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IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF ILLINOIS
IN RE: YASMIN AND YAZ
(DROSPIRENONE) MARKETING, SALES
PRACTICES AND PRODUCTS LIABILITY
LITIGATION
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3:09-md-02100-DRH-PMF
MDL No. 2100
This Document Relates to:
PHILADELPHIA FIREFIGHTERS UNION
LOCAL No. 22 HEALTH AND WELFARE
FUND, ET AL., on behalf of themselves and all
others similarly situated,
Plaintiffs,
v.
BAYER HEALTHCARE
PHARMACEUTICALS INC., ET AL.
Defendants.
3:09-cv-20071-DRH-PMF
DEFENDANTS’ MOTION TO DISMISS PLAINTIFFS’
FIRST AMENDED CLASS ACTION COMPLAINT
Plaintiffs are two union health and welfare funds. Despite both that plaintiffs continue to
reimburse for prescriptions of the FDA-approved oral contraceptive YAZ®, and their failure to
allege that YAZ hurt any of their plan members, plaintiffs seek to recover money they claim they
spent on reimbursements for YAZ prescriptions since 2006, on the theory that defendants
perpetrated mail and wire fraud while marketing YAZ to consumers and their doctors. None of
plaintiffs‟ federal RICO or common law tort claims states a basis on which they can obtain relief.
Each lacks any allegations that could establish a proximate causal relationship between the
purported fraud and plaintiffs‟ decisions to reimburse for YAZ prescriptions, and thus plaintiffs
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cannot establish proximate cause under either RICO or the state law claims. Plaintiffs‟
allegations also fail to demonstrate the “pattern” and “enterprise” elements necessary to state a
civil RICO claim, and the agreement between co-conspirators required for a claim of conspiracy
to violate RICO. None of plaintiffs‟ other claims survives under applicable law. Defendants
Bayer Corporation, Bayer HealthCare Pharmaceuticals Inc., Bayer HealthCare LLC, and Bayer
AG therefore move to dismiss the First Amended Complaint for failure to state a claim. Fed. R.
Civ. P. 12(b)(6).
BACKGROUND
Plaintiffs are Pennsylvania-based union health and welfare trust funds that reimburse
some or all of their plan participants‟ healthcare costs, including prescription drug costs. See
First Amended Complaint (FAC) ¶¶ 6, 7, 113, 114. YAZ is an FDA-approved, prescription oral
contraceptive drug. Plaintiffs allege that the FDA approved YAZ for various uses, including as
an oral contraceptive (March 17, 2006), to treat premenstrual dysphoric disorder (PMDD)
(October 5, 2006), and to treat moderate acne vulgaris in women using an oral contraceptive
(January 28, 2007). Id. ¶¶ 39-42. YAZ is only available through a prescription from a licensed
health professional authorized to write prescriptions. Plaintiffs purport to represent a nationwide
class of third-party payers who reimbursed or paid for YAZ prescriptions. See id. ¶ 123.
Plaintiffs allege that Bayer, upon FDA approval of YAZ, launched a marketing scheme to
misrepresent YAZ‟s safety and benefit profile to consumers, physicians, and third-party payers,
and thereby increase sales and prescriptions. See, e.g., id. ¶ 4, 33, 60, 65, 68, 77, 93, 100, 107.
Plaintiffs‟ sweeping allegations are based on two television commercials in 2007 and 2008, a
website about YAZ, and various other advertising activities. Plaintiffs also allege a “Direct-to-
Consumer Marketing” enterprise (consisting of Bayer, marketing and publication firms, and the
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web designers who created www.YazUS.com) and a “Medical Marketing” enterprise (consisting
of Bayer, medical education companies, pharmacy chains, and hired physician speakers). FAC
¶¶ 136-37, 139, 154-55, 157. Plaintiffs allege that the misrepresentations about YAZ related to
both on- and off-label use, and resulted both in increased sales and inflated prices. Id. ¶¶ 33, 66,
67, 80, 92, 107, 109-115, 118. Plaintiffs allege that Bayer‟s improper advertising induced
doctors to prescribe the drug for non-contraceptive conditions milder than the FDA-approved
indications of PMDD and moderate acne vulgaris, understated the risk of side effects from YAZ,
and caused plaintiffs and other third-party payers to pay for YAZ prescriptions at a “falsely
inflated price.” Id. ¶¶ 108, 115, 120-21.
Plaintiffs allege that, collectively, they spent about $93,000 on approximately 2,150 YAZ
prescriptions during a three-year period from 2006 through certain points in 2009, id. ¶¶ 112-14,
although they do not allege whether any of those were for unapproved purposes, whether any of
those prescriptions were the direct result of any of the allegedly false and misleading advertising,
or whether some or all of those prescriptions were otherwise appropriate for the patients
involved. Plaintiffs further allege that Bayer conducted a “$20 million corrective advertising
campaign” in 2009 to remedy the promotional activities that they contend were improper, id. ¶
89, but do not allege that they received or relied upon any of the allegedly improper advertising,
that they changed their reimbursement practices regarding YAZ after the corrective advertising
campaign, or that their members switched to another form of birth control since that time.
Plaintiffs notably omit other allegations, including that YAZ failed to work as intended or
that it injured any plan participants. Plaintiffs do no allege that any or all of the physicians‟
decisions to prescribe YAZ were based solely (or even principally) on misrepresentations by
Bayer, its sales representatives, or speakers. Nor do plaintiffs allege that their decisions to
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reimburse their participants‟ prescriptions were based on any false or misleading statements by
Bayer to it, or that the alleged increased cost of YAZ adversely affected plaintiffs.
