Case Briefing

During discovery, the doctor suggested that the device, manufactured by Stryker Corp., was defective. The state court action proceeded through the completion of discovery.

On Aug. 6, 2003, plaintiffs commenced a products liability action in state court against Stryker. Stryker removed the case to the District Court for the Southern District of New York pursuant to 28 U.S.C. ' 1441(b) on Sept. 22, 2003.

On Oct. 15, 2003, plaintiffs moved to join to this action the defendant doctor and hospital. They also moved for an order remanding the action to state court on the grounds that joinder of the state court medical malpractice defendants, who are New York residents, destroyed complete diversity, divesting the district court of subject matter jurisdiction.

Defendants argued that plaintiffs had unduly delayed because they had known about their potential claims against Stryker for 3 years, or at least since the doctor's deposition a year before the product liability suit was filed. But these delays, the court held, related to the length of time plaintiffs took to bring their action against the defendants, whereas the only delay that is relevant to joinder considerations is that between the removal of the case and the plaintiffs' motion for joinder and remand. As plaintiffs moved to join the medical malpractice defendants less than four weeks after this case was removed, no delay — and therefore no resulting prejudice — had been shown. Defendants' concerns about delay were more appropriately interpreted as claims of improper motivation on the part of plaintiffs, but the chronology of the case did not suggest to the court that this was the reason for plaintiffs' removal motion. Any delay was occasioned by plaintiffs' need to investigate their claims. The action was remanded to state court for further proceedings.

Failure to Plead Element of Causation Ends Lawsuit

Because plaintiff stockholders failed adequately to plead causation between alleged false statements by a drug manufacturer and a decrease in the value of their stock, their class action suit was dismissed with prejudice. In re QLT Inc. Securities Litigation, 2004 U.S. Dist. LEXIS 5390 (S.D.N.Y. 3/31/04).

The action arose following a sharp fall in the price of QLT Inc. common stock on Dec. 14, 2000, after QLT, a Vancouver-based pharmaceutical manufacturer whose common stock is listed on the NASDAQ and Toronto stock exchanges, issued a financial update stating that the fourth quarter 2000 sales of its main product, Visudyne', which treats symptoms of age-related macular degeneration, were expected to be lower than previously forecast. This announcement triggered a drastic reaction by the investing public, sending the price of QLT shares from approximately $40.44 per share at the close of Dec. 13 to a low of $28.06 per share on Dec. 14. Plaintiffs, the class of purchasers of QLT stock between Aug. 1, 2000 and Dec. 14, 2000, brought these actions pursuant to section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. ' 78j(b), Section 20 of the Exchange Act, 15 U.S.C. ' 78t(a), and Rule 10b-5 of the Securities and Exchange Commission, 17 CFR ' 240.10b-5. The Consolidated Class Action Complaint alleged that QLT and its Chief Executive Officer and Chief Financial Officer issued false and misleading information to the public concerning sales projections for Visudyne prior to the financial update announcement.

Plaintiffs specifically alleged that defendants exaggerated the projected market for Visudyne treatment in a press release issued April 12, 2000, estimating that a far higher number of potential users existed than actually did. Plaintiffs' allegation also focused on the discrepancy between the expectations allegedly created by a series of statements by QLT and the individual defendants in October of 2000 — including initial fourth quarter 2000 Visudyne sales forecasts — on one hand, and the revised downward sales forecast released by QLT on December 14, 2000, on the other.

The district court found that although plaintiffs adequately pleaded the elements of falsity and scienter, the complaint failed sufficiently to establish one crucial element: loss causation, which links the damages plaintiffs suffered to the alleged exaggeration of the projected performance of Visudyne in the market. Plaintiffs sought compensatory damages for losses due to the fall in price of QLT shares on Dec. 14, 2000. The complaint alleged that the fall was caused by the disclosure of the shortfall in the fourth quarter 2000 Visudyne sales forecast, but contained no allegation that the alleged exaggeration of the market for Visudyne treatment directly caused the fall in the price of QLT shares. The revised fourth quarter sales forecast released on Dec. 14, 2000 was clearly an intervening cause that superceded any direct effect of the alleged exaggeration contained in the April 12, 2000 press release regarding the size of the market for Visudyne treatment. As loss causation linking the damages sought by plaintiffs and the alleged exaggeration of market size were not present in the pleadings, and because plaintiffs had failed to correct this error after having been given ample opportunity by the court, the consolidated class action complaint was dismissed, with prejudice.

