Com. v. Janssen Pharmaceutica, Inc.

• Decision Date: 17 August 2010
• Citation: 8 A.3d 267
• Parties: COMMONWEALTH of Pennsylvania, c/o Office of General Counsel, Appellee v. JANSSEN PHARMACEUTICA, INC., Trading As "Janssen, L.P.", Appellant.
• Court: Pennsylvania Supreme Court

8 A.3d 267

COMMONWEALTH of Pennsylvania, c/o Office of General Counsel, Appellee

v.JANSSEN PHARMACEUTICA, INC., Trading As "Janssen, L.P.", Appellant.

Supreme Court of Pennsylvania.

Argued Oct. 21, 2009.

Decided Aug. 17, 2010.

David John Antczak, Joanne Celia Lewers, Kenneth Alonzo Murphy, Edward M. Posner, Drinker, Biddle & Reath, L.L.P., Philadelphia, for Janssen Pharmaceutica, Inc.

John G. Harkins, Jr., Marianne Consentino, Harkins Cunningham, LLP, Philadelphia, Richard Faulk, John Gray, Gardere Wynne Sewell, LLP, for Amicus Curiae American Chemistry Council, et al.

William H. Graham, Connell Foley LLP, Philadelphia, for Amicus Curiae Atlantic Legal Foundation.

Charles H. Moellenberg, Leon F. DeJulius, Stephanie Marie Chmiel, Jones Day, Pittsburgh, for Amicus Curiae Chamber of Commerce of the United States of America.

Lori J. Mininger, Eric Lasker, Hollingsworth LLP, for Amicus Curiae National Paint & Coatings Association, Inc.

Arnd N. von Waldow, Reed Smith LLP, Pittsburgh, for Amicus Curiae Product Liability Advisory Counsel.

Sean Peter Wajert, James Michael Beck, Dechert LLP, Philadelphia, for Amicus Curiae Washington Legal Foundation (WLF).

Stewart Lee Cohen, William David Marvin, Cohen, Placitella & Roth, P.C., Philadelphia, Robert E.J. Curran, Media, Ralph G. Wellington, Bruce Philip Merenstein, Schnader Harrison Segal & Lewis, L.L.P., Philadelphia, for Commonwealth of PA, c/o Office of General Counsel.

BEFORE: CASTILLE, C.J., SAYLOR, EAKIN, BAER, TODD, McCAFFERY, GREENSPAN, JJ.

OPINION

Chief Justice CASTILLE.

This appeal of the trial court's order denying the motion of appellant Janssen Pharmaceutica, Inc. ("Janssen") to disqualify contingent fee counsel retained by appellee, the Commonwealth's Office of General Counsel ("OGC"), is before this Court on a grant of extraordinary relief pursuantto 42 Pa.C.S. § 726,¹ by which we exercised jurisdiction to consider the possible statutory and constitutional implications of the contingent fee representation agreement entered into between OGC and the Texas law firm of Bailey Perrin Bailey, LLP ("Bailey Perrin").² We affirm.

On January 17, 2008, OGC filed a complaint against Janssen in the Court of Common Pleas of Philadelphia County, raising statutory and common law tort claims related to Risperdal, a prescription antipsychotic medication marketed by Janssen. Although Risperdal had been approved by the Food and Drug Administration ("FDA"), OGC alleged, inter alia, that Janssen improperly marketed and promoted Risperdal for non-FDA approved uses, commonly known as "off-label" uses. OGC contended that the Commonwealth has expended millions of dollars for Risperdal prescriptions through Medicaid and the Pharmaceutical Assistance Contract for the Elderly ("PACE"). In filing the action, OGC was not represented by government-employed lawyers. Instead, OGC retained Bailey Perrin, a private law firm based in Houston, Texas, to prosecute the action on a contingent fee basis.

On June 9, 2008, Janssen filed a motion in the trial court seeking to disqualify Bailey Perrin as OGC's counsel in the litigation. Janssen alleged that, while OGC filed the complaint against Janssen on behalf of the Commonwealth, no attorney from OGC entered an appearance, the complaint was signed by local Philadelphia counsel for Bailey Perrin, and a Bailey Perrin attorney verified the complaint. Janssen contended that the contingent fee agreement restricts OGC's ability to consent to a non-monetary settlement of the Risperdal action because it requires that any settlement include reasonable compensation for Bailey Perrin; contains a provision waiving conflicts of interests arising out of Bailey Perrin representing other states in similar actions that varies from the usual conflict of interest provisions included in contingent fee agreements executed by the Attorney General; and does not provide for OGC's control and management of the litigation as is generally the case with the Attorney General's contingent fee agreements. Janssen argued that the contingent fee agreement violates the separation of powers doctrine by usurping the General Assembly's exclusive spending powers. Finally, Janssen claimed that theagreement deprives it of its due process rights because those who exercise the government's powers in adjudicative proceedings must have no financial interest in the outcome, must be impartial, and must maintain the appearance of impartiality.³