LEGAL STANDARD
Dismissal of a complaint at the pleading stage is appropriate where, accepting the
allegations as true, the complaint fails to allege the essential elements of a claim or discloses a
defect in a claim. Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007). A complaint must “state a
claim to relief that is plausible on its face,” not simply one that is “speculative,” “conceivable,”
or “possible.” Id. at 545, 547, 555, 570, 591. The plaintiff must “state with particularity the
circumstances constituting fraud,” Fed. R. Civ. Proc. 9(b), including “the identity of the person
who made the misrepresentation, the time, place and content of the misrepresentation, and the
method by which the misrepresentation was communicated to the plaintiff.” Vicom, Inc. v.
Harbridge Merchant Servs., Inc., 20 F.3d 771, 777 (7th Cir. 1994). Where a plaintiff alleges
predicate acts of mail or wire fraud in a civil RICO claim, the complaint must include specific
allegations of the purported fraud and the causal link to the plaintiff‟s injury. James Cape &
Sons Co. v. PCC Constr. Co, 453 F.3d 396, 403 (7th Cir. 2006). The court may properly conduct
an examination of proximate cause on a motion to dismiss. See, e.g., Anza v. v. Ideal Steel
Supply Corp., 547 U.S. 451, 459-61 (2006).
ARGUMENT
I. PLAINTIFFS FAILED TO ALLEGE A VIABLE CLAIM UNDER THE
FEDERAL RICO STATUTE.
To state a civil RICO claim under 18 U.S.C. § 1962(c), a plaintiff must plead (1) the
conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity (5) that is the
proximate cause of an injury to the plaintiffs‟ business or property. Holmes v. Securities Investor
Protection Corp., 503 U.S. 258, 266-68 (1992); Sedima S.P.R.L. v. Imrex Co. Inc., 473 U.S. 479,
495-97 (1985); Corley v. Rosewood Care Center, Inc. of Peoria, 388 F.3d 990, 1001-02 (7th Cir.
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2004). Plaintiffs fail to plead at least three elements: proximate causation, a “pattern” of
racketeering activity, and the existence of an “enterprise.”
A. Plaintiffs Have Not Alleged, And Cannot Allege, That The Predicate Facts
Are The Cause Of Any Injury to Them.
To maintain a RICO claim, plaintiffs must allege that they were injured by alleged
predicate acts of mail and wire fraud. Hemi Group, LLC v. City of New York, 2010 WL 246151,
at *5 (Jan. 25, 2010); Anza, 547 U.S. at 457; Holmes, 503 U.S. at 268. They must establish both
but-for and proximate causation by pleading a link between the injury and the alleged predicate
acts. Sedima, 473 U.S. at 496-97; James Cape, 453 F.3d at 403. Plaintiffs do neither.1
1. Plaintiffs Do Not Allege Facts Establishing But-For Causation.
The complaint fails to allege facts that would support but-for causation, because plaintiffs
do not demonstrate that they took any action in response to discovering Bayer‟s allegedly
fraudulent activity. The absence of any such allegation is telling. Plaintiffs do not allege, for
example, that they stopped reimbursing for YAZ prescriptions, informed their plan participants
of the allegedly fraudulent actions, now require that participants prove that they have PMDD or
acne vulgaris before reimbursing for YAZ (even though it is also approved as an oral
contraceptive), or negotiated a lower cost. Nor do they allege that plan participants stopped
using YAZ or that doctors stopped prescribing it and switched to another contraceptive. The
logical inference from the absence of such allegations is that plaintiffs are doing exactly what
they were doing before filing this complaint: reimbursing their participants for prescriptions for
YAZ and other birth control pills as they are presented.
1 Where plaintiffs fail to allege an injury proximately caused by predicate acts of the defendants,
plaintiffs lack standing to assert a civil RICO claim. See Sedima, 473 U.S. at 496 (plaintiff has
standing only if he was injured in business or property by the allegedly wrongful conduct).
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There are other failures to allege but-for cause as well. For example, even assuming that
the most specifically alleged predicate acts (the television commercials, described as airing in
2007 and 2008) have been pleaded with particularity – which they are not, see infra section I.B.1
– those ads cannot logically be the but-for cause of any injury sustained before they aired.
In short, the complaint has no properly pleaded allegations that would give the Court any
basis to infer any causal relationship at all between Bayer‟s promotional activity and any harm
suffered by plaintiffs. On that basis alone, the civil RICO claim should be dismissed. Holmes,
503 U.S. at 268 (proper assertion of RICO claim requires both but-for and proximate causation);
Corley, 388 F.3d at 1005 (same).
2. Plaintiffs Do Not Allege Facts Establishing Proximate Causation.
The Supreme Court held in Holmes that, to establish proximate cause, a RICO claim must
demonstrate “some direct relation between the injury asserted and the injurious conduct
alleged.” 503 U.S. at 268 (emphasis added); see also id. at 268-69 (a plaintiff who complains
“of harm flowing merely from the misfortunes visited upon a third person by the defendant‟s acts
[is] generally said to stand at too remote a distance to recover”); id. at 287 (“„for want of a nail, a
kingdom was lost‟ is a commentary on fate, not the statement of a major cause of action against a
blacksmith”) (Scalia, J., concurring).2 When other factors (such as the decision of a doctor or
other authorized prescriber) could have contributed to plaintiffs‟ injury, no direct relationship has
been established with the RICO violation, and proximate cause fails. Id. at 273.
