Commonwealth ex rel. Pappert v. TAP Pharmaceutical Products, Inc.

• Decision Date: 01 February 2005
• Citation: 868 A.2d 624
• Court: Pennsylvania Commonwealth Court
• Parties: COMMONWEALTH of Pennsylvania by Gerald J. PAPPERT, in his capacity as Attorney General of the Commonwealth of Pennsylvania, Plaintiff v. TAP PHARMACEUTICAL PRODUCTS, INC.; Abbott Laboratories; Takeda Chemical Industries, LTD.; AstraZenca PLC; Zeneca, Inc.; AstraZeneca Pharmaceuticals LP; AstraZeneca LP; Bayer AG; Bayer Corporation; GlaxoSmithKline, P.L.C.; SmithKline Beecham Corporation; Glaxo Wellcome, Inc.; Pfizer, Inc.; Pharmacia Corporation; Johnson & Johnson; Amgen, Inc.; Bristol-Myers Squibb Company; Baxter International Inc.; Aventis Pharmaceuticals, Inc.; Boehringer Ingelheim Corporation; Schering-Plough Corporation; Dey, Inc., Defendants.

868 A.2d 624

COMMONWEALTH of Pennsylvania by Gerald J. PAPPERT, in his capacity as Attorney General of the Commonwealth of Pennsylvania, Plaintiff v. TAP PHARMACEUTICAL PRODUCTS, INC.; Abbott Laboratories; Takeda Chemical Industries, LTD.; AstraZenca PLC; Zeneca, Inc.; AstraZeneca Pharmaceuticals LP; AstraZeneca LP; Bayer AG; Bayer Corporation; GlaxoSmithKline, P.L.C.; SmithKline Beecham Corporation; Glaxo Wellcome, Inc.; Pfizer, Inc.; Pharmacia Corporation; Johnson & Johnson; Amgen, Inc.; Bristol-Myers Squibb Company; Baxter International Inc.; Aventis Pharmaceuticals, Inc.; Boehringer Ingelheim Corporation; Schering-Plough Corporation; Dey, Inc., Defendants.

Commonwealth Court of Pennsylvania.

Argued September 8, 2004.

Decided February 1, 2005.

Donald E. Haviland, Jr., Philadelphia, for plaintiff.

John Charles Dodds, Philadelphia, for defendant, Pfizer, Inc.

BEFORE: COLINS, President Judge, McGINLEY, Judge, PELLEGRINI, Judge, FRIEDMAN, Judge, LEADBETTER, Judge, COHN JUBILIRER, Judge, and LEAVITT, Judge.

OPINION BY President Judge COLINS.

The Commonwealth, through its Attorney General, has filed a Complaint against numerous pharmaceutical companies asserting generally that the companies have engaged in unfair and deceptive marketing schemes and conspiracies that have resulted in overcharging Pennsylvania consumers for the companies' products. In response, the companies have filed the preliminary objections we now consider. For the reasons stated below, we sustain the Defendants' preliminary objection asserting that the Complaint fails to plead facts with the specificity required under Pa. R.C.P. No. 1019(a) and (b). We will dismiss the Complaint without prejudice and allow the Plaintiff to submit an amended complaint within thirty days of the filing of this opinion. We also will sustain the preliminary objection filed by Takeda Chemical Industries, LTD (Takeda), challenging the Court's authority to exercise personal jurisdiction over that Defendant. Because we are sustaining the preliminary objection to the sufficiency of the Complaint's factual averments, we will not consider the remaining objections.

The Complaint avers, inter alia, the following pertinent facts. The Commonwealth purchases drugs for various Commonwealth-related entities, reimburses parties for the purchase of the companies' pharmaceuticals, and presents itself as acting as parens patriae on behalf of Commonwealth citizens who individually purchase the companies' pharmaceuticals. The companies sell their products or give free samples to intervening purchasers, such as doctors, at a certain price called the "acquisition" price. These initial purchasers then sell the purchased products to their customers, patients, for example, at what is called the "Average Wholesale Price" or AWP. The companies fix the amount of the AWP for each product, and the government, or other parties responsible for reimbursement, rely upon the AWP as the measure of reimbursement. Because the AWP is set higher than the acquisition cost, the difference, which the Plaintiff refers to as the "spread," results in a windfall for the intermediary purchaser. The Plaintiff alleges that, by ensuring a spread, the intermediary purchaser has an incentive to buy a company's pharmaceuticals. The initial purchaser enjoys the windfall, and the companies thereby have increased business. The Plaintiff provides an example of the resulting competition: When a company sets a greater spread than a competitor's product, the company with the greater spread has a greater market share because more intermediary purchasers buy, knowing that they will receive a greater benefit. Similarly, when a company provides intermediary users with free samples, an intermediary purchaser has a greater incentive to prescribe a company's product. The Plaintiff alleges that the companies provide additional incentives such as free trips, consulting opportunities, gifts, and cash payments.

