Desiano v. Warner-Lambert Co.

• Decision Date: 18 April 2003
• Docket Number: Docket No. 01-9318.
• Citation: 326 F.3d 339
• Parties: Caesar DESIANO and Gloria Desiano, Plaintiffs, Louisiana Health Service Indemnity Company, d/b/a Blue Cross/Blue Shield of Louisiana, on behalf of themselves and all others similarly situated, and Edgar Romney, as trustee of Eastern States Health and Welfare Fund, on behalf of itself and all others similarly situated, Plaintiffs-Appellants, v. WARNER-LAMBERT COMPANY, f/k/a Warner-Lambert Pharmaceutical and Parke-Davis & Company, a wholly owned division of Warner-Lambert Company, Defendants-Appellees.
• Court: U.S. Court of Appeals — Second Circuit

326 F.3d 339

Caesar DESIANO and Gloria Desiano, Plaintiffs,

Louisiana Health Service Indemnity Company, d/b/a Blue Cross/Blue Shield of Louisiana, on behalf of themselves and all others similarly

situated, and Edgar Romney, as trustee of Eastern States Health and Welfare Fund, on behalf of itself and all others similarly situated, Plaintiffs-Appellants, v. WARNER-LAMBERT COMPANY, f/k/a Warner-Lambert Pharmaceutical and Parke-Davis & Company, a wholly owned division of Warner-Lambert Company, Defendants-Appellees.

Docket No. 01-9318.

United States Court of Appeals, Second Circuit.

Argued: October 17, 2002.

Decided: April 18, 2003.

Richard W. Cohen, Lowey Dannenberg Bemporad & Selinger, P.C., White Plains, N.Y. (Stephen Lowey, Peter D. St. Phillip, Jr., Lowey Dannenberg Bemporad & Selinger, P.C., White Plains, NY; Mark D. Fischer, Mark M. Sandmann, Rawlings & Assocs., Louisville, KY, on the brief), for Plaintiffs-Appellants.

David Klingsberg (Maris Veidemanis, Robert Grass, on the brief), Kaye Scholer LLP, New York, NY, for Defendants-Appellees.

Before: LEVAL, CALABRESI, and KATZMANN, Circuit Judges.

CALABRESI, Circuit Judge.

The United States District Court for the Southern District of New York (Kaplan, J.) granted Defendants' motion to dismiss for failure to state a claim under Fed.R.Civ.P. 12(b)(6), and Plaintiffs appeal. Because Plaintiffs' suit involves claims of damages that were caused directly by Defendants' alleged fraud, we reverse and remand for further proceedings.

I.

A. The Parties

Defendant Warner-Lambert is a pharmaceutical company incorporated in Delaware with headquarters in New Jersey. Parke-Davis & Company is an unincorporated division of Warner-Lambert, and also has its headquarters in New Jersey. From February 1997 through March 2000, Defendants marketed and sold Rezulin, an oral drug that was approved in January 1997 by the FDA to treat Type II (adult onset) diabetes, a disease from which more than 15 million Americans suffer.

Plaintiff Louisiana Health Service Indemnity Company ("Blue Cross") is a Blue Cross/Blue Shield health benefit provider ("HBP") with headquarters in Baton Rouge, Louisiana. Blue Cross filed a class action suit in the United States District Court for the Eastern District of Louisiana on August 29, 2000; the suit was subsequently transferred to the Southern District of New York by the judicial panel on multidistrict litigation.

Plaintiff Eastern States Health and Welfare Fund ("Eastern"), an ERISA plan that provides benefits to members of the Needletrades, Industrial, and Textile Employees Union, is based in New York. Eastern filed suit in the Southern District of New York in March 2001. The two suits were consolidated by the district court in a pre-trial order in April 2001, and the Plaintiffs filed a consolidated complaint the same month.

B. Allegations in Plaintiffs' complaint

According to Plaintiffs' complaint, the allegations of which must be accepted as true for the purposes of a motion to dismiss, see Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957), Rezulin first gained prominence in June 1996, when the National Institutes of Health (NIH) announced a $150 million clinical study to test the drug's effectiveness. The NIH's decision to include Rezulin in the study was heavily influenced by Dr. Jerrold Olefsky, who held prominent positions in the NIH, and by Dr. Richard Eastman, the NIH's senior diabetes researcher who had overall responsibility for the study. Both doctors had financial interests in promoting the drug: Dr. Olefsky is listed as inventor or co-inventor on three patents regarding Rezulin's use for preventing diabetes and was co-chair of a Warner-Lambert-created group that promoted the drug; Dr. Eastman was a board member of two organizations financed by Warner-Lambert and the drug's developer. And, as it turned out, Dr. Eastman received more than $78,000 in undisclosed compensation from Warner-Lambert while he was overseeing the study. When these payments were brought to light in December 1998 — prompting a conflict-of-interest investigation by the Inspector General's office — Dr. Eastman was forced to resign from the NIH.