2 The Court in Holmes noted two other factors relevant to the proximate cause determination:
whether recognizing the claims of indirectly injured plaintiffs “would force courts to adopt
complicated rules apportioning damages among plaintiffs removed at different levels of injury
from the violative acts” and whether “directly injured victims can generally be counted on to
vindicate the law as private attorneys general.” 503 U.S. at 269-70. But where, as here, the
injury is plainly an indirect one, courts will find proximate cause lacking even where concerns
raised by these other two factors are not present. E.g., Serv. Employees Int’l Union Health &
Welfare Fund v. Philip Morris Inc., 249 F.3d 1068, 1075-76 (D.C. Cir. 2001); Steamfitters Local
Union No. 420 Welfare Fund v. Philip Morris Inc., 171 F.3d 912, 933-34 (3d Cir. 1999).
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Here, plaintiffs offer two theories of proximate causation, neither of which meets the
Holmes standard: (1) that misrepresentations of YAZ‟s safety and benefit profile caused
plaintiffs “to spend excessive and unnecessary sums of money for the purchase, payment, or
reimbursement [of] YAZ prescriptions that would not have been purchased, paid [for], or
reimbursed” without Bayer‟s misrepresentations (FAC ¶ 120; see also id. ¶¶ 5, 118, 151, 168,
180, 189, 205, 210-11); and (2) that Bayer caused plaintiffs “to spend excessive and unnecessary
sums of money for YAZ sold at a falsely inflated price that would have been significantly lower”
had Bayer not misrepresented YAZ‟s safety and benefit profile. Id. ¶ 121; see also id. ¶¶ 5, 118,
152, 169, 181, 190, 206, 212-13. The first theory lacks the direct relationship necessary to
establish proximate cause; the second is a fraud-on-the-market theory that has been rejected in
this Circuit. Accordingly, plaintiffs‟ RICO claims should be dismissed. See, e.g., Anza, 547
U.S. at 459-61 (affirming dismissal of RICO claim where there was no “direct relation”); Int’l
Brotherhood, 196 F.3d at 825-28 (dismissing civil RICO claims by employee health plan and
health insurer against tobacco companies for allegedly misleading the public and plans about the
risks of smoking, causing third-party payers to suffer economic losses on lack of proximate
cause); Serv. Employees, 249 F.3d at 1074 (same); Steamfitters, 171 F.3d at 932-34 (same).
No direct link between predicate acts and harm. Plaintiffs‟ first theory is that Bayer‟s
misrepresentations proximately caused them to reimburse for YAZ prescriptions that would not
have been written absent the promotional campaign. FAC ¶ 120. But any deception of plaintiffs
would not, standing alone, cause any harm to plaintiffs. As the complaint alleges, YAZ is an
oral contraceptive that must be prescribed by a physician. FAC ¶¶ 3-4. Without the doctor‟s
decision to prescribe, no plan participant could have received it and plaintiffs would not have
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suffered any economic harm. Thus, the doctors‟ decision-making process must be included in
any attempt to link allegedly fraudulent marketing of YAZ to plaintiffs‟ alleged injury.
A doctor exercises his or her independent medical judgment to decide whether to
prescribe a medication, and that judgment “can be influenced by a number of things, only one of
which may be representations by a manufacturer as to a particular drug‟s relative safety and
efficacy.” Ironworkers Local Union No. 68 v. AstraZeneca Pharmaceuticals LP, 585 F. Supp.
2d 1339, 1344 (M.D. Fla. 2008) (Conway) (physicians‟ independent judgment to prescribe
medication made plaintiffs‟ claims too remote to satisfy RICO‟s proximate cause requirement),
appeal docketed, No. 08-16851-C (11th Cir. Feb. 27, 2009); In re Schering-Plough Corp.
Intron/Temodar Consumer Class Action, 2009 WL 2043604, at *26 (D.N.J. July 10, 2009)
(Chesler) (no proximate cause where the court “would have to determine whether each
prescribing physician received fraudulent marketing information from the Defendants and
whether each physician was influenced to prescribe the [prescription drugs] on account of
[defendant‟s] conduct”). Ascertaining the role, if any, that Bayer‟s alleged misrepresentations
played in any doctor‟s decision to prescribe YAZ would lead directly to the type of intricate,
unwieldy, and ultimately impossible inquiry that the Holmes test is designed to prevent. See
Anza, 547 U.S. at 459-60; In re Schering-Plough, 2009 WL 2043604, at *26; Ironworkers, 585
F. Supp. 2d at 1344. Accordingly, plaintiffs have not alleged proximate cause in support or their
RICO claim. Hemi Group, 2010 WL 246151, at *7 (no proximate cause where alleged fraud on
third parties made it easier for a fourth party to cause harm to plaintiff).3
3 Courts generally find this lack of direct relation fatal to civil RICO claims brought by health
plans against prescription drug manufacturers. See Southern Illinois Laborers’ & Employers
Health and Welfare Fund v. Pfizer Inc., 2009 WL 3151807, at **3, 5-7 (S.D.N.Y. Sept. 30,
2009) (Wood) (third-party payer failed to allege causation for misrepresentations allegedly made
to physicians, pharmacy benefit decision makers, and plaintiffs); Southeast Laborers Health and
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Plaintiffs’ “fraud on the market” theory cannot satisfy proximate cause. Plaintiffs‟
second alleged harm – that they reimbursed or paid for YAZ at a “falsely inflated” price or
“substantial [] premium” (e.g., FAC ¶¶ 4, 33, 67, 70, 79-80, 109, 118, 121) – is no more than a
“fraud on the market” theory of proximate cause. This fails as a matter of law, as the Seventh
Circuit has rejected “fraud on the market” theories of proximate cause except in the limited
context of efficient markets, such as in federal securities cases. See Roots P’ship v. Lands’ End,
Inc., 965 F.2d 1411, 1419 (7th Cir. 1992) (noting that the fraud-on-the-market doctrine
“presumes that news is promptly incorporated into stock price”); In re Motorola Sec. Litig., 505
F. Supp. 2d 501, 553 (N.D. Ill. 2007) (Pallmeyer) (noting that “the efficient market theory
supports the „fraud-on-the-market‟ doctrine”).
