civil RICO statute is silent about the statute of limitations, so the Supreme Court established a four-year limitations period by analogy to the Clayton Act. See Agency Holding Corp. v. Malley–Duff & Assocs., Inc., 483 U.S. 143, 156, 107 S.Ct. 2759, 97 L.Ed.2d 121 (1987). The Court initially left open the question of the start of this period, leading to a three-way circuit split. See Rotella v. Wood, 528 U.S. 549, 553, 120 S.Ct. 1075, 145 L.Ed.2d 1047 (2000). Prior to Rotella, the majority of circuits, including this one, recognized some form of an “injury discovery” rule “starting the clock when a plaintiff knew or should have known of his injury.” Id.; see McCool v. Strata Oil Co., 972 F.2d 1452, 1464–65 (7th Cir.1992) ; see also Cada v. Baxter Healthcare Corp., 920 F.2d 446, 450 (7th Cir.1990) (recognizing “the ‘discovery rule’ of federal common law, which is read into statutes of limitations in federal-question cases ... in the absence of a contrary directive from Congress”). Other circuits held either that the claim “accrues only when the claimant discovers, or should discover, both an injury and a pattern of RICO activity,” or that the “period began to run as soon as the plaintiff knew or should have known of the injury and the pattern of racketeering activity, but began to run anew upon each predicate act forming part of the same pattern.” Rotella, 528 U.S. at 553–54, 120 S.Ct. 1075.

The Supreme Court rejected both of these latter approaches in favor of the majority view. See Rotella, 528 U.S. at 555, 120 S.Ct. 1075 (rejecting “injury and pattern discovery” rule); Klehr v. A.O. Smith Corp., 521 U.S. 179, 187, 117 S.Ct. 1984, 138 L.Ed.2d 373 (1997) (rejecting “last predicate act” rule). Although “RICO has a unique pattern requirement,” and “a pattern of predicate acts may well be complex, concealed, or fraudulent,” the Court reasoned that establishing “a less demanding basic discovery rule than federal law generally applies would clash with the limitations imposed on Clayton Act suits”—on which the RICO limitations period is based. Rotella, 528 U.S. at 556–57, 120 S.Ct. 1075. The Court noted that both RICO and the Clayton Act “share a common congressional objective of encouraging civil litigation to supplement Government efforts to deter and penalize the respectively prohibited practices.” Id. at 557, 120 S.Ct. 1075. “It would, accordingly, be strange to provide an unusually long basic limitations period that could only have the effect of postponing whatever public benefit civil RICO might realize.” Id. at 558, 120 S.Ct. 1075. Therefore, the Court emphasized, “discovery of the injury, not discovery of the other elements of a claim, is what starts the clock.” Id. at 555, 120 S.Ct. 1075.

Even after Rotella, as we will discuss later, there remains some ambiguity about the contours of the accrual rules for civil RICO claims. But the funds here argue that, even under a stringent understanding of those rules, the district court erred in determining at the pleading stage when a reasonable third-party purchaser should have discovered that it had been injured by Abbott's actions. They emphasize that the basis of their claims is that they were harmed by increased costs due to Abbott's illegally marketing of Depakote, not merely by reimbursing off-label prescriptions, which are common and permissible.See, e.g., King–Vassel, 728 F.3d at 709 (“[O]ff-label prescriptions by physicians are quite common.”); see also Buckman Co. v. Plaintiffs' Legal Comm., 531 U.S. 341, 351, 121 S.Ct. 1012, 148 L.Ed.2d 854 (2001) (observing that off-label use of medical devices “is generally accepted”). In fact,...