In re Pharm. Industry Average Wholesale Price Lit., 08-1056.

• Decision Date: 23 September 2009
• Docket Number: No. 08-1056.,08-1056.
• Citation: 582 F.3d 156
• Parties: In re PHARMACEUTICAL INDUSTRY AVERAGE WHOLESALE PRICE LITIGATION. Blue Cross Blue Shield of Massachusetts, et al., Plaintiffs, Appellees, v. AstraZeneca Pharmaceuticals LP, Defendant, Appellant.
• Court: U.S. Court of Appeals — First Circuit

582 F.3d 156

In re PHARMACEUTICAL INDUSTRY AVERAGE WHOLESALE PRICE LITIGATION Blue Cross Blue Shield of Massachusetts, et al., Plaintiffs, Appellees, v. AstraZeneca Pharmaceuticals LP, Defendant, Appellant.

No. 08-1056.

United States Court of Appeals, First Circuit.

Heard November 4, 2008.

Decided September 23, 2009.

Mark E. Haddad, with whom Nitin Reddy, Carter G. Phillips, Sidley Austin LLP, D. Scott Wise, Michael S. Flynn, Kimberley D. Harris, Davis Polk & Wardwell, Donald R. Ware, Sarah Cooleybeck and Foley Hoag LLP, were on brief for appellant.

Steve W. Berman, with whom Sean R. Matt, Hagens Berman Sobol Shapiro LLP, Jeffrey Kodroff, John A. Macoretta, Spector, Roseman & Kodroff, P.C., Marc H. Edelson, Hoffman & Edelson, Thomas M.

Sobol, Edward Notargiacomo, Hagens Berman Sobol Shapiro LLP, Kenneth A. Wexler, Jennifer Fountain Connolly and Wexler Toriseva Wallace LLP, were on brief for appellants.

Gregory G. Katsas, Assistant Attorney General, Michael J. Sullivan, United States Attorney, Michael S. Raab and Eric Fleisig-Greene, Attorneys, Appellate Staff, Civil Division, United States Department of Justice, on brief for amicus curiae United States in partial support of appellees and in partial support of affirmance.

Before HOWARD, Circuit Judge, ZOBEL^* and LISI,^** District Judges.

HOWARD, Circuit Judge.

AstraZeneca Pharmaceuticals LP ("AstraZeneca") appeals from the judgment of the district court, entered after a lengthy bench trial, of liability for unfair and deceptive business practices in violation of Massachusetts General Laws Chapter 93A ("Chapter 93A"). In re Pharm. Indus. Average Wholesale Price Litig., 491 F.Supp.2d 20 (D.Mass.2007). The district court found that AstraZeneca had caused the publication of false and inflated average wholesale prices ("AWPs"), a price used as a benchmark for various reimbursement plans, for its physician-administered drug Zoladex (goserelin acetate), thereby creating a windfall for the appellant's physician customers and causing injury to the government, insurers, and patients who were forced to pay inflated prices. AstraZeneca now brings a panoply of challenges to the district court's reasoning and result. Discerning no material factual or legal infirmity in the district court's disposition of the case, we affirm.

I. BACKGROUND

A. The Plaintiffs' Claims

This appeal arises out of a nationwide, multi-district class action involving the pricing of physician-administered drugs that were reimbursed by Medicare, private insurers, and patients' coinsurance payments. The challenged drug prices were those based on AWP from 1991 through 2003.¹ The plaintiffs alleged in the district court that certain pharmaceutical companies, including AstraZeneca, violated Massachusetts' consumer protection statute by reporting AWPs that did not reflect the physicians' actual acquisition cost, or anything close to it, and thereby led the plaintiffs to overpay.

The core of the plaintiffs' claim is that the published AWPs for the drugs at issue did not reflect the discounts and rebates that the drug manufacturers offered to physician providers. Because AWPs were published in commercial publications (Red Book, Medispan, and First DataBank) and used as the predominant benchmark for calculating reimbursement, insurance, and coinsurance payments, the class plaintiffs alleged that inflating AWPs over the actual acquisition cost created a "spread" between the benchmark for the providers' reimbursement and the actual acquisition costs that the providers incurred.² This allowed the providers to buy the drug at a secret, lower price while being reimbursed for it at a public, higher price, thereby creating a windfall each time a provider administered one of the drugs at issue. The plaintiffs further alleged that the defendant pharmaceutical companies then "marketed the spread"—that is, advertised the potential windfall to providers—in an attempt to increase the market share of their drugs over the competition. Motivating the plaintiffs' complaints, of course, is the fact that an increase to the AWPs directly resulted in an increase to the payments the plaintiffs were required to make in the form of reimbursement, insurance, or coinsurance. According to the district court's "representative" examples, markups to AWPs were significant and unpredictable, ranging from 27.0% to 1131.7%, depending on the drug and the year.