The prescription drug market is anything but efficient; dozens of factors may affect the
prices charged and amounts reimbursed for a prescription drug, including contract pricing with
hospitals and pharmacy groups, a patient‟s prescription coverage plan, and choice of retail outlet
for filling the prescription. Many other factors affect whether the medication is prescribed at all,
including a patient‟s medical history and a physician‟s judgment regarding choice of medication.
Thus, as courts generally agree, a “fraud on the market” theory is too remote, speculative, and
attenuated to support proximate cause in the prescription drug context. See, e.g., Southeast
Laborers, 655 F. Supp. 2d at 1283 (rejecting “fraud on the market” theory to satisfy RICO‟s
Welfare Fund v. Bayer Corp., 655 F. Supp. 2d 1270, 1280-81 (S.D. Fla. 2009) (Middlebrooks)
(dismissing third-party payer RICO claim for lack of proximate cause because there “are many
factors that a doctor may consider in determining what medication to administer to a given
patient”); In re Schering-Plough, 2009 WL 2043604, at *26; In re Actimmune Mktg. Litig., 614
F. Supp. 2d 1037, 1052-53 (N.D. Cal. 2009) (Patel) (holding that plaintiffs‟ “mere recitations of
the causation element of the RICO claim do not provide sufficient grounds for entitlement to
relief”); District 1199P Health and Welfare Plan v. Janssen LP, 2008 WL 5413105, at *5-13
(D.N.J. Dec. 23, 2008) (Wolfson) (dismissing third-party payer RICO claims based on off-label
promotion of prescription drug); Ironworkers, 585 F. Supp. 2d at 1344-45 (same).
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proximate cause requirement) (citing Chudasama v. Mazda Motor Corp., 123 F.3d 1353 (11th
Cir. 1997); In re Schering-Plough Corp., 2009 WL 2043604, at *20-22 (rejecting third-party
payer‟s inflated price injury because it was a “fraud on the market” theory that has been soundly
rebuffed outside the securities context); N.J. Citizens Action v. Schering-Plough Corp., 842 A.2d
174 (N.J. Super. Ct. App. Div. 2003) (same); see also McLaughlin v. Am. Tobacco Co., 522 F.3d
215, 223-24 & n.5 (2d Cir. 2008) (rejecting fraud-on-the-market theory to prove causation).
For all these reasons, the First Amended Complaint fails to allege proximate causation,
and therefore should be dismissed.
B. Plaintiffs Have Not Adequately Alleged A “Pattern” Of Racketeering
Activity.
Even if plaintiffs could meet their proximate cause burden, the complaint fails to allege a
“pattern” of racketeering activity. A civil RICO plaintiff must properly allege “at least two
predicate acts of racketeering activity committed within a ten-year period,” and that the predicate
acts are both related to each other and are continuous (i.e., pose a threat of continued criminal
activity). See H.J., Inc. v. Nw. Bell Tel. Co., 492 U.S. 229, 237-39 (1989); Sedima, 473 U.S. at
496 n.14; Vicom, 20 F.3d at 779; Midwest Grinding Co. v. Spitz, 976 F.2d 1016, 1022 (7th Cir.
1992). Plaintiffs' allegations of a “pattern” of racketeering activity fall short because the
underlying predicate acts both lack the specificity required by Fed. R. Civ. P. 9(b) and do not
satisfy any standard for continuity.
1. Plaintiffs Have Not Alleged With Particularity Two Predicate Acts Of
Racketeering Activity.
The First Amended Complaint fails to allege the two requisite predicate acts with the
particularity required by Fed. R. Civ. P. 9(b). See Goren v. New Vision Int’l, Inc., 156 F.3d 721,
729 (7th Cir. 1998) (requiring predicate acts of fraud to be alleged with particularity); see also
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DiLeo v. Ernst & Young, 901 F.2d 624, 627 (7th Cir. 1990) (defining “particularity” to include
“the who, what, when, where, and how: the first paragraph of any newspaper story”).
Here, although the complaint contains general, conclusory allegations that defendants
defrauded plaintiffs, plan participants, and healthcare providers during some unspecified period
after March 2006, nowhere does the complaint set forth the “who, what, when, where, and how”
of these alleged deceptions. See, e.g., FAC ¶¶ 146 (listing mail and wire fraud acts of
“marketing materials and advertisements aimed at patients,” “communications with patients …,
as well as third-party payors …, inducing payments for YAZ,” and “receiving the proceeds”),
163 (listing mail and wire fraud acts of “marketing materials and advertisements aimed at
patients and physicians,” “communications, including financial payments, with physicians
discussing and relating to paid speaking engagements,” “communications with physicians that
misrepresented [YAZ‟s safety and benefit profile],” “communications with health insurers,
prescription benefit managers, and third-party payors … inducing payments to made for YAZ,”
and “receiving the proceeds”). For example, although the complaint describes two television
commercials in detail (id. ¶¶ 72-76), notably absent are any specifics about which members saw
the commercials, on what days, and where. See id.¶ 115 (alleging that consumers saw YAZ
commercials and purchased YAZ). Similarly, the complaint lacks specific allegations as to
which statements on the YAZ website allegedly deceived plan members (see id. ¶ 77), or which
specific acts of mail or wire fraud that physicians or plaintiffs relied upon (see id. ¶¶ 91-104,
117), or any of “the who, what, where, when, and how” of alleged acts of mail or wire fraud.