The Plaintiff contends that the companies fraudulently concealed these allegedly improper practices by controlling the AWP methodology and by concealing the acquisition costs and inducements to intermediary purchasers described above. The Plaintiff further asserts that, although some of the companies pleaded guilty to federal criminal charges arising from this conduct, the Commonwealth and its citizens have not recovered all of the losses they incurred as a result of the companies' actions. The Complaint relies upon four theories for recovery: unjust enrichment, misrepresentation or fraud, civil conspiracy, and violations of the Unfair Trade Practice and Consumer Protection Law (UTPCPL).¹

The companies' preliminary objections present the following issues: (1) do the factual averments satisfy the requirement for specificity under Pa. R.C.P. No. 1019(a) and (b); (2) has the Plaintiff stated claims for which relief can be granted; (3) does the Plaintiff lack standing with regard to some of the claims; (4) does a pending action in Massachusetts warrant the grant of a stay in this proceeding; (5) does federal law preempt the Plaintiff's claims brought on behalf of ERISA² beneficiaries; and (6) does the Court lack personal jurisdiction over some of the company Defendants?³ We will address first the objections concerning personal jurisdiction.

A. Personal Jurisdiction

I. Personal Jurisdiction as to Takeda

a. General Jurisdiction

Pennsylvania courts recognize two statutory bases for exercising personal jurisdiction over a non-resident corporation. Section 5301(a)(2) of the Judicial Code, 42 Pa.C.S. § 5301(a)(2), permits Pennsylvania courts to exercise general personal jurisdiction over a non-resident corporation if (1) the corporation qualifies as a foreign corporation under the laws of the Commonwealth; (2) the corporation consents to jurisdiction; or (3) the corporation carries on a continuous and systematic part of its business under the laws of the Commonwealth. A court of this Commonwealth may exercise jurisdiction over a nonresident defendant under this provision if the defendant's activities in Pennsylvania are "continuous and substantial" even if the cause of action is not related to the defendant's activities in the state. Bork v. Mills, 458 Pa. 228, 231-232, 329 A.2d 247, 249 (1974); Efford v. Jockey Club, 796 A.2d 370, 373 (Pa.Super.2002).

We conclude that the Court cannot exercise general jurisdiction over Takeda. Even if the Plaintiff's averments are true, they could not support a conclusion that Takeda has carried on a continuous or systematic part of its business in Pennsylvania. Based upon facts averred in Takeda's preliminary objection, Takeda is not a Pennsylvania corporation; it does not have bank accounts or rent or own office space in the Commonwealth. The Plaintiff points to certain documents it submitted in support of its jurisdictional arguments — one indicating that a Takeda employee accompanied a TAP sales representative visiting Pennsylvania purchasers of Takeda products, and another describing a Takeda employee that corporation "seconded" to TAP. However, the totality of the circumstances here are insufficient to establish that Takeda conducts a part of its business in Pennsylvania in a continuous and systematic manner.

b. Specific Jurisdiction

Section 5322 of the Judicial Code, 42 Pa.C.S. § 5322, known as the "long-arm statute," describes circumstances under which courts may exercise specific jurisdiction over a non-resident. Specific jurisdiction "is focused upon the particular acts of the defendant that gave rise to the underlying cause of action." Efford, 796 A.2d at 373. Section 5322 provides for the exercise of jurisdiction when a non-resident's conduct falls within the terms of subsection (a). However, additionally, and co-extensively, subsection (b) requires that "our courts' exercise of jurisdiction under the Long Arm Statute conforms with federal Constitutional requirements of due process." Derman v. Wilair Services, Inc., 404 Pa.Super. 136, 590 A.2d 317,petition for allowance of appeal denied, 529 Pa. 621, 600 A.2d 537 (1991). Subsection (b) provides:

In addition to the provisions of subsection (a) the jurisdiction of the tribunals of this Commonwealth shall extend to all persons who are not within the scope of section 5301 (relating to persons) to the fullest extent allowed under the Constitution of the United States and may be based on the most minimum contact with this Commonwealth allowed under the Constitution of the United States.

Takeda's objection to this Court's exercise of specific personal jurisdiction rests on due process grounds. Accordingly, we will consider whether the Plaintiff's averments, and the documentary submissions upon which it relies, are sufficient to satisfy due process concerns. As first established in International Shoe Co. v. Washington, 326 U.S. 310, 66 S.Ct. 154, 90 L.Ed. 95 (1945), a state court may only exercise personal jurisdiction over a nonresident defendant if "minimum contacts" exist between the forum state and the defendant. A defendant's contacts must be of a sufficient quality as to not offend notions of fair play and substantial justice. Id. In the well-known case of World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 100 S.Ct. 559, 62 L.Ed.2d 490 (1980), the Supreme Court concluded that an Oklahoma court could not exercise personal jurisdiction over a nonresident automobile retailer and wholesaler from whom the plaintiffs purchased a vehicle, because the circumstances showed no meaningful contacts between those defendants and the forum state.⁴ In reaching that conclusion, the court injected the notion that, while foreseeability is a factor in analyzing the due process issue, courts should consider not simply whether a product that finds its way to another forum might result in injury, but rather whether a defendant's conduct with regard to and its connection to the forum state is such that a defendant can reasonably...