Winkler v. Eli Lilly & Co.

• Decision Date: 20 March 1997
• Docket Number: Nos. 95-3913 and 95-4060,s. 95-3913 and 95-4060
• Citation: 101 F.3d 1196
• Parties: , 36 Fed.R.Serv.3d 23 Carolyn G. WINKLER, Individually and as the Independent Executrix of the Estate of Bernie A. Winkler, et al., Plaintiffs-Appellants, v. ELI LILLY & CO. and Paul Smith, Defendants-Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1196

101 F.3d 1196

65 USLW 2472, 36 Fed.R.Serv.3d 23

Carolyn G. WINKLER, Individually and as the Independent Executrix of the Estate of Bernie A. Winkler, et al., Plaintiffs-Appellants, v. ELI LILLY & CO. and Paul Smith, Defendants-Appellees.

Nos. 95-3913 and 95-4060.

United States Court of Appeals Seventh Circuit.

Argued May 13, 1996.

Decided Dec. 3, 1996.

Rehearing and Suggestion for Rehearing En Banc Denied March

20, 1997.

Paul F. Waldner, Archer, Waldner & Vickery, Houston, TX, Richard W. Ewing, Houston, TX, for Carolyn Winkler and other Winkler Plaintiffs-Appellants.

Robert K. Stanley, Brian K. Burke, Ellen E. Boshkoff, Baker & Daniels, Indianapolis, IN, for Eli Lilly & Co.

C. Vernon Hartline, Jr., Hartline, Dacus, Dryer & Kern, Dallas, TX, for Paul Smith.

Robert A. Holstein, Cory S. Berman, Holstein, Mack & Klein, Chicago, IL, for James Mahoney.

Before COFFEY, MANION, and ILANA DIAMOND ROVNER, Circuit Judges.

COFFEY, Circuit Judge.

This is a case about attempts to discover the terms of a secret agreement. The Winkler family and James Mahoney are suing the defendant pharmaceutical company Eli Lilly & Co. for injuries allegedly caused by its prescription medication Prozac. The Judicial Panel on Multidistrict Litigation consolidated all federal Prozac cases for discovery and scheduling purposes. The Southern District of Indiana appointed defendant attorney Paul Smith as lead counsel. The Winklers and Mahoney are now appealing the imposition of a permanent injunction barring them from attempting to discover the terms of a secret agreement which Eli Lilly reached with Smith, who subsequently resigned as lead counsel, during the trial of a Prozac case in Kentucky. We are of the opinion that the district court abused its discretion in imposing the injunction, and vacate the injunction.

I.

Eli Lilly & Co. manufactures the drug Prozac, a widely prescribed psychoactive antidepressant medication. Over the past several years, hundreds of plaintiffs nationwide have attempted to sue Eli Lilly for injuries allegedly caused by ingesting Prozac. Many of these cases were either brought in, or removed to, federal court on the basis of diversity jurisdiction. Prozac litigation became so proliferous that in 1992, the Federal Judicial Panel on Multidistrict Litigation consolidated some seventy-five federal Prozac cases ("MDL-907") for discovery and assigned them to Judge Dillin in the Southern District of Indiana, where Eli Lilly maintains its corporate headquarters. They included a suit originally brought in Texas by the estate and family of Bernie Winkler, who committed suicide shortly after being prescribed Prozac, and another originally brought in Illinois by James Mahoney, claiming that he suffered behavioral changes as a result of using Prozac as prescribed by his doctor. Late in 1993, Texas attorney Paul Smith assumed the role of lead counsel for the multidistrict litigation. According to the district court, Smith spearheaded discovery and examination of 750,000 pages of documents from Eli Lilly, and conducted almost sixty depositions. Smith maintains that the majority of his time was devoted to scheduling and conducting depositions.

At the same time, Smith was lead counsel in a Kentucky case, Fentress v. Shea Communications, the first major Prozac case to go to trial. The Fentress plaintiffs alleged that the Prozac caused a man taking the drug to go on a murderous rampage at his former place of employment. A cornerstone of plaintiffs' argument was that Eli Lilly's warnings about the drug's possible side-effects were inadequate, and that Eli Lilly withheld from American doctors warnings about adverse side-effects which the company disclosed to European doctors at the time it marketed the drug overseas. To bolster this argument, Smith, as lead counsel for the Fentress plaintiffs, sought throughout the trial--which eventually lasted 47 days--to introduce evidence that Eli Lilly had previously been convicted of and sanctioned for withholding evidence of adverse side-effects while obtaining approval from the Food and Drug Administration of a different drug. Judge Potter (the Kentucky state trial judge) initially ruled the conviction inadmissible as a prior bad act. During Eli Lilly's presentation of its defense, however, the company's attorneys elicited testimony from several witnesses that Eli Lilly was always willing to cooperate with the FDA. Following a day-long hearing, Judge Potter ruled that with the introduction of this testimony Eli Lilly had opened the door to use of the prior conviction, with the result that plaintiffs could introduce it in rebuttal.