Thompson's Interpretation of Formulary Provision Upheld

The U.S. Court of Appeals for the D.C. Circuit held that the U.S. Secretary of Health and Human Services' approval of Michigan's prescription drug coverage program, which requires prior authorization for drugs that are supplied by manufacturers that do not agree to a rebate program, was neither arbitrary nor capricious, and the secretary's interpretation of the Medicaid statute was reasonable. Pharmaceutical Research and Manufacturers of America v. Thompson, No. 03-5117, Consolidated with, 03-5118, 2004 U.S. App. LEXIS 6312 (D.C. Cir. 4/2/04).

The appellants contended that the Michigan initiative's prior authorization requirement violated the formulary provision of the Medicaid outpatient drug payment statute, 42 U.S.C. ' 1396(d)(4) (authorizing a state to create a drug “formulary” of covered drugs that is “developed by a committee consisting of physicians, pharmacists, and other appropriate individuals appointed by the Governor of the State (' 1396r-8(d)(4)(A)) because it excluded certain drugs from the “Michigan Pharmaceutical Product List” (MPPL) based on their price rather than their therapeutic value and because Secretary Thompson had not provided the requisite written explanation for the exclusion. The Secretary did not dispute that the MPPL is a formulary, but asserted that the initiative's prior authorization program was implemented pursuant to the general prior authorization authority conferred by ' 1396r-8(d)(1)(A) and was expressly exempted from the formulary restrictions in '1396r-8(d)(4)(B)-(C) by the final sentence of '1396r-8(d)(4)(A), which states that a prior authorization program established under ' 1396r-8(d)(5) is not a formulary subject to the requirements of ' 1396r-8(d)(4). The court held this interpretation was not unreasonable and affirmed the district court's grant of summary judgment to the appellee.

Fraudulent Joinder Not Found After Second Suit Filed Against Manufacturer

Plaintiffs were allowed to join additional defendants to their product liability action pursuant to Fed. R. Civ. P. 20 and to remand the action to state court because the joinder, which destroyed complete diversity, was not fraudulently motivated. Hunt v. Stryker Corp., 2004 U.S. Dist. LEXIS 3896 (S.D.N.Y. 3/10/04).

Plaintiffs are a husband and wife who brought suit in 2000 in the Supreme Court of the State of New York, New York County, against the wife's doctor and hospital following implantation of a hip replacement device. The device fractured and failed in under 3 years, prompting their suit alleging medical malpractice and negligence

During discovery, the doctor suggested that the device, manufactured by Stryker Corp., was defective. The state court action proceeded through the completion of discovery.

On Aug. 6, 2003, plaintiffs commenced a products liability action in state court against Stryker. Stryker removed the case to the District Court for the Southern District of New York pursuant to 28 U.S.C. ' 1441(b) on Sept. 22, 2003.

On Oct. 15, 2003, plaintiffs moved to join to this action the defendant doctor and hospital. They also moved for an order remanding the action to state court on the grounds that joinder of the state court medical malpractice defendants, who are New York residents, destroyed complete diversity, divesting the district court of subject matter jurisdiction.

Defendants argued that plaintiffs had unduly delayed because they had known about their potential claims against Stryker for 3 years, or at least since the doctor's deposition a year before the product liability suit was filed. But these delays, the court held, related to the length of time plaintiffs took to bring their action against the defendants, whereas the only delay that is relevant to joinder considerations is that between the removal of the case and the plaintiffs' motion for joinder and remand. As plaintiffs moved to join the medical malpractice defendants less than four weeks after this case was removed, no delay — and therefore no resulting prejudice — had been shown. Defendants' concerns about delay were more appropriately interpreted as claims of improper motivation on the part of plaintiffs, but the chronology of the case did not suggest to the court that this was the reason for plaintiffs' removal motion. Any delay was occasioned by plaintiffs' need to investigate their claims. The action was remanded to state court for further proceedings.

Failure to Plead Element of Causation Ends Lawsuit

Because plaintiff stockholders failed adequately to plead causation between alleged false statements by a drug manufacturer and a decrease in the value of their stock, their class action suit was dismissed with prejudice. In re QLT Inc. Securities Litigation, 2004 U.S. Dist. LEXIS 5390 (S.D.N.Y. 3/31/04).

