Fed. Trade Comm'n v. Vyera Pharm.
| Decision Date | 24 September 2021 |
| Docket Number | 20cv00706 (DLC) |
| Parties | FEDERAL TRADE COMMISSION, STATE OF NEW YORK, STATE OF CALIFORNIA, STATE OF OHIO, COMMONWEALTH OF PENNSYLVANIA, STATE OF ILLINOIS, STATE OF NORTH CAROLINA, and COMMONWEALTH OF VIRGINIA, Plaintiffs, v. VYERA PHARMACEUTICALS, LLC, AND PHOENIXUS AG, MARTIN SHKRELI, individually, as an owner and former director of Phoenixus AG and a former executive of Vyera Pharmaceuticals, LLC, and KEVIN MULLEADY, individually, as an owner and former director of Phoenixus AG and a former executive of Vyera Pharmaceuticals, LLC, Defendants. |
| Court | U.S. District Court — Southern District of New York |
APPEARANCES:
For plaintiff Federal Trade Commission:
James H. Weingarten Markus H. Meier
Amanda Triplett
Armine Black
Bradley S. Albert
Daniel W. Butrymowicz
J Maren Schmidt
Lauren Peay
Leah Hubinger
Matthew B. Weprin
For plaintiff State of New York: Amy E. McFarlane, Jeremy R. Kasha, Elinor R. Hoffman, Saami Zain
For plaintiff State of California: Michael D. Battaglia Office of the Attorney General of California
For plaintiff State of Ohio: Beth Ann Finnerty, Elizebeth M. Maag Office of the Ohio Attorney General
For plaintiff Commonwealth of Pennsylvania: Joseph Betsko Pennsylvania Office of Attorney General
For plaintiff State of Illinois: Richard S. Schultz Office of the Attorney General of Illinois
For plaintiff State of North Carolina: Jessica V. Sutton Kip D. Sturgis
For plaintiff Commonwealth of Virginia: Sarah Oxenham Allen Tyler Henry Office of the Attorney General
For defendants Vyera Pharmaceuticals, LLC and Phoenixus AG: Stacey Anne Mahoney Sarah E. Hsu Wilbur Morgan, Lewis & Bockius LLP
William S. D. Cravens
Melina R. Dimattio
Morgan, Lewis & Bockius LLP
Steven A. Reed
Morgan, Lewis & Bockius LLP
Noah J. Kaufman
Morgan, Lewis & Bockius LLP
Michael M. Elliott
Rachel J. Rodriguez Phillips Nizer LLP
Michael L. Weiner
For defendant Martin Shkreli: Christopher H. Casey Andrew J. Rudowitz
For defendant Kevin Mulleady: Kenneth R. David Albert Shemtov Mishaan Nicholas Anthony Rendino
Defendants Vyera Pharmaceuticals, LLC and its parent company Phoenixus, AG (together, “Vyera”), Martin Shkreli, and Kevin Mulleady have moved for partial summary judgment on the scope of the plaintiffs' claim for disgorgement. They contend that the seven State plaintiffs may only pursue such relief where the defendants' net profits are tied to sales that have victimized citizens of their States. The State plaintiffs have cross-moved for summary judgment and a preclusion order. For the following reasons, the defendants' motion is denied. The States' cross-motion is granted.
Seven States[1] claim that the defendants in this antitrust litigation have abused the market for the pharmaceutical Daraprim. The events underlying this action are described in an Opinion of August 18, 2020, which is incorporated by reference. See Fed. Trade Comm'n v. Vyera Pharms., LLC, 479 F.Supp.3d 31 (S.D.N.Y. 2020).
In brief, in August 2015, Vyera acquired the U.S. rights to the branded drug Daraprim, which is used to treat toxoplasmosis, a potentially fatal infection. The day after acquiring the rights, Vyera raised the price of Daraprim from $17.50 per tablet to $750 per tablet. The plaintiffs allege that Vyera and the individual defendants designed and implemented a comprehensive scheme to block lower-cost generic drug competition to Daraprim with the purpose of maintaining the drug's inflated price. The alleged scheme involved Vyera entering into restrictive agreements with distributors and suppliers, as well as actions by Shkreli and Mulleady to originate and further this scheme.
The locus of the defendants' alleged wrongful activity was New York State. The headquarters of Vyera Pharmaceuticals, LLC were and are located in New York State. The distribution agreements at issue were executed on defendants' behalf in New York, as were the exclusive supply agreements that the plaintiffs allege were integral to the scheme.