Because plaintiff did not plead the predicate acts with particularity, plaintiffs fail to allege
the required pattern element. See Goren, 156 F.3d at 729.
2. Plaintiffs Cannot Satisfy The Close-Ended or Open-Ended Continuity
Pattern Test.
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The continuity requirement “gives effect to Congress‟s clear intention that RICO target
long-term criminal behavior.” Jennings v. Auto Meter Products, Inc., 495 F.3d 466, 473 (7th
Cir. 2007). Continuity can be either “open-ended” (which refers to criminal behavior of short
duration that “by its nature projects into the future with a threat of repetition”) or “close-ended”
(which refers to “criminal behavior that has come to a close but endured for such a substantial
period of time „that the duration and repetition ... carried with it an implicit threat of continued
criminal activity in the future‟”). Id. (citations omitted); see also Vicom, 20 F.3d at 779.
Plaintiffs have not adequately alleged either type of continuity.
Open-ended continuity. Open-ended continuity is present when the alleged criminal
behavior is of short duration but of such a nature that “a specific threat of repetition” exists, such
as when the predicate acts of mail or wire fraud are the defendant‟s regular way of conducting an
ongoing legitimate business or the defendant operates “a long-term association that exists for
criminal purposes.” H.J. Inc., 492 U.S. at 242.
Plaintiffs do not allege a specific threat of repetition of predicate acts, and thus fail to
demonstrate open-ended continuity. Although plaintiffs allege “hundreds” of predicate acts of
mail and wire fraud, see FAC ¶¶ 71, 77, 146, they fail to allege the requisite specificity to
establish any of them, and thus have not pleaded the requisite predicate acts. See supra. In
addition, plaintiffs allege that although Bayer engaged in mail and wire fraud through mailings,
two television commercials and a sponsored website, now all such materials are subject to FDA
pre-approval. See id. ¶ 89 (Bayer is required “to submit all television advertisements for the next
six years to the FDA for pre-approval, comply with FDA‟s suggestions on television and print
advertisements, and disclose YAZ‟s approved uses in print ads”). Thus, the alleged predicate
acts are not likely to recur. Vicom, 20 F.3d at 782 (“schemes which have a clear and terminable
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13
goal have a natural ending point [and] cannot support a finding of any specific threat of
continuity”); Roger Whitmore’s Auto. Servs., Inc. v. Lake County, Illinois, 424 F.3d 659, 674
(7th Cir. 2005) (“[plaintiff] pleaded himself out of showing a continuing threat of continued
activity, because the alleged scheme had a natural ending point”). Nor have plaintiffs alleged
that the predicate acts are part of Bayer‟s regular way of conducting its business, or that Bayer
operated “as part of a long-term association that exists for criminal purposes.” See Vicom, 20
F.3d at 783-84 (lack of such allegations preclude finding of open-ended continuity). Thus,
plaintiffs cannot establish open-ended continuity to prove the pattern requirement.
Close-ended continuity. Close-ended continuity requires a plaintiff to “prov[e] a series
of related predicates extending over a substantial period of time” demonstrating long-standing
criminal behavior that has come to an end but carries with it an implicit threat of continued
future criminal activity. H.J., Inc., 492 U.S. at 242; Midwest Grinding, 976 F.2d at 1022-23. To
determine whether a previously-existing criminal scheme threatens to recur, the Seventh Circuit
evaluates “the number and variety of predicate acts and the length of time over which they were
committed, the number of victims, the presence of separate schemes, and the occurrence of
distinct injuries.” Morgan v. Bank of Waukegan, 804 F.2d 970, 975 (7th Cir. 1986).
Here, none of the factors supports finding close-ended continuity. As discussed above,
plaintiffs‟ allegations foreclose the threat of future occurrence of a now-ended scheme of mail
and wire fraud. FAC ¶¶ 89. In addition, although plaintiffs allege “repeated” broadcasts of two
YAZ commercials (id. ¶ 71) and a “sponsored link” to a YAZ website (id. ¶ 77) as mail and wire
fraud, the Seventh Circuit has “repeatedly rejected RICO claims that rely so heavily on mail and
wire fraud allegations to establish a pattern.” Jennings, 495 F.3d at 475; see also Vicom, 20 F.3d
at 781 (“multiplicity of [mail and wire fraud] ... may be no indication of the requisite continuity
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of the underlying fraudulent activity ... [and therefore] does not necessarily translate directly into
a „pattern‟ of racketeering activity”) (quoting Lipin Enterprises, Inc. v. Lee, 803 F.2d 322, 325
(7th Cir. 1986)); Midwest Grinding, 976 F.2d at 1025 (“the sizable number of mailings does not
show that the defendants operated a long-term criminal operation”). Also, plaintiffs allege only
one “scheme” (fraudulent or misleading promotion of YAZ‟s safety and benefit profile) and –
despite sweeping allegations that consumers, healthcare providers and third-party payers are
victims of the alleged fraud – allege injuries only to the plaintiffs themselves (total expenditures
for YAZ prescriptions). See FAC ¶¶ 4, 65, 110-114; see, e.g., Western Assocs. L.P. v. Market
Square-Assocs., Inc., 235 F.3d 629, 634 (D.C. Cir. 2001) (finding no continuity where plaintiff
“alleged only a single scheme, a single injury, and a single victim (or single set of victims)”).