At this time, Eli Lilly requested a day's recess. When the trial resumed, Smith closed his rebuttal case without ever referring to the evidence he had fought so long to introduce, and advised the judge that he would raise it in the damages phase of the trial. Suspicious, Judge Potter asked the parties if they had reached an agreement settling the case. They assured him, off the record, that they had not. The case went to the jury, which returned a verdict finding that the drug Prozac was not unreasonably dangerous and defective, and thus Eli Lilly was not responsible for any of the injuries. Accordingly, on January 25, 1995, the trial judge entered a judgment dismissing the case with prejudice. Smith did not appeal on behalf of the plaintiffs. Thereafter Eli Lilly made the verdict the centerpiece of a national publicity campaign, touting the safety of Prozac.

Judge Potter, however, remained suspicious of the result, particularly after hearing rumors that the parties had in fact reached a settlement. Even though judgment had been entered, he again confronted Smith and Eli Lilly. Both admitted that they reached an agreement during the recess of the Fentress trial, but insisted that the agreement was not a "settlement," and that no money had changed hands. They refused to disclose the terms of the agreement. As a result, three months after entering judgment, Judge Potter issued an order to show cause why the original judgment should not be amended to reflect that it was the result of a settlement, not a verdict. He issued subpoenas ordering counsel to appear before the court and explain to the court the nature of the agreement they had reached, as well as disclose any written documentation of the agreement between the parties. Smith and Eli Lilly sought a Writ of Prohibition from the Kentucky Court of Appeals, barring Judge Potter from proceeding any further in his inquiry. While the Fentress agreement itself remains secret to this day, we can glean from the parties' motions in the Kentucky courts the fact that they did reach an agreement before they submitted the case to the jury. Eli Lilly agreed to pay plaintiffs an amount certain even if the jury found in its favor. Furthermore, both parties agreed not to appeal. They also agreed that the very existence of the agreement was to remain secret. Their motions, as well as later testimony in federal court, indicate that the agreement also contained "something" ¹ regarding Smith's role as lead counsel in the consolidated litigation before the federal court. The Kentucky Court of Appeals issued the Writ of Prohibition, ruling that Judge Potter lacked jurisdiction to revise the judgment; Judge Potter appealed to the Supreme Court of Kentucky. That is where matters stood in the summer of 1995. (After oral argument in this case was completed, the Supreme Court of Kentucky reversed the state appellate court, quashed the writ, and ordered Smith and Eli Lilly to disclose the Fentress agreement to Judge Potter, ruling that even after entry of judgment of the jury's verdict in favor of Eli Lilly, he had jurisdiction, under the inherent powers doctrine, ² to ensure that the judgment was correct.)

On July 11, 1995, after the Kentucky Court of Appeals had issued the writ prohibiting Judge Potter from probing further into the Fentress agreement, Smith moved to withdraw as lead counsel in the multidistrict litigation. He told the court that he sought no compensation for the work he performed as lead counsel, and indicated that he also intended to withdraw entirely from the federal Prozac cases with which he had been associated. Several parties to the multidistrict litigation, apparently fearing that the court would lose jurisdiction over the issue if it were not settled while Smith remained lead counsel, vigorously argued that Smith should not be allowed to withdraw until he disclosed the terms of the Fentress agreement, particularly any terms that referred to Smith's role in the multidistrict litigation. On July 27, 1995, the district court granted Smith's motion to withdraw. No evidentiary hearing was held; the district judge declined to pursue a suggestion that he examine the Fentress agreement in camera. Judge Dillin, after the July 27th ruling, concluded that for the most part common discovery was all but complete, and remanded most of the Prozac cases back to their respective district courts. The court also gave Mahoney permission to join a non-diverse defendant, and remanded his case to Illinois state court. ³

Plaintiffs did not request that the trial court certify its decision to let Smith withdraw as lead counsel for interlocutory appeal. Rather, they turned to other avenues in their attempt to uncover the terms of the Fentress agreement. In Illinois, Mahoney subpoenaed Smith's co-counsel Nancy Zettler--who, after Smith's withdrawal, became custodian of all the documents discovered in the multidistrict litigation--for the admitted purpose of asking her about the Fentress agreement. The Winklers, whose initial Prozac case remains in federal court under the jurisdiction of the Southern District of Indiana ("Winkler I"), filed suit against attorney Paul Smith in Texas state court, charging him with breach of fiduciary duty as lead counsel in the MDL-907 litigation ("Winkler II"). The Winklers joined ...