The seven States have sued in their parens patriae capacity. Parens patriae means literally “parent of the country.” Alfred L. Snapp & Son, Inc. v. Puerto Rico ex rel. Barez, 458 U.S. 592, 600 (1982) (“Snapp”). To have parens patriae standing a State “must assert an injury to what has been characterized as a quasi-sovereign interest.” Id. at 601. A State has a quasi-sovereign interest “in the health and wellbeing -- both physical and economic -- of its residents in general.” Id. at 607. Parens patriae standing permits “a state (in its capacity as a sovereign) to bring suit on behalf of its citizens when it allege[s] injury to a sufficiently substantial segment of its population, articulate[s] an interest apart from the interests of particular private parties, and express[es] a quasi-sovereign interest.” Lacewell v. Off. of Comptroller of Currency, 999 F.3d 130, 142 n.13 (2d Cir. 2021) (citation omitted); see also Purdue Pharma L.P. v. Kentucky, 704 F.3d 208, 215 (2d Cir. 2013). In assessing whether such standing exists, a relevant question is “whether the injury is one that the State, if it could, would likely attempt to address through its sovereign lawmaking powers.” Snapp, 458 U.S. at 607.
In their Amended Complaint of April 14, 2020, all seven States explain in identical terms that they bring suit in their quasi-sovereign capacity. New York proclaims, for example, that it “brings this action on behalf of the people of the State of New York to protect the state, its general economy, and its residents from Defendants' anticompetitive business practices.” New York continues: “The Attorney General has authority under federal and state law to pursue an injunction and other equitable relief to prevent and remedy the harms caused by anticompetitive conduct.” All seven States also pray for “such equitable relief, including equitable monetary relief, as the Court finds necessary to redress and prevent recurrence of Defendants' violations of” federal and state antitrust laws.
In 2020, the seven States joined the Federal Trade Commission (“FTC”) in bringing claims against Vyera and two of the companies' owners and executives, Shkreli and Mulleady. The FTC brought claims under § 5(a) of the FTC Act, 15 U.S.C. § 45(a), seeking a permanent injunction pursuant to § 13(b) of the same Act, 15 U.S.C. § 53(b), and under §§ 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1, 2, seeking a permanent injunction pursuant to § 16 of the Clayton Act, 15 U.S.C. § 26. The States have also brought identical claims under the Sherman Act and § 16 of the Clayton Act as well as pursuant to their own state laws barring unfair competition and restraint of trade.[2] For example, New York has sued under the New York Donnelly Act, N.Y. Gen. Bus. Law § 340 et seq., and New York Executive Law, N.Y. Exec. Law § 63(12).[3]
On March 30, 2021, the plaintiffs waived their right to money damages and therefore their right to a jury trial. What remains is their claim for equitable relief, in particular a claim for injunctive relief and disgorgement.[4] Disgorgement is frequently defined as “[r]estitution measured by the defendant's wrongful gain.” Liu v. SEC, 140 S.Ct. 1936, 1943 (2020) (“Liu”) (quoting Restatement (Third) of Restitution and Unjust Enrichment § 51, cmt. a (Am. L. Inst. 2011)). As the Court observed in Liu, disgorgement is “a remedy tethered to a wrongdoer's net unlawful profits” and “has been a mainstay of equity courts.” Id.
On April 22, 2021, the Supreme Court held that § 13(b) of the FTC Act does not authorize the FTC to seek equitable monetary relief such as disgorgement. AMG Cap. Mgmt., LLC v. Fed. Trade Comm'n, 141 S.Ct. 1341, 1352 (2021) (“AMG”). Section 13(b) authorizes the FTC to obtain a “permanent injunction” directly in federal court. Id. at 1346. The Court in AMG held that this provision does not also authorize the FTC to “obtain court-ordered monetary relief” in equity because the language and structure of the FTC Act restrict the words “permanent injunction” in § 13(b) to “relief that is prospective, not retrospective.” Id. at 1347-48. It observed as well that an injunction “is not the same as an award of equitable monetary relief.” Id. at 1347. This Court consequently granted on June 2, 2021, the FTC's motion for leave to withdraw its prayer for equitable monetary relief.[5]
The State plaintiffs apparently seek to maintain their claims for disgorgement under both the federal and state laws at issue here, that is, pursuant to §§ 1 and 2 of the Sherman Act, as authorized by § 16 of the Clayton Act, and pursuant to their respective state laws.[6] Pursuant to those claims, they seek recovery of Vyera's net profits derived from the entirety of its U.S. Daraprim sales.
A bench trial is scheduled for December 14, 2021. The pretrial order is due October 20. The parties' cross-motions testing the geographic limits of the States' claim for disgorgement became fully submitted on September 3.
Vyera argues that the State plaintiffs lack parens patriae standing to obtain equitable monetary relief, including disgorgement, on behalf of those who are not citizens of their States.[7] The States oppose the motion, cross-move for summary judgment on the same issue, and seek an order precluding Vyera from again contesting the scope of nationwide equitable monetary relief in either pretrial or trial proceedings by declaring that the location...
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