The action arose following a sharp fall in the price of QLT Inc. common stock on Dec. 14, 2000, after QLT, a Vancouver-based pharmaceutical manufacturer whose common stock is listed on the NASDAQ and Toronto stock exchanges, issued a financial update stating that the fourth quarter 2000 sales of its main product, Visudyne', which treats symptoms of age-related macular degeneration, were expected to be lower than previously forecast. This announcement triggered a drastic reaction by the investing public, sending the price of QLT shares from approximately $40.44 per share at the close of Dec. 13 to a low of $28.06 per share on Dec. 14. Plaintiffs, the class of purchasers of QLT stock between Aug. 1, 2000 and Dec. 14, 2000, brought these actions pursuant to section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. ' 78j(b), Section 20 of the Exchange Act, 15 U.S.C. ' 78t(a), and Rule 10b-5 of the Securities and Exchange Commission, 17 CFR ' 240.10b-5. The Consolidated Class Action Complaint alleged that QLT and its Chief Executive Officer and Chief Financial Officer issued false and misleading information to the public concerning sales projections for Visudyne prior to the financial update announcement.

Plaintiffs specifically alleged that defendants exaggerated the projected market for Visudyne treatment in a press release issued April 12, 2000, estimating that a far higher number of potential users existed than actually did. Plaintiffs' allegation also focused on the discrepancy between the expectations allegedly created by a series of statements by QLT and the individual defendants in October of 2000 — including initial fourth quarter 2000 Visudyne sales forecasts — on one hand, and the revised downward sales forecast released by QLT on December 14, 2000, on the other.

The district court found that although plaintiffs adequately pleaded the elements of falsity and scienter, the complaint failed sufficiently to establish one crucial element: loss causation, which links the damages plaintiffs suffered to the alleged exaggeration of the projected performance of Visudyne in the market. Plaintiffs sought compensatory damages for losses due to the fall in price of QLT shares on Dec. 14, 2000. The complaint alleged that the fall was caused by the disclosure of the shortfall in the fourth quarter 2000 Visudyne sales forecast, but contained no allegation that the alleged exaggeration of the market for Visudyne treatment directly caused the fall in the price of QLT shares. The revised fourth quarter sales forecast released on Dec. 14, 2000 was clearly an intervening cause that superceded any direct effect of the alleged exaggeration contained in the April 12, 2000 press release regarding the size of the market for Visudyne treatment. As loss causation linking the damages sought by plaintiffs and the alleged exaggeration of market size were not present in the pleadings, and because plaintiffs had failed to correct this error after having been given ample opportunity by the court, the consolidated class action complaint was dismissed, with prejudice.

Thompson's Interpretation of Formulary Provision Upheld

The U.S. Court of Appeals for the D.C. Circuit held that the U.S. Secretary of Health and Human Services' approval of Michigan's prescription drug coverage program, which requires prior authorization for drugs that are supplied by manufacturers that do not agree to a rebate program, was neither arbitrary nor capricious, and the secretary's interpretation of the Medicaid statute was reasonable. Pharmaceutical Research and Manufacturers of America v. Thompson, No. 03-5117, Consolidated with, 03-5118, 2004 U.S. App. LEXIS 6312 (D.C. Cir. 4/2/04).

The appellants contended that the Michigan initiative's prior authorization requirement violated the formulary provision of the Medicaid outpatient drug payment statute, 42 U.S.C. ' 1396(d)(4) (authorizing a state to create a drug “formulary” of covered drugs that is “developed by a committee consisting of physicians, pharmacists, and other appropriate individuals appointed by the Governor of the State (' 1396r-8(d)(4)(A)) because it excluded certain drugs from the “Michigan Pharmaceutical Product List” (MPPL) based on their price rather than their therapeutic value and because Secretary Thompson had not provided the requisite written explanation for the exclusion. The Secretary did not dispute that the MPPL is a formulary, but asserted that the initiative's prior authorization program was implemented pursuant to the general prior authorization authority conferred by ' 1396r-8(d)(1)(A) and was expressly exempted from the formulary restrictions in '1396r-8(d)(4)(B)-(C) by the final sentence of '1396r-8(d)(4)(A), which states that a prior authorization program established under ' 1396r-8(d)(5) is not a formulary subject to the requirements of ' 1396r-8(d)(4). The court held this interpretation was not unreasonable and affirmed the district court's grant of summary judgment to the appellee.