Thus, plaintiffs fail to establish close-ended continuity to satisfy RICO‟s pattern
requirement.
C. Plaintiffs Have Not Alleged a Cognizable RICO Enterprise.
Plaintiffs‟ RICO claim fails for the additional reason that the First Amended Complaint
lacks allegations to support the existence of a RICO enterprise. Plaintiffs‟ allegations regarding
the two enterprises lack two required elements: (1) a common illegal purpose within each
enterprise; and (2) the requisite distinction between Bayer and each alleged enterprise.
1. Plaintiffs Failed To Allege A Common Illegal Purpose.
Where a RICO plaintiff asserts the existence of an association-in-fact enterprise,
the complaint must allege that the members of the enterprise shared a common fraudulent or
illegal purpose. See Richmond v. Nationwide Cassel L.P., 52 F.3d 640, 645 (7th Cir. 1995)
(dismissing RICO claim in part for failure “to allege how [the RICO entities] acted in concert
with one another with the common purpose of defrauding Plaintiffs”); Blue Cross and Blue
Shield of Alabama v. Caremark, Inc., 1999 WL 966434, at *7 (N.D. Ill. Sept. 30, 1999)
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(Marovich) (requiring common purpose of engaging in a prohibited course of conduct); Stachon
v. United Consumers Club, Inc., 1999 WL 971284, at *4 (N.D. Ill. Oct. 21, 1999) (Norgle)
(dismissing RICO claim where enterprise lacked common purpose), aff’d on other grounds, 229
F.3d 673 (7th Cir. 2000).
Here, plaintiffs allege in general terms that the members of both enterprises shared a
common purpose of “gaining revenue from marketing YAZ for on- and off-label uses,” FAC
¶¶ 141, 159, but do not allege, as they must, that the common purpose was illegal. Generating
revenue through marketing in a for-profit business is not illegal, fraudulent, or prohibited.
Moreover, plaintiffs do not allege that any non-Bayer members of the enterprises knew of any
misrepresentations regarding the YAZ safety and benefit profile, knowingly concealed facts or
shared fraudulent misrepresentations, or intentionally participated in the alleged fraud. Without
such allegations, the purported RICO enterprise fails as a matter of law. See, e.g., Blue Cross
and Blue Shield of Al., 1999 WL 966434, at *7 (finding no enterprise absent allegations that
enterprise members acted with a common purpose to defraud the plaintiff); In re Pharm. Indust.
Average Wholesale Price Litig. II, 307 F. Supp. 2d 196, 204-05 (D. Mass 2004) (Saris)
(dismissing RICO claim where no allegation that publishers were aware of the fraudulent nature
of the information they were publishing); Blue Cross of Cal. v. SmithKline Beecham Clinical
Labs., Inc., 62 F. Supp. 2d 544, 553 (D. Conn. 1998) (Covello) (dismissing RICO claim where
the complaint was devoid of “specific allegation[s] that any physician, hospital, or laboratory
shared [defendant‟s] alleged common purpose to defraud public and private health care payers”).
2. Plaintiffs Fail To Allege That Bayer Is Separate And Distinct From
Both The Direct-To-Consumer Marketing And Medical Marketing
Enterprises.
To allege a proper RICO enterprise, the defendants must be “separate and distinct” from
the RICO enterprise. Cedric Kushner Promotions, Ltd. v. King, 533 U.S. 158, 162-63 (2001);
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Richmond, 52 F.3d at 646; Lathrop v. Juneau & Associates, Inc. P.C., 220 F.R.D. 322, 328 (S.D.
Ill. 2004) (Herndon) (requiring the RICO person and enterprise “be distinct from each other”).
An enterprise cannot be an association-in-fact comprised of a corporation, its subsidiaries and
parents, employees, agents, and affiliates, acting as a single unit or under common direction. See
Richmond, 52 F.3d at 646.4 The plaintiff must establish “that the defendants conducted or
participated in the conduct of the „enterprise’s affairs,‟ not just their own affairs.” Id. (quoting
Reves v. Ernst & Young, 507 U.S. 170, 185 (1993)) (emphasis in original).
Neither enterprise meets this “distinctness” requirement. Plaintiffs allege that the Direct-
to-Consumer Marketing enterprise consists of Bayer, its employees and agents, consultant
marketing firms (including Young & Rubicam), and the creator of the YAZ website. FAC ¶ 137.
They further allege that the Medical Marketing enterprise consists of Bayer, its employees and
agents, medical education companies, pharmacy chains, and speakers. Id. ¶ 155. Purportedly,
the role of the non-Bayer members of the enterprises is to promote YAZ to consumers and the
medical community. Id. ¶¶ 69-71, 77, 93, 97. Although plaintiffs make conclusory allegations
that the RICO persons are distinct from each enterprise, id. ¶¶ 138, 156, they also allege that
Bayer controlled the messages that were distributed and carried out by each enterprise‟s
members. See id. ¶¶ 34, 65, 67, 69-70, 77, 93, 97, 100-01, 103. Consequently, plaintiffs‟
allegations lack the distinctness required for a RICO enterprise. See Fitzgerald v. Chrysler Corp,
116 F.3d 225, 227-28 (7th Cir. 1997) (holding that plaintiff had not properly alleged a RICO
enterprise consisting of an automobile manufacturer, its dealerships, agents, and affiliates).