OGC responded that Janssen misrepresented the terms of the contingent fee agreement regarding the scope of OGC's control over the litigation. OGC stated that the agreement relegates Bailey Perrin to advising, counseling and recommending actions to OGC and carrying out OGC's directives to the best of its ability and further provides that Bailey Perrin is directly responsible to OGC on all matters of strategy and tactics. In addition, according to OGC, the agreement provides that, at the time of settlement or judgment, OGC will consult with Bailey Perrin and agree to appropriate legal fees. OGC noted that the agreement provides that Bailey Perrin must advance all costs of litigation and, if there is no recovery, could expend millions of dollars with no remuneration.

Regarding alleged restrictions on the ability to reach a non-monetary settlement, OGC argued that, because the Risperdal complaint seeks monetary damages, the likelihood of an acceptable non-monetary settlement is extremely remote, and Janssen had not proposed any non-monetary settlement. On the issue of the alleged conflict of interest, OGC responded that Janssen failed to point to any such conflict or establish how Bailey Perrin's representation of other states against Janssen presents a conflict. OGC added that the contingent fee agreement does not violate the separation of powers doctrine because any fees paid to Bailey Perrin would issue from Janssen and not from the state treasury. Finally, OGC countered Janssen's due process argument by noting that all of the caselaw on that issue involves criminal matters and the impartiality of judges, not counsel representing a governmental entity.

The Honorable Howland W. Abramson denied the motion to disqualify counsel on December 8, 2008, without filing an opinion or otherwise stating the reasons for denial on the record. Janssen then filed an application for extraordinary relief with this Court, asking this Court to exercise jurisdiction to review the denial of its motion to disqualify. Janssen renewed the arguments it had forwarded below, i.e., that the contingent fee contract restricted OGC's authority to settle the litigation for non-monetary relief, and that the contract did not vest control of the litigation with OGC but rather provided that Bailey Perrin need only consult with OGC; that the process by which Bailey Perrin was retained was irregular because the contingent fee contract was not the subject of competitive bidding or legislative authorization; and that the contract violated the separation of powers doctrine and Janssen's due process rights. Finally, Janssen noted that if OGC prevailed in this litigation, Bailey Perrin would be paid fees of as much as fifteen percent of the actual recovery.

OGC opposed the application for extraordinary relief, arguing that Sections 204 and 501 of the Commonwealth Attorneys Act ("Attorneys Act" or "Act") specifically authorized OGC to hire outside counselto represent it. See 71 P.S. §§ 732-204 and 732-501. Further, OGC claimed that Janssen lacked standing to move to disqualify Bailey Perrin under Section 103 of the Attorneys Act, which explicitly states that no party other than a Commonwealth agency has standing to challenge the authority of the legal representation of the agency. 71 P.S. § 732-103. As to Janssen's separation of powers argument, OGC renewed its position that Bailey Perrin's compensation would come from Janssen, not from the state treasury, because any fee would be paid directly to Bailey Perrin prior to any recovery from Janssen being deposited into the treasury. In any event, according to OGC, the majority of other jurisdictions that have considered such a separation of powers argument have rejected it. Regarding Janssen's due process claim, OGC noted that it appears that Janssen would not object if OGC were represented by government-employed attorneys or private counsel working on an hourly basis; therefore, OGC characterized Janssen's true objection as being a strategic one, reflecting its concern with Bailey Perrin's level of skill, experience and special expertise in pharmaceutical reimbursement claims. OGC posits that due process principles cannot be construed to deny the Commonwealth the ability to retain superior legal representation.

On June 30, 2009, this Court exercised jurisdiction due to the public importance of the disqualification issue and directed the parties to brief the following four issues:

A. Whether 71 P.S. § 732-103 dictates that [Janssen] lacks standing to seek disqualification of Bailey Perrin Bailey, LLP on the basis of alleged violations of constitutional law.

B. Whether the Attorneys Act, 71 P.S. § 732-101 et seq., authorizes the Office of General Counsel's contingent fee agreement with Bailey Perrin Bailey, LLP.

C. Whether Bailey Perrin Bailey, LLP should be disqualified because the General Assembly did not authorize the contingent fee arrangement between the Office of General Counsel and the law firm, such that the agreement violates Article III, § 24 and the separation of powers mandate of the Pennsylvania Constitution.

D. Whether Bailey Perrin Bailey, LLP should be disqualified because the due process guarantees of the United States and Pennsylvania Constitutions prohibit the Commonwealth from delegating the exercise of its sovereign powers to private counsel with a direct contingent financial interest in the outcome of the litigation.

Commonwealth v. Janssen Pharmaceutical, Inc., 601 Pa. 563, 975 A.2d 1076 (2009). The questions, posing two questions of...