The plaintiffs' claims against AstraZeneca, discussed in detail below, relate to just one drug: Zoladex, an injectable, physician-administered drug that is primarily used to treat prostate cancer. Throughout the class period, Zoladex was a single-source drug—that is, it did not face competition from a generic version of the same drug—although it did face direct therapeutic competition from TAP Pharmaceuticals' product Lupron (leuprolide), which was also an injectable physician-administered drug.

B. Procedural History

The multidistrict litigation of which this case is a part is comprised of nearly one hundred cases involving AWP brought against more than forty pharmaceutical defendants. The cases include the consumer and third-party payor class action lawsuit at issue here as well as lawsuits brought by several states, counties, and cities, and at least one qui tam lawsuit brought under the False Claims Act, 31 U.S.C. § 3729 et seq.

To manage this sprawling litigation, in March 2004 the district court structured the master consolidated class action into two separate tracks of defendants for purposes of class certification, summary judgment and trial. AstraZeneca was separated into "Track 1," the first of these groups to proceed through trial (and the only track at issue here). See In re Pharm. Industry Average Wholesale Price Litig., 230 F.R.D. 61, 65 n. 1 (D.Mass.2005).

In January 2006, the district court then certified three classes: (1) a nationwide class of Medicare beneficiaries who made co-payments for Medicare Part B drugs ("Class 1");³ (2) a Massachusetts class of third-party payors that provided MediGap insurance which reimbursed Medicare beneficiaries for their co-payments for Medicare Part B drugs ("Class 2");⁴ and (3) a Massachusetts class of customers and third-party payors that made payments based on AWP for (non-Medicare Part B) physician-administered drugs ("Class 3").⁵ See In re Pharm. Indus. Average Wholesale Price Litig., 233 F.R.D. 229, 230-31 (D.Mass.2006).

Prior to trial on the claims against the Track 1 defendants, the district court entertained cross-motions for summary judgment arguing the meaning of the term "average wholesale price" in the Medicare statute, 42 U.S.C. § 1395u(o) (1998). In November 2006, the district court construed the statutory term to mean "the average price at which wholesalers sell drugs to their customers, including physicians and pharmacies," and including discounts and rebates. In re Pharm. Indus. Average Wholesale Price Litig., 460 F.Supp.2d 277, 278, 288 (D.Mass.2006).

In June 2007, after a twenty-day bench trial including nearly forty witnesses and hundreds of documents and deposition transcripts, the district court issued a lengthy order finding AstraZeneca liable under Chapter 93A for the claims brought by the Class 2 and Class 3 plaintiffs. In re Pharm., 491 F.Supp.2d at 31. The court found that:

AstraZeneca acted unfairly and deceptively by causing the publication of false and inflated average wholesale prices for Zoladex which grossly exceeded actual physician acquisition costs by as much as 169% and then marketing these mega-spreads between the physician's acquisition costs and the AWP reimbursement benchmark in order to induce doctors to buy its drug based on the drug's profitability [rather than its therapeutic benefits]. The spread on Zoladex exceeded 100% from 1998 forward.

Id. The district court then awarded aggregate, class-wide damages to both Class 2 and Class 3. Id. In a later order, the district court found that AstraZeneca's conduct as to Class 2 was knowing and willful, and awarded multiple damages; it declined, however, to make the same finding as to Class 3. In re Pharm. Indus. Average Wholesale Price Litigation, 520 F.Supp.2d 267, 272, 273 (D.Mass.2007).⁶ The award against AstraZeneca (including prejudgment interest through August 1, 2007) reached nearly $13,000,000. AstraZeneca appeals.

II. STANDARDS OF REVIEW

"When a district court conducts a bench trial, its legal determinations engender de novo review." United States v. 15 Bosworth Street, 236 F.3d 50, 53 (1st Cir. 2001); see also Ahern v. Scholz, 85 F.3d 774, 798 (1st Cir.1996). This includes questions of statutory interpretation, Gen. Motors Corp. v. Darling's, 444 F.3d 98, 107 (1st Cir.2006), and determinations about the sufficiency of the evidence in a bench trial, 15 Bosworth Street, 236 F.3d at 53.

In contrast, findings of fact made after a bench trial are reviewed for clear error. Williams v. Poulos, 11 F.3d 271, 278 (1st Cir.1993); Fed.R.Civ.P. 52(a)(6). "In other words, we will give such findings effect unless, after carefully reading the record and according due deference to the trial court's superior ability to judge credibility, we form a strong, unyielding belief that a mistake has been made." Williams, 11 F.3d at 278 (internal quotation marks omitted); see also 15 Bosworth Street, 236 F.3d at 53 ("This deference comports with common sense: a judge, sitting jury-waived, has the opportunity to see and hear the witnesses at first hand and to immerse himself in the nuances of the proof. Consequently, the appellate process ought to respect the trial judge's superior `feel' for the case and his enhanced ability to weigh and evaluate conflicting evidence." (citing Anderson v. City of Bessemer City, 470 U.S. 564, 574-75, 105 S.Ct. 1504, 84 L.Ed.2d 518 (1985))).

"A ruling that conduct violates Chapter 93A is a legal, not a factual, determination. Although whether a particular set of acts, in their factual setting, is unfair or...