4 See also Whelan v. Winchester Prod. Co., 319 F.3d 225, 229-30 (5th Cir. 2000); Begala v. PNC
Bank, 214 F.3d 776, 781 (6th Cir. 2000); Brannon v. Boatmen’s First Nat’l Bank of Ohio, 153
F.3d 1144, 1149 (10th Cir. 1998); Riverwoods Chappaqua Corp v. Marine Midland Bank, N.A.,
30 F.3d 339, 344 (2d Cir. 1994); Yellow Bus Lines Inc. v. Drivers, Chauffeurs & Helpers Local
Union 639, 883 F.2d 132, 139-41 (D.C. Cir. 1989).
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Moreover, nowhere do plaintiffs allege that other enterprise members misrepresented
anything, knew about the misrepresentation, or knowingly participated in the misrepresentation.
In fact, the only inference from the complaint as alleged is that the other members of the
enterprise merely conducted their own affairs, rather than the alleged purpose of the enterprise.
As a result, no RICO enterprise exists. Richmond, 52 F.3d at 646-47 (rejecting RICO claim for a
lack of distinctness where there was no showing that the other members of the enterprise
“conducted the affairs of either of the alleged enterprises (rather than their own affairs)”).
II. PLAINTIFFS CANNOT MAINTAIN A CLAIM FOR CONSPIRACY TO
VIOLATE RICO.
Plaintiffs also allege a claim under 18 U.S.C. § 1962(d) that Bayer conspired with
“physicians and other persons who participated in the YAZ Medical Marketing Enterprise” to
violate RICO. FAC ¶ 176. Plaintiffs‟ claim fails for two independent reasons. First, plaintiffs‟
RICO conspiracy claim cannot stand where it is premised on a deficient underlying RICO claim.
Second, even if the underlying RICO claim were sufficient, plaintiffs make no allegation that
each co-conspirator agreed to violate RICO. Accordingly, plaintiffs‟ RICO conspiracy claim
should be dismissed.
A. Plaintiffs’ RICO Conspiracy Claim Is Entirely Dependent Upon A Viable
Underlying RICO Claim.
Plaintiffs‟ RICO conspiracy claim fails because it is entirely predicated on an nonviable
RICO claim. It is well-established that if the RICO claim underlying a plaintiff‟s conspiracy to
violate RICO claim fails, then the corresponding RICO conspiracy claim cannot stand. See, e.g.,
Midwest Grinding, 976 F.2d at 1026; Otto v. Variable Annuity Life Ins. Co., 814 F.2d 1127, 1137
(7th Cir. 1986). Here, plaintiffs‟ substantive RICO claim is deficient, see supra sections I.A-I.C,
and therefore plaintiffs‟ RICO conspiracy claim must also be dismissed. See Nat’l Council on
Compensation Ins., Inc. v. American Int’l Group, Inc., 2009 WL 466802, at **15-16 (N.D. Ill.
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Feb. 23, 2009) (Gettleman) (dismissing RICO conspiracy claim because underlying RICO claim
deficient).
B. Plaintiffs Failed To Allege An Agreement Between All Co-Conspirators To
Violate RICO.
To allege a viable claim for a conspiracy to violate RICO, plaintiff must allege that (1)
the conspirators "agreed to maintain an interest in or control of an enterprise or to participate in
the affairs of an enterprise through a pattern of racketeering activity"; and (2) each conspirator
agreed “that someone would commit at least two predicate acts” of racketeering activity. Goren
v. New Vision Int’l, Inc., 156 F.3d 721, 732 (7th Cir. 1998). Plaintiffs have not met either
requirement, and thus their RICO conspiracy claim fails.
First, plaintiffs do not allege that any other members of the alleged enterprise knowingly
joined the conspiracy. Instead, they allege only that the “nature of the Bayer‟s co-conspirators‟
acts … gives rise to an inference that they not only agreed to the objective [of violating RICO
but] that they were also aware that their ongoing fraudulent and extortionate acts have been and
are part of an overall pattern of racketeering activity.” FAC ¶ 178. Such legal conclusions are
insufficient to meet the pleading requirements for conspiracy to violate RICO. See Rao v. BP
Prods. North America, Inc., 589 F.3d 389, 400-01 (7th Cir. 2009) (affirming dismissal of RICO
conspiracy claim where plaintiff “only recited generically that the defendants had „conspired to
violate‟” RICO); Goren, 156 F.3d at 733 (affirming dismissal of RICO conspiracy claim based
on “conclusory and vague allegations concerning the collective conduct of the „defendants‟”).
Second, the complaint has no allegation that physician speakers (or any other member of
the Medical Marketing Enterprise) agreed to the commission of two specific predicate acts of
mail or wire fraud relating to YAZ‟s safety or efficacy profile. See FAC ¶¶ 91-98. Discussion
of off-label use of a medication is neither unlawful nor fraudulent, see In re Actimmune, 614 F.
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Supp. 2d at 1051 n.6 (“[O]ff-label marketing is itself not inherently fraudulent”); United States v.
Caronia, 576 F. Supp. 2d 385, 397 (E.D.N.Y. 2008) (Vitaliano) (“Promotion of off-label uses is
not inherently misleading simply because the use is off-label”); Buckman Co. v. Plaintiffs’ Legal
Comm., 531 U.S. 341, 351 n.5 (2001) (off-label use “often is essential to giving patients optimal
medical care”), and thus a physician‟s agreement to speak about off-label use is not a predicate
act of mail or wire fraud. Absent allegations of an agreement to use the mail or wires to defraud
them, plaintiffs fail to allege a conspiracy to violate RICO. See American Automotive
Accessories, Inc. v. Fishman, 175 F.3d 534, 544 (7th Cir. 1999) (affirming dismissal of RICO
conspiracy claim where “there is no evidence to support an inference that [defendant] was aware
of the nature and the scope of [the fraudulent] scheme and agreed to participate in it”).