Warner-Lambert submitted a New Drug Application ("NDA") for Rezulin to the FDA on July 1, 1996, and the FDA agreed to give the drug a "fast track" (six month) review. The FDA initially assigned Dr. John L. Gueriguian as the chief medical officer to oversee the review. After concluding that the drug posed serious health and safety concerns, Dr. Gueriguian recommended against approval in a detailed written evaluation dated October 9, 1996. Specifically, Dr. Gueriguian found "very worrisome liver toxicity,"¹ and concluded that Rezulin "offered very little therapeutic advantage" over existing diabetes medications. He noted that Warner-Lambert's clinical trial data showed that Rezulin users developed liver problems at four times the rate of control patients who received a placebo, and also expressed concern about potential cardiovascular damage from the drug.² Dr. Gueriguian met with Warner-Lambert representatives in September 1996 and suggested the drug's prospects were not good. Warner-Lambert then met with Dr. Gueriguian's superiors at the FDA who, in November 1996, removed Dr. Gueriguian from the Rezulin review.

Dr. Gueriguian was replaced by Dr. G. Alexander Fleming, whose medical review noted that Warner-Lambert's clinical trials had "identified significant safety issues" and "suggested unpredictable damage associated with Rezulin." Nevertheless, Dr. Fleming's presentation to the FDA's Endocrinologic and Metabolic Drugs Advisory Committee made no mention of either Dr. Gueriguian's reservations about the drug, or of the problematic results of Warner-Lambert's clinical trials. Three advisory committee members later told the press that, if they had been informed of the adverse liver results, they would have required liver-function monitoring as a condition of approval. The advisory committee voted unanimously (8-0) to recommend approval of Rezulin and, on January 29, 1997, the FDA approved the drug, but only for use in combination with insulin or with metformin or sulfonylurea drugs. In August 1997, this approval was broadened to allow the use of Rezulin as a "stand-alone" therapy.

Warner-Lambert marketed Rezulin aggressively, and priced it at nearly three times the cost of appropriate treatments by other drugs. It touted Rezulin as "the first anti-diabetes drug designed to target insulin resistence." That statement prompted the FDA to accuse Warner-Lambert of making "false and misleading" claims, and to recommend that the company "immediately discontinue" circulating new releases containing the claim. More significant to this litigation, Warner-Lambert published two full-page color advertisements — one in the May 1, 1997 issue of The New England Journal of Medicine, and one in the June 19, 1997 Washington Post — describing Rezulin as a drug with breakthrough effectiveness, and "Side Effects Comparable to Placebo." The company allegedly made this statement while knowing that its own clinical trial data showed Rezulin users were three to six times more likely to suffer liver injury than patients taking the placebo.

By July 1997, seven people receiving Rezulin had died from the same side effects that Warner-Lambert had observed in its pre-market Rezulin tests. By the fall of 1997, the FDA began to receive reports of Rezulin patients suffering serious liver injuries, including death following liver failure. The FDA appointed a Dr. Misbin to evaluate the adverse event reports. He estimated that more than 12,000 Rezulin users would experience some liver injury, and that 2,000 of those patients might die unless their liver functions were closely monitored.

Warner-Lambert sent a letter to doctors in October 1997, reporting that thirty-five Rezulin users had experienced "idiosyncratic hepatocellular injury" ranging from mild effects to "one liver transplant and one death." The letter said these reports were "RARE," but nevertheless recommended that liver function be tested within the first month or two of Rezulin use, every three months for the first year thereafter, and then periodically.

On December 1, 1997, Warner-Lambert sent a second letter to healthcare professionals, announcing a label change on the drug which recommended more frequent liver-function monitoring for patients using Rezulin. The letter suggested that the FDA remained an advocate of Rezulin and a partner with Warner-Lambert in assuring safety to the drug's users.

On that same day, December 1, the sale of Rezulin's active ingredient was banned in the United Kingdom, based on a conclusion by the company marketing the drug that "there was no way to predict which Rezulin patients would be harmed, and the pace of liver injuries and deaths was by that point `unacceptably high.'" Warner-Lambert reacted by issuing a press release on December 7 stating it was "disappointed with the mischaracterization of its actions and intentions regarding the development and marketing of Rezulin," and that it was "particularly disturbed" by media reports that focused on the drug's risks while ignoring its significant benefits. Moreover, Warner-Lambert reaffirmed that the FDA supported the drug, and noted that the injured patients "may not have been monitored as recommended in the labeling."

Throughout this period, the NIH study of Rezulin continued. In May 1998, Audrey Jones, a healthy, non-diabetic participant in the study who had taken Rezulin, died, following a liver transplant made necessary by the irreversible liver failure she had developed. Mrs. Jones had undergone the monitoring tests that Warner-Lambert recommended. Warner-Lambert issued a press release stating that Mrs. Jones had died "apparently due to complications unrelated" to her Rezulin use. This report, however, was contradicted by NIH physicians, who concluded that the patient's...