III. PLAINTIFFS’ COMMON LAW NEGLIGENCE, FRAUD AND
MISREPRESENTATION, AND UNJUST ENRICHMENT CLAIMS ALSO FAIL.
Plaintiffs assert claims under common law theories of negligence, fraud and
misrepresentation, and unjust enrichment. Each such claim fails under Pennsylvania law.5
Negligence. Pennsylvania law requires proximate cause to support a negligence claim.
See Stimmler v. Chestnut Hill Hosp., 981 A.2d 145, 154 (Pa. 2009) (listing elements of a prima
5 A transferee court applies the state law the transferor court would apply. Van Dusen v.
Barrack, 376 U.S. 612, 639 (1964). Because plaintiffs originally filed suit in the Eastern District
of Pennsylvania, see FAC at 1, the transferee court applies the Pennsylvania choice of law rules.
See In re Zyprexa Prods. Liab. Litig., 2009 WL 1514427, *12 (E.D.N.Y. May 29, 2009)
(Weinstein) (applying Pennsylvania‟s choice of law rules). Following a determination of an
actual conflict of laws, Pennsylvania choice of law principles require the Court to apply the law
of the state with the greater governmental interest. Knipe v. SmithKline Beecham, 583 F. Supp.
2d 602, 613-14 (E.D. Pa. 2008) (Buckwalter). Here, even assuming an actual conflict,
Pennsylvania law would apply because plaintiffs are based in Pennsylvania, see FAC ¶¶ 6-7,
plaintiffs provided prescription drug benefits in Pennsylvania, see id., and Bayer‟s alleged
misconduct took place in Pennsylvania, see id. ¶¶ 11, 26. See In re Zyprexa, 2009 WL 514427,
at *12 (determining that Pennsylvania law applied where the plaintiff resided in Pennsylvania,
was prescribed and ingested Zyprexa in Pennsylvania, was diagnosed with diabetes in
Pennsylvania, and the defendant‟s alleged misconduct took place in Pennsylvania).
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facie negligence claim). Here, plaintiffs have failed to allege that Bayer proximately caused their
purported injuries, see supra section I.A.2, and thus plaintiffs‟ negligence claim must fail.6 See
Perry v. American Tobacco Co., Inc., 324 F.3d 845, 850-51 (6th Cir. 2003) (lack of proximate
cause fatal to plaintiffs‟ RICO and negligence claims).
Fraud and misrepresentation. Proximate cause is a required element of a fraud and
misrepresentation claim under Pennsylvania law. See Gibbs v. Ernst, 647 A.2d 882, 889 (Pa.
1994) (listing elements of fraud or misrepresentation claim). Here, plaintiffs‟ failure to properly
allege proximate causation is fatal to their fraud and misrepresentation claim. See supra section
I.A.2; see also Steamfitters, 171 F.3d at 934-35 (no proximate cause relating to third-party
payer‟s fraudulent misrepresentation claim) (applying Pennsylvania law); In re Schering-Plough
Corp., 2009 WL 2043604, at *33 (dismissing third-party payer‟s fraud and negligent
misrepresentation claims for lack of proximate cause).
Unjust enrichment. Plaintiffs‟ unjust enrichment claim fails because it is wholly
derivative of plaintiffs‟ other tort claims. See Steamfitters, 171 F.3d at 936-37 (affirming
dismissal of third-party payer‟s unjust enrichment claim because the underlying tort claims were
insufficiently alleged); Pennsylvania Employees Benefit Trust Fund v. AstraZeneca Pharms. LP,
2009 WL 2231686, at *6 (M.D. Fla. July 20, 2009) (dismissing third-party payer‟s unjust
enrichment claim “once all traditional tort claims had been dismissed on remoteness grounds”)
(applying Pennsylvania law).
CONCLUSION
For these reasons, the Court should dismiss plaintiffs‟ First Amended Complaint.
6 In addition, at least one Pennsylvania court has applied the economic loss doctrine to bar a
third-party payer‟s negligence and fraud and misrepresentation claims against a prescription drug
manufacturer. See Pennsylvania Employees Benefit Trust Fund v. Eli Lilly & Co., Inc., 2008 WL
7259683, at *1 (Pa. Ct. Comm. Pl. May 5, 2008).
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DATED: April 7, 2010 Respectfully submitted,
/s/ Terry Lueckenhoff
Terry Lueckenhoff (MO Bar #27810)
John E. Galvin (IL Bar #55768)
Fox Galvin, LLC
One S. Memorial Drive, 12th Floor
St. Louis, MO 63102
Telephone: 314-588-7000
Facsimile: 314-588-1965
Eugene A. Schoon (IL Bar #6184081)
Catherine Valerio Barrad
SIDLEY AUSTIN LLP
One South Dearborn Street
Chicago, Illinois 60603
Telephone: 312-853-7000
Facsimile: 312-853-7036
Counsel for Defendants Bayer HealthCare
Pharmaceuticals, Inc., Bayer Corporation,
Bayer Healthcare LLC and Bayer Schering
Pharma AG
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CERTIFICATE OF SERVICE
I hereby certify that on April 7, 2010, I electronically filed the foregoing document with
the Clerk of the Court using the CM/ECF system which will send notification of such filing to all
attorneys of record.
/s/ Terry Lueckenhoff
Case 3:09-cv-20071-DRH -PMF Document 36 Filed 04/07/10 Page 22 of 22